India is better placed than many other countries to avoid the risks of a potential stagflation amid an increasingly hostile external environment, as per an RBI article on the state of the economy.
The article, published in the RBI’s June bulletin, noted that global economic conditions continue to deteriorate as ratcheting up of commodity prices and financial market volatility have led to heightened uncertainty.
“In the midst of this increasingly hostile external environment, India is better placed than many other countries in terms of avoiding the risks of a potential stagflation,” said the article authored by a team led by RBI’s Deputy Governor Michael Debabrata Patra.
Stagflation refers to a situation where inflation as well as unemployment are high, while demand remains stagnant in the economy.
With most constituents of GDP surpassing pre-pandemic levels, domestic economic activity is gaining strength, it said, and added the inflation print for May has brought some relief as it recorded a decline after seven months of continuous rise.
The central bank, however, added that the opinions expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India (RBI).
With a growth rate of 8.7 per cent in 2021-22, India’s gross domestic product (GDP) surpassed its pre-pandemic (2019-20) level by 1.5 per cent and the recovery remains robust in 2022-23 so far, the article said.
“The recovery remained broadly on track. This demonstrates the resilience of the economy in the face of multiple shocks and the innate strength of macro fundamentals as India strives to regain a sustainable high growth trajectory,” it said.
The recent actions by the Reserve Bank which demonstrated its commitment to price stability while supporting growth augurs well in this milieu, it added.