The inability of the economy to generate employment opportunities for millions of Indians is developing into a serious social, economic and political issue.
Solutions involve either an immediate fiscal or monetary stabilisation policy, or pushing through further supply-side structural reforms.
Fiscal policy is a potent instrument that must be used to alleviate the unemployment crisis, but first, supply-side constraints need to be systematically united.
There is a desperate need to break the orthodox, widespread belief that all deficits and debt are equally undesirable.
Given the imperious attitude of new leaders to institutions of the old order, the questioning of central bank independence is a given.
The first phase of Modi’s demonetisation exercise, until December 30, 2016, could be viewed as a “sunk cost”, after which the old notes be remonetised.
About 250 years ago, Bengal suffered a debilitating famine under colonial rule, partially brought on by changes in the colonial currency system.
Demonetisation could have a contractionary and deflationary effect if the government does not increase spending to compensate for extinguished currency.