LOW GROWTH AND HIGH INFLATION....INDIA at STAGFLATION...!!!!

Indivjal Dhasmana  |  New Delhi  

October 14, 2013 Last Updated at 20:30 IST

Economy moving towards stagflation: CII survey
Stagflation is a situation where economic growth is too low, inflation too high, leading to steady high unemploymentPolicy makers may not accept it, but the Confederation of Indian Industry today said its survey of chief executive officers indicated that the economy is moving towards a situation of stagflation."Indicating that the economy is moving towards a situation of stagflation, majority of the respondents (42%) expected inflation to increase moderately in the second half of the year," CII said in a statement here.Stagflation refers to a situation where economic growth is too low and inflation is too high, leading to a steady high unemployment.The situation indicates a dilemma of sort for policy makers since actions designed to cut inflation may aggravate unemployment situation.CII, however, did not elaborate to say why is it referring to stagflation when the respondents talked of only moderate rise in inflation.Inflation, both in wholesale and retail counters, rose for the month of September driven by vegetable prices, particularly onions. But, even then inflation stood at 6.46 points in wholesale price index terms, and 9.84% on the retail price index basis.Most chief executive officers in the survey joined the league of independent analysts doubting the government's optimism over the economy clocking more than five% economic growth this financial year.However, 32% of them did share the government's projections. These respondents said the economy would register 5-5.5% growth, while 42% voted for 4.5-5%.However, CII director general Chandrajit Banerjee did not rule out over five% economic growth in 2013-14.“We believe that 5% plus growth is still not out of reach. With a significant improvement expected in the growth of agriculture output in the current year, we hope to see an upswing in the sectors, which have traction from rural demand.”As many as 65% of the respondents said that they did not expect revival in investments it before the second quarter of next fiscal. Political uncertainty was ranked as the highest risk factor affecting the business confidence of India Inc, according to a CII’s CEO snap poll conducted at its National Council Meeting.Commenting on the efficacy of the Cabinet Committee on Investment (CCI) in clearing large projects, 56% of the respondents did not feel it had the intended impact on the investments so far at the ground level.“This clearly implies that there is a need for strengthening policy intervention to revive investment demand, both by the Government as well as RBI. Among other critical measures, the Government should be focussing on stepping up its capital expenditure whereas RBI should be adopting a softer monetary stance”, added Banerjee.With WPI inflation rising to a seven-month high in September, and the retail price inflation breaking a two-month, RBI might not agree to Banerjee's demand. In an indication of easing current account deficit situation, 82% of the respondents felt that the value of rupee against US dollar was favorably affecting their exports. Contrary to the expectation that low rupee will lead to increase in their import bill, 53% of the business leaders felt that their imports will remain unchanged during the second half of the year. Going forward, majority (53%) of the respondents expected the rupee to prevail below Rs 62 a dollar by the end of the current fiscal.Exports grew double digits for the straight third month in September.Most of the respondents (37%) expected that their credit demand will remain unchanged during the second half of the current fiscal. Similarly, 50 of the business leaders did not see any perceptible change in their investment level during the second half of this year.In the survey, 50% of the respondents expected their sales and exports to grow moderately during the second half of this fiscal. However, profit margin was expected to decline by majority of the respondents due to pressure from hardening of input prices.http://www.business-standard.com/article/economy-policy/economy-moving-towards-stagflation-cii-survey-113101400908_1.html