Nov 19: India’s Inflation Hits Rock Bottom, Record-High Trade Deficit

Prashant Kishor’s Jan Suraaj unfortunately did not do so well in the recently ended Bihar elections (no seats won, lots of deposits lost). He’s now announced a maun vrat of 1 day to self-introspect and reflect on why this happened. He’s also said he would definitely quit public life if the NDA government fulfils its high-profile campaign promise of transferring Rs 2 lakh each to 1.5 crore women under self-employment programmes - a 2 lakh crore expense. Gotta agree with him there, that’s a lot of 0s considering the total state budget tabled was ~3 lakh crore for 2025-26. Don’t be too hard on yourself PK, hang in there.

Now, let’s get into the Dispatch! 🚀

Today’s reading time is 6 mins.

The Indian stock market's six-day gaining streak ended Tuesday, with the Sensex and Nifty settling lower amid muted global sentiment. Investors remained cautious ahead of key US economic data that could influence a potential Fed rate cut.

A Rare Cooling In Prices: India’s retail inflation has slipped to an unprecedented low, the lowest since the current CPI series began. This sudden “inflation bust” has sparked fresh speculation on whether the Reserve Bank of India (RBI) will shift its long-held cautious stance and finally consider cutting interest rates. With borrowing costs high and growth signals mixed, markets are watching every RBI cue closely.

Why Inflation Has Crashed: A dramatic fall in food prices, especially vegetables like tomatoes, potatoes, and onions, has been the biggest driver of the inflation dip. The effects of GST rationalisation have also filtered through, lowering price pressures across several consumer categories. But this isn’t a uniform cooling. Core inflation remains sticky, services inflation is still elevated, and essentials like oils and gold continue to defy the broader disinflation trend. So while the headline number looks flattering, the story underneath is far more complex.

What This Means For RBI’s Policy Space: With headline inflation well below the RBI’s 4% target, the central bank finally has room to ease monetary conditions. But more room doesn’t automatically mean more action. The RBI is juggling multiple risks, global uncertainty, fragile exports, and the need to protect its inflation-fighting credibility. Even if inflation is soft today, the central bank knows food prices in India can turn volatile overnight. So the question isn’t just “Can RBI cut?” It’s “Should it?”

Is A Rate Cut Coming Soon? Economists are split. Some believe the RBI could deliver a symbolic 25 bps cut in the coming months to support demand, especially if low inflation sustains. Others caution that the RBI may prefer to wait for a more stable trend in both core inflation and growth. The most likely scenario: No immediate action, but a shift in tone - moving from “withdrawal of accommodation” toward a more neutral, flexible stance.

The Risks Ahead: Ultra-low inflation can be a double-edged sword. If it persists too long, it may signal weakening demand, not a healthy sign for an economy aiming for 7%+ growth. On the flip side, premature easing could backfire if food or global commodity prices flare up again.

A Not So Great Record: India’s goods trade deficit for October has surged to its highest level ever, driven by a collapse in exports and a massive spike in gold imports. The numbers are alarming, and they raise deeper questions about the resilience of India’s external sector at a time when global headwinds are intensifying.

The Numbers - A Tale Of Two Trends: Exports fell sharply to $34.38 billion, down about 12% year-on-year. At the same time, imports ballooned to nearly $76 billion, widening the goods trade deficit to a staggering $41.7 billion, the biggest monthly gap on record. The divergence is clear: exports are weakening just as imports are accelerating, putting pressure on India’s external balance.

Gold - The Biggest Culprit Behind The Spike: Gold imports alone surged to about $14.7 billion, nearly three times higher than last year’s level for the same month. Seasonal festive demand, investor preference for safe assets, and restocking by jewellers all contributed to the spike. Gold is historically one of India’s most volatile import categories and this time, it single-handedly inflated the deficit.

Exports Hit By Global And Policy Headwinds: India’s export slowdown is tied to a combination of factors: weaker global demand, tariff barriers from key markets like the US, and sector-specific stress in electronics, textiles, and engineering goods.
The slump suggests that India’s manufacturing momentum is losing steam just as the world economy cools.

What This Means For India’s Economy: A deficit this large has ripple effects, it strains the current account, puts downward pressure on the rupee, and may prompt the government or RBI to consider measures to curb imports. The surge in non-oil, non-gold imports also signals that strong domestic demand continues to rely heavily on imported inputs, exposing a long-standing structural weakness. 

What To Watch Next: Key signals to track over the next two months include the trajectory of gold imports post-festive season, export recovery in engineering and electronics, and any policy interventions aimed at stabilising the external sector. October’s record deficit is more than a statistical shock, it’s a warning that India’s growth story cannot rely on domestic demand alone. Without a rebound in exports and tighter control on imports, the external balance will remain under stress. 

Apple Growth Slows: Apple’s sales growth in India dropped to 18% last fiscal, the slowest in six years, as the company’s base has become significantly larger. This slowdown is partly because older-generation, lower-priced iPhones now contribute more to its revenue. Analysts expect growth in FY26 to moderate further, likely in the 10–15% range. Apple India’s profit rose 16% to ₹3,196 crore, even as its growth rate cooled.

Air Cargo Booms Despite Tariffs: India’s air cargo sector is surging under global trade headwinds, driven by high-value exports like pharmaceuticals and smartphones. Exporters are choosing speed and reliability over cost, preferring air freight to navigate volatile tariff environments. Between April and September FY26, international air-freight traffic rose 4.1%, while domestic freight grew 5.9%. Electronics exports, especially smartphones, have surged, with Apple air-lifting some iPhones to meet fast delivery needs.

IT Spending Outlook Murky: Gartner forecasts India’s IT spending will rise to $161.5 billion in 2025, driven predominantly by software and IT services. Software spending is expected to grow 17%, partly fueled by demand for Gen AI-enabled platforms. However, the percentage growth rate is slightly lower than earlier forecasts, signaling slower momentum. This forecast suggests continued digitization, though macro and trade risks could cloud the upside.

Private Capex Revives: India Inc’s cash reserves dropped for the first time in three years, while their debt rose by ₹2.04 trillion, a signal that companies are deploying cash and borrowing for growth. Analysts say this reflects a pick-up in private capex, especially in manufacturing, infrastructure, and machinery. Despite rising debt, leverage remains stable relative to sales and cash levels are also healthy when indexed to revenue. The shift suggests a move from cash-conservation to balance-sheet utilisation as macro conditions improve.

Textile PLI Boost: The government approved 17 companies in its textile PLI (Production Linked Incentive) scheme, expecting a cumulative sales boost of ₹12,893 crore. The initiative is aimed at scaling up production of man-made fibre (MMF) apparel, fabrics, and technical textiles. The revised PLI rules include lower investment thresholds and relaxed norms to encourage more firms to join. These changes reflect long-term government support for manufacturing growth and export competitiveness in textiles.

Reliance’s Pet Food Gambit: Reliance is launching a new pet food brand, Waggies, with prices 20–50% lower than major players like Nestlé and Mars. The products will be distributed across general trade outlets and semi-urban tier-2 markets, not just premium stores. This aggressive pricing mirrors Reliance’s playbook from its earlier ventures (like Campa Cola), aimed at rapid mass adoption. With pet ownership rising in India, this move could significantly shake up the pet food market.