‘India is in or close to deflation territory’

Chief Economic Advisor (CEA) Arvind Subramanian  

Chief Economic Advisor (CEA) Arvind Subramanian said on Wednesday that price-wise, the economy appears to be in or close to deflation territory.

“The one real challenge that looms ahead for India’s economy appears not to be price inflation but possibly price deflation,” Dr. Subramanian said.

Deflation is normally a phenomenon seen in advanced economies and not expected in emerging economies such as India. Wholesale price inflation has been in negative territory for the last nine months and hit an all-time low of minus 4.05 per cent in July. Growth in consumer price inflation also slowed to 3.78 per cent in July. Commenting on the data, Reserve Bank Governor Raghuram Rajan said last week that the drop was more than previously expected, which has raised fresh hopes of an imminent interest rate cut.

The most striking implication of the latest GDP estimates relates to prices, the CEA told reporters at a briefing on Wednesday. Prices measured by the deflator for the gross value added were nearly stagnant with the rate of growth being 0.1 per cent, according to the Central Statistics Office (CSO) latest GDP estimates released two days back on Monday.

Measured by the deflator for GDP, prices grew at the rate of 1.7 per cent.

He also said that India’s growth in the current financial year would be closer to 8 per cent, the lower-end of the projection released in February in the Economic Survey.

India’s GDP grew 7 per cent during April-June 2015 against 6.7 per cent in April-June 2014, the CSO estimates.

Growth in the previous quarter, January-March 2015, was, however, higher at 7.5 per cent. Reacting sharply to the estimates released, the stock markets

The CSO estimates that measured by GVA, growth increased to 7.1 per cent in April-June 2015 from 6.1 per cent in January–March 2015. Directionally, this latest data suggests that the economy is recovering. “Overall, economic growth is moving in the right direction, although its pace is till below what the economy needs but a pace that is expected to pick up in response to ongoing reforms,” Dr. Subramanian said.

GVA and GDP are two measures of aggregate economic activity. The CSO’s revised methodology for GDP (Gross Domestic Product) calculation subtracts subsidies and adds taxes to the GVA to arrive at the GDP.

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Printable version | Dec 3, 2021 7:57:46 AM |

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