India Financial Policy - Newspaper Summary

 The sources provide extensive information on Indian financial policy, contextualized within ongoing economic activity, regulatory shifts, and significant global trade headwinds.

I. Macroeconomic and Fiscal Policy

India's financial policies are characterized by a commitment to fiscal prudence alongside structural reforms aimed at stimulating consumption and growth.

Fiscal Management and Government Borrowing

The government aims to maintain fiscal stability by adhering to its budgetary targets.

• Fiscal Deficit: The government has reaffirmed its commitment to meet the fiscal deficit target of 4.4% of GDP for FY26.
• Borrowing Program: The government, in consultation with the Reserve Bank of India (RBI), finalized the borrowing calendar for the second half of fiscal year 2026 (FY26), aiming to raise ₹6.77 trillion through dated securities between October 2025 and March 2026. The total gross borrowing for FY26 was slightly reduced to ₹14.72 lakh crore from initial estimates.
• Green Bonds: The borrowing plan includes ₹10,000 crore raised through sovereign green bonds (SGrBs) via two 30-year issuances scheduled for October and November.
• Yield Curve Management: The Centre plans to offer sovereign bonds across maturities (3, 5, 7, 15, 30, 40, and 50 years) to maintain a balanced yield curve, with ten-year bonds forming the backbone of the strategy.

Taxation and Consumption Boost

Recent fiscal policy included significant tax reform intended to bolster domestic demand.

• GST Rationalization: India reformed its indirect tax system in August 2025, rationalizing the Goods and Services Tax (GST) slabs to 5%, 18%, and 40%, and moving several product categories to lower rates.
• Economic Impact: The finance ministry views regulatory reforms and infrastructure development as key to sustaining India’s growth momentum. The GST overhaul is expected to boost consumption, especially ahead of the festive season. A Finance Ministry report stated that this tax rationalization is expected to lower the tax burden on consumers, boost consumption, improve demand visibility for firms, and potentially lead to a one-time reduction in retail inflation over the next year.

II. Monetary Policy and Financial Sector Regulation

Policy commentary suggests a delicate balance is being struck between maintaining low inflation and supporting growth, particularly concerning lending rates and liquidity.

Monetary Stance and Rate Cuts

• Inflation Outlook: India's price situation is described as "extremely benign" and retail inflation was low (2.07% in August), remaining well below the median target rate of 4%.
• Policy Imperatives: Despite resilient real GDP growth (7.8% in Q1 FY26), India's growth remains below its potential (7–7.5%). The RBI's monetary policy transmission has slowed due to a neutral policy stance since June 2025, leading to India having one of the highest real policy rates among its peers.
• Rate Cut Opportunity: Given the benign inflation forecast, the Monetary Policy Committee (MPC) has an opportunity to cut the repo rate by 25 basis points (bps) in October. A dovish forward guidance would also be needed to accelerate transmission to lending rates and yields.

Non-Banking Financial Companies (NBFCs)

NBFCs play a crucial role in economic credit mediation, presenting unique challenges for policy transmission.

• Monetary Transmission: NBFCs facilitate monetary policy transmission to the broader economy, although indirectly, as they lack direct access to the RBI's liquidity adjustment facility (LAF) window.
• Cost of Funds: NBFCs rely on bank and market borrowings, meaning that repo rate reductions may not immediately translate into reduced costs of funding due to factors like liquidity conditions and perceived riskiness. Empirical analysis suggests that monetary policy transmission to NBFC lending rates is incomplete; a one percentage point change in the repo rate is linked to only a 0.33 percentage point change in the NBFC weighted average lending rate (WALR) over three quarters.
• Risk Management: The introduction of the Liquidity Coverage Ratio (LCR) is expected to strengthen NBFCs' short-term resilience.

Capital Markets and IPO Regulation

The Securities and Exchange Board of India (SEBI) introduced key reforms to boost institutional participation in the primary market.

• Anchor Investor Base Expansion: SEBI enlarged the base of anchor investors to include life insurance companies and pension funds.
• FPI Facilitation: The limit on the number of permissible anchor investor allottees was increased for larger allocations to address operational constraints faced by Foreign Portfolio Investors (FPIs) with multiple funds.
• Mutual Fund Quota: The quota for mutual funds (MFs) in the anchor portion of an IPO has been increased from 33% to 40%.

Legal and Financial Landmark Rulings

The Supreme Court delivered finality in two major areas: insolvency and dividend taxation.

• Insolvency (IBC): The Supreme Court upheld JSW Steel’s ₹19,700 crore resolution plan for Bhushan Power and Steel Ltd (BPSL), concluding one of India's longest insolvency battles. This ruling affirmed the commercial wisdom of the Committee of Creditors (CoC) and is expected to bolster investor confidence. Crucially, the court clarified that earnings generated during the Corporate Insolvency Resolution Process (CIRP) in circumstances not defined in the plan, such as EBITDA, belong to the corporate debtor.
• Dividend Taxation: The Supreme Court dismissed a curative petition filed by Nestle, upholding an earlier ruling that a Double Taxation Avoidance Agreement (DTAA) cannot be enforced unless explicitly notified under Section 90 of the Income Tax Act. This impacts several foreign multinational corporations (MNCs) that face demands for higher taxes on dividends.

III. International Economic and Regulatory Updates

India is navigating external economic friction points, primarily driven by US policy decisions regarding trade and immigration.

US Tariffs and Trade Uncertainty

US President Donald Trump announced new tariffs, including a 100% levy on branded drugs and a 25% levy on heavy-duty trucks and furniture, effective from October 1.

• Market Reaction: Benchmark indices, including the Sensex and Nifty, tumbled nearly 1%, marking the sixth consecutive day of decline, with pharmaceutical and IT shares being heavily hit.
• Impact on Indian Pharma: Industry officials largely believe the impact on Indian pharmaceutical exports will be minimal, as the country primarily ships generic medicines to the US. Branded or patented drugs account for only 1–3% of Indian exports to the US. However, stakeholders are awaiting the official US legal documents for complete clarity.
• Mitigation Strategy: Many large Indian pharma companies already operate US manufacturing or repackaging units, which might exempt them from the new levies.

Immigration Policy and H-1B Visas

Changes to the H-1B visa policy pose significant friction.

• H-1B Fee Hike: The US announced a one-time fee of $100,000 on new H-1B visa petitions from next year, a dramatic increase from the current fee structure. This move disproportionately affects India, as over 70% of H-1B holders are Indian citizens.
• Visa Data: Data shows that in 2024 (October-September), the Indian share of H-1B visas issued (68.6%) reached its lowest point in a decade.
• Government Response: The Ministry of External Affairs is actively engaged with the US administration, hoping that the contribution of skilled talent mobility to innovation and economic growth in both countries will be duly considered while framing the rules.

Trade Deals and E-commerce Policy

• India-US Trade Deal: India and the US have discussed the potential contours of a bilateral trade deal, with both sides aiming for an early conclusion of a mutually beneficial agreement.
• E-commerce FDI Rules: India’s government is drafting a proposal to ease foreign investment rules to allow e-commerce firms like Amazon to buy products directly from Indian sellers for sale to overseas customers. This move aims to resolve a long-standing dispute and promote global e-commerce exports by small Indian businesses.

IV. Growth Momentum and Sector-Specific Updates

Despite global uncertainties, a senior JPMorgan executive noted that US trade tariffs and visa changes are merely "speed bumps" and India’s growth trajectory is strong due to its young population, robust domestic consumption, and consistent government policy.

• Startup Investment Outlook: A managing director at Peak XV Partners noted that investors historically underestimate the scale Indian startups can achieve, predicting that in a decade, companies worth as much as ₹10,000 crore will be discussed. India at $7–8 trillion GDP is expected to create much bigger companies than at $4 trillion GDP.
• Corporate Restructuring: Tata Motors received approval from the National Company Law Tribunal (NCLT) for the demerger of its commercial vehicle (CV) business and the amalgamation of its passenger vehicle (PV) vertical, effective October 1.
• Solar Manufacturing: Waaree Energies acquired a 1GW solar module assembly unit in the US, strengthening its manufacturing footprint there, even as the company faces investigations regarding allegations of evading anti-dumping duties and violating patents related to solar cells.
• Online Gaming Regulation: Online gaming companies have approached the Supreme Court seeking urgent hearing and interim relief against the Promotion and Regulation of Online Gaming Act, 2025, arguing the law has shut down their businesses. The government justifies the regulation due to serious risks related to addiction, financial losses, money laundering, and potential terror financing.