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Would not suggest demonetisation to any country: New IMF chief economist Gita Gopinath

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In earlier interviews, Gita Gopinath also criticised the RBI for its communication strategy during demonetisation but called GST a ‘real reform’.

New Delhi: The newly-appointed chief economist of the International Monetary Fund, Gita Gopinath, was a vocal critic of the Narendra Modi government’s demonetisation move, but called the Goods and Services Tax a ‘real reform’.

In a Walk the Talk conversation last year with ThePrint Editor-in-Chief Shekhar Gupta, Gopinath said no macro-economist would recommend this prescription (demonetisation) for any developing or advanced economy.

The Modi government’s demonetisation drive shook the Indian economy on 8 November 2016 by sucking out 86 per cent of the cash in circulation overnight.

Also read: Gita Gopinath promises to bring dynamic new thinking to IMF


In Walk the Talk, the 46-year-old economist called the drive unprecedented. “Not only unprecedented in terms of practice, it is also unprecedented in terms of theory. Because pretty much every single macro-economist colleague of mine, whom I have spoken to, would say that this is something that we probably do not recommend to any developing country,” said Gopinath.

“Even in an advanced economy, you wouldn’t do that,” said the John Zwaanstra professor of International Studies and Economics at Harvard University.

However, Gopinath added that India could move towards a less-cash economy, leaving more money in the banks, as a positive impact of the demonetisation drive.

“So, for demonetisation, I think the biggest plus has been the shift away from a cash-driven economy to a cashless economy. Maybe more parts of the informal economy become formal, but everything we know on this transition process is that it’s a slow one. So I don’t expect anything to happen very quickly,” Gopinath said.

Referring to the argument that more cash meant more corruption, Gopinath said Japan had the highest cash per capita, way more than India.

“The cash in circulation, relative to the gross domestic product (GDP) for India was 10 per cent, whereas in Japan it is 60 per cent. That is not black money, that is not corruption,” she noted in an interview to news daily Business Standard.

In the same interview, Gopinath underlined the implementation of the Goods and Services Tax (GST) as a favourable move and termed it a “real reform”. She said GST was a way of formalising the economy and ensuring tax compliance.

The time that was used to manage the aftermath of demonetisation should have been effectively used to roll out GST smoothly, she added.


Gopinath also criticised India’s central bank for its communication strategy during demonetisation.

“I think a few things that could have been done better would have been the communication from the RBI (Reserve Bank of India), even in real time, about how they expect things to play out, where things stand. So, there could have been a more regular communication with the public than has happened,” she said in Walk the Talk.

“There could have been more transparency in terms of how they thought this particular policy would affect the economy.”

Even as many raised questions on the role of RBI in the demonetisation drive, Gopinath said its governor Urjit Patel was “terrific” and his appointment made her happy.
However, the economist added that demonetisation could eventually benefit the Indian economy, six months or a year ahead.

Lack of authenticity of data

In the interview to Business Standard, Gopinath said India needed to focus on data and its collation as gathering credible data is a tall task in the country.

Also readData shows demonetisation had few hits but many misses

“What needs to be done generally for policy in India is just better data. It’s not great when everybody, everywhere, seems to be suspicious of the GDP numbers,” Gopinath said.

She further pointed out that investment remained weak in India and this trend existed even prior to demonetisation.

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  1. Gotta love the comments here. Not a single rebuttal of Ms. Gita’s rational points, just opinions. Btw, in case your guys didn’t notice the paper was co-author by Manager-research at freaking RBI. I’m pretty sure the guy knows about economic data more than you and I. India’s ex-PM Dr. Singh gave similar figures. It doesn’t matter who’s PM what bothers me the most is how low have we gotten when it comes to logic and reasoning. We are littered with pieces of evidence on how Modi tried to sell DeMo and every single one of those claims have been debunked by Govts. own data. Such was the embarrassment that it pulled down data from its own website.

    India’s very own FM has said it on the floor of India’s parliament even GOI didn’t commission any study on the impact of DeMo. So, when the entity behind it doesn’t know what the impact was and doesn’t seem interested to know should we simply accept it based on what the PM of the country keeps saying? A society falls when it stops questioning its leadership, it falls to disgrace when it starts to sing praises of the emperor without using their own brain.

  2. Gita is preaching bhagvad gita. The ledger if indian currency had been a one side entry with nobody knowing where the cash was. In a bold move which gita and her armchair colleagues will not even dream about modi embarked on a exercise watched in awe by the entire world. Was he a fool not to realise that it will not bring political dividend but stayed the course to steady the ship. Economists do not understand the animal spirit of markets. They are always wiser after the event. They are chickens when it comes to implementation.They always want to play safe which never works in the real world.Gita should open a kirana shop to understand market dynamics. All the hooplah talk about macro micro mini has no relevance unless events are predicted in advance. Else it is all a requeim and RIP.

  3. No economist can give a linkage of black money to currency in circulation. I’ll-gotten wealth invested in this form is minimal and can not be quantified. If anyone says he has a formula for this be sure that he is bragging. Black money creation has to
    nipped at the source. For example the Government when awarding a contract knows how much profit/commission he can make on this job. They can have a check on his performance and asset creation periodically. There must be fear of punishment for malfeasance. Agriculturists having more land say above 10 acres must be taxed on the minimum produce expected in that region in a particular year. GST must be at 5 or 7 percent for all goods including petrol. High taxes only encourage creation of black money by the Kautilyas and punishes the straightforward people.

  4. Ask her if it’s okay to keep states begging for funds and central government stealing in the name of GST

  5. I beg to disagree. I can cite more than a dozen reasons why the demonetization was good and much needed. The advice by the macro-economists need to mesh up with the politics which is spread out in the streets and villages. The huge gap between the laboratory of advice and its playing arena needs to be plugged.

  6. The title of the article conveys negative comments whereas when one read the article, the newly appointed IMF chief economist has said both good and negative and finally balanced her views, like any professional economist. If PM and FM of the country were to seek her advice, it would therefore be neither here nor there. PM has taken a political decision which has many facets and some of them are certainly not beneficial in the short term, at least. But people at large supported him, despite whatever inconvenience caused. DeMo has been a regime change event for India and since all the currency returned to the bank in some accounts, we start on a clean slate now onwards. Many years hence, we shall remember this as a strategic and visionary decision, despite not being in the books of economic theory. Let economists do their research and give advisories; a layman should judge such decisions in a broader context, keeping in mind that no decision can be completely right or wrong.

  7. The IMF is famous for imposing “ harsh conditionalities “ while providing bailouts, one recently to Argentina, possibly another one to Pakistan. Quite certain that while Dr Gita Gopinath serves as its Chief Economist, the first commandment will be : Thou shalt not demonetise thy currency.

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