<h2><strong>Political & Policy Issues to Watch</strong></h2>.<p><em><strong>The opposition has found a new issue to latch on to</strong></em></p><p>In the brief lull before campaigning kicks off for 5 state elections (including, most crucially, Uttar Pradesh) early next year, the opposition has been focused squarely on ousting India’s Chief Election Commissioner (CEC), Gyanesh Kumar. Several INDIA bloc parties, notably the INC, have joined civil society groups such as the Cockroach Janata Party, to demand Mr Kumar’s removal over alleged irregularities in the functioning of the Election Commission. By courting arrest, the INC’s top leadership has tapped into an issue that clearly resonates with younger voters. However, the fact that certain alliance members stayed away once again highlights the fractured nature of the grouping, as did the INC’s recent insistence that it would only tie up with the Samajwadi Party in UP on ‘equal terms.’ How the protests shape up in the coming weeks, and how the Centre chooses to respond, could be an important factor in the polls. </p> .<p><em><strong>Policymaking has focused on important ‘plumbing’ issues</strong></em></p><p>With Parliament in recess for the next two months, policymaking has centred around important but hardly headline-grabbing ‘nuts and bolts’ issues. In its 57<sup>th</sup> meeting, the GST Council put in place notable process and compliance reforms, including automatic invoice-matching, streamlined registrations, easier compliance for small taxpayers, higher thresholds for criminal prosecution and faster refunds. In an effort to improve tax certainty, the Council announced that GST rates will henceforth be revised (if at all) once a year, taking effect April 1st. </p><p>Separately, in a boost to the renewables sector, the Cabinet announced the rollout of the third phase of India’s Green Energy Corridor (GEC) scheme. With a projected outlay of Rs 1.86 tn through 2022-23, it aims to strengthen the intra-state transmission and storage of ~135 GW of power generated through renewable sources. Meanwhile, the Defence Acquisition Council has given in-principle approval to Rs 1.1 tn worth of procurement, 98% of which is expected to happen domestically.</p><p>Other noteworthy policy developments of the recent past include: IRDAI’s release of a market-shaking consultation paper, which proposes major changes in how insurance products get marketed/bundled and suggests caps on management expenses and commissions; the EPFO’s raising of the wage ceiling for mandatory coverage (from Rs 15,000 to Rs 25,000); and amendments to the FSSAI’s food safety and standards regulations.</p> .<p><em><strong>US trade talks have stalled, but those with Canada and the EU are moving ahead</strong></em></p><p>Externally, it is apparent that the US-India trade talks have hit an impasse. With the US mid-terms just weeks away, any forward movement may be delayed, or even indefinitely put off – depending not only on the election results, but on whether the US chooses to impose fresh tariffs on India under the recently-passed Lindsey Graham Act. There is hope, though, that a planned India visit this month by Foreign Secretary Marco Rubio can help dial down the temperature and keep channels of communication open and friendly. In parallel, India is moving ahead with trade talks with Canada; a summit with Russia; and is preparing to ink the EU FTA shortly before year’s end.</p>.<h2><strong>Outlook for the Markets</strong></h2>. <p><em><strong>A new rate-hike cycle has begun</strong></em></p><p>With oil prices again shooting past the $100 mark, domestic inflation perking up (August CPI: 4.8%, food CPI: 5.7%, WPI: 9.9%) and the US Federal Reserve hiking rates for the first time since 2023, the RBI’s Monetary Policy Committee effected a widely-expected 25 bps rate hike in its October meeting. Its shift in stance from ‘neutral’ to ‘calibrated tightening’ makes plain that rates have a greater-than-even chance of being hiked not just again in December, but possibly in early 2027, too. </p><p>Looking ahead, food and fuel prices will stay elevated in the near term. A ~13% shortfall in aggregate rainfall during the South-West monsoon (~25% in the Southern and North-Eastern parts of the country) means that India’s rice harvest is likely to take a hit, though other crops, including pulses and coarse cereals, are thought to be relatively insulated while cotton and oilseed production may actually rise. It is, however, the winter harvest that may bear a bigger brunt. South Indian reservoirs are currently at less than 50% of capacity (their lowest in years), and this will impact irrigation-dependent crops. Meanwhile, oil prices are unlikely to come down in a hurry, particularly if there is a renewed flare-up in the Gulf, either leading up to or immediately after the US mid-terms. Second-order effects will also continue to play out, pushing retail inflation towards (or even past) the 6% mark in the second half of fiscal 2026-27.</p><p>Clearly, the Fed will set the pace for other central banks, including India’s, and indications are that it is far from done with its current cycle. For the RBI, renewed FII outflows ($6.1 bn in September, nearly equalling what came in during the previous two months) and a falling currency (which fell past 96/$ in early October) will be key factors as it considers its next rate moves.</p> .<p><em><strong>Growth continues to hold up strongly</strong></em></p><p>The other side of the growth-inflation equation is holding up, for now. September saw the PMI indices for both Manufacturing (55.1, up from 52.8) and Services (55.2, better than August’s 54.1) recover lost ground. At ~Rs 2 tn, GST receipts were up 14.7% YoY in September, and 11.6% cumulatively over Apr-Sep; e-Way bill issuances in August were up 7.7%, totalling to a healthy 139 mn. In August, exports climbed 26% (non-oil: 21%) while imports grew by a slower 14%, allowing the trade deficit to narrow to ~$27 bn, down from >$30 bn in the previous 2 months. Finally, auto sales have continued their blistering run, with passenger vehicle, 2-wheeler and commercial vehicle sales all growing by over 30% in September. The headline auto growth rates should, however, start to normalise in the coming months as the effect of last year’s GST rate cuts (which took effect in end-September) wears off.</p>
<h2><strong>Political & Policy Issues to Watch</strong></h2>.<p><em><strong>The opposition has found a new issue to latch on to</strong></em></p><p>In the brief lull before campaigning kicks off for 5 state elections (including, most crucially, Uttar Pradesh) early next year, the opposition has been focused squarely on ousting India’s Chief Election Commissioner (CEC), Gyanesh Kumar. Several INDIA bloc parties, notably the INC, have joined civil society groups such as the Cockroach Janata Party, to demand Mr Kumar’s removal over alleged irregularities in the functioning of the Election Commission. By courting arrest, the INC’s top leadership has tapped into an issue that clearly resonates with younger voters. However, the fact that certain alliance members stayed away once again highlights the fractured nature of the grouping, as did the INC’s recent insistence that it would only tie up with the Samajwadi Party in UP on ‘equal terms.’ How the protests shape up in the coming weeks, and how the Centre chooses to respond, could be an important factor in the polls. </p> .<p><em><strong>Policymaking has focused on important ‘plumbing’ issues</strong></em></p><p>With Parliament in recess for the next two months, policymaking has centred around important but hardly headline-grabbing ‘nuts and bolts’ issues. In its 57<sup>th</sup> meeting, the GST Council put in place notable process and compliance reforms, including automatic invoice-matching, streamlined registrations, easier compliance for small taxpayers, higher thresholds for criminal prosecution and faster refunds. In an effort to improve tax certainty, the Council announced that GST rates will henceforth be revised (if at all) once a year, taking effect April 1st. </p><p>Separately, in a boost to the renewables sector, the Cabinet announced the rollout of the third phase of India’s Green Energy Corridor (GEC) scheme. With a projected outlay of Rs 1.86 tn through 2022-23, it aims to strengthen the intra-state transmission and storage of ~135 GW of power generated through renewable sources. Meanwhile, the Defence Acquisition Council has given in-principle approval to Rs 1.1 tn worth of procurement, 98% of which is expected to happen domestically.</p><p>Other noteworthy policy developments of the recent past include: IRDAI’s release of a market-shaking consultation paper, which proposes major changes in how insurance products get marketed/bundled and suggests caps on management expenses and commissions; the EPFO’s raising of the wage ceiling for mandatory coverage (from Rs 15,000 to Rs 25,000); and amendments to the FSSAI’s food safety and standards regulations.</p> .<p><em><strong>US trade talks have stalled, but those with Canada and the EU are moving ahead</strong></em></p><p>Externally, it is apparent that the US-India trade talks have hit an impasse. With the US mid-terms just weeks away, any forward movement may be delayed, or even indefinitely put off – depending not only on the election results, but on whether the US chooses to impose fresh tariffs on India under the recently-passed Lindsey Graham Act. There is hope, though, that a planned India visit this month by Foreign Secretary Marco Rubio can help dial down the temperature and keep channels of communication open and friendly. In parallel, India is moving ahead with trade talks with Canada; a summit with Russia; and is preparing to ink the EU FTA shortly before year’s end.</p>.<h2><strong>Outlook for the Markets</strong></h2>. <p><em><strong>A new rate-hike cycle has begun</strong></em></p><p>With oil prices again shooting past the $100 mark, domestic inflation perking up (August CPI: 4.8%, food CPI: 5.7%, WPI: 9.9%) and the US Federal Reserve hiking rates for the first time since 2023, the RBI’s Monetary Policy Committee effected a widely-expected 25 bps rate hike in its October meeting. Its shift in stance from ‘neutral’ to ‘calibrated tightening’ makes plain that rates have a greater-than-even chance of being hiked not just again in December, but possibly in early 2027, too. </p><p>Looking ahead, food and fuel prices will stay elevated in the near term. A ~13% shortfall in aggregate rainfall during the South-West monsoon (~25% in the Southern and North-Eastern parts of the country) means that India’s rice harvest is likely to take a hit, though other crops, including pulses and coarse cereals, are thought to be relatively insulated while cotton and oilseed production may actually rise. It is, however, the winter harvest that may bear a bigger brunt. South Indian reservoirs are currently at less than 50% of capacity (their lowest in years), and this will impact irrigation-dependent crops. Meanwhile, oil prices are unlikely to come down in a hurry, particularly if there is a renewed flare-up in the Gulf, either leading up to or immediately after the US mid-terms. Second-order effects will also continue to play out, pushing retail inflation towards (or even past) the 6% mark in the second half of fiscal 2026-27.</p><p>Clearly, the Fed will set the pace for other central banks, including India’s, and indications are that it is far from done with its current cycle. For the RBI, renewed FII outflows ($6.1 bn in September, nearly equalling what came in during the previous two months) and a falling currency (which fell past 96/$ in early October) will be key factors as it considers its next rate moves.</p> .<p><em><strong>Growth continues to hold up strongly</strong></em></p><p>The other side of the growth-inflation equation is holding up, for now. September saw the PMI indices for both Manufacturing (55.1, up from 52.8) and Services (55.2, better than August’s 54.1) recover lost ground. At ~Rs 2 tn, GST receipts were up 14.7% YoY in September, and 11.6% cumulatively over Apr-Sep; e-Way bill issuances in August were up 7.7%, totalling to a healthy 139 mn. In August, exports climbed 26% (non-oil: 21%) while imports grew by a slower 14%, allowing the trade deficit to narrow to ~$27 bn, down from >$30 bn in the previous 2 months. Finally, auto sales have continued their blistering run, with passenger vehicle, 2-wheeler and commercial vehicle sales all growing by over 30% in September. The headline auto growth rates should, however, start to normalise in the coming months as the effect of last year’s GST rate cuts (which took effect in end-September) wears off.</p>
