It may sound baffling to an urban consumer. But, in May, Tractors were definitely one thing that the Indians bought. At a time when other vehicle categories are reporting 30-40% decline month after month, Escorts' tractor sales in May had a meager decline of 0.5% while M&M's tractor sales grew by 2% for the month.

Mahindra Group Chairman Anand Mahindra reads it as a sign of rural recovery and expectation of better monsoon. The government is also banking on a healthy monsoon season to revive the demand cycle. Their optimism is evident from more focus on supply-side measures in the recently announced stimulus package.

Moody's downgrade: What should India do?

Moody’s has downgraded India’s sovereign rating to Baa3 from Baa2 while keeping the outlook ‘negative’. Moody's has counted a prolonged period of slower growth, rising debt and stress in the financial system as the major reasons for the downgrade.

However, the historic trend across several countries suggests that such rating actions have little or no impact. In fact, growth trends, credit cycle, monetary policy, Fed’s stance, etc are far bigger drivers for bond yields and exchange rates than a rating action.

Citing the minimal impact of these rating actions on a country's long term growth prospect, reviving growth through fiscal/monetary activism is far more important than curbing debt. And since India’s external deficit is quite contained, India should be looking to accelerate fiscal expansion in the current environment.

Key takeaways:

With pandemic leading to the global economic slowdown, rising fiscal deficit is not just India specific phenomena. In fact, in the current situation, any attempt to curb fiscal deficit would only accentuate the slowdown.

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