No chance of India slipping into stagflation, says Nirmala Sitharaman

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India’s macroeconomic fundamentals are intact and there is no risk of the economy entering into recession or stagflation, finance minister Nirmala Sitharaman said Monday.

She said the government is trying to keep inflation below 7%.

“I would like to say there is no question of India getting into stagflation or, what it is called in the US, technical recession,” she said, replying to a discussion in the Lok Sabha on the price rise. “There is absolutely zero probability of India slipping into recession.”

Retail inflation eased to 7.01% in June from 7.04% in the previous month, according to data released July 12.

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It exceeded the Reserve Bank of India (RBI) target band of 2-6% for the sixth consecutive month.

Sitharaman said India has sufficient foreign exchange reserves to handle any global headwinds. The RBI has been deploying a part of this to shore up the rupee.

The finance minister said all indicators showed that India was doing better than others, citing the latest goods and services tax (GST) collections, which rose 28% to Rs 1.49 lakh crore, the Purchasing Managers’ Index (PMI) for manufacturing that touched an eight-month high in July and strong core sector performance in June.

“Strictly speaking, the Indian economy in all these aspects is showing very positive signs,” she said. Agencies have downgraded global growth but India remains the fastest expanding economy despite the lowering of projections. The International Monetary Fund (IMF) last week pared India’s growth forecast for FY23 to 7.4% from 8.2% estimated in April.

Sitharaman said the banking sector in the country is also healthy compared with that of other countries. Gross non-performing assets (NPAs) of scheduled commercial banks have reached a six-year low of 5.9%, she said, adding that the government debt-to-GDP ratio fell to 56.29% in FY22.

India has recovered admirably from challenges posed by the pandemic and geopolitical developments and measures by the RBI and the Centre have helped stabilise the economy, she said.

Steps to contain Inflation

Sitharaman asserted that the government is making all efforts to keep inflation below 7% and had already undertaken several measures to ensure the supply of goods at cheaper prices to MSMEs and the common man. She said the Centre reduced customs duty on crude oil from 35.75% first to 8.25% and now to 5.5% and has taken other steps such as reducing duty on steel scrap and other inputs used by industry. She added that edible oil prices have corrected sharply following steps taken by the government.

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GST rate rejig

Defending the recent changes in GST rates on some products, she said the increase was only applicable to registered branded items, so there will be no adverse impact on the poor, adding that the move was aimed at plugging revenue leakage.

The decision had been taken after discussions at three levels – it was cleared by the GST Council, which has state finance ministers as members, and it was arrived at through consensus and not by vote.

With regard to compensation cess, she said compensation was pending only for June and would be cleared soon. (Economic Times)