Economics at its heart is a fairly simple subject, unless you get emotionally involved with all the math that comes with it these days, or work for the government as an economist or otherwise.  

Here is an example. Imagine a country where cash is used for 98 per cent of economic transactions. Digital modes of payments are in their infancy but already growing at a very fast pace. One fine day, the leader of the country decides that he wants to demonetise ₹500 and ₹1,000 notes and introduce new notes of ₹500 and ₹2,000, in order to tackle black money. In one move, 86 per cent of the country’s currency has been made useless overnight. Over and above this, the citizens are supposed to queue up at banks and deposit the demonetised notes into their bank.

There is also a limit to the new notes that can be withdrawn. In fact, in the initial days, only ₹2,000 notes can be withdrawn, because that’s what the government, in consultation with the central bank, has printed and kept ready for the citizens. The trouble is no one has change for ₹2,000 notes.

What will happen in this case?

One doesn’t need a PhD from a fancy Ivy League university, or Oxford or Cambridge for that matter, to know the answer to this question. If 86 per cent of the currency in circulation in an economy is made useless overnight, economic transactions will collapse, economic activity will collapse and people will suffer. This is precisely what happened in India in November 2016 and the months that followed. Citizens queued up at banks, first to deposit money. They queued up at banks and ATMs again to withdraw money. Marriages were postponed. Operations did not happen. Small-scale industries were shut down. Agricultural trade was paralysed, from which it is still recovering. People died.

But economists working for the government did not say a word. This included Arvind Subramanian, who at that point of time was the chief economic adviser to the Ministry of Finance. He quit earlier this year to be with his family in the US.

But comments going around over the last few days show that the US-based Subramanian has finally found the courage to say what he should have said more than two years and 20 days ago, when he was a part of the government. In his new book Of Counsel: The Challenges of the Modi-Jaitley Economy, Subramanian writes, “Demonetisation was a massive, draconian, monetary shock: In one fell swoop, 86 per cent of the currency in circulation was withdrawn. The real GDP growth was affected by the demonetisation. Growth had been slowing even before, but after demonetisation, the slide accelerated.”

The irony is that Subramanian had various occasions on which he could have analysed demonetisation and said the right thing. In the Economic Survey of 2016-2017, Subramanian said: “What we can definitely say is that there have been short-term costs but there are also potential long-term benefits which we discuss in detail.”

In fact, Subramanian even tried to spin things by writing: “Across the globe there is a link between cash and nefarious activities: the higher the amount of cash in circulation, the greater the amount of corruption, as measured by Transparency International … In this sense, attempts to reduce the cash in an economy could have important long-term benefits in terms of reducing levels of corruption.”

The idea that less cash means less corruption is basically wrong. Let’s look at some data to understand this very important point. Let’s take the case of Nigeria, which had a currency to GDP ratio of 1.85 per cent in 2016. It is by far a more corrupt country than India though it has significantly less cash than India does, given its economic size. Or take the case of Brazil which had a currency to GDP ratio of 3.31 per cent in 2016. It’s a country more or less as corrupt as India. Or take the cases of Singapore, the Eurozone, Taiwan, Switzerland and Japan, with a currency to GDP ratio of 10.36 per cent, 10.49 per cent, 10.54 per cent, 11.11 per cent and 19.4 per cent, respectively. Each of these areas or countries had a currency to GDP ratio higher than that of India in 2016. But none of these areas or countries is as corrupt as India is. This notion that a higher currency in circulation leads to more corruption and black money is misleading. Global data shows that to us, very clearly.

Subramanian also tried to tell us that the government would benefit because of all the demonetised money that won’t come back into the bank. As he wrote in the Economic Survey of 2016-2017, published in early 2017: “The government windfall arising from unreturned notes should be deployed toward capital-type expenditures rather than current ones.” This was written despite the fact that by the end of November 2016, it was more or less clear that almost all the money would come back into the banks. Ultimately, more than 99 per cent of the demonetised notes came back into banks.

The question is: why did Subramanian try to build a false narrative? Not only did he wrongly defend demonetisation, but he also tried to mislead the nation. What makes all this even more ironical is the fact that sometime last year in a lecture, he had said: “My claim is that experts often hold back their objective assessment. Instead, they censor themselves, and in public fora are insufficiently critical and independent of officialdom, whether the officials are in Mumbai or Delhi. To the extent they offer criticism, it is watered down to the point of being unidentifiable as criticism.”

Of course, he chose not to follow this advice himself when it came to demonetisation. But now, two years after demonetisation and a few months after leaving his government job, he has suddenly found his voice and is doing the things he had been advocating.

Why? A book has been written and it needs to be sold. And in this era of Twitter, Facebook and Instagram, how do you create buzz around a book which deals with a subject as boring as the economy of Modi and Jaitley? You say controversial things, which newspapers put on their front page, websites push it on their social media accounts and in the process, the book ends up being marketed for free. Despite being late in the day, the fact that Arvind Subramanian has gone rogue still makes for a good story.

How Subramanian feels about the entire thing is difficult to say. But his publisher, Penguin-Random House, has a winner on its hands, once the book releases later this week on December 5, 2018. And his commissioning editor should expect a big bonus this year.

At least, somebody has benefitted out of demonetisation.