(wl-2837)-The inflation-growth conundrum: Are We Heading towards Stagflation?

The growth-inflation debate has taken centre-stage presently, with the central bank policy rate actions under scrutiny from financial press and corporate India. We analyse the growth-inflation relationship granularly, probing the data to understand if growth and credit synergies exist and impact of inflationary headwinds on both. The paper finds evidence of a credit-growth dichotomy, inflation surges and employment uncertainties. Inflationary expectations data suggest the trajectory of anticipated inflation to be moving up. We question whether we are standing at the brink of a stagflation. We argue that on the policy front, there is a need for close monetary-fiscal policy coordination to prevent a move to a stagflationary scenario. Monetary policy measures can play a key role in moderating inflation moderate, and thereby boosting real economy through stable wages and increase consumption. Fiscal measures are needed to tackle the supply side pressures on inflation, boost private capital formation and enhance employment prospects in industry and service sector