What India Can Do About Its Low Inflation Problem

India’s economy, so often touted for potential to supplant China as a global engine, is having a hard time getting its arms around inflation. Not that it's too high, but because the pace of price increases is worryingly low. Fixing this will require more than the standard prescription — simply cutting interest rates. The promise of an aggressive and sustained easing is needed, one that brings its own share of challenges.

This will be tough for Reserve Bank of India Governor Sanjay Malhotra to get right. Markets already appreciate the need for a change. The rupee is the worst-performing Asian currency this year against the dollar and, on Friday, it fell to a record low. Traders attributed at least part of the slide to the RBI's reluctance to intervene, breaking with the practice of recent months as the currency weakened largely because of an elusive trade deal with the US. The bank's absence may be a strong signal that a policy shift is in the wings; lower borrowing costs tend to weigh on a currency. (The central bank returned to the market on Monday.)