India’s economy grew at its slowest pace in nine years over the first quarter of 2012 and inflation stayed stubbornly high at 7 percent, which say experts is pushing policymakers into a “stagflation” trap.
“Stagflation is going to persist for the next quarter or two as growth continues to remain sub-trend and inflation remains above-trend,” Taimur Baig, Chief Economist, Global Markets Research, Deutsche Bank told CNBC.
Baig forecasts inflation will accelerate to 7.5 percent and 7.8 percent in the second and third quarter driven largely by rising costs of importing fuel as a result of a weaker rupee.
On the growth side, the prospects for the economy, which grew at just 5.3 percent over January-March, are bleak with GDP expectations now under 7 percent for the current fiscal year that began April 1, as the government struggles to attract investments. For India, which expanded 8.4 percent in 2011, this is considered sub par.
The government has been baffling investors with several policy flip-flops. Last year the government cleared and then stalled foreign direct investment in multibrand retailing and early last month it postponed by a year the implementation of new rules cracking down on tax avoidance.Page 1 of 3 | Next Page