After Amartya Sen, another Nobel laureate says there won’t be significant change from demonetisation
Nobel laureate and American economist Dr Paul Krugman commenting on Prime Minister Narendra Modi’s decision to demonetisation high-value notes said that he doesn’t see a highly significant change from the decision.
Krugman, in conversation with Niranjan Rajadhyaksha, executive editor, Mint, at Hindustan Times Leadership Summit, branded demonetisation decision as an “unusual policy” and said that it is a highly disruptive way to achieve the motivation behind it. He is the second Nobel Economics laureate to criticise the Narendra Modi government’s decision to demonetise Rs 1000 and Rs 500 notes after Amartya Sen.
The 63-year-old economist said there was a good case to be made that high denomination banknotes didn’t serve a legitimate purpose. “But that did not happen here. High-value notes are not being eliminated. This seems like a one-off attempt to flush out illicit cash.”
When asked whether the decision like demonetisation would transform people’s behaviour, he said, “I would be happy to be proven wrong. There could be some permanent change in behaviour. People will be more careful and sophisticated in laundering their money in the future”.
He emphasised that he saw India as a high prospect economy, but said that Indian economy, to him, looked like “China with a 15-20-year-old lag”. “It has reserves of entrepreneurial rigour, reserves of educated people, wide use of English, and unlike China, it has not hit the demographic wall. It has a lot of potential,” Krugman said.
He argued that countries such as China and India would now have to help “hold the international system” created after the Second World War, given the political and economic churning in the US and Europe. “The US is neither big enough nor emotionally inclined enough to be the benevolent hegemon anymore. There is almost a competition between US and Europe on who can go off the rails first. Now big developing countries will have to hold the system. No more free-riding on US hegemony,” Krugman added.
Commenting on Donald Trump’s election as the US President, Krugman said he did not anticipate a macroeconomic crisis in the US, “In the next few years, US would not be a drag on the world economy, but China may.”