September 29, 2020

A demand shock could follow the supply squeeze of our lockdown

In LiveMint, Niranjan Rajadhyaksha discusses how caution among households and businesses will weigh on demand, even as supplies disrupted by the lockdown get restored. 


Excerpts below:


"Some economists believe that the current combination of declining output plus rising inflation will eventually lead India into a stagflation trap. A more likely result is that the supply shock we saw over the past six months will be replaced by a demand shock in the coming months...The country’s weak labour market will very likely nudge households towards caution. This column has been making the case for many months that precautionary savings will rise in the face of economic uncertainty. Weekly data from the Reserve Bank of India as well as weekly data released by the government on Jan Dhan accounts show that households are preferring to keep money in their bank accounts rather than spend it."


Read the full article here

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