Stagflation

Our growth has been declining nine quarters in a row and recent headline inflation is north of 7.5% in May. Though rupee depreciation has been playing a role in WPI inflation, it is a concern, nonetheless. Two of the text book criteria for stagflation are met and we have no recent reliable statistics on unemployment. 

The fact is that the scary 'S' word is doing its rounds in the recent times. Global financial services firm, Moody's, has also recently stated that the Indian economy is facing stagflation. According to a senior economist of Moody's analytics, India's economy is in stagflation with notably weaker growth but inflation still stubbornly high.  

Given the concerns of inflation, RBI has put rate-decision on hold and continued status quo in its meeting on Monday. While there is a lot of criticism on RBI's decision (or lack of it) to not cut the interest rate or provide a lift to the sagging economy, I don't think reduction in interest rate alone will give a thrust to growth. The blame-game continues (as opposed to claims) but there has to be concerted effort between RBI and government as suggested by the RBI governor.

Creating an environment that is investor-friendly is the need of the hour. It goes without saying that investment will push up growth and employment; policy log-jam over key factors of production and a lack of infrastructure spend have been the major party poopers of investment climate. 

It is not too late to thwart stagflation or rising fears of economic downturn. If we are done playing political games, could we start focusing on the country and its people please?

Kamala Aithal is the founder of a consulting firm that assists corporates develop Risk Management Framework and a regular contributor to Wisonomics column. The views and opinions expressed in this article are those of the author and does not reflect the views or position of IndiaNewsBulletin.com.