RBI policy in a season of contradictions

Inflation is at an all-time low, the trade deficit at an all-time high, and growth above the aspirational 8 per cent.

- PRANJUL BHANDARI

The economy appears to have moved from displaying hints of stagflation a year ago to being in something of a sweet spot now. Yet a few details feel unsettling in the run-up to the policy meeting on December 5.

The strong 8.2 per cent growth seen last quarter benefitted from both cyclical forces and statistical quirks. Strong rains, monetary easing, fiscal spending and goods and services tax (GST) cuts all helped. But a low base and deflator issues may have exaggerated the headline number. Two complications — the use of single rather than double deflation, and the over reliance on Wholesale Price Index goods data to deflate services — may have understated the deflator and overstated real gross domestic product (GDP). Our estimate of actual growth is closer to 7 per cent: still strong, but lower than the released figure.