Is The Indian Economy Heading For Stagflation?

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Is The Indian Economy Heading For Stagflation?
Rajat Mishra - 19 January 2020

New Delhi, January 19: Exactly two weeks from now finance minister Nirmala Sitharaman will be presenting the union budget on February 1. which is going to be really a daunting task seeing the current state of the economy. Before this the recently released retail inflation, which rose sharply to 7.35 per cent, one of the worst since July 2014. The GDP number, which sharply declined to 4.5 per cent in the second quarter of the financial year 20, which is the lowest in last six years. Even if we go by the government’s own projected GDP number for FY 20, which is at 5 per cent is also one of the lowest in the last 11 years. And then we have unemployment data, which is at 6.1 per cent, a four-decade-high.

In the backdrop of this data soup, one thing that we need to carefully examine a comment made by former prime minister Manmohan Singh who warned the government in November 2019 that Indian economy is entering into a stage of stagflation which constituted plummeting growth rate, rising inflation and rising unemployment. But having a quick glance over the aforementioned data, quickly we will say that yes situation seems exactly the same quoted by Singh. But a real question here is, are we really entering in a stage of stagflation?

The answer varies from person to person. But to get an answer about this question we need to delve a little deeper before we make a wrong opinion. Many economists and experts are of this opinion that actually the substantial jump in retail inflation in December to 7.35 per cent majorly driven by the food inflation, which inched up to 14.2 per cent. And even in the category of food inflation, the major culprit was onion whose, prices have risen by almost 400 per cent since March 2019. Even if we will look at core inflation that has remained below 4 per cent in the last four months. Thus we can call this inflation as benign inflation as it is expected to come down.

According to experts stagflation occurs when a price of commodities rise all across the board. Right now the situation is little different. As the prices of onion have pushed the inflation to a 6-year high. With the passage of time, the prices of onions are likely to come down. And many experts said that stagflation is a situation when prices across the board rise consistently for 4-5 quarters, which is not the case in India.

Thus saying that India is in stagflation or going to enter into stagflation is not true at all.

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