India is at low risk of stagflation, owing to its prudent stabilization policies, the Finance Ministry said in its monthly economic review on Monday.
India faces near-term challenges in managing its fiscal deficit, sustaining economic growth, reining in inflation and containing the current account deficit while maintaining a fair value of the Indian currency, the ministry observed.
Many developed economies also face similar challenges. The ministry said India is relatively better placed to weather these challenges due to its financial sector stability.
However, these challenges should be managed carefully without sacrificing the hard-earned macroeconomic stability, the ministry noted.
Further, the medium-term growth prospects are expected to remain bright as pent-up capacity expansion in the private sector is set to drive capital formation and employment generation in the rest of this decade.
The fiscal deficit for FY 2021-22 was 6.7 percent of the GDP, which was lower than revised estimates of 6.9 percent. But the deficit is expected to exceed the target this year.
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