translated from Spanish: What is stagflation and why it threatens the second most populous country in the world

Like a ghost lurking in the dark, no country wants to receive it.
Historically known as a difficult challenge to solve, stagflation is a mix of high inflation, economic stagnation and rising unemployment.
This is an explosive mix that can have devastating effects on a country’s economy, as the cost of living is increased and at the same time there is no growth.
The country is in a very difficult spiral to resolve because policies to get out of stagnation tend to sharpen inflation.
India is under threat of stagflation over its economic stagnation and high inflation.” Stagflation is a direct adaptation of the English term “stagflation”, a concept became known in the 1960s when the phenomenon remedied the British economy.
India, the second most populous nation after China (1.3 billion inhabitants) and the country that until recently experienced the fastest growth among major economies, is in a position considered by some economists to be vulnerable to this Threat.
Less than two years ago it grew to more than 8% and prime minister Narendra Modi claimed that his country would become one of the engines of global economic activity.
However now, the advance in Gross Domestic Product (GDP) marked the lowest point of the last six years (4.5%), while inflation (7.3%) exceeded the government’s target, mainly due to the increase in the price of food.
“The Indian economy is injured, not sick”
The Asian country faces a sharp drop in consumption after a combination of measures that did not yield the expected results.
These include the unprecedented decision to ban high-value cash notes by the end of 2016 or the implementation of a unified gallaning tax on goods and services the following year.
Then came a credit crisis followed by problems in the informal lending sector that cater to hundreds of millions of consumers and businesses.
As things stand, several economists believe that by the end of March, at the end of the fiscal year, the country could experience the weakest annual growth in more than a decade.
“Growth has fallen sharply,” Indermit Singh Gill, an academic at Duke University in the USA, a researcher at the Brookings Institution Think-U.S. and former Director of Development Policy in the Bank’s Office of Chief Economist, tells the BBC World Cup in Washington, D.C.
“Sudden slowdowns like this generally point to flawed policies and not serious structural weaknesses,” he argues.
Despite the bad timing, projections suggest that the country will resume economic growth as 2021 approaches.
“The Indian economy is injured, not sick. That means it can be improved, but the government has to stop hitting her in the head.”
The authorities have implemented a number of measures to try to stimulate the economy, such as a reduction in corporate taxes, the merger of some state banks, and the easing of some rules regulating foreign investment.
And it has among its plans the sale of some tax assets, in what would be a new privatization wave.
Did stagflation really come to India?
Although the economic situation is complex, experts say that stagflation has not yet come to settle in the Asian country.
BBC’s correspondent in India Soutik Biswas says that the slowdown in growth from 2018 can be explained in large part by the lack of widespread demand for goods and services.
Inflation has risen because of the high price of vegetables.” Inflation, which had remained low all this time, has been rising due to rising vegetable prices, mainly onions,” explains Biswas.
Onions are part of the basic diet of many Indians and their high price, due to poor harvests, has led to a general increase in inflation.
“This raised fears that India could be on its way to stagflation,” he says.
However, it is not clear that this will happen, because food prices are expected to fall, as more onions and vegetables enter the market.
“Let’s see what happens, but now it’s too early to say that India is heading towards stagflation,” Says Biswas.

Original source in Spanish

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