Economy News

STAGFLATION

Written by Talent KAS

Related Topic in KAS Prelims Syllabus:

Economy [Paper-II]: Indian economy in post reform period

Context

  • According to the National Statistical Office (NSO), the Consumer Food Price Index increased from 5.11% in September 2019 to 7.89% in October 2019.
  • In October and November 2019, retail inflation has soared. The October inflation was a 16-month high and the November inflation, at 5.54%, is at a three-year high.
  • The recent NSO estimates of gross domestic product (GDP) for the second quarter of 2019-20 reported a reduction in the growth rate of GDP to 4.5%, the lowest since 2012-13.
  • With fast decelerating economic growth and sharply rising inflation, there is a growing murmur about India facing stagflation.

What is Stagflation?

  • A combination of simultaneously rising inflation and unemployment is called stagflation.
  • With stalled economic growth, unemployment tends to rise and existing incomes do not rise fast enough and yet, people have to contend with rising inflation.
  • Thus, people find themselves pressurised from both sides as their purchasing power is reduced.

Is India facing Stagflation?

  • Although it appears so at the first glance, India is not yet facing stagflation.
  • It is a fact that India is not growing as fast as it has in the past. But, India is still growing at 4.5% and is expected to grow faster in the coming years.
  • India’s growth hasn’t yet stalled and declined. It means that GDP of India has grown in absolute number, not declined.
  • Retail inflation has been quite high in the past few months, yet the reason for this spike is temporary because it has been caused by a spurt in agricultural commodities after some unseasonal rains.
  • With better food management, food inflation is expected to come down.
  • The core inflation – that is inflation without taking into account food and fuel – is still benign (low and consistent).
[Source: Indian Express]

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