India Faces Slowing Growth, But Low Risk Of Stagflation, Says Finance Ministry

The Finance Ministry said that there is an upside risk to gross budget deficit due to recent cuts in excise duties and spending on welfare subsidies

In its monthly economic report on Monday, the Finance Ministry said that the Indian economy faces low risk of stagflation than other nations, thanks to prudent stabilisation policies. Though the risk of stagflation is low, the ministry stated that there is an upside risk to gross budget deficit due to recent cuts in excise duties and spending on welfare subsidies.

Stagflation is a period of low growth and high inflation.

The monetary policy of the Reserve Bank of India (RBI) is fully dedicated to tame in the inflationary pressures in the economy and it has also shared the heavy lifting for inflation control through duty cuts and targeting subsidies, the finance ministry said.

“The impact of these measures and subsequent ones, if any, on growth and inflation will manifest in the data in the coming months. However, the momentum of economic activities sustained in the first two months of the current financial year augurs well for India continuing to be the quickest growing economy among major countries in 2022-23,” said the report.

Retail inflation, which stayed above the RBI’s medium-term target of 4 per cent for 32 months in a row, overtook the 6 per cent upper limit, five months on.

Here is the Monthly Economic Review of May.

The MPC is on course to fall short of its mandate in October, when inflation data for September will be released.

The Indian economy is recovering after getting battered by the Covid-19 pandemic. However, its size is barely above the pre-pandemic levels and growth could be threatened by elevated inflation as well as global economic turmoil due to the ongoing Russia-Ukraine war.

India imports 85 per cent of its crude oil needs.

According to the finance ministry, the global energy prices may be tempered as global growth weakens and the Organisation of Petroleum Exporting Countries increases supply, while adding that the timing of this remains uncertain and there are also upside risks to oil prices as OPEC supply will not be enough to match the shortfall caused by potential withdrawal of Russian crude from the market.

However, one good news could be the arrival of southwest monsoon. Prices of foods prices and the headline retail inflation are expected to decline.