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What is stagflation? What are the factors that lead stagflation? How can the Indian economy avoid it amidst rising inflationary pressures? Discuss.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

6. What is stagflation? What are the factors that lead stagflation? How can the Indian economy avoid it amidst rising inflationary pressures? Discuss.

Difficulty level: Moderate

Reference: Live MintThe Hindu

Why the question:

Three monetary policy statements in as many months. And the first quarter of the current financial year is not yet over. This sort of exemplifies the fraught times we live on. But the latest statement released by the Reserve Bank of India (RBI) on Wednesday is markedly different from its preceding two documents. It includes for the first time the dreaded “S” word: stagflation.

Key Demand of the question:

To write about stagflation, factors that lead to it and measures needed to avoid it.

Directive word: 

Discuss – This is an all-encompassing directive – you must debate on paper by going through the details of the issues concerned by examining each one of them. You must give reasons for both for and against arguments.

Structure of the answer:

Introduction: 

Begin by defining stagflation.

Body:

First, write about the factors that can lead stagflation in the economy and the impact of the stagflation.

Next, write about the measures that are needed to ensure India does not witness stagflation.

Conclusion:

Conclude with a way forward.