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Resource centre on India's rural distress
 
 

Double trouble: On uneven inflation and sluggish growth

-The Hindu

Uneven inflation and sluggish growth present serious dilemmas for policymakers

Policymakers face a tricky dilemma as prices in the economy continue to rise even as economic growth has plummeted to well under 5%. Food inflation, now in double-digits, has caused significant pain. The International Monetary Fund on December 23 called for “urgent” policy measures to reverse the current slowdown that has weighed down global economic growth. The warning is timely given the economy’s precarious state and the government’s lack of urgency to reverse the slowdown. However, what makes the job of policymakers a lot more complicated is the non-uniform nature of the current price rise. Even as food prices have risen rapidly — food inflation has crossed the 10% mark for the first time in many years — sectors such as manufacturing have witnessed mild deflation as demand for products drops. The Reserve Bank of India (RBI) Governor, while terming the recent spike in inflation as a transient phenomenon, has called for countercyclical measures and structural reforms to help the economy. The central bank’s hands have been tied down by the recent spike in inflation, and it has halted its rate cut spree that began in February this year. However, voices continue to grow demanding that the RBI and the government ignore the rise in food inflation and try to infuse more liquidity to boost demand. After all, the rise in food prices may just be an anomaly amid widespread low inflation in the rest of the economy.

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