India is facing ‘gated stagflation'

Kaushik Basu, former chief eco-nomic adviser to the govern-ment and former chief economist of the World Bank, is currently teaching at Cornell University in the US. In an exclusive interaction, he talks about the current challenges before the Indian economy and its future growth prospects.

- ABHINAV SINGH

Excerpts:

Q/ Is the Indian economy moving in the right direction?

A/ The performance of the Indian economy is disappointing. It is sputtering in ways rarely seen before. We can see this from the international media. There is no longer the buzz as there once was about India’s phenomenal rise and of India as one of the growth leaders of the world. Even if you dismiss the international media as biased, though that is a dangerous path to go down, a study of the statistics pertaining to India’s economy makes it clear that the situation is worrying.

India’s growth in 2021-22 is expected to be high. The latest Economic Survey projects the growth to be 9.4 per cent. In itself this looks good. But as soon as you look at the previous year, it is clear that this is the effect of recovery from the crash of 2020-21. India’s economic crash was one of the biggest in the world. Just like climbing out of a well that you have fallen into cannot be described as mountaineering, this year’s growth cannot be described as a great economic achievement. In fact, over the two-year period, from 2020 to 2022, the annual compound growth rate of India’s national income is 0.7 per cent.

In addition to the low growth, all data coming out over the last year show that India’s unemployment is high and the level of inequality is getting worse. The World Inequality Report 2022, authored by Thomas Piketty and others, finds that India has become one of the most unequal nations in the world. An Oxfam study released earlier this year estimates that in 2021, 84 per cent of households in India saw their incomes decline.

Q/ What do you think about the high inflation?