India in better placed to avoid risk of stagflation: RBI officials

India’s economy is better placed than many other countries to avoid the risk of potential stagflation.

Macroeconomic conditions

• Global economic conditions continued to deteriorate as ratcheting up of commodity prices and financial market volatility have led to heightened uncertainty.
• Forecasts of global growth and inflation by various agencies paint a grim picture and it is increasingly becoming clear that in advanced economies, the war against inflation would entail significant monetary tightening, complicating the growth-inflation outlook.

Emerging Market economies

• Emerging market economies grapple with the global trade slowdown, capital outflows and imported inflation.
• Some abatement of supply chain pressures and relaxation in lockdown measures by key industrial hubs have emerged as silver linings amidst the dark clouds looming over the global economy.

Position of Indian Economy

• India’s economy, however, was better placed to skirt a potential stagflation given that most constituents of GDP had surpassed pre-pandemic levels, domestic economic activity was gaining strength, and the CPI inflation print for May had recorded a decline after seven months of continuous rise.
• The recovery remained broadly on track.
• These facts demonstrate the resilience of the economy and the innate strength of macro fundamentals.

Prelims Takeaway

• Stagflation -High Inflation and Low Growth
• Macroeconomic fundamentals and link to growth