steady GDP growth and low inflation have left the Indian economy in good shape. Do you agree ?

India’s GDP is estimated to have increased 7.2 per cent in 2017-18 and 7 per cent in 2018-19. Its performance has been quite stable in last 6-7 years after recovery from impact of global financial recession. Similarly, the Indian economy has witnessed a gradual transition from a period of high and variable inflation to a more stable and low level of inflation in the past five years, according to the Economic Survey. The current phase of low inflation is marked by a reduction in both urban and rural inflation. Based on this the survey argued that amidst the gloomy landscape of unusual volatility in the international economic environment, India stands as a haven of stability and an outpost of opportunity. 

Importance of Macro-economic stability 

•Investors like macro-economic stability. If the economy is not well-managed, financial markets react negatively, at times even disproportionately, making economic management a lot more difficult, which can lead to a full-blown crisis. 

•In 2013, India was struggling with high inflation and high current account deficit. However, since then, fundamentals have improved a great deal and macroeconomic indicators now look less vulnerable. Inflation has come down, the current account deficit is under control, and the government has committed itself to a lower fiscal deficit target. 

•For economic activity to grow at a healthy pace, it is important that the economy is managed well. Differently put, for economic activity to prosper, among other things, it is important that inflation is low, government finances are handled well, imbalances are avoided on the external front, and the financial system is stable. 

Economic activity is likely to suffer, if the economy is vulnerable to internal or external shocks. Therefore, it is important for policy-makers to be watchful and take necessary steps, in time, to avoid extreme consequences. 

Details of inflation management 

•Former RBI Governor Raghuram Rajan has pointed out that inflation robs the earnings of the poor and just about anyone with a fixed income. “Inflation is the silent killer because it eats into pensioners’ principal, even while they are deluded by high nominal interest rates into thinking they are getting an adequate return”. 

•Inflation targeting has, in part, helped keep inflation in check. India formally adopted an inflation target in March 2015. This came after a committee headed by Urjit Patel recommended that retail inflation be made the nominal anchor for monetary policy. After discussions between the government and the RBI, a flexible inflation target of 4 (+/- 2) per-cent was set.