Defiance And Diplomacy: India's Moment of Strength | Talking Point This Week

This week was about defiance. Politically, Prime Minister Narendra Modi has stood up to various challenges and crafted our own policy. And on the equities side, markets have stood resilient in the face of the uncertainty, but moving higher on each of the last four sessions, save for Friday. All eyes are now on the Jackson Hole address from Jerome Powell, and at the time of this going to print, all I had was a hypothesis. And that is that Jerome Powell would reiterate that rate cuts are not on the table. More on that below. India and China are showing some serious bonhomie. And S Jaishankar has had a meeting with Vladimir Putin, even as PM Modi will have a meeting with the other two thirds of the RIC troika. In other news, India successfully test-fires Intermediate Range Ballistic Missile Agni 5 as well as cleared decks for a large order for defence aircraft manufacturing. In other news, if you think your housing costs are expensive, know that  Australia has five of the top 15 spots for the most unaffordable housing in the world. And cities like Mumbai and Singapore are not on Demographia's top 15 list.

Here are the key talking points this week:

Rate Cuts Difficult For Fed?

All eyes are now firmly on Fed Chair Jerome Powell's Jackson Hole speech on Friday. Note that the July FOMC minutes released on Thursday explained why all but two of the committee's members voted to leave the federal funds rate unchanged. In their discussion of inflation, many participants observed that overall inflation remained somewhat above the Committee's 2% longer-run goal. Officials acknowledged worries over higher inflation and weaker employment, but a majority of the 18 policymakers in attendance “judged the upside risk to inflation as the greater of these two risks,” according to the minutes of the Federal Open Market Committee’s July 29-30 meeting. Question is - Why would Powell sing a different tune at Jackson Hole today?

More Rate Cuts Ahead In India Though?

Nomura's analysis of India's economy suggests that escalating trade tensions, particularly due to potential Trump tariffs, could prompt the Reserve Bank of India (RBI) to initiate the next phase of rate cuts. Minutes from the August Monetary Policy Committee (MPC) meeting indicate that the rate cut cycle is highly sensitive to these ongoing trade frictions. Nomura anticipates that the RBI will revise its FY26 forecasts for GDP growth and CPI inflation downward in upcoming policy meetings. The firm expects the RBI to implement 25 basis point rate cuts in both the October and December meetings, ultimately bringing the policy rate to a terminal rate of 5%.

More Details On GST Cuts

The Group of Ministers on Thursday approved the Centre's proposal to simplify the rate structure by scrapping the 12% and 28% slabs, consolidating most goods and services into two primary rates of 5% and 18%, with a potential 40% slab for luxury items. This move will shift nearly 99% of items from the 12% bracket to 5% and about 90% from 28% to 18%, including reductions for common-use goods like small cars, aiming to make products cheaper and boost compliance amid revenue loss concerns. The proposal now awaits final approval from the GST Council, likely in early September, for implementation potentially by October.

Hindi-Chini Bhai Bhai – A New Cut To The Story?

India and China have advanced their diplomatic thaw, with high-level talks in New Delhi focusing on easing border tensions and resuming border trade through key passes. Chinese Foreign Minister Wang Yi's visit emphasised strengthening political trust and cooperation via platforms like the SCO, while both nations agreed to restart direct flights and address issues like Pakistan's cross-border terror and Brahmaputra dam concerns. A Chinese official expressed solidarity with India against US tariffs on Indian exports, an additional sign of warming ties between the two Asian rival. To be sure, most people have said that India's relationship will not be China or USA, but China and America. And experts like Nikki Haley have written about how, for the US, only a few objectives are more critical than getting US-India relations back on track.

As we wrap, I will highlight a post from Devansh Jain of Inox Wind about an event which touched a chord with every Indian. The event was of a comedian whose latest act has captured the imagination of every India. Devansh writes:

"Recently, an Indian has been talked about all over the world. Not a sportsperson, not a scientist, not even a film star - but a comedian, who blessed the audience with the magic of storytelling at Madison Square Garden, New York, making history as the first comedian to perform in Hindi at the venue. Zakir Khan - a son of humble beginnings, a symbol of true struggle, and the definition of being self-made - has made every Indian proud. This moment is as special for us as it is for Zakir, because his achievement carries an energy that feels deeply personal. What I loved most is that he video-called his parents mid-show, to show them the love he and his art are receiving around the world." More power to you Zakir.

Have a great weekend everyone,

Niraj