Friday, January 15, 2016

Stagflation

Stagflation can be described as a phenomenon where slow down in the economy, high level of unemployment occur and still the level of prices remain high.
 Stagflation is Stagnation plus Inflation. It is a situation of high unemployment and high inflation in an economy. 
Factors that help predict stagflation in India -
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-> ECONOMIC SLOWDOWN -
Slump in IIP both for retail and capital goods shows reduced demand and production.
->LOW PRIVATE INVESTMENT -
Low private investment in production activities and reduced FDIs is making the situation difficult for expanding production.
->SLOWDOWN IN GLOBAL TRADE-
Slowdown in Chinese economy and downfall of Yuan is affecting Global trade and reducing demand for Indian exports therby forcing companies to cut down on production and creation of further employment.
->UNFAVOURABLE CONDITIONS FOR AGRICULTURE-
Over dependence on agriculture and continuous failure of monsoons clubbed with weather phenomenon such as El Nino completely reduced the purchasing power of rural economy. 
->INFLATION- Increased cost on skilled work force and raw materials is keeping the cost of production high and resulting in flation inspite of low demand.
- In spite of decline in Oil prices, Inflation in food prices is keeping the CPI high.
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Inflation accompanied by reduced purchasing power and increased unemployment, contraction in production if left unaddressed by the govt can lead India to stagflation in near future.

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