Good morning. In today’s edition: the unbreakable India-US economic bond, Delhi's hazardous post-Diwali air quality, and Indian startups surpassing $1 billion in October funding.

THE TAKE

US Elections and India: Why Economic Realities Will Trump Political Rhetoric

In the 1990s, if you walked around GE Capitals offices in Gurgaon, it would have been tough to imagine that the hundreds of young executives working night shifts there could be building the foundation of what would become one of the most powerful and unbreakable economic links between two countries, In this case, it was India and the United States.  General Electric (GE) Capital was the financial services division of General Electric and has been subsequently sold off.  

More than 25 years ago, senior GE executives like Pramod Bhasin and Raman Roy, who was often called the father of India's business process industry, created the architecture for an industry that has progressively employed millions even as it integrated in real-time with businesses in the United States and elsewhere in the Western world.

Artificial intelligence may take over many of those jobs today, but the early-stage business process outsourcing (BPO) revolution has already given way to the global capability centre (GCC) wave. GCCs are essentially the big brothers of the old BPOs, where companies set up entire offices or even campuses to allow their global operations to run smoothly. Think of them as mini-headquarters with a more focused approach. Today, there are over 1,700 GCCs in India, or captive centres for large multinationals, many in the USA. And there are almost two new ones being set up every day. 

Corporations like chip-maker NVIDIA, whose founder-CEO Jensen Huang got a rock star reception two weeks ago during his India visit, first set up their development centres in Bangalore more than 20 years ago. As did Intel, GE, Cisco, Google, Meta, Oracle, and a host of other technology and non-technology companies expanding to Hyderabad, Chennai, and Delhi.  

Even Apple's exports of made-in-India iPhones from the country have jumped by some 30% in the last six months, with exports touching $6 billion in this period, putting annual exports on track for $10 billion. On both products and services, India and the US are thus tightly linked, like never before. 

This brings us to the elections in the US this week and what it could mean for India.  The one thing about a tight race is that neither side's agenda is absolute.  

Current US president Joe Biden did not really alter his predecessor Donald Trump's China policies and, if anything, over time, only further tightened controls on Chinese imports and trade. 

Similarly, while the Biden administration has been lax on immigration over the last four years, the next four will see much tighter controls, whether Donald Trump or Kamala Harris becomes president because this issue resonates with voters.

Indian companies exporting to the United States could, in the worst case, see tariffs on products and clampdowns on H1B visas and the like. The larger point is this — the US is on an unprecedented economic growth path right now. So much so that the IMF in July revised upwards its GDP growth projections for the US from 2.6 to 2.8%. The previous decade saw less than 2% growth, incidentally. 

The Economist, in its edition on October 19, points out that residents of America's poorest state of Mississippi, on average, earn more than the British, Canadians, or Germans. It also says that those who thought that China would have overtaken America by now as the world's biggest economy at current exchange rates have been proven wrong. China's GDP was around 75% of the US in 2021 and is now 65%. 

All this may change later, but this is how it stacks up now. America is the largest producer of oil and gas in the world as well, and China is the largest importer of crude oil, followed by India. 

The Economist said that an economy with an unemployment rate of 4% and a per-person GDP of $85,000 does not have to be made great again, it is great. India, like many other countries, will benefit from a strong US economy that is, of course, open to trade.

Remember, US stock markets which are pricing in a Trump victory are on an unstoppable bull run with all indices at record highs. Global markets tend to keep pace with Wall Street, even with some lags. 

Despite Trump's exhortations of tariffs, it is difficult to believe that tariffs, even if imposed on countries like India, will be prohibitive. China might be a different story, of course. While more H1B visas might be tough, that will not fundamentally alter the power balance, at least for Indian IT companies who need them most. 

The bottom line is that Indian and the US economies and businesses are very tightly interconnected. This process that began decades ago is only getting more entrenched even as America's biggest and most successful corporations tap into both the talent and the market that India offers. For the US, good economics will, sooner or later, make for good politics as well.

CORE NUMBER

400

That's Delhi's Air Quality Index (AQI) on Sunday, reaching alarming levels after Diwali, despite government interventions. The Delhi Pollution Control Committee imposed a complete ban on firecrackers until 1 January 2025, permitting only 'green crackers'. However, heavy smog blanketed the city, with AQI readings exceeding 300 in many zones, pushing PM2.5 levels over 50 times higher than the World Health Organization's safe limits. Studies highlight the economic impact of India's hazardous air quality, causing an estimated $95 billion annual loss for businesses due to reduced worker productivity, increased absenteeism, and lower consumer spending, hindering GDP growth by approximately 3%.

FROM THE PERIPHERY

—🧑‍⚖️ Markets regulator Securities and Exchange Board of India (SEBI) has proposed amendments to the trading framework for securitised debt instruments (SDIs), including a minimum investment threshold of Rs 1 crore for originators and limiting private placements to 200 investors. Any issuance exceeding this limit must be classified as a public issue. Public offerings must remain open for 3 to 10 days, with advertisements adhering to SEBI's regulations for non-convertible securities. Additionally, all SDIs must be issued and transferred in demat form. The new amendments aim to modernise the existing framework, which is based on SEBI's 2008 regulation. SEBI is seeking public comments on these proposals until 16 November.

—📈 Brace yourselves for a potential price hike on your everyday essentials! Leading Fast-Moving Consumer Goods (FMCG) companies are signalling a potential rise in the cost of packaged goods, citing shrinking margins in the September quarter. FMCG giants have attributed the price hike to skyrocketing input costs and food inflation, which have put the brakes on urban consumption. Adding to this, soaring prices of key commodities like palm oil, coffee, and cocoa are also contributing to the price hike, reports said. Industry giants such as HUL, Godrej Consumer Products, Marico, ITC, and others have all voiced concerns about the squeeze on urban spending, which accounts for 65-68% of total FMCG sales. 

—💲Indian startups raised nearly $1.2 billion in October, a 26% quarter-on-quarter decline from September but still a 13% increase year-on-year. Growth and late-stage funding dominated, securing $846.2 million across 28 deals, while early-stage startups raised $355.38 million across 65 deals, data compiled by Entrackr showed. Despite the dip, venture capital investment in India remained robust at $3.6 billion in Q3 2024, driven by consumer-focused businesses, according to a recent report by KPMG India. The outlook for startup funding remains positive, with continued interest in sectors such as e-commerce, health tech, and SaaS, the KPMG report added.

—🚘 The festive season has provided a much-needed boost to India's EV manufacturers, with sales rebounding strongly in October after a period of decline. Registrations reached a record high of 217,716 units, a 35% increase from September's figures, according to Vahan data.  This surge is mostly attributed to the festive season sales led by discounts. Electric two-wheelers continued to dominate the market, accounting for 59% of total EV sales, followed by electric three-wheelers at 35%. Electric cars lagged behind with a mere 4% share, while buses, trucks, and construction vehicles made up the remaining 1, data showed.

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