Stagflationary risk low for India compared to others, says CEA – Times of India


NEW DELHI: Chief economic adviser (CEA) V Anantha Nageswaran on Tuesday ruled out the risk of stagflation for India, saying the economy is better placed than other nations.
Stagflation is the phase when an economy faces moderation in GDP growth as well as high inflation.
“Compared to the experience of many developed and developing countries, India is somewhat better placed and more importantly both central bank and the government are seized of the problem under addressing them. I would at this stage say that stagflationary risks for India are quite low compared to the rest of the world,” he said.
The Indian economy grew at its slowest pace in a year during January-March at 4.1 per cent, pulling down the GDP growth in the full fiscal 2021-22 to 8.7 per cent, official data showed on Tuesday.
On the sequential low growth, Nageswaran said it is because of the Omicron wave that the nation experienced in January.
“Considering the fears and concerns expressed by many, the year-on-year growth rate at 4.1 per cent indicating that the momentum is intact and if you look at April numbers on GST, etc, there is considerable momentum in economic activity…,” he pointed out.
He also ruled out recession hitting India, given its macroeconomic fundamentals.
Stressing that the domestic financial sector is in better shape to support growth, he said as recovery gathers momentum, private sector investment would also pick up.
India is better placed than others to weather the storm and consolidate the growth story that has built in quite nicely over 2021-22, he said, adding comfortable foreign exchange reserves also act as a cushion again external shocks.
Provisional estimate of real GDP in FY2021-22 exceeds the pre-pandemic 2019-20 levels to now establish full economic recovery.
The Indian economy consolidated its recovery in FY’22, with most constituents surpassing pre-pandemic levels of activity. Continued expansion of economic activity is evident in the high-frequency indicators during first two months of Q1 FY23, he added.
Regarding growth, he said the Budget started off with a considerable degree of buffers through the nominal GDP growth assumptions, as well as modest revenue assumptions and tax buoyancy.
It is quite possible that nominal GDP growth turns out to be much higher than the 11 per cent that was budgeted, he said.
“At this stage, because we are barely two months into the financial year, any attempt to estimate where the fiscal deficit would end up would be highly speculative. So there is a very good chance that the final number would end up closer to what we estimated for FY’23,” he said.
Fiscal deficit is expected to be 6.4 per cent of the GDP for the current fiscal. India was able to contain fiscal deficit to 6.7 per cent in FY22 compared to the Budget estimate of 6.9 per cent of the GDP.
With regard to inflation, he said it is elevated at around 7 per cent and about 2 per cent of the 7 per cent inflation rate is coming from imports.
“These inflation pressures will remain elevated because as we speak global crude oil price is heading back towards $120 per barrel in terms of Brent crude oil prices and the talk of the EU oil embargo on Russian oil will also in the short run cause crude oil to jump,” he said.
Besides, he said, there may be possible impact of summer heatwaves on vegetable prices in the coming months.
Retail inflation, as measured by the Consumer Price Index (CPI), surged to a record high of 7.79 per cent in April due to rising fuel and food prices.
On food prices, Nageswaran said the record foodgrains production and buffer stock levels should prevent a major flare up in domestic prices.
He also said the better monsoon expectation would add to rural recovery.
“We expect that rural demand will revive in the coming months on the back of higher agricultural output, expectations of a better monsoon and government support through policies as well,” he said.
Balancing growth, inflation, fiscal and current deficits and the external value of the currency will be the continuing policy focus this financial year, he added.





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