Opinion | The great disruption of 2016

India’s overnight ban on high-value currency notes in 2016 was a shock alright. Just how big, however, has been a matter of dispute. According to a study published recently by the US National Bureau of Economic Research, demonetization reduced jobs by up to three percentage points and hurt economic activity by a similar magnitude in the first two months after it took effect on 8 November that year. Research has also found that the exercise—aimed at spiking black money, curbing corruption and depriving terrorists of funds—led to a two-percentage point decline in bank lending in that period.

The research paper, authored by such scholars as the International Monetary Fund’s Chief Economist Gita Gopinath and Reserve Bank of India’s Abhinav Narayanan, examines the impact of demonetization across the country at the district level to make national-effect estimates. The paper concludes that figures put out earlier had underestimated the economic impact of the move.

From an academic point of view, the paper’s attention to detail, especially its reliance on data for various parameters on the ground, offers us the reassurance that this study is reasonably comprehensive. The research method employed also reveals that the note ban’s shock was felt unevenly across the country, with some regions hit harder than others because they had a higher proportion of high-value notes in circulation. The study’s period of analysis is rather short, though, and has not captured the secondary effects of the ban are arguably still being felt. As many observers have noted, late 2016 disrupted a recovery of

India’s economy and sent it into a prolonged slump from which it is yet to emerge.