The mention of deflation in the recently released Economic Survey will further stoke debate on whether RBI has been misreading the price situation
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Is India living under the shadow of deflation? This is one of the most provocative suggestions in the second volume of the Economic Survey written by the economists in the finance ministry. The report was released on Friday.
The use of the D word will further stoke the raging debate on whether the Reserve Bank of India (RBI) has been misreading the price situation. The finance ministry has argued that inflation has now sustainably moved to a lower trajectory thanks to the downturn in the global commodity cycle as well as structural changes in Indian agriculture. The inflationary fire has been quelled. The current situation now resembles the low inflation we had in the first six years of this century, with one important difference. India then had low inflation with rapid growth; the low inflation right now can also be explained by an output gap that could close.
Remember that India had 17 months of wholesale price deflation after November 2014 till prices bounced back. We now perhaps have entrenched disinflation rather than deflation. The jury is still out.