Macro Economy - Newspaper Summary

 The sources provide a complex picture of India's macroeconomic landscape in October 2025, characterized by robust domestic growth momentum yet persistent vulnerability to global policy shifts and geopolitical uncertainty.

India's Macroeconomic Resilience and Growth Outlook

India is positioned to remain the world’s fastest-growing major economy. The World Bank, in its October 2025 update, raised India’s economic growth forecast for FY 2025-26 to 6.5%, up from 6.3% projected in June. This optimism is primarily underpinned by continued strength in consumption growth.

• Strong Domestic Drivers: Real GDP growth outperformed expectations in the June quarter of 2025, accelerating to 7.8% year-on-year, driven by strong private consumption and investment. Investment momentum remains firm, supported by public infrastructure spending, robust credit growth, and monetary easing. Strong rural wage growth has also helped offset weakness observed in urban consumption, such as slower car sales.
• Policy Landscape Supporting Growth: The Reserve Bank of India (RBI) and the government have implemented measures to offer a domestic buffer against external shocks. Government reforms to the Goods and Services Tax (GST), including reducing tax brackets and simplifying compliance, are expected to support economic activity. Further GST reforms are planned to make tax credits and refunds easier to claim by eliminating data mismatches, which should ease working capital requirements for businesses.
• Consumer Demand: After a short-term moderation in sales for companies like Dabur India due to consumers deferring purchases ahead of sweeping GST rate cuts (effective September 22nd), consumer demand rebounded. Passenger vehicle retail sales shot up 35% year-on-year during the nine-day Navratri period, taking off only after the new GST rates were rolled out. Furthermore, the cost of home-cooked meals (thalis) declined year-on-year in September, offering some relief to households.

External Factors and Vulnerability

Despite strong domestic fundamentals, India remains highly exposed to global risks, primarily stemming from US trade policies and global uncertainty.

US Tariffs and Export Competitiveness

The most pressing external risk is the trade uncertainty triggered by US tariffs.

• Tariff Impact: The World Bank specifically trimmed India’s FY 2026-27 growth estimate by 20 basis points to 6.3%, citing the impact of steeper-than-expected US tariffs on Indian exports. India faces a 50% tariff on about three-quarters of its goods exports to the US.
• Trade Deterioration: These tariffs have led to a relative loss of export competitiveness compared to other Emerging Market (EM) peers in Asia. This loss of trade advantage, particularly amid the inclusion of services in the trade war ambit, suggests a weaker currency adjustment may be warranted.

Capital Flows and Market Volatility

The US tariff-led risks continue to pose threats, potentially delaying private investment and adding volatility to capital flows, financial markets, and exchange rates.

• FPI Outflows: Foreign Portfolio Investors (FPIs) continue to flee Indian markets, registering net selling in seven out of the 10 months this year, totaling close to ₹2 trillion. FPIs withdrew ₹5,427 crore in the first six days of October, following significant sell-offs in September and August.
• Valuation Concerns: A key concern driving FPI outflows is the sharp valuation premium of Indian equities relative to other emerging markets. The stock market remains behind its EM peers, even after recovering slightly from a significant hit in August.
• Currency Weakness (Rupee): The Indian rupee has become the worst-performing Asian currency this year. The decline is attributed largely to negative sentiment stemming from the 50% US tariff. The RBI possesses a robust forex buffer of around $700 billion. While the RBI maintains the exchange rate is market-determined, there are signs the government may have allowed depreciation to keep exports competitive.

Global Economic and Policy Landscape

The global landscape is defined by uncertainty, geopolitical tensions, and technological shifts, which intersect directly with India's economy.

US Policy Headwinds and the IT Sector

The IT sector faces direct policy challenges from the US administration:

• H-1B Visa Fees: US President Donald Trump’s executive order imposing a potential $100,000 fee on each new H-1B visa application is a significant policy headwind. This policy is expected to disproportionately impact Indian IT firms, which rely on H-1B visas for 20-25% of their US workforce.
• Outsourcing Tax: The proposed Halting International Relocation of Employment (HIRE) Act aims to impose a 25% tax on payments made to foreign entities for services rendered to US individuals or companies, potentially threatening the outsourcing model itself.
• Pay Hikes Slowdown: These external risks, including tariff wars and global economic uncertainty, have contributed to India Inc. handing out the lowest average pay hike (8.9%) in almost 15 years (excluding 2020), signalling caution in the job market.

Geopolitics, Energy, and Trade

India is navigating complex geopolitical shifts in its energy trade:

• Yuan Payments for Russian Oil: Traders of discounted Russian oil have begun asking Indian state refiners to pay in Chinese Yuan. This move simplifies deals and allows Russia to sidestep Western sanctions, which have accelerated the use of alternative currencies like the Yuan. India’s top refiner, Indian Oil Corp., has already made payments in Yuan for several Russian oil cargoes.
• Need for Energy Security: Given India imports 85% of its energy, efforts to enhance domestic oil and gas production are deemed important for energy security in volatile times. Global energy giant BP plans to invest $3-4 billion in India's oil and gas exploration and production over the next three to four years, often in partnership with Indian entities like Reliance and ONGC.

Global Financial Safety and Gold

Global uncertainty, including geopolitical conflict in the Middle East and chaos in France, is driving safe-haven demand for gold.

• Record Gold Prices: Benchmark gold prices on the MCX hit a record ₹121,000 per 10 gm. Globally, the rally is underpinned by safe-haven demand, central bank accumulation, and weakness in the US dollar.

Global Renewable Transition

While the International Energy Agency (IEA) slashed its global forecast for renewable power due to policy headwinds in the US and China, India is noted as being on track to achieve its climate targets for 2030 and is poised to become the second-largest growth market for renewables after China.

Financial Infrastructure Enhancements

India is actively strengthening its financial architecture to solidify its global standing:

• GIFT City: The launch of the foreign currency settlement system at GIFT City is a major step toward enhancing India’s position as a global financial hub. This system enables real-time settlement of foreign currency transactions within the IFSC, reducing delays associated with traditional correspondent banking.
• CBDC Focus: The RBI is focusing on developing new use cases for the Central Bank Digital Currency (CBDC), particularly programmable currency and cross-border transactions, waiting for other countries to launch similar projects to ensure interoperability.