33.4 C
Delhi
Monday, September 21, 2020

Clear & Present Danger: Economy facing rising risk of stagflation

- Advertisement -

US development bank makes massive investment in Indian firmsBy Rohit Vaid, (IANS) India’s economy which is already reeling under immense turbulence unleashed by the Covid-19 pandemic, now faces an ever increasing risk of stagflation, experts opined.

The economic trend of stagflation is marked by rising inflation and falling GDP growth.

“In our opinion, the risks of stagflation which is a painful phase of low or negative growth and high inflation have visibly increased for the Indian economy,” Suman Chowdhury, Chief Analytical Officer at Acuite Ratings and Research, told IANS.

“Unless food inflation is controlled in the short term, such an environment may set in where monetary and fiscal policies may not easily be effective, aggravating the challenge for the policy makers.”

Experts have blamed intermittent local lockdowns and higher money supply for the flare-up in inflationary pressures.

“Current set of data showing high retail inflation and a contraction in growth. This is akin to the phenomenon of stagflation. However, the current situation has emerged due to the impact of pandemic and is more cyclical in nature,” Sunil Kumar Sinha, Principal Economist, India Ratings & Research, told IANS.

“Nevertheless, if these data trends continue in the medium term then the economy runs the risk of entering into stagflation.”

The local lockdowns have especially been cited as a key factor for the supply side disruptions, particularly for perishable agricultural products which have massively contributed to the rise in inflation of certain food items.

Consequently, the rise in retail inflation in the short term led the RBI’s MPC to hold the interest rates in August and has diminished the likelihood of any further rate cut in the near term.

“At present, supply disruptions caused by localised lockdowns and intermittent heavy rainfall, as well as taxation changes and modifications necessitated by social distancing, are outweighing faltering demand, which is raising the unpalatable likelihood of a stagflation-like scenario arising,” said Aditi Nayar, Principal Economist, ICRA.

“In our assessment, the CPI inflation will remain above 6 per cent in August 2020, and continue to exceed 4 per cent in September-October 2020. However, we expect inflation to drop rapidly between September-December 2020, keeping alive the possibility of a final cut in the MPC’s February 2021 meeting.”

According to Madhavi Arora, Lead Economist, FX and Rates for Edelweiss Securities: “Amid consistent supply shocks, we now see inflation hovering above 6 per cent in the near term, and averaging over 5.5 per cent in FY21.”

“Headline CPI inflation will likely be below 4 per cent by year-end with rebalancing of effective demand-supply dynamics, sharply widening output gap and favourable base effect. We maintain further scope for upto 50 bps cut in the current cycle, but with MPC’s desire for statistical reflection of durably low inflation, near term cuts may be ruled out. Irrespective of the policy stance, RBI’s yield curve management in the form of outright OMOs and operation twist will continue.”

However, M. Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said: “What we see now is a recession combined with inflation. The decline in the GDP in two successive quarters is called recession.”

“Liquidity is not the reason for the recession. The economy was decelerating even before the crisis but after the pandemic struck, there is a decline in GDP or contraction in the economy. This is mainly due to the lockdown which has caused both the demand and supply to contract. Liquidity injection is to ensure that the businesses have adequate working capital when the capacity utilisation increases as the lockdown is relaxed.”

The central bank’s target for retail inflation is set within a band of +/-2 per cent.

Recently, official data showed that a substantial rise in food prices lifted India’s July retail inflation to 6.93 per cent from 6.23 per cent in June.

On August 6, the Reserve Bank’s MPC had voted to retain the key short term lending rates, but maintained the growth-oriented accommodative stance.

The MPC of the central bank maintained the repo rate — or short term lending rate for commercial banks, at 4 per cent.

Likewise, the reverse repo rate stands unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the ‘Bank Rate’ at 4.25 per cent.

–IANS

India Updates
India Updates is an independent news & Information website. Follow us for regular updates on News and Information.

Follow Us On

Related News

LS passes Bill making Aadhaar mandatory for NGOs to receive foreign funds

New Sep 21 (IANS) The Lok Sabha on Monday unanimously passed a Bill making Aadhaar mandatory for registration of organisations receiving foreign funds and...

India turns net steel exporter to China for first time in years

New Delhi, Sep 21 (IANS) Even as various restrictions are being looked by government agencies to curb Chinese imports, the neighbouring country has provided...

ASUS enters commercial PC market in India with 11 products

Mumbai, Sep 21 (IANS) ASUS India, the Indian arm of Taiwanese IT major, on Monday forayed into the commercial PC market in India with...

Digital media uncontrolled, courts should make rules for it first: Centre to SC

New Delhi, Sep 21 (IANS) In the Sudarshan News controversy, the Centre has reiterated that there is no need for the Supreme Court to...

Extremely concerned about balancing dignity, free speech: SC on Sudarshan News issue

New Delhi, Sep 21 (IANS) The Supreme Court on Monday said that it is extremely concerned about the balance of the right to dignity...

Negativity not in Bollywood, exists only on TV channels: Anubhav Sinha

By Justin Rao, Mumbai, Sep 21 (PTI) Anubhav Sinha says the negative perception about the Hindi film industry has been manufactured on TV news...

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Trending Topics In India

Covid 19 India Updates

COVID-19 recovery rate in India crosses 80 per cent mark

New Delhi, Sep 21 (PTI) India''s recovery rate of COVID-19 cases has crossed the 80 per cent mark with over 90,000 recoveries recorded for...

COVID-19 recovery rate in India crosses 80 per cent mark

New Delhi, Sep 21 (PTI) India''s recovery rate of COVID-19 cases has crossed the 80 per cent mark with over 90,000 recoveries recorded for...

More than 78% people used connections to get Covid ICU bed: Survey

New Delhi, Sep 21 (IANS) Only four per cent patients were able to get a Covid-19 ICU bed through the routine process, while 78...

ICMR completes second serosurvey, analysis underway in final stage

New Delhi, Sep 20 (IANS) The Indian Council of Medical Research (ICMR) has completed the second round of the countrywide serological survey (serosurvey) to...

‘Irresponsible behaviour’ behind Covid spike: Harsh Vardhan

New Delhi, Sep 21 (IANS) Union Health Minister Harsh Vardhan on Sunday held "irresponsible behaviour" of people responsible for the surge of Covid-19 cases...

Covid effect: Monsoon Session may be curtailed, parties agree

New Delhi, Sep 20 (IANS) Amid a surge in Covid-19 cases in the country, all political parties in a Business Advisory Committee (BAC) of...

Trending News In India

COVID-19 recovery rate in India crosses 80 per cent mark

New Delhi, Sep 21 (PTI) India''s recovery rate of COVID-19 cases has crossed the 80 per cent mark with over 90,000 recoveries recorded for...

India turns net steel exporter to China for first time in years

New Delhi, Sep 21 (IANS) Even as various restrictions are being looked by government agencies to curb Chinese imports, the neighbouring country has provided...

ASUS enters commercial PC market in India with 11 products

Mumbai, Sep 21 (IANS) ASUS India, the Indian arm of Taiwanese IT major, on Monday forayed into the commercial PC market in India with...

Digital media uncontrolled, courts should make rules for it first: Centre to SC

New Delhi, Sep 21 (IANS) In the Sudarshan News controversy, the Centre has reiterated that there is no need for the Supreme Court to...

Extremely concerned about balancing dignity, free speech: SC on Sudarshan News issue

New Delhi, Sep 21 (IANS) The Supreme Court on Monday said that it is extremely concerned about the balance of the right to dignity...

Negativity not in Bollywood, exists only on TV channels: Anubhav Sinha

By Justin Rao, Mumbai, Sep 21 (PTI) Anubhav Sinha says the negative perception about the Hindi film industry has been manufactured on TV news...

Trending Showbiz

Don’t ask actors about things not related to them: Manoj Bajpayee

BY DURGA CHAKRAVARTY (IANS) Bollywood celebrities are asked for their opinions on just about everything these days, National Award-winning actor Manoj Bajpayee notes. How...

Don’t ask actors about things not related to them: Manoj Bajpayee

BY DURGA CHAKRAVARTY (IANS) Bollywood celebrities are asked for their opinions on just about everything these days, National Award-winning actor Manoj Bajpayee notes. How...

Manushi Chhillar: Don’t think your size defines your fitness

Mumbai, Sep 20 (IANS) Beauty queen-turned-actress Manushi Chhillar says fitness for her is all about finding a balance, and that is actually a personal...

Fashion designer Sharbari Dutta found dead at Kolkata residence

Kolkata, Sep 18 (PTI) Eminent fashion designer Sharbari Dutta was found dead under mysterious circumstances at her Kolkata residence, prompting the police to register...

Sushant case: Forensic re-examination hints at discrepancies

New Delhi, Sep 17 (IANS) The 'medico legal opinion' of forensic experts, which holds the key to unravelling the mystery shrouding the death of...

Gulshan Devaiah: Depression is used as an expression

New Delhi, Sep 17 (IANS) Actor Gulshan Devaiah says the problem with accepting depression as a disease is that a lot of people consider...

Trending Sports

We’ve to make sure Delhi Capitals do right by the fans: Ponting

Dubai, Sep 20 (IANS) Delhi Capitals (DC) coach Ricky Ponting expects his players to “do right by the fans” and give their best in the face...

BCCI, Emirates board sign MoU to boost cricketing ties

Dubai, Sep 20 (PTI) The BCCI and Emirates Cricket Board (ECB) on Saturday signed a Memorandum of Understanding (MoU) and hosting agreement to boost...

Plan to send Indian boxers to Europe for traning, competition

New Delhi, Sep 19 (IANS) Senior Indian boxers could go on a 45-day long European tour, with possible stops in France, Italy, and Poland,...

Team that will overcome testing conditions will triumph

New Delhi, Sep 19 (IANS) After months of uncertainty, the 13th edition of the Indian Premier League (IPL) is set to get underway on...

FIVB confirms cancellation of Volleyball Club World C’ships 2020

Lausanne (IANS) World volleyball governing body FIVB has cancelled the FIVB Volleyball Club World Championships 2020 due to the ongoing Covid-19 pandemic."The FIVB has...

Latest Trending News In India

LS passes Bill making Aadhaar mandatory for NGOs to receive foreign funds

New Sep 21 (IANS) The Lok Sabha on Monday unanimously passed a Bill making Aadhaar mandatory for registration of organisations receiving foreign funds and...

India turns net steel exporter to China for first time in years

New Delhi, Sep 21 (IANS) Even as various restrictions are being looked by government agencies to curb Chinese imports, the neighbouring country has provided...

ASUS enters commercial PC market in India with 11 products

Mumbai, Sep 21 (IANS) ASUS India, the Indian arm of Taiwanese IT major, on Monday forayed into the commercial PC market in India with...

Digital media uncontrolled, courts should make rules for it first: Centre to SC

New Delhi, Sep 21 (IANS) In the Sudarshan News controversy, the Centre has reiterated that there is no need for the Supreme Court to...

Extremely concerned about balancing dignity, free speech: SC on Sudarshan News issue

New Delhi, Sep 21 (IANS) The Supreme Court on Monday said that it is extremely concerned about the balance of the right to dignity...