India May Be Heading Towards Stagflation, Says Amit Mitra

Stagflation is defined as situation with persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

Amit Mitra, West Bengal’s former finance minister and current chief advisor to Chief Minister Mamata Banerjee on Monday said he fears India may be heading towards stagflation.

Mitra, an economist by training said, India is already suffering from rising inflation and unemployment simultaneously.

Wholesale inflation is 14.2 percent and unemployment has expanded by 10.48 percent. Now, without private investment (increasing), we may be heading toward stagflation, Mitra said, speaking virtually at the CFO Leadership Summit, organized by the Institute of Cost Accountants of India.

Stagflation is defined as the situation with persistently high inflation combined with high unemployment and stagnant demand in a country’s economy.

Mitra said, India is facing such a precarious situation due to “faulty economic policies” of the Union government which began with demonitisation in 2016, followed by launching a complex Goods and Services Tax, “and now wrong policies to manage the economy in the Covid times that does not boost private investment or empower people to spend more.”

Infrastructure capital expenditure (resorted to by the Government) will have a time lag and we need immediate spending and for that the government has to give money directly into the hands of the people. Union finance minister accepts private investment is not happening and is asking different departments to spur (public) capex but that will not yield immediate results, he said.

Speaking of West Bengal, Mitra claimed the state had “adopted the right policies” including lowering stamp duty and circle rates to boost private sector investment, which he said led to a “positive state GDP growth of 1.2 percent when the country had a de-growth of 7.7 percent in FY21.

Many countries put money into the hands of their population to revive the economy, he said. However, this has not been replicated in India.

As a result, “India has ranked among the most unequal country in the World Inequality Report 2022, where top one percent of the population now controls 22 percent of the national income and bottom 50 percent has a share of just 13 percent, of the country’s income, the former state finance minister said.