<h2><strong>Political & Policy Issues to Watch</strong></h2>.<p><em><strong>The EC controversy refuses to go away</strong></em></p><p>The Congress-led opposition campaign against Chief Election Commissioner Gyanesh Kumar, centred on alleged irregularities in the SIR process, has sustained its momentum, with the INC looking to make it a broader test of the Election Commission's independence. The issue has also attracted judicial scrutiny. Yet the fractured nature of the protests casts doubt on the opposition’s ability to hold together. The INDIA bloc remains divided, with several parties, including the Samajwadi Party, mainly staying away. Still, with key state elections approaching, the issue could become a significant political liability for the NDA, particularly if allegations of voter exclusion gain traction.</p>.<p><em><strong>Doubling down on strategic self-reliance</strong></em></p><p>Recent policy announcements highlight the government's resolve to strengthen domestic manufacturing and reduce strategic dependencies. A recently approved Rs 100 bn SME Growth Fund will provide equity capital to promising smaller businesses, while the proposed Integrated Transport and Logistics Authority aims to address persistent inefficiencies in India's logistics ecosystem. Also significant are new initiatives to support domestic processing of critical minerals and develop large-scale energy storage capacity. Together, these address two serious constraints on India's industrial ambitions: a dependence on imported minerals and the inadequacy of grid infrastructure to support a much larger renewable-energy base. The proposed sale of the government's controlling stake in IDBI Bank, meanwhile, represents another step towards reducing state ownership in the financial sector, though progress on privatisation has generally been slower than anticipated.</p> <p><em><strong>Moving a few strategic ‘eggs’ between ‘baskets’</strong></em></p><p>America remains India's most consequential yet also its most complicated relationship. Despite recent progress in trade talks, differences over tariffs and market access continue to delay a final agreement. The US mid-term election results have introduced another layer of uncertainty. Donald Trump may seek a quick ‘political win’ by inking a deal with India, but should the process extend past December, a Democrat-controlled Congress may not be willing to ratify a deal that favours India. </p><p>New Delhi's parallel engagement with Europe, the Gulf and other Asian partners reflects a growing recognition that excessive dependence on a single relationship carries risks. Its participation in the China-led SCO and continued outreach to the UAE and European countries underline this approach. The forthcoming COP31 negotiations in Türkiye will provide India with an opportunity to press its case on climate finance and technology transfers. Meanwhile, prospective high-level engagements with Nepal and Bangladesh could help stabilise relations with two important neighbours, despite continuing differences over issues such as water-sharing and regional connectivity.</p>.<h2><strong>Outlook for the Markets</strong></h2>.<p><em><strong>Robust but uneven growth</strong></em></p><p>The latest indicators suggest that the Indian economy is still expanding at a healthy pace, but the composition of this growth warrants attention. (The Q2 GDP data, due out at the end of this month, will provide a clearer picture.) The services PMI recovered to 55.8 in October, while manufacturing eased marginally to 54.7. IMA India’s quarterly BCPI index fell 2.8 points over its July level (to 57.3), with businesses increasingly splintered between a positive reading of their own performance and a negative view of the broader environment. Overall industrial production (measured by the IIP) grew by 6.7% in September, with manufacturing expanding by 7.6% and capital goods by 10.4%. However, consumer non-durables grew by just 1.4%, pointing to continuing weaknesses in some areas of household consumption. The situation may worsen in the coming months if, as expected, the current ‘Super El Niño’ plays havoc with the Oct-Dec Northeast monsoon and thus, rural consumption. </p><p>The GST data provides limited comfort. Revenues grew 22.9% in October, to Rs 2.31 tn, taking cumulative Apr-Oct growth to 13.2%. However, a 42.2% surge in import-related collections suggests that the headline numbers overstate the strength of underlying domestic demand. Moreover, e-Way bill issuances in the three months through September saw well-below-trend single-digit (6-7.2%) growth. The automotive sector has enjoyed a particularly strong festive season, with passenger-vehicle dispatches crossing 500,000 units in October – a record. While positive, this momentum may not sustain past the festive period, especially given signs of elevated dealer inventories.</p><p>India’s external trade remains a mixed picture. Merchandise exports rose to $44.4 bn in September, but imports climbed to $74.6 bn, widening the monthly trade deficit to $30.2 bn. Engineering goods and chemicals have provided support on the export front, but India's dependence on imported energy, machinery and intermediate products leaves the trade balance vulnerable to higher commodity prices and supply-chain disruptions.</p> <p><em><strong>Inflation: the elephant in the room</strong></em></p><p>The most immediate challenge is rising price pressures. In September, CPI inflation crossed 5.5%, with food inflation exceeding 7.7%. Wholesale inflation climbed to 11.4%, driven in large part by fuel, power and manufactured-product prices. This suggests that cost pressures are building across the production chain and will increasingly affect both, corporate margins and consumer prices. The RBI's October rate hike (to 5.5%) reflects these concerns, as well as a narrowing US-India rate differential. Having moved away from its earlier accommodative position, the central bank will stay cautious, particularly if food and fuel prices firm up from here.</p><p>The external environment offers little immediate relief. Persistent FPI outflows through mid-October – they have since reversed course again – together with a relatively strong dollar and volatile crude prices, has put pressure on the rupee, while geopolitical tensions continue to pose risks to energy supplies. For now, targeted measures by the RBI – including open-market operations, curbs on speculative FX transactions and the hugely successful FCNR(B) scheme – have stabilised the rupee, and India's large (but shrinking) foreign-exchange reserves have provided a substantial buffer. However, another round of depreciation, led by the interaction of geopolitics and the financial markets, cannot be ruled out. This would add to imported inflation and further complicate the RBI's policy choices.</p>
<h2><strong>Political & Policy Issues to Watch</strong></h2>.<p><em><strong>The EC controversy refuses to go away</strong></em></p><p>The Congress-led opposition campaign against Chief Election Commissioner Gyanesh Kumar, centred on alleged irregularities in the SIR process, has sustained its momentum, with the INC looking to make it a broader test of the Election Commission's independence. The issue has also attracted judicial scrutiny. Yet the fractured nature of the protests casts doubt on the opposition’s ability to hold together. The INDIA bloc remains divided, with several parties, including the Samajwadi Party, mainly staying away. Still, with key state elections approaching, the issue could become a significant political liability for the NDA, particularly if allegations of voter exclusion gain traction.</p>.<p><em><strong>Doubling down on strategic self-reliance</strong></em></p><p>Recent policy announcements highlight the government's resolve to strengthen domestic manufacturing and reduce strategic dependencies. A recently approved Rs 100 bn SME Growth Fund will provide equity capital to promising smaller businesses, while the proposed Integrated Transport and Logistics Authority aims to address persistent inefficiencies in India's logistics ecosystem. Also significant are new initiatives to support domestic processing of critical minerals and develop large-scale energy storage capacity. Together, these address two serious constraints on India's industrial ambitions: a dependence on imported minerals and the inadequacy of grid infrastructure to support a much larger renewable-energy base. The proposed sale of the government's controlling stake in IDBI Bank, meanwhile, represents another step towards reducing state ownership in the financial sector, though progress on privatisation has generally been slower than anticipated.</p> <p><em><strong>Moving a few strategic ‘eggs’ between ‘baskets’</strong></em></p><p>America remains India's most consequential yet also its most complicated relationship. Despite recent progress in trade talks, differences over tariffs and market access continue to delay a final agreement. The US mid-term election results have introduced another layer of uncertainty. Donald Trump may seek a quick ‘political win’ by inking a deal with India, but should the process extend past December, a Democrat-controlled Congress may not be willing to ratify a deal that favours India. </p><p>New Delhi's parallel engagement with Europe, the Gulf and other Asian partners reflects a growing recognition that excessive dependence on a single relationship carries risks. Its participation in the China-led SCO and continued outreach to the UAE and European countries underline this approach. The forthcoming COP31 negotiations in Türkiye will provide India with an opportunity to press its case on climate finance and technology transfers. Meanwhile, prospective high-level engagements with Nepal and Bangladesh could help stabilise relations with two important neighbours, despite continuing differences over issues such as water-sharing and regional connectivity.</p>.<h2><strong>Outlook for the Markets</strong></h2>.<p><em><strong>Robust but uneven growth</strong></em></p><p>The latest indicators suggest that the Indian economy is still expanding at a healthy pace, but the composition of this growth warrants attention. (The Q2 GDP data, due out at the end of this month, will provide a clearer picture.) The services PMI recovered to 55.8 in October, while manufacturing eased marginally to 54.7. IMA India’s quarterly BCPI index fell 2.8 points over its July level (to 57.3), with businesses increasingly splintered between a positive reading of their own performance and a negative view of the broader environment. Overall industrial production (measured by the IIP) grew by 6.7% in September, with manufacturing expanding by 7.6% and capital goods by 10.4%. However, consumer non-durables grew by just 1.4%, pointing to continuing weaknesses in some areas of household consumption. The situation may worsen in the coming months if, as expected, the current ‘Super El Niño’ plays havoc with the Oct-Dec Northeast monsoon and thus, rural consumption. </p><p>The GST data provides limited comfort. Revenues grew 22.9% in October, to Rs 2.31 tn, taking cumulative Apr-Oct growth to 13.2%. However, a 42.2% surge in import-related collections suggests that the headline numbers overstate the strength of underlying domestic demand. Moreover, e-Way bill issuances in the three months through September saw well-below-trend single-digit (6-7.2%) growth. The automotive sector has enjoyed a particularly strong festive season, with passenger-vehicle dispatches crossing 500,000 units in October – a record. While positive, this momentum may not sustain past the festive period, especially given signs of elevated dealer inventories.</p><p>India’s external trade remains a mixed picture. Merchandise exports rose to $44.4 bn in September, but imports climbed to $74.6 bn, widening the monthly trade deficit to $30.2 bn. Engineering goods and chemicals have provided support on the export front, but India's dependence on imported energy, machinery and intermediate products leaves the trade balance vulnerable to higher commodity prices and supply-chain disruptions.</p> <p><em><strong>Inflation: the elephant in the room</strong></em></p><p>The most immediate challenge is rising price pressures. In September, CPI inflation crossed 5.5%, with food inflation exceeding 7.7%. Wholesale inflation climbed to 11.4%, driven in large part by fuel, power and manufactured-product prices. This suggests that cost pressures are building across the production chain and will increasingly affect both, corporate margins and consumer prices. The RBI's October rate hike (to 5.5%) reflects these concerns, as well as a narrowing US-India rate differential. Having moved away from its earlier accommodative position, the central bank will stay cautious, particularly if food and fuel prices firm up from here.</p><p>The external environment offers little immediate relief. Persistent FPI outflows through mid-October – they have since reversed course again – together with a relatively strong dollar and volatile crude prices, has put pressure on the rupee, while geopolitical tensions continue to pose risks to energy supplies. For now, targeted measures by the RBI – including open-market operations, curbs on speculative FX transactions and the hugely successful FCNR(B) scheme – have stabilised the rupee, and India's large (but shrinking) foreign-exchange reserves have provided a substantial buffer. However, another round of depreciation, led by the interaction of geopolitics and the financial markets, cannot be ruled out. This would add to imported inflation and further complicate the RBI's policy choices.</p>
