"India's GDP Growth Outperforms Forecasts but Faces Rising Inflation Risks"
Growth-inflation trade-off
the tension between supporting GDP growth and controlling price rises through monetary policy.
Current account deficit (CAD)
the gap when a country's imports of goods, services, and transfers exceed its exports.
India's macroeconomic performance over the past three financial years has been defined by GDP growth consistently above 7% and a gradual decline in retail inflation. This followed a turbulent post-pandemic period marked by supply-chain disruptions, commodity price spikes, and currency pressure. The Reserve Bank of India (RBI) targets retail inflation at 4%, with a tolerance band of ±2%, using the repo rate as its primary monetary policy tool. Between late 2024 and late 2025, the RBI cut the repo rate by 125 basis points, signalling a shift toward growth support after a prolonged tightening cycle.
India imports roughly 85% of its crude oil requirements, making it highly sensitive to energy-price shocks. Any sustained conflict in West Asia transmits to India through four channels: higher import bills, a widening current account deficit, rupee depreciation, and imported inflation. Alongside this external vulnerability, the El Niño phenomenon periodically threatens domestic food production. These two risk factors, energy prices and monsoon performance, are the two most consequential exogenous variables for India's growth-inflation mix in any given year.
A useful analytical frame for India's current position is the growth-inflation trade-off. When growth is high and inflation is low simultaneously, the economy is in a favourable equilibrium. When one deteriorates, policymakers face a dilemma: tightening monetary policy to control inflation risks slowing growth, while easing policy to support growth risks stoking prices further.
The current account deficit (CAD) is the broadest measure of India's external trade position. It captures net flows from goods trade, services exports, and remittances. A widening CAD puts downward pressure on the rupee, which in turn raises the cost of imports, including crude oil, creating a feedback loop that amplifies inflationary pressure. …
Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.
Do you agree that the Indian economy has recently experienced V-shaped recovery? Give reasons in support of your answer.
Which among the following steps is most likely to be taken at the time of an economic recession?
Increase in absolute and per capita real GNP do not connote a higher level of economic development, if
With reference to India's monetary policy framework, consider the following statements:
1.The RBI's retail inflation target is 4%, with a tolerance band of ±2%.
2.The repo rate is the rate at which commercial banks lend to the RBI.
3.Between late 2024 and late 2025, the RBI cut the repo rate by 125 basis points.
Which of the statements given above is/are correct?
With reference to India's macroeconomic vulnerabilities, consider the following pairs:
Factor — Primary transmission channel to Indian economy
1.Rise in crude oil prices — Widening of current account deficit
2.Deficient monsoon — Rise in core inflation
3.El Niño conditions — Below-normal monsoon rainfall
4.Wholesale price inflation — Leading indicator of future consumer price inflation
How many of the above pairs are correctly matched?
Consider the following statements regarding El Niño and its impact on India:
1.El Niño refers to a periodic warming of equatorial Pacific Ocean waters.
2.Over the past 25 years, five of the six El Niño years have resulted in below-normal monsoon rainfall in India.
3.A deficient monsoon always leads to higher food inflation in India.
Which of the statements given above is/are correct?
Consider the following statements regarding India's agricultural sector:
1.India's net irrigated area has increased by 10 percentage points to 59% over the past decade.
2.Non-crop agriculture now accounts for nearly 40% of agricultural gross value added.
3.Foodgrain buffer stocks currently stand at more than twice the prescribed buffer norms.
4.Buffer stocks cover perishable vegetables in addition to rice and wheat.
How many of the above statements are correct?
Consider the following statements regarding India's crude oil dependence and its macroeconomic implications:
1.India imports approximately 85% of its crude oil requirements.
2.Higher crude oil prices lead to slower growth, higher inflation, and a wider current account deficit simultaneously.
3.The current account deficit is expected to widen to 1.5% of GDP in 2026-27.
Which of the statements given above is/are correct?
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