This comes on the back of deceleration in the GDP growth rate in the past three quarters, after showing strong recovery from the Covid shock of 2020. The GDP growth rate in April-June 2021 was over 20%. But it declined thereafter to 8.5% in the second quarter, 5.4% in the third and 4.1 in the final quarter of 2021-22.
The government blamed it on the global trend as agencies have projected a slowing of global economic growth. The World Bank projects global economic growth to decline from 5.7% in 2021 to 2.9% in 2022 with rising commodity prices, supply chain bottlenecks and faster than the projected withdrawal of monetary accommodation as the main worries.
The world is looking at a distinct possibility of widespread stagflation, said the finance ministry adding, India, however, is at low risk of stagflation, owing to its prudent stabilisation policies.
Stagflation is an economic situation in which growth slows down, inflation goes up, unemployment surges and an increased output gap is created. Indian has ingredients to stagflate. This is explained by the Reserve Bank of India’s back-to-back tightening of the key rates to ease inflationary pressure.
But the government hopes its policy interventions such as excise duty cuts, customs duty rationalisation, enhanced subsidy to targeted sections, trade policy changes and capex push would restrain inflation and sustain growth while creating enough jobs.