Full remonetisation of economy in 1-2 months: Arvind Subramanian

“It’s fair to say there have been short-term costs to demonetisation that were significant, especially in the informal sector. But the effect is temporary. As remonetisation happens, the economy will be back on track,” Subramanian said.

“In a month or two, we should be close to full remonetisation of the economy. There should be a quick remonetisation and the earlier the limits on cash withdrawals are withdrawn, the better. There should be fast remonetisation. Earlier we withdraw the limits on cash the better,” he said at a press conference.

Subramanian also said demonetisation has encouraged transition to digitisation, though it should be based on incentives and not forced upon people. “I think the transition must be gradual and inclusive because a lot of people are not digitally connected. I am for doing it through incentives and not by force. Digitisation has lots of benefits but can have costs because the poor don’t have access to technology,” he said.

On the November 8 demonetisation, the Chief Economic Adviser said “it was a very unusual experiment in monetary history. We should be cautious about assessing its impact. Demonetisation has affected different forms of money very differently.”  Demonetisation has led to reduced cash and increased supply of deposits simultaneously. Consequently, the lending rate has come down by 90 basic points, he added.

In the short run, if the world economy picks up, consumption catches up as remonetisation happens and exports increase, the pick-up in economy will be faster. The currency cash squeeze was less severe compared with common perception because the macro-economic indicators have been mixed.  While sowing of rabi crop is way better than last year and there is no blip in direct and indirect tax collections after November 8, there is a dip in real estate sector and banks credit has dropped. 

“The overall picture is mixed. Any uncertainty from demonetisation needs to be addressed. But it holds the potential for long-term benefits. It would require follow-up actions to minimise the costs and maximise the benefits,” he said.

BLURB: Demonetisation was a very unusual experiment in monetary history. We should be cautious about assessing its impact. Demonetisation has affected different forms of money very differently.