India seems to be making new lows every day. First, it was rupee. Then it was GDP which grew by just 4.4% in April-June quarter. This was the lowest ever figure reported in the last 4 years. And now we have the factory data that has had the lowest ever reading since March 2009. The HSBC purchasing managers index (PMI) sank to 48.5 in August from 50.1 in July. An index level below the 50 figure mark is a sign of worry since it indicates contraction. Declining production and exports due to waning demand led to a decline in the index. With all indicators showing blurry picture of the Indian economy, there is a general consensus that sub 5% growth is the new benchmark for India now.

However, apart from growth concerns, depreciating currency is another headache for the government. With none of the steps to curb the free fall in rupee materializing, India's current account situation has turned precarious. Also, depreciating currency will fuel inflation that may come via importing crude. This can further exacerbate the inflationary scenario in the country.    

However, new governor Dr Raghuram Rajan has certainly taken his office as RBI chief in difficult times. So while the pressure of managing the currency and keeping watch on inflation have not subsided, he needs to do more. As per Economic Times, it is pertinent that Dr Rajan should turn his attention to balance sheets of PSU banks. As we have written earlier, the quality of assets in PSU banks has gone from bad to worse in the past year. And some have yet to see the worse. Without adequate measures, these entities would be in need of massive bailouts. So while the government may want to pass on the buck to RBI, Dr Rajan should take a firm stance. Like his predecessor, he should not lose sight of what holds good for the banking sector.