Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good…

Question

Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.

Ghissu Editorial · Accepted Answer

Steady growth and low inflation gave India macroeconomic stability in 2018-19, but they masked weak demand, jobless growth, farm distress and balance-sheet stress. GDP grew 6.8% with CPI inflation at 3.4%, yet growth slipped to 5% by April-June 2019.

**Introduction**

In 2018-19 India's GDP grew 6.8% while CPI inflation averaged only 3.4%, inside the RBI's 4% (plus or minus 2%) target. Yet growth slipped to 5% by April-June 2019, so the headline pair needs testing.

**Why the Headline Numbers Suggest Good Shape**

1. **Macro stability**: The current account deficit near 2.1% of GDP, reserves above $400 billion and a fiscal deficit of about 3.4% of GDP in 2018-19 limited external and fiscal risk.
2. **Credible institutions**: Inflation targeting under the amended RBI Act (2016) anchored expectations, while GST (2017) and the Insolvency and Bankruptcy Code (2016) improved formalisation and credit discipline.
3. **Business climate**: India rose to 63rd in the World Bank's Doing Business 2020 from 142nd in 2014.

**Why the Economy Was Not in Good Shape**

1. **Slowing demand**: Passenger vehicle sales saw their steepest fall in about two decades in 2019, and growth fell for five straight quarters.
2. **Jobless growth**: PLFS 2017-18 put unemployment at 6.1%, widely reported as a 45-year high.
3. **Low inflation as a symptom**: Food inflation close to zero in 2018-19 squeezed farm incomes and rural demand.
4. **Financial stress**: Bank gross NPAs peaked at 11.2% in March 2018 and the IL&FS default of September 2018 froze NBFC credit, keeping private investment weak.

SKETCH: iceberg | Headline Strength, Hidden Strain
visible: Steady GDP growth, Low CPI inflation
hidden: Jobless growth, Farm distress, Bank NPAs, Weak investment

**Conclusion**

I do not fully agree: growth and low inflation brought stability, but in 2019 they masked weak demand, scarce jobs and balance-sheet stress. Good shape must be judged by jobs, incomes and investment, not two headline numbers.

Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.

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