A new study published in the RBI monthly bulletin for September highlights that the business cycles of the southern and western regions of India are becoming increasingly synchronous with the national cycle. The paper, released on September 20, identifies several factors contributing to this trend, notably common events that affect both regional and national economies, including weather shocks and fluctuations in global crude oil and commodity prices.

The study emphasizes the role of both fiscal and monetary policy in fostering this state-level synchronization. Notably, the Federal Reserve recently cut its policy rate by 50 basis points on September 19. While economists speculate that the RBI may not follow suit with a similar cut in October, a 25 basis point hike in December remains a possibility.

One significant finding of the paper is that agricultural states exhibit greater synchronization in their business cycles compared to states primarily focused on industrial and service sectors. The study indicates that geographical proximity plays a crucial role in interlinkages between these different types of states. For instance, Maharashtra shows a higher degree of synchronization with the industrially oriented states of the south, while agricultural states like Andhra Pradesh, Rajasthan, Madhya Pradesh, and Uttar Pradesh display strong correlations.

Additionally, the paper recommends that the RBI strengthen its accounts for a more comprehensive study of state business cycles. This improvement in data collection and analysis is aimed at mitigating the adverse effects of economic fluctuations on regional economies. The Ministry of Statistics and Programme Implementation has also emphasized the necessity of collecting district-wise statistics to facilitate more targeted economic planning and response.

As the economic landscape evolves, these insights into synchronization patterns are crucial for policymakers, enabling them to tailor interventions that support both regional stability and national economic resilience.

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