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Epitomising Inflation and Growth: Lessons from India

May-2023 by Charan Singh

Since 2020, the global economy has been serially hit by a multitude of shocks. The global output, which had already been weakened by the COVID 19 pandemic, has further deteriorated due to a combination of exogenous shocks and endogenous events. These include the Russia-Ukraine war, continuation of COVID-19 lockdowns in China, higher fuel and commodity prices etc. Inflation, driven by diverse causes, has become an important risk factor in recent times.

The World Economic Outlook (WEO) by the International Monetary Fund (IMF), released in October 2022, forecasts a slow down in global growth from 6.0 percent in 2021 to 3.2 percent in 2022 and further down to 2.7 percent in 2023. On the other hand, global inflation is expected to rise from 4.7 percent in 2021 to 8.8 percent in 2022 and decline to 6.5 percent by 2023 and to 4.1 percent by 2024. High Inflation may prove detrimental to growth dynamics of any country, since there are negative implications for fundamental issues such as lowering employment rate, eroding real income, distorting purchasing power etc.

This paper has been divided into eight sections. Section 2 provides the current global growth scenarios and compares the future prospects for Advanced Economies (AEs) and Emerging Market Economies (EMEs). Section 3 evaluates the fiscal stimulus undertaken by various nations during the time of COVID-19 outbreak, with special reference to India. Section 4 explores global inflationary trends and the monetary policy responses to it. Section 5 examines the global inflationary dynamics and the implications of monetary policy responses on economic growth. Section 6 looks at the economic scenario in India and its particular inflationary trends. Section 7 carries out an analysis of the inflation targeting approach in India and its pitfalls. Section 8 presents the conclusion.

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