We will know when it hits the fan.

"India should opt for further monetary policy easing and broad-based structural reforms to reverse a cyclical demand slowdown, the International Monetary Fund (IMF) said on Tuesday while slashing its growth projection for the country to 6.1% for the current fiscal from its July forecast." At the same time advising "India to keep the fiscal deficit in check". The Reserve Bank (RBI) has cut interest rate four times this year, so that "The repo rate now stands at 5.15 percent, the lowest sine March 2010." Low interest rate works in "negative output gaps -- those between actual output (aggregate demand) and potential output (aggregate supply)", wrote Prof T Jayakumar. However, since potential output is predicted based on the last 10 years "the true potential output is likely to be lower than the currently accepted one", which means that the potential output is about the same as actual output "albeit at a low level of equilibrium". The figures for the last two months have come in. "Merchandise exports shrank 6.57% to $26 billion while imports dropped 13.9% to $36.9 billion, narrowing India's trade deficit to a seven month low of $10.9 billion". The government is to restrict imports of many items by increasing duties on them in a bid to protect domestic industry and force foreign companies to manufacture them in India. The Index of Industrial Production (IIP) contracted by 1.1% in August, the first time since 2012. IIP compares growth in industrial production with the same period last year and shows "sustained shrinkage in two key groups -- capital goods and consumer durables". The purchasing managers' index (PMI) for September was the same as in August at 51.4. Anything above 50 is positive. "The index of eight core infrastructure industries declined 0.5% during the month (August), according to government data released on Monday. Production in five sectors, including electricity and cement shrank." By cutting interest rate by 25 basis points and not by a larger amount the RBI signaled that while it is ready to encourage lending in a bid to increase growth, the government has to do its bit by spending more, even if it means breaching its fiscal deficit target. The government provided a huge fiscal stimulus by slashing corporate tax rate by 10% in "a textbook response to a cyclical downturn". The questions are "will this revive animal spirits and sputtering GDP growth" and is it going to be "financed by newly printed currency rather than debt. In other words: Is this helicopter money?" asked A Mukherjee. "Animal spirits" remain hushed as indicators showed a weak economy, wrote A Nag. Trouble is, "India's fiscal deficit 'conceals' a lot and is probably pushing Asia's third largest-economy to the brink of a 'worrisome' situation, former RBI governor Raghuram Rajan has warned." First, and most important, we need reliable statistics to know where the sickness is. But the government doesn't. Until the stuff hits the fan.