Is India facing mild Stagflation?

As the normally docile RBI shocked both markets and the finance ministry with a .5% change in repo and reverse repo window, it is a clear indication that things are not looking good.

India’s fiscal deficit has quadrupled from a year ago to Rs 1.6 lakh crore in the first quarter, in line with the Reserve Bank of India’s (RBI) apprehensions.

Against the government’s optimism that it will rein in fiscal deficit at 4.6 per cent of gross domestic product (GDP) for this financial year, the deficit has already reached 39.4 per cent of the target in three months. At this point of time last year, it was 10.5 per cent of the 2010-11 target.

In its monetary review, RBI had blamed the large fiscal deficit the key source of demand pressure, complicating the taming of inflation.

Chief economic advisor Kaushik Basu had yesterday called it a challenge to achieve the fiscal deficit target of 4.6 per cent, but said the government was serious in achieving it.  ,,, BS

Now does Indian situation  fit into stagflation definition?

  1. We have an impending oil shock still in the making as oil is at 117$ a barrel and it is not winter yet. Gold is already up and how.
  2. An ever expanding money supply, govt debt and Negative real Interest rates not just in India but world over lead by the US.
  3. NREGA , Sonia and her jholawalas or the NAC and Kaushik Basu the trinity whose policys have massively distorted the labor market, and artificially jacked up both the cost of labor and input.
  4. A Wage Price Spiral and real interest rates above 10%.
  5. Restricted supply of raw materials including food grains.

WIKI : The resource shortage may be a real physical shortage or a relative scarcity due to factors such as taxes or bad monetary policy which have affected the “cost” or availability of raw materials. This is consistent with the cost-push inflation factors in neo-Keynesian theory

A great read T N Ninan: Indira Gandhi redux

So are we facing mild Stagflation already or are we to face it soon?


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