Demonetisation was a very big mistake and it has had a big negative fallout on the economy, according to Kaushik Basu, former Chief Economic Advisor (CEA) to the Government of India.

There was a flaw in the analysis and the costs involved in the short term for even a growing economy are significant, he said at the Lalit Doshi Memorial Lecture.

Basu, who is currently Professor of Economics at Cornell University, underscored that the reasons given for the huge shock caused to the economy by demonetisation were not good enough owing to the fact that 86 per cent of the currency notes in the economy were taken out of the system.

“The GDP growth, which would have crossed 8 per cent this year, has slowed down to 6.1 per cent and will remain low for a while,” he said.

The Reserve Bank of India, at the behest of the government, sucked out ₹500 and ₹1,000 banknotes between November 8, 2016 and December 30, 2016, in a bid to rein-in corruption, black money, money laundering, terrorism and financing of terrorists as well as counterfeit notes.

These notes were replaced with fresh ₹500 and ₹2,000 notes.