Monetary policy needs good data

Business Standard December 16, 2025

The Reserve Bank of India’s (RBI) policy rate cut on December 6 took many analysts by surprise. It came just after the government reported that the economy was growing at a staggering rate of 8.2 per cent. According to the standard macroeconomics playbook, when an economy is growing so fast, central banks are expected to tighten monetary policy — meaning they raise rates pre-emptively — to control inflationary pressures and stop the economy from growing too quickly.

This time, however, the situation was different because inflation has been running at less than one per cent. This comfortable price environment gave the RBI the flexibility to lower rates but it does not automatically justify such a move. The core dilemma remains: Why provide further stimulus to an economy that is already booming at an 8 per cent growth rate?

Does this mean the RBI’s policy decision was misguided? Not really. Rather, the rate cut becomes perfectly understandable when viewed through the lens of the policymakers’ primary dilemma: The need to guide the economy while navigating through a thick statistical fog.

Let us begin by examining the gross domestic product (GDP) data itself. Official figures suggest that growth is soaring, far above last year’s estimated growth rate of 6.5 per cent. On the surface, the expansion appears broad-based and robust, with the manufacturing and services sectors each growing at 9 per cent.

The problem, however, is that these numbers are hard to explain. Some commentators have suggested the cuts in goods and services tax (GST) rates boosted consumer spending, thus raising GDP. But this is unlikely: The tax cuts started on September 22, too late in the July-September quarter to significantly affect the data.  Could other key indicators help provide a clue? Not really. In fact, they raise further questions. 

This sets off a virtuous cycle. Credibility keeps expectations anchored, stable expectations help keep prices low, and low inflation in turn strengthens credibility.

For example, industrial output grew by only 3 per cent during April-September 2025. This is the slowest growth since the pandemic year of 2020-21. The core sectors of mining, manufacturing, and electricity showed slower growth or even contracted. 

Bank credit growth also suggests a weakening economy, with non-food credit — a proxy for credit demand, slowing to 10 per cent in the July-September period from a growth rate of 13 per cent in the previous year. 

Perhaps most worrisome, tax collections have decelerated dramatically. During April-September, the central government’s gross tax collections grew by only 2.8 per cent, the slowest pace in 15 years. Income, corporation tax, and GST all grew in low single digits. 

Finally, it is hard to square strong growth with the weak rupee. The Indian rupee has depreciated by more than 6 per cent against the US dollar this year, making it the worst-performing currency in Asia. While external factors have hurt exports, the current account deficit remains modest at less than 2 per cent of GDP and should, therefore, be easy to fund. But this has not proved possible, thereby putting pressure on the rupee. Capital inflows have remained feeble, and oddly enough, have weakened further after the GDP news was announced. The inability of the fastest-growing country in the world to attract capital seems quite an anomaly. 

In short, it is hard to know how the economy is truly performing. What does this mean for policymaking? 

For the RBI, it makes its job very difficult. To target inflation effectively, the RBI must set interest rates based on its inflation outlook. But if it cannot reliably assess the real strength of the economy, how can it accurately forecast future inflation?

It is true that all central banks find it hard to forecast inflation because food and fuel prices are volatile. They usually fix this by basing their forecast on core inflation, which leaves out these volatile items. However, the situation becomes harder for the RBI when it cannot even forecast core inflation, because it cannot properly judge the underlying strength of the economy.

In such circumstances, policymakers have to adopt an approach based on managing risks. The RBI likely worried that collapsing inflation was causing real interest rates to rise. This, in turn, could severely harm the economy if demand was actually weak. On the other hand, cutting the nominal interest rate would not threaten the 4 per cent inflation target, even if demand turned out to be strong, simply because inflation is so low right now. Therefore, the RBI cut rates. For the same risk-based reason, the government also reduced GST rates.

Both policy decisions were reasonable, but a large problem remains: They may prove wrong if it turns out that demand is, in fact, quite strong. Meanwhile, the inability to come up with accurate macroeconomic forecasts has already confused financial markets. This confusion has potentially weakened policy credibility, creating further problems.

For all these reasons, it is imperative to resolve the data issues. The good news is that the National Statistical Office will soon release updated GDP and consumer price index (CPI) series. We can only hope that these new numbers will mark a significant improvement. Until they do, monetary policy will remain constrained by this data uncertainty.

The good run of inflation targeting: Keep the framework, improve data

Business Standard November 19, 2025 (with Vaishali Garga)

(The authors are, respectively, with the Indira Gandhi Institute of Development Research and Federal Reserve Bank of Boston. The views expressed in this article are solely those of the authors and should not be reported as representing the views of the Federal Reserve Bank of Boston, the principals of the Board of Governors, or the Federal Reserve System.)

Next year a critical policy review looms for the Indian government: Whether to retain or revise the inflation-targeting framework, a cornerstone of India’s monetary policy for a decade. Critics have been pushing for major changes — ranging from tweaking the target number to redefining the target variable, or even shifting the Reserve Bank of India’s (RBI’s) core mandate. However, a major revision now would be unwise because evidence shows that the framework has delivered.

India's formal adoption of inflation targeting in 2016 marked a fundamental shift in the way monetary policy was conducted. Until then, the RBI had been juggling several goals — rapid economic growth, adequate credit flow, and a stable exchange rate. This left its primary responsibility of controlling inflation somewhat diffused. The 2016 reform fixed that by giving the RBI a single, clear mandate: Keep the inflation rate based on the consumer price index (CPI) at 4 per cent, give or take 2 percentage points. This framework made the central bank’s objective both clearer and easier to evaluate.

That said, lower inflation by itself does not prove that the framework has succeeded. Prices can fall for reasons that have nothing to do with monetary policy — like a global drop in commodity prices or strong agricultural output. In fact, studies show that such favourable shocks played a big role in bringing the inflation rate down soon after the framework was introduced. Critics point to this and argue that the success in this respect was driven more by good luck than by sound policy.

But this argument overlooks the real test, which came later. Between 2022 and 2024, global energy and food prices spiked after war in Ukraine started. In India, the food inflation rate averaged about 7 per cent. Yet, barring a few months, the overall inflation rate stayed within the target band for most of this period. This was a sharp contrast to the pre-framework years, when similar shocks routinely pushed the inflation rate into double digits. This stability suggests that something deeper than good luck is at work: The RBI has built credibility.

Credibility is at the heart of any inflation-targeting regime. It captures the public’s confidence that the central bank will follow through on its commitment to keep prices in check. When households and firms trust the RBI, temporary supply shocks, such as spikes in food or fuel prices, do not immediately feed into long-term inflation expectations. In other words, expectations stay anchored. And once expectations are anchored, inflation itself becomes easier to manage because firms are less likely to raise other prices in response to a shock, and workers are less likely to demand higher wages.

This sets off a virtuous cycle. Credibility keeps expectations anchored, stable expectations help keep prices low, and low inflation in turn strengthens credibility.

There are signs that this cycle is beginning to take hold in India. Surveys show that while people still expect the inflation rate to be higher than the 4 per cent target, their expectations fluctuate far less than they once did. Research by RBI economists Sitikantha Pattnaik, G V Nadhanael, and Silu Muduli (2023) finds that households’ inflation expectations have become less sensitive to short-term price movements — another indication that expectations are gradually becoming more anchored.

Studies of professional forecasters show the same pattern. Research by Bhanu Pratap and Kundan Kishor (2023) and by IMF (International Monetary Fund) economists Patrick Blagrave and Weicheng Lian (2020) finds that medium-term inflation forecasts have become more stable and less sensitive to short-term inflation surprises. In our own research (Vaishali Garga, Aeimit Lakdawal Lakdawala and Rajeswari Sengupta, 2022), we find that professional forecasters now expect the RBI to react more strongly to rising inflation than it did before the inflation-targeting regime. Their expectations have also become less responsive to shocks in oil prices. Together, this evidence suggests that India's recent inflation stability is not just the result of favourable global factors. It reflects a steady buildup of policy credibility.

In this context, making major changes to the framework would be risky because it could undermine the credibility that has been built since 2016. This does not mean the framework cannot be improved. Rather, any changes should focus on better data, greater transparency, and clearer communication — not on rewriting the core rules. Two areas for improvement stand out.

First, the RBI's survey of household inflation expectations needs a major upgrade. At present, it asks people mainly about expected price changes over the next three months or one year. The survey should be redesigned to capture households’ longer-term inflation expectations more effectively. This would offer far more useful insights for policy because decisions about saving, investing, or negotiating salaries depend on how people expect inflation to evolve over several years — not just in the near term.

Second, policymakers need better information on what businesses expect. Since firms are the ones that set prices and wages, their view of future inflation is crucial. Yet India currently lacks systematic data on firms’ inflation expectations. The RBI could address this gap by regularly surveying firms and publishing the results. This would help the central bank judge whether price pressures are becoming entrenched and enable it to respond more effectively.

The next decade will bring fresh challenges — climate-related supply shocks, volatile energy prices, and global financial uncertainties. The best way for India to prepare is by preserving and strengthening the RBI’s hard-won credibility. If, instead, the framework is rewritten and trust in monetary policy is weakened, rebuilding that credibility could take another decade or more.

Internationalising the rupee: India's path must diverge from China

Business Standard October 20, 2025

At its last policy meeting, the Reserve Bank of India unveiled several measures to boost the Rupee’s use in cross-border trade—a step toward its gradual internationalisation. The notion that an emerging economy's currency can gain global traction took off after the IMF added China’s Renminbi (RMB) to its Special Drawing Rights basket in 2016. Now, amid renewed geopolitical tensions involving the US, Russia, and China, the question resurfaces: how can India meaningfully advance the Rupee’s journey toward international status?

For the Rupee to become an international currency, non-residents must both want and be able to trade and invest in it. A Russian importer, for instance, should be able to pay for South African goods in Rupees. Likewise, a UK investor should be able to buy Rupee-denominated bonds or shares with ease. In these cases, foreigners—not Indians—bear the currency risk. That shift is the essence of true currency power. It’s also the "exorbitant privilege" the US dollar has long enjoyed.

The willingness and ability to use a currency globally rest on three key conditions. First, the issuing economy must have scale—measured by GDP, trade flows, and volume of international transactions. China, with an $18 trillion economy, meets this bar; India, at around $4 trillion, does not yet. To build that scale, India must sustain a growth rate of 7–8 percent annually over the coming years—a difficult but necessary condition for the Rupee's global ambitions.

Second, the value of the currency must be stable over time. A currency is considered stable when the general level of prices does not vary too much. Stability has multiple aspects: macroeconomic, financial and political. On the macroeconomic front, India has done well. CPI Inflation is at multi-year lows, and the RBI has built credibility in keeping it close to the 4 percent target. Financial stability, too, has strengthened: banks are better capitalised, balance sheets are cleaner, and the broader financial system appears sound.

Political stability is the third pillar. The fact that India is a democracy, like issuers of major international currencies in the 19th and 20th centuries, goes in its favour. Democracy, with its institutional checks and balances, reassures foreign investors about policy credibility and continuity. That confidence, in turn, lends long-term stability to the currency.

Currency stability is often mistaken for the absence of volatility—but the two are not the same. A stable currency reflects true market forces, not central bank management. Its value should be shaped by cross-border capital flows, much like the USD–EUR exchange rate, which stays broadly stable despite constant movement in global finance. Think of it like administered prices: India once controlled prices of essentials like steel and diesel, keeping them artificially steady. Today, those prices fluctuate with supply and demand—and that's a sign of a healthy market. Currency markets should work the same way.

Finally, a currency must be liquid—meaning investors can buy and sell large amounts of assets in it without moving prices. Liquidity depends on deep financial markets and an open capital account. India’s equity market is vibrant, but its debt market remains shallow. History shows that countries with capital controls tend to have thinner markets, while openness to foreign investors boosts liquidity. Yet, more than three decades after liberalisation began, India still maintains extensive controls—especially in its debt and derivatives markets—limiting the Rupee's global reach.

Studies of professional forecasters show the same pattern. Research by Bhanu Pratap and Kundan Kishor (2023) and by IMF (International Monetary Fund) economists Patrick Blagrave and Weicheng Lian (2020) finds that medium-term inflation forecasts have become more stable and less sensitive to short-term inflation surprises. In our own research (Vaishali Garga, Aeimit Lakdawal Lakdawala and Rajeswari Sengupta, 2022), we find that professional forecasters now expect the RBI to react more strongly to rising inflation than it did before the inflation-targeting regime. Their expectations have also become less responsive to shocks in oil prices. Together, this evidence suggests that India's recent inflation stability is not just the result of favourable global factors. It reflects a steady buildup of policy credibility.

This is where India's approach must differ sharply from China's. Beijing has sought to internationalise the RMB while retaining capital controls and a tightly managed exchange rate—a combination no currency has ever succeeded with. China’s advantage lies in scale: it commands over 12 percent of global trade, and in some products, more than half of world exports. That dominance allows it to partially offset the constraints of limited convertibility. India, with only about 3 percent of global trade, lacks that leverage. The contrast shows in the data—the RMB accounts for nearly 9 percent of global FX turnover, while the Rupee lags below 2 percent.

India's best path forward is to gradually ease its capital controls. The RBI and the government have taken meaningful steps since 2020, but more are needed. Alongside this, India should embrace a genuinely flexible exchange rate while ensuring ample hedging options for market participants. Encouragingly, progress is visible: from the near-pegged regime of 2022–24, when INR-USD volatility hit record lows, the RBI has since allowed the currency to move more freely with market forces.

Of course, India cannot liberalise the capital account or adopt a fully flexible exchange rate overnight. One promising approach is to use GIFT City, the International Financial Services Centre, as a controlled experiment. It could become India’s "Hong Kong," with an open capital account, flexible exchange rates, and robust hedging instruments. Over several years, the RBI could gain valuable experience managing such a system, gradually scaling it up to advance the Rupee's journey toward international status.

Making the Rupee an international currency aligns with India’s vision of becoming an advanced nation by 2047. But achieving this over the next two decades will demand sustained, deliberate action. Currency internationalisation is a long journey, requiring multiple building blocks. Indian policymakers must chart a path distinct from China’s, steadily dismantling the barriers that limit the Rupee's global role. Success will hinge on a steadfast commitment to economic reforms that inspire international confidence in the currency.

Reinforcing the Anchor: The Next Five Years of Inflation Targeting in India

Reinforcing the Anchor: The Next Five Years of Inflation Targeting in India, Leap Blog, Sep 25, 2025

The unending saga of India's GDP data

Business Standard September 16, 2025

In most countries, GDP data releases are routine. In India, they spark controversy. A decade after the new GDP series was introduced, questions over its credibility remain, leaving both analysts and policymakers unsure about the economy’s true health.

According to the latest data release, the economy grew at a staggering 7.8 percent rate in the April-June quarter of 2025-26, far above the forecasts arrived at by economists based on all the other data available. Unsurprisingly, the release has reignited a wave of skepticism and debate.

There are several issues with the GDP series.

The first problem concerns nominal GDP. For organised manufacturing and services, the NSO (National Statistical Office) relies heavily on firms’ financial filings with the Ministry of Corporate Affairs (MCA), collating data from firms that file regularly, and scaling up those numbers to take account of the firms that haven’t filed. However, many non-filing firms are defunct, loss-making, or mere shell companies that do not produce anything on a regular basis, but serve as conduits to hide profits or circumvent regulations. In such cases, inflating the data from filing firms to cover non-filers risks overstating GDP.

An NSSO (National Sample Survey Office) survey of these MCA firms, conducted in 2016–17, found that nearly a quarter of the 35,000 firms surveyed either refused to share data, had shut down, or were untraceable. Its 2019 report confirmed major gaps in the pool of non-filing firms. Yet these firms continue to be included in GDP estimation. This implies that India’s nominal GDP suffers from measurement issues that can worsen depending on which firms’ are sampled in a given quarter. 

Measuring the unorganised sector is another weak spot. With no fresh data, the NSO extrapolates this sector’s growth from a 2011–12 survey, assuming that it tracks the growth of the private corporate sector. At one point, this assumption seemed reasonable. But the correlation between the unorganised and organised sectors broke down after 2016, when demonetisation, GST, and Covid hit the unorganised sector firms disproportionately harder. This has led to a further upward bias in GDP growth.

Finally, there are serious issues with the GDP deflator. Once the NSO has calculated nominal GDP, it has to convert these figures into real GDP. To do this, it needs to use price indices, so that it can deflate away any increases in nominal GDP that were caused by inflation. This task is simple in concept, but complicated in practice. That’s because the NSO needs to choose an appropriate price index for each of the sectors that go into GDP. Then, it needs to deflate the inputs that go into the production of all these items, separately from the outputs.

Why is all this work necessary? Essentially, because prices do not move together. Take air travel: deflating airline revenues (a nominal figure) by the economy-wide price index does not tell us anything about the real increase in air travel in a quarter. What’s needed instead is a proper measure of ticket prices to capture the real growth in the sector. 

Unfortunately, many of the sectoral deflators in India are not appropriate. The most problematic case is the service sector, the largest sector of the economy, where the wholesale price index (WPI) is used, even though it barely tracks service prices. If instead, in the April-June quarter, this sector had been deflated using the service component of the CPI—which grew at a faster pace than the WPI—the calculated service sector growth would have been far lower than the 9.3 percent recorded.

Another deflator related issue in the first quarter was the divergence between input and output prices. As commodity prices slumped, WPI inflation dropped to 0.3 percent while (output-measuring) CPI inflation stayed near 3 percent. This difference may seem small, but it can have significant distorting effects. This is because cheaper inputs like oil push up manufacturing profits without boosting actual production. The only way to strip out this illusion is through ‘double deflation’—separately deflating inputs and outputs.

Unfortunately, unlike most G20 peers, India doesn’t follow this procedure for bulk of the GDP estimation. Instead, it deflates nominal values only once. Even more problematic, it often uses as its single deflator, the commodity-heavy WPI, which measures the price of inputs. This means nominal gains aren’t stripped out; to the contrary, they get amplified, counted once in rising profits and again through a falling deflator. The result: manufacturing growth gets overstated.

Why does this matter? Because GDP growth is the number everyone watches, especially policymakers. Yet, even as GDP data claims the economy is booming, policymakers have recently rolled out new GST measures to boost demand— an implicit admission that they themselves are not sure whether the economy is really as buoyant as the GDP numbers suggest.

The good news is that the statistics ministry is aware of all these issues and are working on fixes, with a new GDP series due in February 2026. Until then, everyone will need to continue to look at a wide variety of data in order to gauge economic activity.

Trump tariff shock: A wakeup call for India as challenges intensify

Business Standard August 19, 2025

In an unexpected development, India now faces a 50 per cent tariff on its goods exports to the United States, a hurdle higher than that of almost any other country in the world. As a result, the government needs to consider how it should respond. While there are political considerations that it will need to take into account, the objective is clear from an economic point of view: Mitigate the damage, so India can return to rapid growth. Unfortunately, this task is complicated because overseas prospects have dimmed even as the domestic economy has been slowing down.

How severe is this tariff shock? Many analysts have argued that its impact will be limited. They point out that goods exports to the US account for only 2 per cent of India’s gross domestic product or GDP, only two-thirds of which will be affected, since pharmaceuticals, electronics, and petroleum products have been exempted.

However, this line of reasoning overlooks the bigger picture. The US is not just India’s largest export market — it is also a critical economic partner. Consequently, the tariff shock will not only affect trade flows — it will rattle investor confidence, disrupt supply chains, and chip away at India’s long-term export competitiveness. The real risk lies in these ripple effects, which extend far beyond the immediate numbers.

To understand why, consider the plight of three types of firms.

The first and the most obvious are global manufacturers. India has been pitching itself as the next global manufacturing hub, especially for firms exporting to the US or diversifying away from China. This was seen as a potential game-changer for India’s growth path. With a young, increasingly skilled workforce and democratic stability, the advantage seemed clear. However, that edge has now been wiped out by a 50 per cent US tariff. Even at the reciprocal 25 per cent imposed on August 7, India would remain less competitive than most of its Asian rivals who face only 19–20 per cent tariffs on their US exports. If this differential persists, India risks losing out on a once-in-a-generation chance to become the world’s manufacturing workshop. 

It’s not only exporters of goods who stand to lose. The impact could extend to services exporters too. Nearly 60 per cent of India’s 1,700-plus Global Capability Centres are US-headquartered. While tariffs don’t directly touch them, worsening US–India relations could make the parent firms wary of expanding here. That would be a serious setback, since services exports have been a cornerstone of India’s post-Covid growth.

Finally, consider domestic manufacturers. They may not export much but many of them rely heavily on foreign inputs. If India even considers imposing retaliatory measures on the US, to add to those imposed earlier on China, it risks stalling their investment plan further. 

The tariff shock therefore threatens to ripple through the entire economy. Added to this, high-frequency data already point to an economic slowdown. Non-food bank credit growth has slipped to 10 per cent from 14 per cent a year ago, merchandise exports rose just 2 per cent in April–June, GST collections slowed to 6 per cent from 11 per cent, passenger vehicle sales have slumped, indicating sluggish urban demand, and the real estate boom of the past few years has stalled, creating a growing stock of unsold homes in major cities. 

In other words, the US tariff shock could not have come at a worse time.

How should India respond? First and foremost, India must resist the temptation to turn inward. Protectionism has never delivered rapid growth —India’s own pre-1991 record proves it, and no other country has succeeded that way. The US may be leaning protectionist now, but India cannot afford to repeat that mistake.

Instead of turning inward, India should help its exporters by deepening trade ties with multiple other countries. The deal with the United Kingdom is a welcome step, while negotiations with the European Union are vital and must be expedited. India should also pursue agreements with East and Southeast Asia, to integrate more firmly into global supply chains. That will mean lowering its tariff and non-tariff barriers, which remain among the highest in Asia. In today’s interconnected world, a strategy of self-sufficiency would be self-defeating.

At the same time, Indian policymakers must move beyond firefighting and implement reforms that unlock India’s growth potential. Reviving private investment, boosting manufacturing competitiveness, and creating jobs at scale will require cutting red tape, simplifying regulations, improving the ease of doing business, and investing in skills and not just physical infrastructure. Recent announcements — such as rationalising goods and services tax (GST) rates and setting up a Reforms Committee — are encouraging, but the real test will lie in the details and, above all, in implementation.

Finally, this setback must not push India into an anti-US stance. Frictions are inevitable in such relationships, but the US remains far too important an economic partner to sideline. India’s long-term objective should be to strengthen, and not weaken, its economic engagement with the US, by negotiating progressively better and more comprehensive trade deals.

In many ways, this could be India’s second 1991 moment. The crisis may not be as visible this time, but the stakes are just as high: the economy is at a crucial crossroads, and any policy misstep now could trap India in lower-middle-income status for decades to come.

What India’s GDP numbers reveal

What India’s GDP Numbers Reveal, Ideas for India, Aug 4, 2025.

Trade war: A second chance for India to attract global manufacturing

Business Standard July 15, 2025

India, like any country, integrates with the world through goods, services, and financial flows. It has done very well in the latter two. Now, it has a chance to emerge as a key player in global goods trade—potentially boosting its slowing GDP growth. The key question is: Can policymakers enable this shift?

Services trade from India has become a major success. From 2005 to 2023, India’s share of global services exports doubled—from under 2 percent to over 4 percent. Over the past decade, services exports grew over 8 percent annually and now make up 44 percent of India’s total exports, well above the global average of 25 percent. At the same time, gradual easing of capital controls has deepened India’s financial integration. Between 2011 and 2023, foreign portfolio inflows rose from $180 billion to $460 billion, with their share of GDP increasing from 11 percent to 14 percent.

In contrast, goods exports have fallen behind. From 2014 to 2024, they grew at just 3 percent annually—down from 17 percent in the previous decade. This slowdown coincided with a rise in protectionism, as average import tariffs doubled from 6 percent in 2013 to 12 percent in 2023.

In contrast to India’s journey, China’s share of global goods exports jumped from 4 percent in 2001 to over 14 percent in 2024. However, its rise hasn’t been without controversy. China has often been accused of violating WTO rules by unfairly supporting its manufacturers with subsidies, tax breaks, and cheap loans. Things got worse from 2017 as China grew more authoritarian. Its strict, nearly three-year long Covid-19 lockdown and the resulting supply chain disruptions exposed the risks of over-reliance on its economy. This raised political concerns in the U.S.—China’s largest export market—and triggered efforts to reduce dependence. The major shift in U.S. trade policy today stems largely from this.

After Covid, global manufacturers adopted a “China+1” strategy, shifting parts of their supply chains to other countries. Vietnam, Thailand, Cambodia, and Malaysia benefited—but India largely missed out due to policy hurdles. From 2017 to 2023, India’s share of global goods exports remained flat at around 1.7–1.8 percent, while tiny Vietnam’s rose from 1.5 to 1.9 percent.

In the latest phase of the trade war, the U.S. has threatened tariffs of 25–40 percent on imports from 16 countries, including Canada, Mexico, and a 30 percent tariff on the EU by August 1. Tariffs on Chinese goods already exceed 30 percent while India continues to face a baseline tariff of only 10 percent.

With rising export costs from many countries, multinationals will keep seeking alternative manufacturing hubs. This gives India another chance to expand its role in global goods trade—a crucial opportunity given that the domestic economy is slowing down. A surge in goods exports could lift overall GDP growth. The key question remains: can Indian policymakers seize this moment? There are two important objectives here: preserving or gaining market access and significantly increasing the share of exports in global manufacturing trade.

Ideally, India would secure a favourable trade deal with the U.S., giving it a strong edge over competitors. If not, it can still benefit from lower tariffs compared to what the other countries are facing now. And regardless of U.S. outcomes, India has the rest of the world to trade with. Progress with the UK and potential talks with the EU offer opportunities. Beyond this, India must integrate into global supply chains through agreements with China and ASEAN, and revive Bilateral Investment Treaties to boost FDI inflows.

Indian policymakers must make manufacturing far more attractive to foreign investors and implement key reforms to ease business hurdles. Despite efforts like Make in India (2014) and the Production Linked Incentive (PLI) scheme (2020), manufacturing’s share of GDP has stayed flat at around 17 percent. Private investment remains weak, and FDI inflows—despite the China+1 trend—fell to just 2.3 percent of capital formation in 2024, down from 8.8 percent in 2020.

This shows that subsidies alone cannot overcome the bureaucratic and regulatory hurdles firms face. Policymakers must simplify and reduce costs for manufacturers—making it easier to acquire land, hire workers, get approvals from ministries, and import raw materials without excessive barriers.

Firms—foreign or domestic—invest more when returns are high and risks are low. In India, however, policy risks remain high due to unpredictable moves like retrospective taxes, increased tariffs, import restrictions, and sudden regulations. To attract investment, India must create a stable, and predictable policy environment, ensure consistency across policies, and relax FDI rules. India also needs a clear, and credible trade policy that lowers tariffs, and removes arbitrary non-tariff barriers like the surge of Quality Control Orders (QCOs) since 2014.

The U.S.-led trade war has reshaped the global economy. Short-term growth may slow as countries adjust, but Indian policymakers must focus on the long term. This is a key chance to grow India’s share in global manufacturing. With the goal to become a developed nation by 2047, missing this opportunity would be costly.

India's overzealous anti-dumping response

Business Standard June 17, 2025

For years, several countries, including India, have worried about imports of cheap Chinese goods undermining local industries. These fears have grown in recent months due to rising US-China trade tensions. As of June 16, the US has increased the effective tariff on Chinese imports to 55 percent. The higher costs of selling to the US have raised concerns that China will dump its surplus goods in other markets. In response, many countries, including India, are using trade remedies such as anti-dumping duties (ADDs) to protect themselves. India is now the world’s biggest user of ADDs --- not only against China but also other nations. While dumping is a real risk, India’s heavy use of ADDs can create new problems, and hence, policymakers should apply them carefully.

In international trade, dumping occurs when a country sells goods abroad at prices lower than their fair market value. While the World Trade Organization (WTO) does not consider dumping unfair by default, it allows countries to impose ADDs if the practice causes “material injury” to local industries.

China has been the main target of ADDs, facing about 25 percent of all anti-dumping investigations since it joined the WTO in 2001. India on the other hand, is among a select few developing countries with a long history of liberal use of ADDs. From 1995 to 2023, India initiated over 1,100 investigations – more than the U.S. or EU – targeting not only China but also the EU, Switzerland, South Korea, Japan, and others. In 2024 alone, India launched 47 trade remedy investigations – 37 aimed at Chinese products like aluminium foil, vacuum flasks, and steel.

While in some instances ADDs can help protect local industries, their use comes with several drawbacks.

First, ADDs can raise costs for local industries that use the taxed imports as raw materials, making them less competitive. In March 2024, India imposed a 30 percent ADD on bare printed circuit boards (PCBs) from China and Hong Kong. This raised production costs for IT hardware manufacturers by 1–4 percent. Many of these companies were part of the government’s Production Linked Incentive (PLI) Scheme, and the added costs hurt their profits and global competitiveness, thereby undermining the PLI’s goal of boosting manufacturing and exports. Domestic PCB suppliers were unable to fill the gap due to quality issues, forcing electronics and lighting companies to either absorb the higher costs or pass them on to consumers.

Secondly, ADDs disproportionately hurt Micro, Small, and Medium Enterprises (MSMEs), which already struggle with regulatory compliance. Unlike large firms that can lobby for exemptions, MSMEs are forced to absorb the higher input costs triggered by ADDs or shut down. When India imposed ADDs on jute yarn and fabric from Bangladesh and Nepal in 2017, Indian jute mills benefited temporarily, but the move hurt small packaging and textile businesses. Many of these single-unit plants struggled with supply shortages and rising costs.

Third, ADDs can conflict with broader, national policy objectives. In 2024, India imposed ADDs on solar glass from China to shield local producers, which pushed solar photovoltaic (PV) module prices up by 10–12 percent. This, in turn, drove up project costs by 7–8 percent, forcing developers to renegotiate contracts and postpone major projects – likely impacting India’s clean energy adoption push. In effect, the ADDs made solar power costlier and less appealing for investors, undermining national renewable energy targets.

Finally, frequent and unpredictable imposition of ADDs create uncertainty for businesses and disrupt long-term planning. In the past five years, India has imposed 133 anti-dumping measures on 418 products, many in the chemicals sector. Firms that rely on these chemicals as inputs face constant threat of sudden duties, resulting in price volatility and supply disruptions.

Having said that, China’s unfair trade practices remain a real concern and select instances of dumping put local players at a disadvantage. So what should India do?

Indian policymakers should use ADDs carefully and only when backed by strong evidence. There must be clear proof that goods are being sold below fair value and causing serious harm to key industries where India has a comparative advantage. A cost-benefit analysis should also look at the impact on related sectors. One useful step would be to adopt an Economic Interest Test (EIT), like the UK does. This would help balance the needs of producers, consumers, and downstream industries, and align India with global best practices. It would also prevent a few big companies from misusing ADDs to block imports. In the past three years, over a third of ADD cases were based on complaints from only one or two domestic firms—suggesting they are sometimes used to protect monopolies or duopolies.

ADDs should not turn into yet another form of protectionism – a growing trend in India. Instead, policymakers should focus on reforms that enhance competitiveness of local firms, such as better infrastructure, simpler rules, and factor market changes. To boost manufacturing and benefit from trade, India needs to integrate into global supply chains, not retreat from them. This requires using tools like ADDs carefully and selectively.

Supreme Court’s Bhushan Steel Ruling: A Test for India’s Insolvency Regime

Business Standard May 20, 2025

The Supreme Court’s recent decision to liquidate Bhushan Power and Steel Limited (BPSL), five years after its resolution plan was approved and implemented, has sent shockwaves through India’s corporate and financial sectors. By overturning JSW Steel’s takeover of BPSL, the ruling has raised fresh questions about the Insolvency and Bankruptcy Code (IBC) and the institutions responsible for enforcing it.

A Landmark Reversal

In a major reversal, the Supreme Court ruled that the resolution plan for BPSL—approved by the Committee of Creditors and cleared by both the insolvency and the appellate tribunals (National Company Law Tribunal or NCLT and National Company Law Appellate Tribunal or NCLAT)—suffered from procedural lapses and non-compliance with the IBC. The Court found the process fundamentally flawed, ordered the return of payments made by JSW Steel to creditors, and directed BPSL’s liquidation. This decision, coming after years of revival of BPSL, could lead to major losses for creditors, who now risk recovering less through liquidation than under the earlier resolution.

Implications for the IBC

Introduced in 2016, the IBC was hailed as a major financial reform in India. It aimed to unlock capital from failed businesses, improve credit discipline, and enhance resource allocation efficiency. Its success in resolving major bad loans strengthened the financial sector and boosted investor confidence.

However, the Supreme Court’s recent ruling has cast a shadow over its future. By overturning a resolution plan years after completion, the decision has created uncertainty for creditors and investors, raising concerns about the IBC’s effectiveness.

Institutional Failures Exposed

The judgment strongly criticises the institutions involved in the BPSL case. The NCLT and NCLAT, institutions central to the IBC framework, were faulted for approving a flawed resolution plan, while the Committee of Creditors (CoC) was reprimanded for poor judgment and supporting a plan that breached legal timelines and rules. The Resolution Professional (RP) was blamed for delays and legal lapses exposing weak oversight by the Insolvency and Bankruptcy Board of India (IBBI), the regulatory body for IBC.

The Case for Reform

Much of the commentary following the judgment has called for changes to the IBC, but the real problem lies with the institutions enforcing it, not the law itself. The success of the IBC hinges as much on a sound legal framework as on the capability and integrity of its implementing bodies.

Strengthening the NCLT and NCLAT is essential, as they face persistent understaffing, shortage of benches, and limited use of technology. Many judges come from civil courts and may lack expertise in complex commercial cases. Regular training in insolvency law and allowing the use of amicus briefs in complex matters could help improve the quality of their decisions.

The oversight of the RPs by the IBBI also needs urgent reform. Though the board certifies the professionals, its ability to monitor their actions and hold them accountable remains uncertain. Stronger enforcement powers and clearer guidelines are needed to ensure RPs meet their legal and fiduciary responsibilities.

The CoC plays a central role in the resolution process under the IBC. However, the Supreme Court’s criticism highlights a key issue: to what extent should courts review the CoC’s decisions? Since creditors are expected to act in their own commercial interests, their decisions should generally be insulated from judicial scrutiny. While judicial review of procedural lapses is justified, questioning the CoC’s commercial judgment is more problematic, also because there are no clear benchmarks for such assessment. Excessive judicial intervention risks undermining the very foundation of IBC.

Economic Consequences

The economic impact of this judgment is far-reaching. Banks must now return funds received from JSW Steel, leading to higher provisioning and potential losses for them, while JSW Steel itself may struggle to recover its investments in BPSL. The uncertainty triggered by this ruling could make future bidders demand higher risk premiums or avoid distressed assets entirely, further complicating the resolution of bad loans.

This decision could freeze capital, erode investor confidence, and slow private investment—all key factors crucial for India’s goal of becoming a developed economy by 2047.

Legal issues

The SC’s decision to retrospectively undo an acquisition approved years ago and order liquidation of a now-profitable company is also troubling. While procedural lapses may have occurred, the proportionality of the punishment is debatable. A statute of limitations on judicial intervention in IBC cases could help prevent such reversals. Without it, the risk of the court overturning settled decisions may deter potential bidders from participating in the resolution process.

A Cautionary Tale

In summary, the Supreme Court’s ruling in the BPSL case exposes deep flaws in the IBC’s institutional framework and raises concerns about judicial overreach. To sustain financial sector reforms and attract long-term investment, policymakers must urgently address these issues. Restoring confidence in the IBC requires institutional as well as judicial reforms. Only by building competent, accountable institutions can the IBC’s full potential be realised and the interests of creditors, investors, and the broader economy protected.

Indian banking’s held back by inadequacy of long-term funding

Indian banking’s held back by inadequacy of long-term funding, MoneyControl, April 21, 2025.

India must watch out for GDP growth with third chance at doorstep

Business Standard April 15, 2025

With every passing day, the outcome of the global tariff war grows harder to predict. One thing is clear, though: it will have significant repercussions for India. Policymakers must find ways to limit the damage to growth—and explore how to turn this setback into an opportunity.

It maybe tempting to dismiss the tariff war, given India's predominantly domestically driven economy. Exports to the US make up only 2.3 percent of GDP, and even that may overstate their impact, as products like iPhones that India sends to the US have low domestic value added. Additionally, not all exports would be adversely impacted even if the US imposes a 26 percent tariff. In fact, some analysts believe the impact will be limited, since the tariff proposed for India is lower than those envisaged for China, Vietnam, or Bangladesh—potentially giving India a competitive edge.

This optimism is misplaced. India’s supposed competitive edge may never materialize because other Asian countries could negotiate lower tariffs with the US. It also seems likely that Canada and Mexico will keep their preferential access to the US. This implies that if Indian exports do end up facing a 26 percent tariff, exporters like auto parts manufacturers who compete with Canadian and Mexican producers, will likely lose significant ground in the US market.

Export-oriented services firms in India will also be affected. History shows that when the US economy slows down—which now seems inevitable—American companies delay investments, reducing demand for support from Indian IT firms and Global Capability Centres (GCCs). That is why IT stocks have been among the hardest hit in the recent market downturn.

More importantly, the ramifications of the tariff war go far beyond the difficulties that Indian exporters may face in the American market. An inward turn by the US and rising US-China tensions would weaken the global economy. Indian firms would consequently be hit on multiple fronts—declining global sales and falling prices. And it won’t just affect exporters. Domestic firms would also suffer, as Chinese goods, blocked from the US, flood India and other open markets, thereby cutting into the profits of domestic firms.

Arguably, falling global oil prices—WTI crude has dropped to just over USD 60—will offer some relief. But profits are still likely to fall sharply, as the declining Sensex suggests. In response, Indian businesses will cut investments to conserve cash, and wary households will scale back spending. As a result, all key drivers of the economy—exports, investment, and consumption—are likely to slow down.

That's not all. In times of global uncertainty, foreign investors often pull out of riskier emerging markets like India, moving their money to safer havens. This time, the risk is even greater, as the Reserve Bank of India and the US Federal Reserve appear to be moving in opposite directions. The RBI has already cut rates twice and adopted an accommodative stance, hinting at further rate cuts as GDP growth and inflation rate decline. Meanwhile, US tariffs could drive up prices, limiting the Fed’s ability to lower rates and may even cause the Fed to raise rates. The resultant narrowing interest rate gap between the two countries will put a lot of pressure on the rupee.

How should policymakers respond?

To their credit, Indian authorities have acknowledged the export threat, avoided retaliatory measures and seem to have stepped up trade talks with the US. For these negotiations to succeed—and to benefit India—it is crucial to lower tariff and non-tariff barriers, encouraging reciprocal moves from the US. India should also expedite trade deals with key partners in Europe and Asia. More broadly, it must position itself in the world economy as a reliable trading partner.

Regarding exchange rate movements, the RBI should let the exchange rate move freely, as a weaker rupee could help India’s exports and hence growth, especially if other emerging markets like China, also allow their currencies to depreciate in order to achieve greater export competitiveness. Moreover, any attempt by the RBI to prevent a currency depreciation by selling dollars and buying rupees would tighten domestic liquidity and hinder monetary transmission—an undesirable move when the RBI is trying to support growth through lower rates. Unpredictable foreign exchange interventions can also heighten economic uncertainty.

Less clear, however, is the government's plans to safeguard growth. The government has announced that it is ending the Production-Linked Incentives (PLI) scheme--a sensible decision considering the flaws of the program, but questions remain. How will the government encourage private sector investment? And how does it plan to take advantage of the forthcoming exodus of companies from China?

India has now missed two opportunities to convince firms to Make in India, the first in the 2010s when China began to lose competitiveness in low-tech products and the second more recently, when Chinese political risks started to increase. Unexpectedly, a third golden opportunity has now arrived on our doorstep. This time, we must ensure that we seize it.

What GDP data doesn't show: Structural weakness and real living standards

Business Standard March 18, 2025

The latest GDP data shows India’s economy is recovering, with growth rising from 5.6 percent in July-September to 6.2 percent in October-December, and an estimated 7.6 percent in January-March. At this pace, India is set to become the world’s fourth-largest economy. However, before we start celebrating, we need to examine the economic situation more carefully. Upon doing so, we’ll find significant weaknesses, indicating that substantial policy work remains.

For a start, investment remains too weak to drive rapid growth. In 2024-25, real investment is expected to rise by a mere 6 percent, trailing economic expansion. In contrast, investment during the 2004-2007 boom grew by 15 percent annually, accounting for 40 percent of GDP. Now, it stands at just 33 percent.

Even more concerning, the supposed growth acceleration disappears when considering long-term trends. For 2024-25, growth is expected to be 6.5 percent, significantly lower than the 8.8 percent average post-Covid. This is corroborated by high-frequency indicators, including slower retail sales, declining credit growth, weak corporate earnings, poor goods exports, a drop in net foreign direct investment, and a sharp fall in core inflation.

To understand the current state of the economy, we must look back a few years. Before Covid, growth had fallen below 4 percent, with the economy in poor shape. The unorganized sector struggled due to Demonetisation and poor GST implementation, while the organized sector was still recovering from excessive borrowing during the boom. Many of these issues remain unresolved. However, after Covid, they were less visible because the economy was boosted by several temporary factors.

One such factor was the normalization of activity as people returned to work and households resumed spending after the lockdown. The consumption revival was fuelled by a surge in retail credit, which grew at an annual rate of around 20 percent for several years.

A second factor was the government’s infrastructure push, with spending growing at an average rate of 30 percent between 2021-22 and 2023-24, further boosting the economy.

The most important factor, however, was the rise of a "New Economy." The growth of Global Capability Centres (GCCs) set up by multinational companies led to a remarkable 65 percent increase in service exports over the three years ending in 2023-24. The windfall income of nearly 2 million GCC workers was spent on SUVs and luxury real estate, sparking booms in the auto and construction sectors, with the latter growing in double digits in real terms in the three years ending 2023-24.

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Table: Ranking of select countries based on real GDP per capita

RBI’s costly experiments with the currency

RBI's costly experiments with the currency, Ideas for India, Feb 21, 2025.

Inflation vs Exchange Rate: RBI’s conflicting objectives

Business Standard February 18, 2025

Since November 2024, the Reserve Bank of India (RBI) has allowed the rupee to weaken against the US dollar, ending the effective peg that it had maintained for nearly two years. However, it has continued to intervene in the foreign exchange (FX) market to limit the rupee’s decline, keeping it the least volatile major currency in Emerging Asia with a modest 3 percent depreciation. This has, however, strained monetary policy and tightened liquidity at a time when the economy is weak and needs support.

To understand how this has happened, we must examine the link between monetary policy, currency management, and liquidity. The rupee weakens (or the dollar strengthens) when dollar supply in the FX market falls short of demand, such as when India's diminishing growth prospects discourage capital inflows. To counter this, the RBI can sell dollars from its FX reserves, preventing or even limiting rupee depreciation. However, it does not give dollars for free; it sells them for rupees. This absorbs rupees from the system, thereby tightening monetary conditions.

The RBI conducts this transaction with banks. When a person asks a bank to exchange Rs 1 lakh for dollars, the bank typically goes to the FX market, finds a seller, and matches the buyer with the seller. In this case, the bank acts as an intermediary, profiting from the spread between the buying and selling rates.

However, when a bank gets dollars from the RBI, the process changes. The bank must provide Rs 1 lakh to pay for the dollars, but its assets mostly consist of loans and government securities. Only a small portion of bank deposits is held at the central bank due to the CRR (cash reserve ratio) mandate. This is what the bank uses to pay the RBI when the latter sells dollars. This means when banks buy dollars from the RBI on a large scale, their balance at the RBI can fall short of requirements, causing their liquidity to tighten.

This is exactly what has been happening. For most of the past few years, the banking system had a healthy liquidity surplus. However, over the past few months, the RBI has sold large amounts of dollars, causing its FX reserves to drop sharply from USD 704 billion in September 2024 to USD 630 billion in January 2025. As a result, domestic banking system liquidity has shrunk, and the system is now in a large deficit, around Rs 1-2 lakh crores.

To address this, the RBI has taken two approaches. On a daily basis, it has been lending funds to the banks. It has also repeatedly engaged in open market purchase operations, buying government securities from banks to replenish their deposits at the RBI. These actions have ensured that banks have the necessary funds to conduct their business. However, this does not mean the RBI’s FX intervention has been without consequences.

This is evident in the graph below, which shows the difference between the weighted average call rate (WACR) and the RBI’s policy repo rate. The WACR reflects banks' borrowing costs in the overnight interbank market. When banks have a liquidity surplus, the WACR goes below the repo rate, resulting in a negative spread. However, as liquidity has tightened, particularly since November 2024, the spread has become positive, indicating that banks facing a cash shortfall have struggled to secure the necessary funds.

Figure 1: Spread between weighted average call rate (WACR) and repo rate (Source: RBI)

This matters because the RBI has now signalled its intention to ease monetary conditions. On February 7, the central bank lowered the repo rate, citing weaker inflationary pressures and slowing growth. However, just days after the cut, the RBI conducted a massive FX intervention to prevent the rupee’s depreciation. Though FX intervention data is released with a lag, anecdotal evidence suggests the RBI sold between USD 7 to 11 billion in only two days. This action tightened monetary conditions and raised the WACR.

In effect, the central bank has been sending mixed signals. Is the RBI truly committed to ease monetary conditions – or not? It is difficult to decipher from its actions.

For banks, the message is clear: as long as the RBI keeps liquidity tight and interbank lending conditions remain strained, they will be hesitant to lower their own interest rates. This reluctance means the RBI's repo rate cut will not get transmitted to the rest of the economy, and the monetary stimulus will fail to materialize. In short, the RBI's exchange rate management strategy is undermining the effectiveness of its monetary policy.

The law mandates that the RBI's primary objective is maintaining price stability, keeping an eye on growth. It does not mention managing the exchange rate. It is time for the central bank to focus on managing inflation and growth, allowing the exchange rate to adjust based on fundamental factors.

Union Budget 2025-26: Many small measures but lacks big ideas

Union Budget 2025-26: Many small measures but lacks big ideas, Ideas for India, Feb 5, 2025.

Budget 2025: Balancing reforms and fiscal consolidation to revive growth

Business Standard January 21, 2025

In less than two weeks, the Finance Minister will present the Union Budget for 2025-26. The budget will be presented against the backdrop of a slowing economy characterised by high levels of fiscal deficit and debt. That means the FM will have to find a way to announce policy initiatives to revive growth while also achieving fiscal discipline. While calls for tax cuts and increased infrastructure spending are loud, this Budget must do a lot more to drive sustained growth.

The two key questions are: What is the diagnosis of the economic slowdown? And what can the Budget do to address it?

Let's tackle the question of slowdown first. The consensus is that the slowdown is temporary, but data suggests otherwise. Barring one quarter, the economy has been slowing steadily since mid-2023, with real GDP growth rate falling from more than 8 percent to under 6 percent in just a year. High-frequency indicators also show that the post-Covid growth momentum is fading, possibly signalling a deeper, structural slowdown.

Before Covid, the economy was already struggling, growing at less than 4 percent in Q4 2019. Post-Covid, many high frequency indicators pointed to the emergence of two different economies within one: an "Old economy" in middle and rural India, and a "New economy" driven by a boom in service exports. The latter was fuelled by the rise of global capability centres (GCCs), mainly US-based, employing high-skilled Indian workers in sectors like Research and Development. The New economy boosted luxury consumption, like SUVs, and sparked a mini-boom in construction. In comparison, the Old economy has been weaker from even before the pandemic, the result of low private sector investment and weak goods exports. Workers in the Old economy have also been getting battered by high food inflation and falling real wages. And now, the New economy is slowing down too, normalizing to a more moderate growth pace. Together, these dynamics are creating a serious demand problem.

How should the Budget address this, while also reducing fiscal deficit? Two things are worth considering.

The Budget should focus on rationalizing expenditure to achieve fiscal consolidation. In February 2023, the FM had set a target to reduce the fiscal deficit to less than 4.5 percent by 2025-26, but this will be challenging in a slowing economy with nominal GDP growth under 10 percent. However, lowering the fiscal deficit is essential for macroeconomic stability, which is key for growth. To achieve fiscal consolidation, the government should reduce revenue expenditure, which includes schemes and transfers, and accounts for nearly 77 percent of total spending. For example, why is it important to provide free food grains to 800 million people annually when there is no pandemic emergency any more?

On the issue of growth, there is a lot of clamour for more government spending on infrastructure. While some infrastructure is needed, it is unclear if this alone will boost GDP growth. For sustained economic growth, a revival in private sector investment is crucial, but public infrastructure spending does not seem to encourage this. Moreover, with much infrastructure already built, the marginal benefits of new roads or highways are diminishing. In short, government infrastructure spending might be a blunt tool for stimulating growth when private sector confidence remains low.

Likewise, tax cuts can boost consumption, but given the limited fiscal space, there is little room for widespread cuts. Moreover, large segments of the Old economy, where falling wages and poor job prospects are hurting demand, aren't even in the tax base. As a result, some tweaks here and there with the tax structure are unlikely to make a significant impact.

To facilitate high, sustained growth, the Budget must revive a key element missing from India’s economic agenda: Reforms. Since the rollout of Goods and Services Tax (GST) in 2017, no major reforms have been introduced. Many say that no new reforms are needed since all the key policy initiatives have already been adopted. But this is not true. There is in fact much that needs to be done.

Given the current economic climate, the Budget could propose liberalizing import tariffs, removing non-tariff barriers where import-dumping is not a concern, scrapping Quality Control Orders that restrict the imports of vital supplies to the manufacturing sector, overhauling the tax system (including residence-based taxation to attract foreign investment), further simplifying the GST, eliminating cesses and surcharges, curbing excessive industrial policy so as to create a level playing field for all firms and incentivising states to do land and labour reforms. Long-overdue regulatory reforms should also be prioritized. The conversation around reforms has faded, but now is the time to bring it back.

This Budget must serve as a blueprint for the government’s long-term economic vision, laying out a comprehensive medium-term strategy to restore private sector confidence. Incremental changes to taxes or spending will not be enough to turn the tide, and the economy will continue to struggle. The time is ideal for a "dream budget" akin to the 1991 reforms that sparked high growth and unlocked significant gains in productivity.