Ex-CEA’s book says demonetisation draconian, talks of note ban’s twin puzzles

NEW DELHI: Former chief economic adviser Arvind Subramanian has described demonetisation as “draconian” in his book, ‘Of Counsel’. The sharp negative adjective stands in stark contrast to what he had said when he was CEA. “Demonetisation has been a radical, unprecedented step with short-term costs and longterm benefits. The liquidity squeeze was less severe than suggested by the headlines,” he had said in the 2016-17 Economic Survey.

Subramanian was CEA between October 2014 and June this year. Having called Narendra Modi’s decision draconian, the former CEA goes on to analyse what he calls the “twin puzzles” about demonetisation: first, why it won political and electoral dividends, at least in the short term, for the BJP, and why the economic cost of taking out about 86%, by value, of currency wasn’t as large as one would expect.

Subramanian discusses the twin puzzles in detail, trying to understand why poor voters voted BJP despite costs imposed on them by the policy as well as speculating on reasons that might have prevented a steeper fall in economic activity.


He appears to be on the Modi government’s side when he talks about whether RBI should part with some of its capital reserves. His answer is yes.

In a section titled ‘Government’s Capital in RBI: Prudence or Paranoia?’, Subramanian starts by saying RBI should be “held accountable for the swelling size of its capital base” — pretty much the argument the government has been making. The ex-CEA appears to be on the same page as his former colleagues in the finance ministry when he posits that RBI is holding “excess capital of Rs 4.5-7 lakh crore”.