ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Is the Economy Heading towards Stagflation?

Erratic fiscal and monetary policies tend to slow down growth and fuel inflation.

 

The second advance estimates of the gross domestic product (GDP) growth in 2021–22 and the third quarter growth numbers for the year released by the National Statistical Office show disappointing numbers. While the GDP growth for 2021–22 has been revised 0.3 percentage points lower to 8.9%, the third quarter growth slipped to 5.4%, around 3 percentage points lower than in the second quarter. It is not only below expectations but also points to a further deceleration in growth in the fourth quarter of the year. The only subsidised consolation is that the second advance estimates show that consumption spending has now marginally bounced back above the pre-pandemic levels after levelling the shortfall indicated in the first advance estimates.

The GDP trends in the third quarter indicate that the base period effects have slowed growth in all sectors. But, the worst-hit has been the construction and manufacturing sectors. While the output in the construction sector has declined, that in the manufacturing sector has increased by less than a percentage. This is surprising because higher capital spending, together with the festival season demand and the sharp increase in merchandise exports, should have substantially buoyed up growth in both sectors.

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Updated On : 12th Mar, 2022
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