State of the Economy: Stagflation

Published: Jul 27, 2013 06:43:11 AM IST
Updated: Jul 25, 2013 02:50:07 PM IST
State of the Economy: Stagflation
Image: Vivek Prakash / Reuters

The indian economy is showing classic signs of what is defined as ‘stagflation’. The phase is generally described as one where economic growth stagnates and unemployment rises, accompanied by inflation.

Government data last week showed industrial output shrank 1.6 percent in May and exports fell 4.6 percent in June, compared to 2012. The rupee’s recent steep fall against the dollar reflects economic and fiscal weakness.

India’s GDP growth fell to 5 percent in the first quarter, a decadal low, and is expected to fall further, even as inflation rises. The Wholesale Price Index rose to 4.86 percent in June, a three-month high. The consumer price index has risen to close to 10 percent in June, as food and vegetable prices increase. Jobs are tough to find as industries cut production.

Combined with rising prices, it adds to the misery.

(This story appears in the 09 August, 2013 issue of Forbes India. To visit our Archives, click here.)

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  • Nagarajan

    The result of govt incompetency. RBI not to be blamed. RBI could not have imagined the govt inaction. Rupee and the country will be completely destroyed. People will not have jobs but will be made beggars getting free rice and 100 rs per month

    on Aug 2, 2013
  • Buddha Bagai

    Both supply and demand are falling with supply falling faster than demand. Compressing demand by tightening liquidity is only increasing stagflation, which is aggravated by imported inflation as the rupee fall continues. As growth suffers capital inflows suffer, the CAD worsens and the rupee falls further in a vicious cycle. Exports unfortunately do not respond to a depreciating rupee as differentiation, diversified destinations, value addition, and scaling up production is the need of the hour. This often means imported technology,capital goods and technology.Raising custom duties is a retrograde step. For a start dismantle the inverted duty structure.

    on Aug 2, 2013
  • Abhijeet Chatterjee

    Hi! Yes i agree. Its a Stagflation! I also feel that Government is intentionally slowing the decision making process and wants to make the people bleed till the elections. And just before the Elections, they shall announce their relief package. It looks like a planned Strategy.

    on Jul 29, 2013