What Ails GDP Growth: Demonetization or High Interest Rates?


GDP Growth in India has slowed down to less than 7%, from the recent high level of 8.2% in 2015-16. It is widely believed that the demonetization experiment, announced by Prime Minister Modi on November 8, 2016, is responsible for the slowdown in investment and GDP growth. This chapter provides statistical tests to estimate the determinants of GDP decline – somewhat surprisingly, it is not demonetization, but the ultra-hawkish interest rate policy followed by the RBI, that seems to be responsible for growth slowdown.


author bio

  • Surjit S. Bhalla | Surjit S Bhalla is a Senior India Analyst at Observatory Group, a New York-based macro policy advisory group, and part-time member of the PM’s Economic Advisory Council FULL BIO

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