Staying the Course?

Political & Policy Issues to Watch . NDA’s strength in Parliament is edging up When Parliament convenes shortly for its Monsoon Session, the NDA government will be in a far better position to push through its legislative agenda than it was even 3-4 months ago. The splintering of the TMC and a host of regional parties, such as the NDA, the Shiv Sena etc., has taken the NDA’s effective strength comfortably beyond a ‘working majority’ position and closer to – but still tangibly short of – the two-thirds mark. This matters greatly, because several of the bills slated for consideration and passage demand super-majorities. These include the 130 th (‘PM-CM Jail Bill’) and 131 st (women’s reservation plus delimitation) constitutional amendments, as also the push for One Nation One Election (ONOE). It remains to be seen what might shift, in terms of party alignments, in the next few weeks, and this in turn will determine whether these bills go through. On the other hand, the government should have an easier time with the FCRA Amendment Bill, which aims to put new restrictions on foreign contributions to individuals and organisations in India; and with the Securities Market Code, the Code on Wages Central Rules, and certain expected educational and corporate law reforms.

. A mix of hits and misses on the diplomatic front On the diplomatic front, India missed an opportunity to make amendments with Iran when, instead of sending a high-level representative (such as the Vice President) to the former Supreme Leader’s funeral, it opted for the Bihar Governor and the MoS for External Affairs. Given the sensitivities around India’s tilt towards the US and Israel since the war began, this could hasten the decline of India’s role in the region. Meanwhile, PM Modi’s recent participation in a G7 Summit in France resulted in a much-needed meeting with Donald Trump, important to shore up ties as the two sides continue to wrangle over the long-delayed trade deal. Still, India will be happy to kick that particular can down the road, given the impending (July 24 th ) court-mandated expiry of Mr Trump’s Section 122 authority under the IEEPA, which underpinned both, his tariff actions and the terms of the India deal.

A rash of deals with Japan

Japanese PM Takaichi’s early-July visit to India helped deepen the personal rapport between the two leaders. Materially, it generated 120 MoUs; fresh investment commitments worth $12.5 bn; a new ‘economic security roadmap’ covering key areas like AI, semiconductors, critical minerals, clean energy and pharmaceuticals; a ‘next generation mobility partnership’; and, crucially, a defence co-development project. Visits by Mr Modi to the Seychelles (which is expected to strengthen India’s maritime security) and Indonesia (the first since the 2018 signing of a comprehensive strategic partnership) will also help bolster India’s position in the wider region.

. Outlook for the Market . Growth expectations are stabilising at 6.4%+… With the US-Iran ceasefire continuing to hold, several major agencies have either stabilised or raised their FY27 India GDP growth forecasts. While Goldman Sachs took it up from 6.1% to 6.8% and S&P held steady at 6.6%, the RBI and Fitch both cut it, from 6.9% to 6.6% and from 6.7% to 6.4%, respectively. IMA continues to maintain that growth is likely to be in the 6-6.5% range but balanced to the downside. Even as global fuel prices have eased, supply chains remain fragile, inflation is firming up and a poor monsoon remains a big potential drag on growth. Indicatively, in the first 5 weeks of the season, 57% of Indian districts had recorded either deficient or ‘large deficient’ rainfall. Plainly, India (and even Indian agriculture) is no longer as rain dependent as it once was. Additionally, the recent bumping up of the MGNREGA (now rebranded as VB-G RAM G) wage floor to Rs 300/day provides a strong safety net for rural workers, including farm labour. However, the fact remains that a weak monsoon will both, drive up food prices and hit rural consumption spending, as well as impacting market sentiment more broadly.

. …and the lead indicators seem to support this

This ‘mixed bag’ view appears to be playing out on the ground. In June, the Services PMI dipped to 57.4, its lowest reading since January 2025. The Manufacturing PMI fell to 54.2 (from 55 in May), its second-lowest reading in 36 months (the lowest – 53.9 – was in March). In general, the PMI numbers have been either flat or down on a YoY basis for several months, suggesting a degree of slack across the economy. In contrast, the GST numbers remain firm: receipts in June (Rs 1.94 tn) and e-Way bill issuance in May (136 mn) were both nearabout recent highs. Perhaps surprisingly, exports and imports climbed at double-digit rates in both April and May, with May seeing near-20% levels and even non-oil trade (unaffected by elevated oil prices, and therefore billings) rising by ~10-15%. New car (up 25-26%) and two-wheeler (8% in May, 23% in June) registrations also continued to defy gravity.

Price pressures are now dominant

Inflation, though, is becoming entrenched. While the headline CPI numbers are yet to fully reflect this – retail prices rose 3.9% in May compared to 3.5% the previous month – India’s new producer price index (PPI) series, which supplants the WPI, tells a different story. From sub-2% levels, it surged to 8% in April and 9.4% in May. While this may yet prove transient, given that fuel prices are coming down, it is likely to inform the RBI’s views during its October and December MPC meetings, especially if, as expected, the US Fed hikes rates by then.