2 things India must focus on for now

To combat effects of wide current account deficit.

According to DBS, as widely expected, the Reserve Bank of India (RBI) on January 29 reduced its main policy interest rates, the repo rate and reverse repo rate, by 25bps to 7.75% and 6.75% respectively. 

The rate action and the policy statement suggest that the RBI is prepared to gradually lower policy rates this year so long as inflation is stable and the risks to exchange rate stability stemming from the current account deficit recede.

Here's more from DBS:

We think further rate cuts will materialize at a pace of 25bps per quarter as inflation pressures are easing and the combination of slower domestic and faster external demand growth should lower the risks stemming from the current account deficit.

Slower GDP growth and increasing excess capacity suggest that the annual WPI inflation rate has peaked and is likely to exhibit more range-bound behavior in 2013/14.

However, this alone does not mean that the RBI will lower policy rates significantly now. While a continued decline in the inflation rate might give more space for monetary policy to ease further, the balance of payments position is too weak for policy interest rates to be lowered sharply in the coming months.

For now, RBI policy will remain focused on improving the Indian economy’s macroeconomic and exchange rate stability. The wide current account deficit makes the Indian economy vulnerable to adverse shifts in risk appetite.

In the event of further turmoil, capital outflows and a shift from offshore to onshore borrowing could significantly tighten dollar and rupee liquidity. With the wide current account deficit making systemic liquidity and exchange rate stability dependent on capital inflows, policy interest rates cannot be lowered quickly.