Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.

Answer

Approach:IntroductionMention that the Economic Survey says that steady GDP growth and low inflation has left the Indian economy in good shape.BodyMention points in favour and against this view point.ConclusionConclude stating that inflation and growth may or may not be in sync, but if it ensures that growth is positive, inflation must not be seen as a negative aspect of the economy.

Introduction

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 along with steady GDP growth in the past five years, according to the Economic Survey 2018-2019. There are diverse opinions on this view.

Body

Reasons in support of the view:

• GDP Growth:The Indian economy has been growing steadily, averaging around 7% per annum over the last decade. This growth rate is one of the highest in the world, and has helped to create jobs and reduce poverty.


• Low inflationcontributes towardseconomic stabilitywhichencourages savings and investment.Measures like the Monetary Policy Committee (MPC) have helped to keep prices stable and ensure that the purchasing power of consumers is not eroded.


• Provides policy stability:Steady growth rate and low inflation has provided better market conditions for investment and production planning.

Points against:

• Low inflation is also anindicator of low demand. Low demand has adversely affected the industrial output.


• Reduction in investment:The contraction of the economy due to falling consumption has reduced the scope of further investment.


• Unemployment:The steady growth rate did not translate into employment opportunities and the unemployment rates stood at a 45-year high.


• Double Balance Sheet Problem:Due to the slowdown, various corporates are facing the revenue shortage to pay back the interest, leading to NPA problems faced by the banks. It is prudent to say that lack of policy directions coupled with the banking sector crisis severely clamped the ability of the economy to reap the benefits.


• Unequal growth:While the Indian economy has grown steadily, there are concerns that the benefits of this growth have not been evenly distributed. There is still a large gap between the rich and the poor, and many people in India continue to live in poverty.

Conclusion

There can be a conflict between economic growth and inflation. In periods of rapid economic growth, inflation is likely to rise. However, it is possible to have both low inflation and positive economic growth – so long as the growth is sustainable and productive capacity increases at a similar rate to aggregate demand.