How the Fed rate cut will shake up India's economy?

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Today on The Daily Brief:

• How does the fed rate cut affect India?
• Quick Commerce vs the Government

How does the fed rate cut affect India?

A few weeks ago, Jerome Powell, the head of the US Federal Reserve, hinted that they might be cutting interest rates soon. He said, “The time has come for policy to adjust,” which was basically a soft signal that a Fed rate cut could be on the horizon.

Now, fast forward to yesterday's Fed meeting. By the time you're reading this, they might have already made their decision on interest rate cuts.

We've talked about Fed rate cuts and inflation quite a bit on this show, so you probably have a rough idea why decisions like this are such a big deal—not just for the US but for the rest of the world, including us here in India. So today, we’re diving deeper into what’s been going on in the US and how their decisions are affecting the rest of the world, especially India.

Since early 2021, inflation has been a big problem for the US. The pandemic disrupted global supply chains, making it harder for companies to get what they needed. At the same time, demand for goods shot up as businesses and people tried to bounce back. To make things more intense, the government pumped a lot of money into the economy to help, which boosted spending even more. With high demand and low supply, prices went up—classic inflation.

To fight this, the Fed started raising interest rates in 2022 and 2023. The idea was to make borrowing more expensive, so people and businesses would spend less, which should bring down inflation.

And it worked, but only to a point. While inflation eased up, other parts of the economy, like job growth, started slowing down.

To understand why, we need to look at what happens when the Fed cuts interest rates. When the Fed cuts rates, borrowing becomes cheaper. For businesses, it means they can borrow money at lower costs, which encourages them to invest and grow. For regular people, it means things like mortgages, car loans, and credit card debt get a bit cheaper, so spending tends to pick up. And more spending gives the economy a boost.

But there’s a flip side, which is important for us in India. When the Fed cuts rates, it can weaken the US dollar. This actually works in favor of emerging markets like India because we often borrow in US dollars. A weaker dollar makes it cheaper for us to pay off those debts.

Now, this rate-cut cycle is different from past ones, like what we saw in 2000 and 2008. In the early 2000s, corporate debt, especially in the tech sector, played a big role in the dot-com bubble. The Fed raised rates in 1999 to cool down the economy, which contributed to the bubble bursting. Then, the Fed cut rates to stabilize the markets.

In 2008, it was housing debt that triggered the financial crisis. Years of low rates led to massive borrowing in the housing market, especially in risky subprime mortgages. When that bubble burst, the Fed slashed rates aggressively to prevent an economic collapse.

But today’s situation is different. US households and businesses aren’t carrying as much debt as they were during those past cycles. Household debt, especially mortgage debt, is more manageable, and businesses aren’t as highly leveraged as they were in 2000. That’s why this cycle feels unique. Even if the Fed cuts rates today, we’re not facing the same financial issues as before.

The big question for us is—how does this affect India?

India’s central bank, the RBI, keeps a close eye on the Fed's actions. While the RBI sets rates based on our economy, there’s often a ripple effect from what the Fed does. So, when the Fed cuts or raises rates, the RBI may follow suit.

This impacts Indian markets, including stocks, bonds, and even the rupee. These markets react strongly to changes in US monetary policy. If the Fed cuts rates, Indian assets—especially sectors that rely on global capital—can get a positive boost.

To wrap it up, while it’s tempting to look at past rate cuts for clues about the future, the global economy is very different today. There’s less private debt in the US, inflation is higher, and we’re still dealing with the aftermath of the pandemic. So, predicting how markets will react this time is tricky.

Quick Commerce vs the Government

Quick commerce is becoming a huge part of how we shop these days. In fact, it’s growing so fast that it now makes up about 5-6% of what households spend on groceries, according to estimates from the Economic Times. This growth is not only changing the way we shop—it’s also grabbing the government’s attention.

The government is keeping a close eye on quick commerce. They’re analyzing data from platforms like Zepto, Blinkit, Instamart, and BigBasket to see what people are buying and how often they’re buying.

Why, you ask?

Well, quick commerce really took off after the pandemic and now makes up about 40% of all online grocery sales in the country. According to ET, the government is even thinking about using this quick commerce data to help calculate the country’s GDP and track economic growth! This data could give a clearer picture of how people are spending their money in today’s fast-paced world where online shopping is becoming the new normal.

By the way, if you want to dive deeper into this topic, check out our episode titled “Who will win the quick commerce wars?”.

Another thing the government is looking into is “dark stores.” In simple terms, dark stores are small warehouses set up in busy neighborhoods to make those super-fast deliveries possible. Recently, senior government officials met with an executive from a leading quick commerce company to understand how these dark stores work, especially when it comes to India’s foreign investment rules.

If you’ve been following the news, you might remember when Piyush Goyal made some sharp comments about Amazon. He criticized the company for trying to find loopholes in India’s foreign investment rules. Mr. Goyal argued that these kinds of practices hurt smaller businesses and disrupt fair competition by giving big companies like Amazon an unfair advantage.

Now, with quick commerce booming, the government wants to make sure that companies like Zepto and Blinkit aren’t doing the same thing. They’re keeping a close watch to see how these companies are setting up and managing their dark stores to ensure no one is bending the rules.

That’s the main government story, but while we’re talking about quick commerce, here are some new updates in this space:

• Flipkart just launched its 10-minute delivery service, Minutes. They’re now in a race against Zepto, Swiggy’s Instamart, and Zomato’s Blinkit. Flipkart plans to open up to 100 dark stores before the festive season kicks off, so they’re very optimistic about this space.
• The ex-CEO of Cleartrip is starting a new venture focused on quick deliveries of premium products.
• Zepto is rolling out something called SuperSaver, a feature aimed at budget-conscious shoppers who like to buy in bulk. They hope this will increase the average order value.
• Myntra is joining the quick commerce game with a 4-hour delivery service, bringing the concept to fashion, a category that has very high return rates.
• Blinkit and Zepto are experimenting with quick returns and exchanges for fashion e-commerce, hoping to make the customer experience smoother and faster.
• BigBasket, known for its scheduled delivery slots, is heavily investing in quick commerce. They plan to increase their dark store count from around 400 to 700 by FY25.

A big reason for all this buzz around quick commerce right now is the upcoming festive season, when sales tend to skyrocket across categories.

So, with the rapid growth of quick commerce, the lines between it and traditional e-commerce are blurring fast. But even with all this progress, quick commerce still has a long way to go.

Tidbits

• India has overtaken China in the MSCI Investable Market Index for the first time, thanks to a strong stock market and China’s economic slowdown. This shift could bring more big institutional investors into Indian companies. However, market ups and downs could still cause future changes.

• Urban Company is gearing up for its IPO next year, with some investors reshuffling their stakes. Titan Capital’s founders recently sold shares worth Rs. 400 crore to Dharana Capital, while other key investors like Steadview and Elevation are also considering selling parts of their stakes, potentially unlocking $100-150 million.
• EaseMyTrip has acquired stakes in Pflege Home Healthcare and Rollins International to step into the growing medical tourism market, which is currently valued at $7.69 billion. This move strengthens their role in helping travelers seeking medical and wellness treatments abroad.
• Hindustan Unilever Ltd (HUL) is launching its luxury beauty brand, Hourglass, in India, tapping into the growing trend of premium beauty products. With more people spending on high-end products, HUL aims to compete with global luxury brands and grow its share in India’s booming premium beauty market.

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

This post was first published on Substack.