“Dark shadow” of stagflation looms over SAARC nations, warns RBI Deputy Governor Patra

Also read: Upside risks to inflation remain, says RBI Deputy Governor Michael Patra

An economy is said to be in stagflation when inflation is persistently elevated, economic growth low, and unemployment high.

SAARC’s member states include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. The last of these, Sri Lanka, is currently facing an acute economic and political crisis thanks to a pile up of foreign currency denominated debt and a hit to growth from a slump in tourist visits due to the coronavirus pandemic. Other countries, such as Pakistan, are in trouble too.

India, however, is in a better position. In June, the monthly State of the Economy paper prepared by RBI staff had said that while the external environment was becoming increasingly hostile, “India is better placed than many other countries in terms of avoiding the risks of a potential stagflation”.

In his speech, Patra acknowledged that elevated and persistent inflation had taken hold and threatened to undermine the nascent progress made so far.

“Several members face double digit inflation in high reaches. Global spillovers in the form of exchange rate volatility, elevated commodity prices and supply chain pressures have exacerbated imported inflation. Since February this year, shortages of essential commodities and soaring food and energy prices have threatened livelihood and the welfare of our people,” the deputy governor said.

As such, the region faces a “tremendous developmental challenge”, Patra warned, adding that SAARC members had also seen a sharp deterioration in their fiscal deficits and balance of payments.