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Stagflation is said to happen when an economy faces stagnant growth as well as persistently high inflation. Is India facing stagflation? Analyse with suitable justifications for your answer.

Topic:  Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

7. Stagflation is said to happen when an economy faces stagnant growth as well as persistently high inflation. Is India facing stagflation? Analyse with suitable justifications for your answer. (250 words)

Indian Express

Why this question:

Last week, Finance Minister Nirmala Sitharaman refused to comment on queries on stagflation. But with fast decelerating economic growth and sharply rising inflation, there is a growing murmur about India facing stagflation.

Key demand of the question:

One has to analyse the context of Stagflation currently witnessing the Indian economy.

Directive:

Analyze – When asked to analyse, you have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary.

Structure of the answer:

Introduction:

In first define what stagflation is – Stagflation is a portmanteau of stagnant growth and rising inflation. Typically, inflation rises when the economy is growing fast.

Body:

Explain the concept of stagflation in detail.

Discuss the past experiences of stagflation in the Indian economy; The most famous case of stagflation happened in the early and mid-1970s when OPEC (The Organization of Petroleum Exporting Countries), which works like a cartel, decided to cut supply and sent oil prices soaring across the world. On the one hand, the rise in oil prices constrained the productive capacity of most western economies that heavily depended on oil, thus hampering economic growth.

Discuss what needs to be done.

Conclusion: Conclude with way forward.