Demand-supply shock debate divides economists

Economic activity was disrupted in the past year due to demonetisation and the goods and services tax (GST). But the jury is still out on how the two shocks affected the economy.

Was demonetisation a demand-side shock to the system or were both supply-side shocks? If the latter holds true, is a consumption-oriented fiscal stimulus the appropriate policy response? Questions such as these continue to bother economists.

The November 2016 decision to demonetise Rs 500 and Rs 1,000 notes effectively withdrew 86 per cent of the currency in circulation. This was a demand-side shock to the economy, and dealt a