By Ravi Dutta Mishra
New Delhi, Dec 12 (IANS) After a consistent fall in GDP growth, more bad news seems to be heading India’s way with the economy perilously close to stagflation, a potentially worrying scenario of simultaneously soaring inflation and lower growth.
On Thursday, the official data showed that retail inflation has soared to 5.54 per cent in November, a steep rise of 92 basis point from the inflation number of the previous month. What the inflation number has done is that it has pushed the RBI repo rate below inflation for the first time since January 2014, clearly putting the economy on path of stagflation.
While most economists agree that a sharp rise in consumer inflation reported on Thursday along with weak GDP growth rate and multi-decade high unemployment numbers is a toxic mix for the economy, a section of them believes a ‘stagflation’ is looming.
A spike in retail inflation has also elicited an opinion that the RBI has now little to no room for a rate cut to boost economic activity. A N.R Bhanumurthy, Professor, National Institute of Public Finance and Policy told IANS : “There appears to be a textbook case of stagflation…” but the current rise is chiefly owing to rise in food prices.
Stagflation — a combination of slow economic growth with rising inflation — was cautioned by former Prime Minister and economist Manmohan Singh who has said that India must watch out for increased risks of such an event occurring.
Former Chief Statistician, Pronab Sen, however, said that: “The recent rise in CPI figures is a short-term trend and I would not say it stagflation yet.”
Sen highlighted the fact that the core prices are still going down. “If you take away agriculture, it looks a deflation.. I would be concerned if the rising prices begin to spill over other sectors.”
Sen said RBI should have gone for a rate cut in the last meet. D.K Joshi, Chief Economist, Crisil told IANS that the CPI numbers were not entirely unexpected. “If you go to market, you will realise that the vegetable prices are indeed very high…that is the chief reason for the spike in inflation.”
Joshi said a rate cut is not off the table as the demand in the economy is still weak.
“We have to wait and watch … if the demand doesn’t pick, the inflation shock from food prices alone does not get generalise…it will remain isolated. So I won’t say a rate cut is off the table as the economy is still not out of the woods,” he added.
Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services, also told IANS that with current CPI figures, the RBI will have no room for a rate cut.
(Ravi Dutta Mishra can be contacted at [email protected])
–IANS
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