Possible deflation may become a real challenge: Subramanianhttps://indianexpress.com/article/business/business-others/possible-deflation-may-become-a-real-challenge-subramanian/

Possible deflation may become a real challenge: Subramanian

CEA expresses hope that growth will be close to 8 per cent in 2015-16.

 

finance ministry, Indian economy, price inflation, price deflation, Arvind Subramanian, Inflation, CPI inflation, WPI inflation, indian express, business news
Arvind Subramanian.

Despite the lower-than-expected growth data for the first quarter, the finance ministry on Wednesday expressed hope that growth will be close to 8 per cent in FY16 while flagging deflation as a challenge for the economy.

“Overall, economic growth is moving in the right direction, although its pace is still below what the economy needs. But it is at a pace that is expected to pick up in response to the ongoing reforms.. and one real challenge that looms ahead appears not to be the price inflation but the possible price deflation,” said chief economic adviser Arvind Subramanian.

Pointing to the subdued prices and low GDP and gross value added deflators, Subramanian said, “the data seems to suggest we are closer to deflation territory and far far away from inflation territory.”

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But while indicating that policies need to be taken for “price inflation”, Subramanian did not respond to questions on the need for a cut in key rates, stressing that these should be taken up with the Reserve Bank of India.

The economy is estimated to have grown at 7 per cent in the quarter ended June 30, according to data released by the Central Statistics Office on August 31. However, apart from the disappointing growth data, analysts had also raised concerns over the low inflation, pointing out that growth in GDP at current prices was just 8.8 per cent.

Despite demands from the industry as well as prodding by the government, RBI Governor Raghuram Rajan, who had cut rates by 0.75 per cent in three tranches since January, had maintained status quo in the last monetary policy review in August. The RBI’s next bi-monthly policy review is on September 29 and analysts are hoping for an interest rate cut.

Meanwhile, Subramanian told reporters that the GDP data indicated that the “economy is recovering” and is consistent with the other more high-frequency indicators such as revenue collection and real credit growth.

The chief economic adviser also said that macroeconomic stability and economic reforms would translate into higher growth and more jobs and expressed hope that the economy could still grow at 8 per cent this financial year.

“I don’t know how the economy will evolve exactly. But the combination of oil price decrease, the fact that macroeconomic stability, the fact that reforms (are being undertaken), the fact that inflation is down and interest rates have come down… all of these should contribute towards annual growth towards that have been forecast in the Survey. Higher growth should translate in higher job creation,” he added.