“RBI board should not be politicised”; says Arvind Subramanian at his book-launch

Arvind Subramanian

Former Chief Economic Advisor Arvind Subramanian, at the launch of his book “Of Counsel: The Challenges of the Modi-Jaitley Economy”, addressed the media and called Demonetization a “puzzle”.

He touched almost every thread of the Indian economy during the last 4 years of the Modi reign.

While connecting demonetization with the subsequent GDP numbers, he said, “The puzzle thrown up by the note ban has a dual aspect.” He further explained the “dual aspect” by saying that on one hand, the impact of demonetization on the GDP numbers reflects that India is a resilient economy. But on the other hand, the growth figures pose questions about the official data collection process itself.

In his book published by Penguin, he referred to the chapter “The Two Puzzles of Demonetisation — Political and Economic”. The other “puzzle” he referred to in his book is the divergence in regional economic development in India despite equalizing forces like migration and economic growth, which is a dynamic of the states running against the logic of competitive federalism.

He said, “Through my new book, I am drawing attention to the puzzle, the big puzzle of 86 percent reduction in cash after demonetization, and yet the impact on the economy was much less.”

Indicating towards the paradox which exists during the analysis of demonetization he said, “The puzzles essentially spring from the fact of why the measure was politically successful, and why GDP was affected in such smaller measure… Is it because we’re not measuring GDP correctly, not measuring the informal sector, or is it the underlying resilience in the economy?”

An excerpt from his book says, “In the six quarters before demonetization, growth averaged 8 percent and in the seven quarters after, it averaged about 6.8 percent (with a four-quarter window, the relevant numbers are 8.1 percent before and 6.2 percent after).”

He further emphasized on the intersection of polity and economy, “The key to this would lie in a comprehensive understanding of both the polity and economy of India, about how people vote, for instance.”

Expressing his opinion on the recent controversy which popped up at the release of the GDP back series data with a change of the base year which turned to lower down the country’s economic growth rate during the previous UPA rule, he said, “I think the calculation of GDP is a very technical task and technical experts should do the job…institutions that don’t have technical expertise should not be involved in this.”

He went on to question the credibility of the data and said, “Economists would naturally raise questions when the parameters vary so much and yet growth remains similar. It is not so much about credibility of the data as about the data generating process itself and of the institutions that carry it out.”

When questioned about his participation in the decision-making of demonetization, he said, “As I’ve said in the book, it is not a Kiss and Tell memoir…that is for gossip columnists.”

On the ongoing squabble between the government and the Reserve Bank of India (RBI), he pressed that the autonomy of RBI must be protected because the country will benefit from having strong institutions.

He expressed his apprehension by saying, “I have myself advocated that RBI should play a pro-active role, but its surplus funds should not go towards routine financing of spending and deficit financing — that would amount to raiding the RBI.”

On the fact of the RBI board having a majority of government nominees, he commented “I think that part of maintaining a real autonomy is not to politicize the board. The board should not be politicized. Not only it must not be done, but it also must not be seen to be done either.”


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