India in stagflation mode, growth at ‘top end’: Kaushik Basu

India’s overall macroeconomic situation is in a recovery mode but the growth is concentrated at the top end, which is a worrying trend, according to former World Bank Chief Economist Kaushik Basu.

Amid the rising inflationary trends, including the sharp increase in retail inflation last month, Basu, who has also served as Chief Economic Advisor to the Indian government during the UPA rule, said the country is facing stagflation and “very carefully curated policy interventions” are required to address the situation. Currently, Basu is a professor of Economics at the Cornell University in the US. While the aggregate economy is growing, “the bottom half of India” is in recession, he said and noted that it was sad the country’s policy over the last few years has been largely focused on big businesses.

“India’s overall macroeconomic situation is in recovery mode... The worry stems from the fact that this growth is concentrated at the top end,” Basu said. He also said the youth unemployment rate in the country touched 23 per cent, among the highest globally, even before the COVID-19 pandemic started. Workers, farmers and small businesses are seeing negative growth, he added. While India’s GDP is estimated to grow 9.2 per cent in 2021-22, Basu said since this comes after a contraction of 7.3 per cent in 2019-20 due to the pandemic, the average growth rate over the last two years is 0.6 per cent per annum. The Indian economy is facing stagflation, which is much more painful and requires carefully curated policy interventions, he said, adding 15 years ago, inflation was even higher, close to 10 pc, but there was one big difference. “At that time, India’s real growth was close to 9 pc...so, even with the inflation, the average household was becoming better off per capita by 7 or 8 pc,” he said.