Nobel Prize Winning economist, Paul Krugman observed that demoentisation may not bring long term benefits. People will invent new methods of black income holding and hence India as a developing country is difficult to get much progress on black money fight. According to him the long-term benefits of demonetization is difficult to occur.
“I understand the motivation, but it is a highly disruptive way to do it. I hardly see significant long-run gains, but there certainly are significant, although temporary, costs,” – Krugman told the meeting.
At the same time, the country could face significant short run costs according to the Professor at Graduate Center of the City University of New York. He described that demonetization as an ‘unusual move’.
Krugman was speaking at at the 14th HT Leadership Summit. He acknowledged that there is a good case to be made for not having high-value currency notes.
The reason for difficult outcome from demonetization according to him is bit more practical. After a year, things would return to being the same with people finding other ways of accumulated wealth.
“There could be some permanent change in behavior. People will be more careful and sophisticated in laundering their money in the future”- he added.