Will Arvind Subramanian ever tell us what he actually feels about demonetisation?

Arvind Subramanian, who will soon leave India after serving as Prime Minister Narendra Modi’s Chief Economic Advisor, is not media shy. One of the hallmarks of his tenure with the government has been an effort to make economics more accessible, by making the Economic Survey easier to read, by regularly writing op-eds and delivering lectures, and by speaking to the media. But, when speaking to the Hindustan Times soon after the news of him leaving the post broke, Subramanian refused to speak about one subject: demonetisation.

“Some experts cite demonetisation as the one big economic mistake the government committed during your tenure. Was it?

That’s something I will let others answer. I would not like to comment on it.”

That reticence may be unusual for Subramanian, but in choosing not to answer a question about Modi’s move in 2016 to replace all high-value rupee notes with new ones the departing chief economic advisor is actually saying a lot.

The context is important here.

1. Biggest policy move

First, demonetisation will likely go down as Modi’s most significant policy move. Although the passage of the Goods and Services Tax is also an important feather in the government’s cap, in the long run that will be seen as the culmination of efforts that began in the mid-2000s, if not before. Demonetisation, especially the manner in which Modi carried it out, has no precedent and was taken unilaterally, without any input from Parliament. Any credit or, more likely, blame for this policy rests entirely on the shoulders of this government. So why would the chief economic advisor choose to be silent about the biggest economic decision made during his tenure?

2. Subramanian not consulted

The answer to that leads us to the second point: the general belief that Subramanian was not consulted about demonetisation, and, if he had been, would not have given it the go-ahead. Subramanian has never really said this out loud, yet he has dropped hints here and there.

In the Economic Survey published immediately after demonetisation, Subramanian seemed to be the first person from within government to acknowledge the problems with the move. He called on the government to replenish cash reserves as quickly as possible and insisted that – following one of the biggest coercive moves in the history of Independent India – the state should not resort to even more controls and coercion. Indeed, at a time when his government and the Bharatiya Janata Party were making bank notes out to be a sign of corruption and all that is wrong with India, Subramanian wrote a clear indictment of demonetisation:

“A few principles must guide this effort going forward. Digitalisation is not a panacea, nor is cash all bad. Public policy must balance benefits and costs of both forms of payments. Second, the transition to digitalisation must be gradual; take full account of the digitally deprived; respect rather than dictate choice; and be inclusive rather than controlled.”

The survey also admits the sledgehammer nature of the move, saying, “if subsidies have been an inefficient way of redistributing toward the poor, demonetisation could be seen as an inefficient way of redistributing away from the rich”.

3. Demonetisation’s failure

A year later, the 2017 Economic Survey pointed to the third factor that might have something to do with Subramanian declining to comment about demonetisation: the fact that it has failed. In general, the Survey revealed how the chief advisor had become pessimistic over his time in government, with his first survey insisting India was in a “sweet spot” to admitting, in the final one, that the country had failed to take advantage because “stuff happens”. Soon after the government admitted that almost all of the cancelled currency notes had returned to the banks, the Survey acknowledged that demonetisation had added only a few taxpayers and was unlikely to raise revenues.

This left digitisation and making India a “less cash” society as one of the few remaining objectives that might be demonetisation’s saving grace. Except that those too have fallen apart, with data now showing that the ratio of currency in circulation is broadly back to pre-demonetisation levels. If it had been an unequivocal, or even a partial success, the chief economic advisor might be speaking much more about it.

4. Political success

Instead, his one big takeaway from the move seems to have been political rather than economic. In a talk he gave in 2017, he compared the popular support for demonetisation despite the huge pain and disruption it caused, to the question of What’s Wrong With Kansas, the title of a book that examines why Americans vote for those who are depriving them of things rather than acting in the public interest.

“I think it’s What’s Wrong with Kansas blown up,” Subramanian said. “Because… if you think there was a cost, why is it that the popular reaction to this [demonetisation] has been so overwhelming? It’s certainly humbled me in terms of my understanding of Indian politics and even Indian economics to a certain extent.”

That might in fact be the bigger take away for everyone from the note ban. An economic failure that was somehow a political success, at least in the short term. For now, Subramanian is not saying any more on the topic. But like Raghuram Rajan before him, it is unlikely the economist will stay mum forever, though there is a good chance that the condition of the economy and maybe even the political situation will deliver a verdict about demonetisation before Subramanian decides to be more candid about it.