While inflation can reduce the real value of taxes, it also discourages investment.....

 Lower inflation expectations are better because they provide stability for businesses and consumers, leading to more predictable planning and sustained economic growth. While inflation can reduce the real value of taxes, it also discourages investment and can lead to higher interest rates, so managing it is crucial for short-term growth. India can boost short-term growth with lower inflation by ensuring monetary policy aligns with the goal of stable prices, which in turn supports domestic demand and investment.

Why lower inflation expectations are better

Promotes economic stability: Lower and stable inflation expectations allow businesses and consumers to plan for the future with more certainty, as they don't fear a rapid erosion of their purchasing power or a sharp increase in future costs.

Encourages long-term investment: Businesses are more likely to invest in new projects when they can predict future costs and revenues more accurately. High inflation can create uncertainty and make long-term investment less attractive.

Avoids negative effects of high inflation: High inflation can reduce profit margins, complicate financial planning, and lead to a "wage-price spiral" where wages increase to match prices, further fueling inflation.

Anchors inflation: Once inflation expectations are anchored at a low level, it is easier for the central bank to maintain price stability. This is a key goal of the Reserve Bank of India's (RBI) flexible inflation targeting framework, notes the IMF.

How lower inflation boosts short-term growth

Boosts domestic demand: With lower inflation, the real value of disposable income is higher, leading to increased consumer spending, which is a key driver of GDP growth, according to PIB reports.

Facilitates monetary policy: Lower inflation gives the central bank more room to maneuver. The RBI can cut interest rates to stimulate the economy, and these cuts have a more significant impact in a low-inflation environment, as seen in the projected rate cuts in 2025, says this PIB report.

Reduces the impact of high tax costs: The value of certain taxes, such as fixed penalty rates for late tax payments, is eroded by high inflation, making it less of a deterrent, notes the IMF. While this may seem like a short-term benefit, it distorts the tax system and is not a sustainable driver of growth.

Conclusion

Lower inflation expectations are beneficial because they create a stable and predictable economic environment that fosters investment and growth. While inflation can reduce the real value of taxes, this is a negative consequence of high inflation that also hurts businesses and consumers. By keeping inflation low, India can boost short-term growth through increased consumer spending and more effective monetary policy, while simultaneously creating a foundation for long-term economic stability and prosperity.

The primary reason these items remain outside of GST is the resistance from state governments who fear significant revenue loss and the loss of fiscal autonomy.....

 Integrating key recurring costs like fuel, electricity, real estate, and alcohol into India's Goods and Services Tax (GST) framework is a complex and contentious issue. While including them could increase household savings and investment by reducing the cascading tax effect and potentially lowering costs, significant challenges, especially for state revenues, have kept these items outside the GST ambit. Bringing these high-value items under GST could lower the overall tax burden for consumers and businesses, potentially leading to increased disposable income for savings and investment. The current system taxes these items multiple times. Fuel and alcohol, for instance, have central excise duties and state-level VAT, which are levied on top of each other. Integrating them into GST would replace these multiple taxes with a single levy, reducing the final price for consumers and the cost for businesses. If applied at a lower, uniform rate, consumers would see immediate savings. For example, some estimates suggest that taxing petrol and diesel at the highest GST slab could still significantly reduce their prices. The reduction in recurring expenses like fuel and electricity, which affect both households and businesses, would free up more money for savings and investment. Lower logistics and manufacturing costs for businesses, achieved through the ability to claim input tax credit (ITC) on fuel and electricity, could spur industrial growth and make India more competitive.

The items mentioned are currently taxed outside of the GST regime. Petroleum products like petrol and diesel are a major source of revenue for both the central and state governments. The center levies an excise duty, while states impose their own Value Added Tax (VAT), leading to widely varying prices across the country. While the electricity supplied by utility companies is exempt from GST, related services like installation and maintenance attract GST. Taxes on electricity are levied by state governments. The sale of completed properties with an occupancy certificate falls outside the scope of GST. However, GST is applicable to the sale of under-construction properties. Alcoholic liquor for human consumption is constitutionally excluded from GST. State governments retain full control over its taxation through excise duties and VAT, which is a major source of their revenue. While many essential food items like fresh produce and unprocessed grains are exempt from GST, processed and packaged food items are taxed at various GST rates (e.g., 5%, 18%).

The primary reason these items remain outside of GST is the resistance from state governments who fear significant revenue loss and the loss of fiscal autonomy. Fuel and alcohol are major sources of tax revenue for state governments. Bringing them under a standardized GST would mean sharing this revenue with the central government, which states are reluctant to do. High taxes on alcohol and fuel allow both the central and state governments to manage revenues and influence consumption patterns, a power they are unwilling to cede. In the case of fuel, international crude price volatility means that central and state governments currently adjust duties separately to manage prices. Integrating fuel into a single GST rate could complicate fiscal policy. The exclusion of fuel and alcohol from GST means that businesses cannot claim input tax credit on them. This breaks the seamless credit chain, a core objective of the GST framework.

Integrating these sectors into GST could be a double-edged sword for household savings and investment, but the prevailing view suggests a net positive if managed correctly. If managed effectively, the integration of these sectors could lead to lower prices, increased disposable income, and higher household savings and investment. The potential increase in costs for some items or compliance burdens for businesses could have a negative effect, though reforms like those introduced in September 2025 aimed to address some of these issues by simplifying tax slabs. Ultimately, while the potential for increased savings and investment exists by bringing these high-cost items into GST, the political and economic challenges related to state revenues and fiscal policy remain a major hurdle.

Risk management strategies like hedging are indispensable for financial stability.....

 Hedging is an important part of a company's feasibility report in India, especially for businesses with international operations, exposure to commodity price fluctuations, or significant debt. Since a feasibility study assesses all potential risks and the financial viability of a new project, it must include an analysis of strategies to mitigate financial risks like hedging.

How hedging is included in a feasibility report

Hedging is not a standalone section but is incorporated into the overall risk assessment and financial analysis. Key areas in the report where hedging is addressed include:

1. Financial feasibility

This section evaluates if the project is economically justifiable and includes financial projections for costs, revenues, and profitability. For businesses with risk exposure, such as to fluctuating currency or commodity prices, an effective hedging strategy is critical for ensuring that these projections are stable and predictable.

For example, an airline company's feasibility report for a new route would factor in the cost of fuel. Its financial projections would be based on a plan to use hedging instruments like futures contracts to lock in fuel prices, thus minimizing the financial risk from potential price hikes.

2. Risk assessment

This is a core component of any feasibility study that identifies potential risks and outlines mitigation strategies. For companies exposed to market risks, a hedge is a primary way to control this exposure.

Foreign exchange risk: For an Indian company that exports or imports goods, or has international financial transactions, the report must analyze the risk from fluctuating currency exchange rates. It should detail the hedging strategy, such as using forward or futures contracts, to protect cash flows and profitability.

Commodity risk: If a project relies on commodities like oil, a feasibility report would assess the risk of price changes. The plan to hedge against this risk using financial instruments is an essential part of the risk assessment.

3. Managerial and organizational feasibility

This section examines if the management has the capacity and structure to support the project. This can include the company's ability to develop and execute complex hedging strategies effectively.

A feasibility report provides a comprehensive and objective evaluation of a proposed project's viability, covering market, technical, and financial aspects. Given the significant market volatility in India and globally, risk management strategies like hedging are indispensable for financial stability. Including a well-defined hedging plan in a feasibility report provides a clear picture of how the company intends to mitigate risks, protect its projected cash flows, and ensure the project's long-term sustainability. For businesses with exposure to foreign currency, interest rates, or commodity prices, the inclusion of a hedging strategy transforms the report from a simple viability check into a robust and realistic business plan that inspires confidence in investors and lenders.

Hedging creates certainty in repayment obligations....

 Indian businesses can benefit from lower external borrowing costs and Masala bonds primarily by accessing a new pool of capital at potentially lower rates. When combined with strategic hedging using currency derivatives, they can minimize foreign exchange risk, increase financial stability, and free up capital for core business activities.

Benefits from lower borrowing costs and Masala bonds

Lower borrowing costs through external sources like External Commercial Borrowings (ECBs) and Masala bonds directly boost an Indian company's financial health.

Access to competitive rates: International interest rates are often lower than domestic rates, allowing companies to reduce their overall cost of capital. This makes new projects more profitable and improves a company's bottom line.

Reduced currency risk with Masala bonds: Unlike traditional ECBs denominated in foreign currencies, Masala bonds are rupee-denominated. This shifts the currency exchange risk from the Indian issuer to the foreign investor, protecting the Indian company from losses if the rupee depreciates.

Diversification of funding sources: Tapping international markets allows companies to diversify their funding beyond domestic banks. This is particularly valuable during periods of tight domestic liquidity.

Access to a broader investor base: Issuing Masala bonds on international exchanges, such as those in London or Singapore, gives Indian companies access to a wider pool of foreign investors. This can increase demand for their debt and potentially lower borrowing costs.

Increased financial flexibility: Longer maturity periods, often available with ECBs and Masala bonds, give companies more flexibility for long-term strategic planning and capital-intensive projects.

Benefits of hedging external borrowing with currency derivatives

For companies that choose foreign currency ECBs, hedging with derivatives is a crucial strategy for mitigating the currency risk and securing the low-cost borrowing benefits.

Derivative strategy    

How it benefits Indian businesses

Forward contracts      

Allows a company to lock in an exchange rate for a future date, creating certainty for its future payments. This is suitable for managing transaction-specific risks like an upcoming loan repayment.

Currency swaps          

Enables a company to exchange a foreign currency liability for a domestic one for a specified period. This offers a longer-term hedge against exchange rate volatility by effectively converting a foreign currency loan into a rupee-denominated one.

Currency options       

Gives the company the right, but not the obligation, to buy or sell a foreign currency at a predetermined price. This offers protection against an unfavorable movement in the exchange rate while retaining the ability to benefit from a favorable movement.

Synergistic benefits and strategic outcomes

By combining the lower costs of external borrowing with astute hedging strategies, Indian businesses can unlock several strategic advantages.

Enhanced balance sheet stability: By mitigating the risk of large, unpredictable liabilities from currency fluctuations, companies can protect their balance sheets and credit ratings. This financial stability signals strength to investors and creditors.

Hedging creates certainty in repayment obligations. With more predictable cash flows, a company can better plan for future investments, expansion, and operations. The combination of a lower cost of capital and stable financial planning enables companies to price their products and services more competitively, both domestically and internationally. Diversifying funding and hedging against currency risk reduces a company's sensitivity to domestic interest rate cycles and market conditions. A proactive approach to risk management enhances an Indian company's appeal to foreign investors. It demonstrates sophisticated financial management, which can further open doors to more international capital.

For education to serve as a catalyst for equity, it must address the systemic barriers that perpetuate inequality.....

 To foster an equitable and inclusive society, providing quality education for all, especially in STEM fields, is vital for both individual empowerment and national economic growth. By equipping a diverse populace with skills relevant to burgeoning industries like IT, manufacturing, and healthcare, a nation can reduce inequality and become more globally competitive. A fully subsidized, knowledge-focused education policy in India could significantly boost development and economic growth by creating a highly skilled workforce, fostering innovation and entrepreneurship, and increasing overall national productivity, leading to higher real incomes for its citizens. This investment in human capital would strengthen India's economic foundation, attract more investment, promote diverse industrial growth, and ultimately contribute to higher GDP and reduced poverty.

Benefits for India's Economy and Development

A well-educated population is more productive, creative, and capable of performing complex tasks, which is essential for a thriving economy. Education fosters an environment where new ideas and businesses can flourish, driving technological advancements and new industries. An educated and skilled workforce commands better employment opportunities and higher wages, leading to increased real incomes for individuals and a reduction in poverty rates. A more educated workforce contributes directly to higher national productivity and GDP growth rates. A skilled talent pool makes a country more attractive for domestic and foreign investment, further fueling economic growth. Ensuring access to quality education for all, regardless of socioeconomic background, promotes greater equity and a more inclusive society. Investing in education, especially in STEM fields, equips the nation to develop and compete in sectors like IT, manufacturing, and healthcare.

Investing in STEM education

As industries advance with technologies like AI, automation, and big data, a STEM-literate workforce is essential. Investments in STEM education can address skill gaps and ensure the workforce is equipped for the jobs of the future. STEM education fosters critical thinking and problem-solving skills, which are crucial for innovation. This can fuel scientific discovery, technology breakthroughs, and entrepreneurship, leading to new industries and job creation. Nations that prioritize STEM education and R&D are more likely to lead in innovation and remain competitive in the global market. Fostering partnerships between educational institutions and industries helps align the curriculum with market needs. Initiatives like internships and mentorship programs provide students with real-world experience.

Focus on IT, manufacturing, and healthcare

Targeted educational investments can be tailored to the specific needs of high-growth sectors. The IT sector relies heavily on a skilled workforce in areas like artificial intelligence, data science, and cloud computing. Education can integrate digital literacy and coding from an early age and offer specialized programs to prepare students for these roles. As the manufacturing sector evolves with Industry 4.0, education must shift to emphasize emerging technologies like robotics, IoT, and data analytics. Vocational training programs can provide the hands-on, practical skills needed for modern, technology-centric manufacturing roles. The healthcare industry is being transformed by digital technologies and personalized care. Specialized programs, like IIT Delhi's Executive Programme in Healthcare for Industry 5.0, are crucial for training professionals in health-tech, big data analytics, and AI applications.

For education to serve as a catalyst for equity, it must address the systemic barriers that perpetuate inequality. Education must be accessible to all, irrespective of socioeconomic background, gender, or location. For instance, a child in a low-income family is far less likely to have access to quality early childhood education or tutoring services. Schools must foster an atmosphere of acceptance and respect for all students. Inclusive education practices, such as differentiated instruction and culturally responsive teaching, benefit both marginalized students and society as a whole. Because students start from different baselines, equity requires different levels of support to achieve the same outcome. This includes dedicated resources for underserved schools, targeted programs for marginalized groups, and support for learners with special needs. Education is a powerful tool for social mobility that helps individuals from disadvantaged backgrounds secure better employment and improve their livelihoods. This economic empowerment helps break the intergenerational cycle of poverty. Quality education can reduce societal inequalities linked to income, caste, and gender. By exposing students to diverse perspectives and backgrounds, it promotes tolerance and strengthens social bonds. Investing in education, particularly in STEM fields, is a strategic priority for developing new industries and driving economic growth. A larger number of educated and employable individuals leads to increased employment and higher wages, resulting in greater overall income tax collection for the government. This increased tax revenue can then be reinvested into further strengthening the education system, infrastructure, and other crucial sectors, creating a virtuous cycle of growth and development.

By adopting a dovish hold, the RBI sought to manage global risks while supporting the domestic economy.....

 Low inflation and the anticipation of lower interest rates help India offset the drag from tariffs by reducing production costs and boosting consumer spending. The government's recent GST rate cuts on key items and potential further tax reductions, alongside stable prices, reduce business costs and increase purchasing power, supporting domestic demand. Additionally, the Reserve Bank of India (RBI) has policy space to cut interest rates if tariffs significantly hinder growth, making credit cheaper for businesses and individuals, thereby stimulating investment and consumption to counterbalance reduced exports. The Reserve Bank of India's (RBI) decision to keep interest rates steady while signaling a supportive, or "dovish," stance toward future growth. This is done to counteract potential negative impacts on the economy, specifically from new tariffs.

How Low Inflation Helps

Lower inflation means input costs for businesses, such as raw materials and energy, are more stable or decreasing, improving profit margins and potentially leading to lower consumer prices. With lower inflation, the purchasing power of consumers is maintained or enhanced, encouraging them to spend on goods and services. Low inflation provides the Reserve Bank of India (RBI) with the "policy space" to reduce interest rates to support growth without immediately risking overheating the economy.

How Low Interest Rates Help

Lower interest rates make borrowing cheaper for businesses, encouraging them to invest in expansion, new technologies, and capital projects, which drives economic growth. Lower rates reduce the cost of loans for homes, cars, and other durables, making them more affordable and encouraging greater consumer spending. Lower rates improve the flow of credit and liquidity in the economy, benefiting sectors like MSMEs and manufacturing.

How Policy Expectations Help

The expectation of further interest rate cuts, or a "dovish hold" by the RBI, signals continued monetary policy support for growth in the face of tariff-related headwinds. A stable and supportive policy framework, with lower interest rates expected, allows businesses and consumers to plan with greater certainty, boosting confidence and investment.

How Fiscal Measures Complement Monetary Policy

The government's recent reductions in Goods and Services Tax (GST) rates on essential goods and services directly boost consumer spending and reduce business costs, creating a strong domestic counter-force to tariff impacts. The combined effect of lower prices from inflation and reduced taxes stimulates domestic consumption, which can help offset the negative impact of reduced exports due to tariffs.

Dovish vs. dovish hold

A central bank signals that it is prioritizing economic growth and employment over controlling inflation. This is typically done by lowering interest rates, which makes borrowing cheaper and encourages spending. This occurs when a central bank like the RBI holds the main policy rate (the repo rate) unchanged but adopts communication that signals its bias toward future easing. It is a "wait-and-watch" approach that allows the central bank to assess evolving economic conditions before committing to a rate cut.

Key elements of the RBI's recent dovish hold

The RBI's actions and commentary on October 1, 2025, illustrate this strategy. The RBI's Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.5% for the second consecutive meeting. The RBI revised its GDP growth forecast for FY26 upwards to 6.8% (from 6.5%) while simultaneously lowering its inflation forecast to 2.6% (from 3.1%). This created more space for potential rate cuts. The central bank acknowledged that higher US tariffs on Indian exports could weigh on growth in the coming quarters. By highlighting lower inflation and external headwinds, the RBI indicated it could cut rates in the future if growth staggers. This is the "dovish" element of the "hold."

By adopting a dovish hold, the RBI sought to manage global risks while supporting the domestic economy. New US tariffs on Indian goods threaten to hurt exports and overall economic growth. By maintaining an easy monetary stance, the RBI provides continued support for domestic consumption and investment to offset this external pressure. Lower interest rates reduce borrowing costs for both individuals and businesses. This encourages higher consumption and investment, stimulating economic activity. In the real estate sector, for example, a stable or falling repo rate supports lower home loan rates, boosting buyer confidence. The RBI's primary mandate is to keep inflation within its target range of 4% (with a +/- 2% band). By revising its inflation forecast down, the RBI's dovish hold signals confidence that it can support growth without risking an uncontrolled rise in prices. The dovish tone and potential for future rate cuts tend to boost market sentiment. The stock market, for instance, often reacts positively to news of a dovish monetary policy.

A RBI interest rate cut provides a multi-faceted stimulus for exports...

 An interest rate cut by the Reserve Bank of India (RBI) can significantly boost exports by making Indian goods cheaper for foreign buyers due to currency depreciation, reducing borrowing costs for domestic businesses to improve their competitiveness, and spurring economic growth which increases demand for exports. While the benefits for India are substantial, the extent of this help depends on other economic factors and global conditions, as rate cuts are not a "magic bullet" for growth, notes former RBI Governor Raghuram Rajan.

How a Rate Cut Helps Exports

Currency Depreciation:

A lower interest rate can lead to a weaker Indian Rupee against other currencies, making it cheaper for foreign buyers to purchase Indian goods and services, thereby increasing demand and exports.

Cheaper Borrowing for Businesses:

Lower interest rates reduce the cost of taking loans for businesses. This allows them to invest in new projects, expand operations, and become more competitive, leading to increased production and export potential.

Economic Stimulation:

Lower borrowing costs for consumers and businesses can boost overall economic activity and demand. A stronger domestic economy also supports the growth of export-oriented industries.

Improved Liquidity for Banks:

A rate cut can be coupled with other measures, such as a Cash Reserve Ratio (CRR) cut, to inject more funds into the banking system. This increased liquidity enables banks to lend more, supporting credit growth and investment.

Potential for Growth

Increased Competitiveness:

With lower borrowing costs and a weaker currency, Indian businesses can offer their products at more attractive prices on the international market, boosting their export volumes.

Job Creation:

Higher business investment and increased production, driven by easier access to credit, can lead to job creation and a virtuous cycle of economic growth.

Factors to Consider

Inflation:

While rate cuts are a tool for growth, they can also contribute to higher inflation, which could offset some of the benefits of a weaker currency.

Global Economic Conditions:

The effectiveness of rate cuts is also influenced by external factors like global trade disruptions, the volatility of oil prices, and global demand for Indian goods.

Market Expectations:

The actual impact of a rate cut can depend on whether the size of the cut meets market expectations.

In summary, a RBI interest rate cut provides a multi-faceted stimulus for exports by improving both the cost-competitiveness of businesses and the international price of Indian products, ultimately contributing to economic growth.