Macroeconomics - Newspaper Summary

 The sources provide a detailed snapshot of India's macroeconomic status, policy priorities, and regulatory shifts in October 2025, portraying the nation as an anchor of stability amid global volatility.

Macroeconomic Outlook and Stability

India's economic foundation is described as resilient and strong. Key macroeconomic strengths supporting this stability include:

• Domestic Demand: India’s growth is firmly anchored in its domestic factors, such as a steady share of consumption and investment in the overall GDP, which minimizes the impact of external shocks.
• Resilient Growth: The economy is deemed to be well settled into an "equilibrium of resilient growth", making it stand out among large emerging markets. The current macroeconomic outlook has opened up policy space for further growth.
• Strong Fundamentals: The country maintains strong fundamentals, including a narrow current account deficit, good foreign exchange reserves (which stood at $700.2 billion in late September 2025, covering over 11 months of imports), and low inflation. Consumer Price Inflation (CPI) was low at 2.07% in August, comfortably within the RBI's tolerance band of 2-6%.

The Finance Minister (FM), Nirmala Sitharaman, acknowledged that the era of globalization and open markets appears to be a "relic of the past," with trade flows, alliances, and capital markets being redrawn along geopolitical lines. She stressed that India cannot remain a passive spectator and must actively shape outcomes and preserve autonomy.

Fiscal Policy and Growth Drivers

The government's policy stance has consistently focused on fiscal consolidation, improving the quality of capital expenditure (capex), and controlling inflationary pressures over the past decade.

• Investment: Strategic reforms have been implemented to enhance the ease of doing business, promote financial inclusion, and improve the quality of life for citizens. Private sector investment is showing renewed interest, particularly in public-private partnership projects. The government’s commitment for capital expenditure has only grown and even plateaued, indicating continued focus.
• Tax Policy (GST): The recent Goods and Services Tax (GST) rate cuts (referred to as GST 2.0) are viewed as a "festive gift" boosting sales and contributing to positive market momentum. Regulatory bodies are actively ensuring that the benefits of GST rate reduction are passed on to end consumers through transparent price cuts, rather than through indirect measures like increasing product grammage or offering promotions.
• Foreign Investment Tax Certainty: NITI Aayog proposed an optional, presumptive taxation scheme for offshore companies deriving profits from India. This aims to dramatically cut litigation, enhance tax certainty, and attract higher-quality, sustainable Foreign Direct Investment (FDI).

Monetary Policy Stance and Debt Management

The Reserve Bank of India (RBI), while operating independently, maintains accountability embedded in its framework, particularly regarding inflation targeting.

• Interest Rate Regime: The RBI is generally seen as ushering in a "softer interest rate regime", reflected in a "dovish policy stance". Although the RBI Governor previously noted "limited space" for further rate cuts, statements suggest that current macroeconomic conditions have since "opened up policy space for further growth". The market is cautious, pricing conservatively for a potential December rate cut.
• Cost of Borrowing: Despite the softer rate regime, the cost of government borrowing (G-Sec yields) has risen and held firm. The coupon rate for the new 10-year G-Sec auction (6.48%) was 15 basis points higher than the existing benchmark paper, suggesting market reluctance to ease yields further. Yields stabilized at 6.52% following an earlier spike due to concerns about increased government borrowing needed to offset revenue shortfalls from GST cuts.
• Credit Policy and Risks: To push credit growth, the RBI increased the retail borrowing limit against shares and debt securities from ₹20 lakh to ₹1 crore, and raised the IPO financing limit from ₹10 lakh to ₹25 lakh. However, these "bold steps" could encourage "unwanted speculative activity" and potentially increase stress in loan segments if stock prices weaken.

Regulatory Landscape Modernization

The RBI is actively overhauling financial sector regulations to align with global standards and promote stability and growth:

1. External Commercial Borrowing (ECB): The RBI launched a draft framework for ECB, liberalizing fundraising rules. This represents a shift from a prescriptive approach to a more nuanced and market-linked regime. Key changes include eliminating rigid interest rate ceilings, linking borrowing limits to financial strength (up to $1 billion or 300% of net worth, whichever is higher, up from $750 million), and shortening the minimum average maturity period for most sectors to three years.
2. Credit Risk Modeling (ECL): The RBI mandates the shift for banks from the 'incurred loss provisioning' model to the 'expected credit loss' (ECL) model. This move will strengthen resilience and align provisioning practices with global standards. Implementation is phased, beginning with new loans from April 2027 and existing loans from April 2027 to March 2031, to smooth the impact. Microfinance-focused banks are anticipated to be the most affected.
3. Related-Party Lending: The central bank is introducing draft guidelines for scale-based materiality thresholds beyond which lending to related parties by regulated entities will require Board or Committee approval, ensuring the interests of the bank and stakeholders are protected.
4. Rupee Internationalization: The RBI allowed the balances in Special Rupee Vostro Accounts (SRVA), maintained for international trade settlement in Indian rupees, to be used for buying non-convertible debentures/bonds and commercial papers issued by Indian companies. This move is intended to enhance the utility of SRVA balances and deepen the Indian corporate debt market.
5. NBFC Sector Oversight: The RBI granted Self-Regulatory Organisation (SRO) status to the Finance Industry Development Council (FIDC) for the NBFC sector.

Global Trade and Geopolitical Challenges

India is navigating a complex global trade environment marked by protectionism and strategic rivalries:

• US Tariffs: India faces escalating trade frictions, particularly from the US, which imposed tariffs—including a 25% tariff on nearly all Indian exports and another 25% duty in response to India's discounted Russian oil purchases. The FM noted these trade-offs are significant as they shape the daily lives of citizens.
• WTO Scrutiny: India is under fresh scrutiny at the World Trade Organization (WTO) over its import restrictions and the use of Quality Control Orders (QCOs) on products like pulses, tires, and air conditioners. WTO members, including Australia, Canada, and the EU, view these QCOs as potential trade barriers designed to promote domestic manufacturing.
• Stablecoins: The FM explicitly called for dealing with innovations such as stablecoins, noting they transform the landscape of money and capital flows and may force nations to either adapt to new monetary architectures or risk exclusion.
• Trade Balance Efforts: India is working to boost exports to bridge the burgeoning $59 billion trade deficit with Russia, targeting sectors such as pharmaceuticals, textiles, and engineering goods, while also engaging in Free Trade Agreement (FTA) talks with the Eurasian Economic Union (EAEU) bloc. The government has also recently lifted a ban on the export of de-oiled rice bran.