No stagflation, fourth quarter growth better than expected, says CEA


India’s economy is better placed than other countries and fears of stagflation have been exaggerated, chief economic adviser (CEA) V Anantha Nageswaran said on Tuesday, as official data showed economic growth hit a four-quarter low of 4.1%, driven in part by the basic effect.

However, the CEA stressed that the 4.1% year-over-year growth rate, despite the impact of the third wave of Covid and the Ukraine war, indicates that momentum is intact and “if you look at the April figures on GST, etc., there is significant dynamism in economic activity…”

Stagflation usually refers to a scenario where an economy witnesses a decline in growth and a spike in unemployment as well as inflation. Retail inflation reached a nearly eight-year high of 7.79% in April.

The CEA indicated that, despite the rising subsidy bill in the wake of the war in Ukraine and additional spending commitments, the Center can still bring the budget deficit closer to the budgeted level of 6.4% of GDP.

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

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

The domestic financial sector, the CEA stressed, is in a better position to aid growth and as the recovery progresses, private sector investment should also pick up more meaningfully.

At the same time, India is well on track to overcome any external headwinds and consolidate its growth story better than other countries.
Strong foreign exchange reserves of nearly $600 billion will act as a buffer against external shocks.

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