Economic Policy and Regulation - Newspaper Summary

 The sources detail significant policy and regulatory actions undertaken by Indian institutions in October 2025, primarily focused on enhancing financial stability, improving the ease of doing business, and navigating the profound challenges posed by global economic uncertainty and the rise of Artificial Intelligence (AI).

Reserve Bank of India (RBI): Focus on Stability and Digital Currency

The RBI is actively managing financial risk and strategically developing India’s digital monetary infrastructure, while taking a nuanced view on the currency in the face of external pressure.

Financial Stability and Credit Regulation

The RBI has taken steps to offer a domestic buffer to the economy against external shocks. Regulatory focus remains sharp, particularly concerning high-risk lending segments:

• Credit Risk Rules: The RBI proposed major changes to how banks assign risk weightage to loans. This move aims to align domestic regulations with global norms. The proposed changes seek to ease the regulatory capital that must be set aside for various loans. This includes differentiated risk weights for loans to corporate entities, micro, small and medium enterprises (MSMEs), and real estate exposures. Critically, the changes are estimated to have a positive impact on the minimum regulatory capital requirements of banks.
• Fintech Clampdown: The RBI’s clampdown on unsecured lending has led to a cooling down of fintech lending growth. This tightening of oversight came after the regulator flagged aggressive pricing by some Non-Banking Financial Companies (NBFCs) partnering with fintechs in November 2024. The RBI also capped First-Loss Default Guarantees (FLDGs) at 5%. Consequently, fintech lenders have been pivoting towards secured business credit and products like fixed deposit-backed credit cards and gold loans to manage risk.
• Tata Sons Compliance: An RBI rule required Tata Sons, a non-banking finance company, to go public by September 30, a deadline it missed. RBI Governor Sanjay Malhotra's comment that any registered entity would continue to operate until its registration is cancelled left the matter open to interpretation regarding the central bank’s decision.

Central Bank Digital Currency (CBDC) Strategy

The RBI is focusing on developing new use cases for its digital currency (e-rupee) rather than rushing mass adoption:

• Strategic Use Cases: The central bank is in "no rush" to open up the pilots for mass use. Instead, the RBI is focusing on developing new use cases, particularly programmable currency and cross-border transactions.
• Interoperability: The RBI will wait for other countries to "simultaneously" launch similar CBDC projects to ensure interoperability, highlighting that the basic use case for CBDC is eventually in the cross-border space.
• New Functionalities: The RBI rolled out three new functionalities for the CBDC, including the ability to make payments between CBDC wallets by linking a mobile number without needing a bank account.

Goods and Services Tax (GST) Reforms: Boosting Business Liquidity

The government plans to continue the evolution of the GST regime by focusing on streamlining processes to ease compliance and liquidity issues for businesses:

• Easier Credits and Refunds: The GST Council plans to make availing of tax credits and claiming tax refunds easier by potentially eliminating data mismatches. This is intended to stop tax notices issued for information mismatches that do not suggest tax evasion.
• Ease of Doing Business: If implemented, these changes would significantly ease the working capital requirements of businesses by releasing locked tax credits. Experts note that blocked tax credits have historically been a major cause of tax disputes, even before the GST era. Government data showed that input tax credit related frauds amounted to ₹1.78 trillion in the five years to fiscal 2025.
• Technological Streamlining: The reforms aim to make the technology-driven tax system more user-friendly rather than administration-friendly. This may involve reworking rules and GST filing forms. An expert suggests the Invoice Management System (IMS) may be made compulsory to ensure tax credit claims are backed by genuine tax payments.
• Economic Impact: The World Bank noted that the government's reforms to the GST—reducing tax brackets and simplifying compliance—are expected to support economic activity. Recent GST rate cuts, effective September 22nd, led to a temporary sales moderation for firms like Dabur India, but subsequently resulted in a surge in consumer purchasing, such as the 35% rise in passenger vehicle retail sales during Navratri.

SEBI and CCI: Regulating Capital Markets and the AI Era

Market and competition regulators are addressing structural issues related to governance and new technology risks:

SEBI and Capital Market Governance

SEBI is taking steps to review stringent corporate governance norms following industry pushback:

• Review of 'Fit and Proper' Rule: SEBI informed the Bombay High Court that it will soon review a controversial provision in its 'fit and proper person' criteria. This rule currently enforces automatic, trigger-based disqualifications of directors or key managerial personnel if a charge sheet is filed against them for an economic offence, even before trial.
• Industry Challenge: Major brokerage firms, including Motilal Oswal Financial Services, challenged this rule, arguing it was unconstitutional and amounted to treating a person as "guilty until proven innocent". They also noted that the RBI adopts a less stringent, case-by-case approach for banks and NBFCs. SEBI has scheduled internal discussions to review these contentious provisions by year-end.
• Algorithmic Trading: SEBI recently revised its regulatory framework to promote safer participation for retail investors in algorithmic trading. SEBI does not see risks in retail investors using algorithmic trading under this new "safer" framework, provided stricter risk management norms are followed by all stakeholders.

Competition Commission of India (CCI) and AI

The CCI is tackling the potential anti-competitive effects of Artificial Intelligence adoption, primarily through a model of self-governance:

• AI Self-Audit Proposal: The CCI proposed that companies should conduct a self-audit to keep track of how they use AI and the data used to train models.
• Antitrust Risks: The CCI study highlighted concentration risks in the AI market (winner-takes-all characteristics) and the threat of "algorithmic collusion," where AI tools could read market patterns to artificially inflate prices.
• Regulatory Approach: The CCI suggested that companies building AI models should ensure built-in safeguards against anti-competitive recommendations and should document the "decision-making process" of the algorithm.
• Criticism of Self-Regulation: While the CCI suggests self-audit gives firms a basis to rebut allegations of anti-competitive conduct, commentators argue that relying on moral suasion is insufficient. They stress the need for the CCI to issue explicit guidelines with penalties to define guardrails for AI deployment.

Policy Context: Global Trade Headwinds

The backdrop for these domestic policy measures is one of heightened global risks:

• Trade Deterioration: The World Bank trimmed India's FY 2026-27 growth estimate, citing the impact of steeper-than-expected US tariffs on Indian exports (a 50% tariff on about three-quarters of goods exports to the US).
• Policy Buffer: The RBI and the government’s series of steps are specifically noted as efforts to offer a domestic buffer against these external shocks. The depreciation of the Indian rupee, which has become the worst-performing Asian currency this year, is attributed largely to the negative sentiment from the 50% US tariff. Some experts suggest the government may have allowed the rupee to depreciate to keep exports competitive.
• Financial Hub Strategy: India is also moving forward with policies aimed at global financial integration. The launch of the foreign currency settlement system at GIFT City by Finance Minister Nirmala Sitharaman is a major step toward enhancing India’s standing as a global financial hub, allowing for real-time settlement of foreign currency transactions within the IFSC. Sitharaman also encouraged fintechs to leverage opportunities at the IFSC, noting India's combination of deep talent, cost efficiency, and supportive policy frameworks for Global Capability Centres (GCCs) and AI.