I am also not convinced by Pronab Sen’s argument regarding lack of evidence for moral hazard. He didn’t cite any paper. The widely cited paper on this subject does say that there is evidence of moral hazard
“we document that borrowers in high-bailout districts start defaulting in large numbers after the program (borrower moral hazard). Because this occurs after all non-performing loans in these districts had been written off as a result of the bailout, this is strongly indicative of strategic default and moral hazard generated by the bailout.”
In 2008, one year ahead of national elections and against the backdrop of the 2008-2009 global financial crisis, the…blogs.worldbank.org
My point is similar to Pronab Sen’s and Harish Damodran’s — informal sector and agriculture are thrown into crisis due to demonetisation; this is a price we have to pay for the wrongs done. Not doing so is both morally and economically wrong. In fact, I would like states demanding central government to bear the burden because this crisis is because of central government’s decision and states had no role in it.