Globally, inflation is now the prime concern of governments, even as there is a speculation that a recession may not be far behind. In India, though, government agencies regularly announce that the country is growing at a much faster rate than most economies and presently assert that inflation is much lower. The growth performance is not so surprising given that among the larger economies of the world, India’s economy contracted the most in 2020-21. But despite the sharp recovery, real output in 2021-22 was barely higher than in the pre-pandemic year of 2019-20.
On the claim that inflation in India is not so high in an international comparison, note that before the recently announced rise in the U.S. inflation rate for June, inflation here was close to what it was there. While the data on inflation in India is in the public domain, the public may be excused for not seeing that India’s economic agencies appear to have not fully understood what is driving it, for this requires some specialist knowledge. The Governor of the Reserve Bank of India (RBI) has been reported as saying that there was a “need to recognise global factors in inflation”. In our view, the diagnosis that the current inflation in India is, even largely, due to global factors is wrong, and harmful for reasons that we set out.
