The Indian economy is better placed than other countries and the fear of stagflation is exaggerated, chief economic adviser (CEA) V Anantha Nageswaran said on Tuesday when official data showed economic growth hit a four-quarter low of 4.1%, partly driven by base effect.

The CEA, however, stressed that the year-on-year growth rate at 4.1%, despite the impact of the third Covid wave and the Ukraine war, indicates that the momentum is intact and “if you look at April numbers on GST, etc, there is considerable momentum in economic activity…”

Stagflation typically refers to a scenario when an economy witnesses a plunge in growth and spike in unemployment and also inflation. Retail inflation hit an almost eight-year high of 7.79% in April.

The CEA indicated that, despite mounting subsidy Bill in the wake of the Ukraine war and additional spending commitments, the Centre may still rein in fiscal deficit closer to the Budgetted level of 6.4% of GDP.

“At this stage, because we are barely two months into the financial year, any attempt to estimate where the fiscal deficit would end up would be highly speculative. So there is a very good chance that the final number would end up closer to what we estimated for FY23,” he told reporters, while briefing on the GDP data.

Commenting on stagflation, Nageswaran said: “Compared to the experience of many developed and developing countries, India is somewhat better placed and more importantly both central bank and the government are seized of the problem and are addressing them. I would at this stage say that stagflationary risks for India are quite low compared to the rest of the world.”

The domestic financial sector, the CEA highlighted, is in a better position to help growth and as recovery gathers pace, private sector investment would also pick up more meaningfully.

At the same time, India is on a strong foot to tide over any external headwinds and consolidate its growth story better than other countries.
The strong foreign exchange reserves of close to $600 billion will act as cushion against external shocks.