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Demonetisation Blues : Hit Growth Target By 2 Percentage Points, Points Out Gita Gopinath In A Paper

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According to a research paper co-authored by eminent economist Gita Gopinath , the Prime Minister Narendra Modi government’s note ban decision shaved off economic growth by at least 2 percentage points for the October-December quarter of 2016 in which the demonetisation move was effected.

The latest revelation could once again give fodder to the opposition particularly the Congress which has lashed out at the demonetisation move. Congress president Rahul Gandhi has flayed the demonetisation move often.

India-born Harvard professor Gopinath, 46, is set to take charge as the chief economist at the International Monetary Fund (IMF) next month.

The paper further said that districts experiencing more severe demonetisation had relative reductions in economic activity, faster adoption of alternative payment technologies and lower bank credit growth.

“Our results imply demonetisation lowered the growth rate of economic activity by at least 2 percentage points in the quarter of demonetisation,” said the research paper titled ‘Cash And The Economy: Evidence From India’s Demonetisation’.

The paper is published by US-based National Bureau of Economic Research (NBER) and its co-authors include economist Prachi Mishra, who had headed the strategic research unit at the RBI, Abhinav Narayanan, manager-research at RBI, and Harvard professor Gabriel Chodorow-Reich is the lead author.

According to the paper, note ban also led to a decline in nightlights-based economic activity and a 3 percentage points or more drop in employment generation in November and December of 2016 relative to the counterfactual path.

“The cross-sectional responses cumulate to a contraction in employment and nightlights-based output due to demonetisation of 2 percentage points and of bank credit of 2 percentage points in 2016 Q4 (calendar year) relative to their counterfactual paths, effects which dissipate over the next few months,” the paper said.

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