Summary

Inflation

Headline CPI likely 0.48% YoY in Oct-2025, the lowest since the 2015 CPI base, driven by a steep, broad-based food disinflation, a high base, and GST rate cuts filtering through. Core is seen near 4.3% (vs 4.5%), signalling softer underlying demand pressures.

Growth

Despite disinflation, real activity remains firm. Q1 FY26 GDP 8%, PMI Manufacturing 59.2, PMI Services 58.9, IIP +4.0% YoY (manufacturing +4.8%).

Policy

The setup widens RBI’s room to ease further at the Dec MPC, while acknowledging risks from unseasonal rains and import duties on pulses that could nudge food prices higher into late Q3 FY26.

External buffers

FX reserves $689.73 bn (31-Oct-2025) after a $5.6 bn weekly drop (valuation + intervention). Composition: FCA $564.59 bn, Gold $101.72 bn, SDR $18.64 bn, IMF $4.77 bn. Cover remains 10–11 months of imports, comfortably above adequacy norms.

Structural finance

World Bank’s FSA notes resilience and depth gains since 2017; the next leg is mobilising private capital, credit enhancement, and risk-sharing to fund the $30-trillion by 2047 ambition.

Inflation Regimes : A Three-Track World

India is in a disinflation trough: headline CPI is 1.54% (lowest in 8+ years) with food CPI negative for six months and core easing toward 4.3%, pointing to cost-side relief rather than demand weakness. Economic Times

The US sits higher at 3.0% headline and 3.0% core, drifting down as shelter cools but services / wages keep inflation above target. bls.gov

China remains deflationary with CPI −0.3% YoY and PPI −2.3%, reflecting overcapacity, weak sentiment, and property deleveraging-more structural than cyclical. Trading Economics

India in Expansion, U.S. in Late-Cycle Moderation, China in Policy-Dependent Recovery

India’s momentum looks intact

IIP +4.0% YoY (manufacturing +4.8% on metals / electricals / autos), GST ₹195,936 cr (+4.6% YoY), and unemployment at 5.2% with rising participation. Forex reserves are $689.73B (↓ $5.6B after a prior $6.92B drop) amid RBI volatility-management, yet still equal to 10–11 months of imports-comfortably above adequacy norms.

The US is late-cycle

Q2 GDP 3.8% (annualized) with Q3 2.7% projected; labor softens (4.4% unemployment; payrolls 51k/month). Leading Indicators fell 0.5% (Aug) and a 4+ week government shutdown is dragging near-term GDP and leaving data gaps.

China shows mixed signals

Q3 GDP 4.8% YoY but nominal only 3.7%; industrial production +6.5% YoY (policy-led), retail sales +3.0% but slowing m/m; trade under strain (exports −1.1% YoY, to US −25%; imports +1.0%); capex weak (FAI −0.5%, property −13.9%).

India remains firmly expansionary: Manufacturing PMI 59.2, Services 58.9, Composite 60.0, signaling strong new orders, capacity use, and broad-based growth. Reuters The Hindu Business Line

Short-Term Drawdowns; Long-Term Reserve Adequacy Intact

India’s foreign exchange reserves declined by $5.6 billion to $689.73 billion as of October 31, 2025, following a $6.92 billion fall the previous week, reflecting two consecutive weeks of drawdown. The decrease was led by a $1.9 billion fall in foreign currency assets to $564.59 billion and a $3.8 billion reduction in gold reserves to $101.72 billion, largely due to valuation losses from a global correction in gold prices, while SDRs dipped by $19 million and the IMF reserve position rose by $16.4 million. Economic Times

The RBI’s interventions were aimed at managing rupee volatility, not defending a fixed level. Despite the drawdown, reserves still provide 10–11 months of import cover, well above adequacy norms. Globally, the U.S. dollar remains structurally strong, supported by positive real rate differentials, ongoing safe-haven inflows, and its role in 88% of global FX transactions, reinforcing demand for dollar-denominated assets. In contrast, China’s yuan, while operating under a managed FX band, faces underlying depreciation pressure, as exports have contracted (-1.1% YoY) and capital controls remain necessary to limit outflows amid weaker external demand and geopolitical tariff headwinds.

The System Is Stable. The Next Frontier Is Credit Deepening and Market-Based Capital Mobilisation

India holds a unique advantage with simultaneous disinflation and sustained growth, creating space for monetary easing and fiscal consolidation without undermining expansion. External buffers remain strong, supporting macro stability. To reinforce this position, focus is needed on deepening credit access for MSMEs, increasing active digital finance usage among women, developing credit-enhancement mechanisms to draw pension, insurance, and international capital into long-term financing, and maintaining strong regulatory safeguards to ensure NBFC resilience under stress conditions.

The World Bank’s latest Financial Sector Assessment notes that India’s financial system is now more resilient, diversified, and inclusive than in 2017, supported by post-NPA cleanup reforms and strong crisis management through the pandemic. Digital Public Infrastructure has widened account access, but the next stage requires increasing active usage, especially among women and MSMEs. Regulation of banks and NBFCs has strengthened, including scale-based supervision and cooperative bank oversight, though large NBFCs still need tighter credit-risk frameworks. Capital markets have expanded from 144% to 175% of GDP, but unlocking long-term investment will require credit-enhancement tools, risk-sharing mechanisms, and securitisation platforms to draw institutional and private capital into MSMEs and infrastructure. The core priority going forward is mobilizing private capital and deepening credit access to support the $30T economic ambition by 2047. Economic Times

Conclusion

The global macro environment is no longer synchronized. The United States is in a controlled deceleration, balancing slower labour demand with still-above-target inflation. China is constrained by structural deflation, property sector deleveraging, and fragile household confidence, limiting policy multiplier effects. India, by contrast, is operating in a rare macro configuration: very low inflation, resilient domestic demand, strengthening external buffers, and deepening financial inclusion through digital public infrastructure.

The near-term inflation path in India remains contingent on food price behaviour. A normal monsoon and strong supply response could allow headline inflation to remain near the current disinflation trough, but weather volatility and tightened pulse import duties pose upside risks. INR stability is supported by reserves of $689.7B and a managed-volatility framework, yet renewed FPI outflows or another rise in U.S. real rates would increase depreciation pressure. On the external side, a U.S. soft-landing scenario would help stabilize export demand, while a U.S. slowdown combined with China’s persistent deflation could turn into a drag on India’s goods shipments and services receipts.

Domestic growth momentum remains resilient, with manufacturing and services PMIs in expansion and IIP supported by metals, autos, and electricals. The capex cycle remains the key forward driver: public investment and PLI-linked sectors continue to anchor new capacity, but sustained private capex crowd-in depends on whether order books scale fast enough. If manufacturing output normalizes before demand deepens, the investment cycle could stall temporarily. Conversely, if export-linked and consumption-linked sectors stabilize together, private capex may broaden beyond core industries into mid-tier engineering, logistics, and precision manufacturing.