The writer is chief economist, CRISIL.
The bottom line is that with the slowdown in growth, and as a consequence in government's revenues (for both, the Centre and states), debt servicing for states, which looked comfortable, is set to become burdensome.
Developing countries like India need to fast-track reforms to improve the investment climate and attract investments, relocating away from China.
India has had little option but to open up the economy. That has led to some improvement in economic activity towards the latter part of the April-June quarter — but this is unlikely to sustain. In the July-September quarter, we expect the pace of improvement to slow down or even stagnate and fall in some cases..
Focus should be on lifting savings rate, else there is a risk of private investments being crowded out.
If this trade war continues over a longer horizon, it could even result in shift of production bases and restructuring of global supply chains. Chinese firms are already moving production to their plants in other countries. India figures in the list of such probables.
With the Centre focusing on fiscal consolidation, public investments by state governments spur infrastructure development
More needs to be done to reduce the delay in interest rate transmission in India.
A waning supply shock in an environment of tepid demand affords RBI elbow room to wield the knife.
They must also be willing to do the heavy lifting to kickstart the investment cycle.
For the budget to succeed, government needs to build institutional capacity to carry through proposed public investment, step up divestment.
Low rates will help. But sustainable higher growth requires the government to debottleneck sectors and push through pending reforms.
RBI is right to hold off on rate cuts. Inflation must hit a sustained low first.
To keep CAD in check, India needs to pay attention to the rising trade deficit in mining, not focus on gold imports.
While RBI is holding rates steady, government needs to overhaul food markets.