Sovrenn Times: Macroeconomy Update | 22 Aug 2025
Centre Sets Up Two High-Powered Reform Panels to Drive 2047 Viksit Bharat Goals
The Centre has constituted two reform panels led by Rajiv Gauba, former Cabinet Secretary and current NITI Aayog member, to spearhead next-generation reforms.One panel will focus on Viksit Bharat 2047 targets, while the other will drive non-financial regulatory reforms across sectors. A parallel committee chaired by Cabinet Secretary T.V.S. Swaminathan will work on state-level deregulation. The panels, which include secretaries of DPIIT, Expenditure, MSME, and Power, also feature industry bodies CII, FICCI, Assocham. Private-sector leaders like Pawan Goenka, Manish Sabharwal, and BCG India Chair Janmejay Sinha are also part of the groups. These moves follow PM Modi’s Independence Day call for next-gen reforms and will coordinate with informal ministerial panels led by Amit Shah and Rajnath Singh.
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RBI Opens Review of 4% Inflation Target; Seeks Views on Alternatives
The Reserve Bank of India has launched a review of its 4% consumer inflation mandate, in place since 2016, inviting public comments by September 18. While acknowledging its success in disinflation, the RBI is weighing alternative benchmarks, including core inflation (excluding food and fuel) and changes to the ±2% tolerance band. The review comes ahead of the second reset of the monetary policy framework, due in March 2026, under the amended RBI Act of 1934. Debate persists: some economists call for raising the target to 6% to ease growth costs, while others warn such a move could erode policy credibility.
The RBI cautioned that lowering the target amid global food price risks, climate change, and supply chain shocks may not be credible. Headline vs. core inflation remains at the heart of the debate, with food’s high weight in India’s basket making exclusion contentious.
GST 2-Slab Overhaul Cleared: 5%, 18% and 40% for Sin Goods
India is set to move to a simplified 2-slab GST structure of 5% and 18%, with a special 40% levy for sin and luxury goods, as the GoM on rate rationalisation cleared the Centre’s proposal unanimously. The reform abolishes the 12% and 28% slabs, with all states agreeing to place ultra-luxury cars and high-end products in the 40% category.
The GST Council is likely to meet in early September, ahead of Diwali, for early implementation of this reform. However, states raised concerns over revenue losses, with an SBI report estimating Rs 85,000 crore annual hit to the exchequer. States such as West Bengal and Telangana pushed for a safeguard mechanism, including higher levies on luxury goods to compensate for the loss. The reform, announced by PM Modi as a “Diwali gift,” is expected to lower prices, boost consumption, and aid growth, but revenue-sharing tensions remain unresolved.
India’s Exports to China Surge 20% in FY26
India’s goods exports to China rose 20% year-on-year to $5.76 billion (₹50,112 crore) in the first four months of FY26, with every month recording stronger shipments than last year. Exports peaked in May at $1.63 billion, while April, June, and July also showed double-digit growth. The rise was powered by petroleum products (up nearly 2x to $883 million), electronics (up over 3x to $521 million), and steady gains in chemicals (+16.3%)and gems & jewellery (+72.7%). The trend highlights India’s improving competitiveness despite global trade uncertainty and signals a gradual rebalancing of its $99.2 billion trade deficit with China, where imports are dominated by pharmaceuticals, electronics, machinery, and industrial goods.
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India Buys 1/5th of Russia’s War-Time Oil Exports
Since the Ukraine war began in 2022, India has purchased ₹132 billion worth of Russian oil, accounting for 20% of Moscow’s total oil export earnings of ₹640 billion, according to CREA. Adding coal imports of ₹16 billion, India’s total fossil fuel imports from Russia stood at ₹148 billion, making it the third-largest buyer globally after China (₹268B) and the EU (₹213B). While India trails China’s oil imports of ₹193B, it surpasses the EU’s ₹105B and Turkiye’s ₹71B. Russia earned a total of ₹931 billion from fossil fuel exports (oil, gas, coal combined), with India contributing 16% of the total. Despite Western criticism that India and China are “bankrolling” Moscow, data shows the EU itself accounted for nearly 23% of Russia’s fossil fuel revenues. The U.S., however, has escalated pressure by imposing a 25% penalty on Indian Russian oil imports effective August 27, 2025, which India has rejected as “unjustified.”