Stagflation and policy complications

21 SEP,2020 | MEDC


 

Inflation was far from the nation’s anxiety radar when India went into lockdown six months ago. But today’s key policy concern is stagflation – a potentially destabilizing cocktail of persistently high inflation combined with high unemployment and stagnant economic demand. A closer look at the data reveals food prices as a significant contributor to inflation, with protein-rich items getting especially dearer. This does not augur well for the common man who needs to boost his immunity through his diet. While India has been blessed with a bountiful monsoon this year, a slow resumption of transport and logistics could hinder an efficient nationwide distribution of agricultural produce. As long as inflation remains above 6%, RBI would be wary of interest rate cuts. Even a fiscal stimulus by the Finance Ministry could stoke prices. There will now be a downside to almost every course of policy action. However, we trust our decision-makers to act appropriately in India’s long-term interest.

*Photo Credit: Google

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