BackStagflationary risks for India relatively low: CEA Anantha Nageswaran
Despite a sequential decline in Q4 growth, Nageswaran said he doesn't see a prospect of recession in India in FY23
PremiumThe risk of stagflation for India is relatively low as compared to other countries, Chief Economic Adviser V Anantha Nageswaran said on Tuesday. The CEA said that growth momentum of the economy is intact, although challenges remain, as the Russia-Ukraine war continues and developed nations tighten up monetary policies.
Stagflation is the phase when an economy faces moderation in GDP growth as well as high inflation.
Managing the troika of growth, inflation, and fiscal balance is a challenge for all economies, Nageswaran noted.
Despite a sequential decline in Q4 growth, Nageswaran said he doesn't see a prospect of recession in India in FY23. “There is considerable momentum in economic activity as witnessed by GST numbers in April," the CEA added.
He further said that the sequential growth was low due to the Omicron wave in January. Nageswaran added, “The economy had grown by 5.4% in Q3 FY22, as compared to 4.1% in Q4."
‘Recovery is taking root’
Monetary policy tightening may not necessarily be anti-growth, especially when real rates are so negative, the CEA said.
He added, “Interest rates becoming normal need not be anti-growth move." He further said the Reserve Bank of India's confidence to raise rates signal that "recovery is taking root".
A robust response is expected from the private sector in the second half when global risks dissipate, he noted. At present, global monetary tightening and risk of commodity prices going up pose challenges to economy, he added.
His comments came as India's economic growth slipped to 4.1% year-on-year in January -March, data showed on Tuesday, dragged down by soaring prices that could make the central bank's task of taming inflation without hitting growth more difficult.
Gross domestic product grew 4.1% year-on-year in January-March quarter, the data showed, in line with 4% forecast by economists in a Reuters poll, and below 5.4% growth in Oct-December and growth of 8.4% in July-Sept.
Annual growth for the 12 months to the end of March stood at 8.7%.
Further headwinds
India saw a dramatic uptick in economic activity in the second half of last year after the Covid-19 pandemic sparked its worst recession since independence from Britain 75 years ago.
Extended Covid-related lockdowns hit consumer spending and brought factories to a standstill during the virus outbreak, which at its peak saw thousands of people dying across the country each day, overwhelming hospitals and crematoriums.
Many states briefly imposed mild Covid-19 curbs on public gatherings and commercial activity after an outbreak of the highly infectious Omicron variant of the virus.
Further headwinds are likely to hit growth in the June quarter, with India this month announcing a sudden ban on wheat exports and a cap on the overseas sale of sugar.
India is the world's second-largest producer of both crops but scorching temperatures and the country's hottest March on record -- blamed on climate change -- have dented yields.
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