Pros and cons of a big bank push bl-premium-article-image: Businessline 19th November 2025

 The issue of having big banks has come back to the discussion table. The Indian banking system has a unique model where there are differentiated banks serving specific purposes.

Hence besides the commercial banks which are virtual universal banks, there are small finance banks, payments banks, and the cooperative banking system. There are evidently benefits from such a structure.

Case for big banks

With the aura of going global pervading economic thinking there are arguments being made for having big banks. First, there is the reputation issue. Today it has become axiomatic to be at the top — whether it is GDP or banks given the economic power that vests with India in the global space. Therefore, being a part of the top 100 or top 500 is an aspiration, and here size of banks matters. A globally integrated economy necessitates large banks.

Time is ripe for a pollution tax: Financial Express 14th November 2025

 With rationalisation of both direct and indirect tax rates this year, the Budget is betting on higher buoyancy in income to ensure the tax revenue increases. It is also seen that growth in nominal GDP can no longer be assumed to be 11-12%. With deflation in several product segments, nominal growth was less than 10%. At the same time, the expenditure commitments on social welfare as well as capex has increased over time, which cannot be lowered. This may be the right time to explore new avenues of revenue. Besides, there cannot be over-reliance on central bank transfers as such funding tends to amount to monetisation.

Here, a cue could be to introduce a comprehensive pollution tax. The concept is not new, as there are vibrant exchanges which trade in carbon credits. However, the idea here is more Pigouvian in nature—any polluting activity needs to be taxed. Arthur Cecil Pigou was an English economist who espoused the imposition of a tax on any negative externality caused by economic activity. Pollution is a clear case where society in general gets affected. Hence, the concept of tax moves away from the commercial variety of “cap and trade”—here, the idea is to directly tax either the producer or consumer of a product or service which causes pollution.

The idea of such a tax is twofold. First, all entities causing pollution must pay for the same, making it democratic. Second, if the entities which pollute the environment (as producers or consumers) choose not to get into such activities, it will mean lower revenue for the government; however, this will ensure better quality of life for society. For instance, if people switch fully to electric vehicles, the revenue will dip for the government but air quality will improve across the country.

There are different ways of imposing such a tax. The first approach is to tax the polluting industry. A very rudimentary criterion would be to look at the ratio of power and fuel to turnover. While this assumes that the only pollutant is power and fuel, it is still easy to implement. Companies’ profit and loss accounts can serve as the basis for levying tax.

It is also possible to complicate the system and move beyond a single expenditure item. There are classifications of industries under the pollution index—red, orange, and green categories, having scores of 60 and above, 41-59, and 21-40 respectively. The white category is virtually non-polluting with a score of 20 and below.

The corporate tax rate could have an additional surcharge of 5%; or the tax rate could be a flat 32% instead of 30% for industries in the red category. For green, it could remain at 30%, and 31% for orange. There is, however, the issue of classifying companies, as they often produce multiple products.Companies producing 51% of any product would get classified under this heading and taxed accordingly. The norm of 51% could also be changed to 33% to cover those involved in two to three main products. If companies produce multiple, “diversified” products, the sales of the top three products can be summed up.

This levy would be a direct tax and only affect profits and shareholders. It is, hence, a fair charge. A legitimate question could be on the possible allowances for companies involved in activities that improve the environment—common under corporate social responsibility spends. However, any allowance should be avoided as it can lead to tax arbitrage. The idea is to tax the polluting activity—any mitigating factors should not be allowed to be used as an umbrella.

The alternative approach can be through an indirect tax, where the levy is at the consumer end. Here, the end user pays tax on products classified under the three categories. Hence if petrol and diesel are taxed at 1/ litre, the cost is borne by the consumer. There will be an incentive to shift to other forms to escape the tax. The government can earn a lot of revenue on just motor fuel. The1 tax can fetch 15,000 crore annually. Intuitively, any increase can lead to proportionately higher revenues for the government. Further, every air ticket can have a pollution tax that is part of the fare—a100 tax on 200 million passengers annually can fetch `2,000 crore. The only consideration for the government, however, would be the inflation impact.

Balancing inflation with revenue will be the main consideration, and it is not possible to cover all products and services at once. It must be done in phases. The suggestion is to impose the tax selectively on the most polluting products—fuel and power, fashion, livestock, transport, data centres, construction, plastics, and chemicals—with the tax being variable.

Another ideological issue is taxing pollution caused by farming and livestock, given that it falls under the unorganised sector. Exemptions will be required, given the sensitive nature of such products. Hence, in the first phase, the pollution tax could be imposed on specific industries and services that are less controversial and easy to administer.

A pollution tax can be a major alternative revenue stream for the government, and it can be harnessed gradually. It will bring in more consciousness within the society and help reduce overall levels of pollution in future.

The changing face of savings and investment in India: Free Press Journal 10th November 2025

 

In Bihar and beyond, don’t dismiss cash transfers. They serve the general good: Indian Express 10th November 2025

 Cash transfers make headlines during election cycles. The latest to grab attention are those announced for women in various states, normally just before the assembly elections or topped up if the schemes already exist. While some concerns have been voiced, such transfers may not be negative.

Studies show that 12 states are offering such schemes, amounting to around Rs 1.7 lakh crore – 0.5 per cent of GDP. The amounts given can range from Rs 1,000 a month per woman in a family in Chhattisgarh to Rs 2,500 in Jharkhand. Several other states are debating introducing such schemes. Interestingly, larger states such as UP, Gujarat and Rajasthan do not appear to be doing so. There are several positive consequences of “cash and kind” transfers. Remember that the free food scheme has helped to raise several families out of poverty and proves that direct interventions work. The same holds for benefits given to farmers either directly through cash or through subsidies.

Three issues need to be discussed. One, whether such transfers provide direct economic and social benefit. Two, whether they upset fiscal math. And three, the ideology of the role of the state.

These cash transfer schemes cover almost 100 million women. This has led to empowerment as they are less dependent on their spouses. It helps them spend money more meaningfully, which matters in lower-income groups. Schemes like free bus rides have helped increase mobility, easing access to educational and occupational institutions. Schemes which involve distribution of laptops, cycles or sewing machines help in social advancement either through better education or providing avenues for employment. Hence, “cash and kind” transfers are good if directed well. The broader question is whether this process can be sustained when governments spend more on such avenues and less on, say, infrastructure. Here, the Fiscal Responsibility and Budget Management Act ensures fiscal discipline. There are rules in place on how much a state can borrow. The issue is whether such unconditional transfers in cash or kind are better than, say, an infrastructure project, considering that even money transferred adds to spending and growth.

This leads us to the role of the state. It is to ensure fair distribution, and giving cash is a direct way of raising living standards, just like how the free food scheme has benefited society at large. States have been allocating funds for capex, too. But, at times, these have been pruned to meet fiscal targets. This can be considered the cost of keeping the less privileged in a society above the level of deprivation.

Schemes involving unconditional cash transfers do serve the general good. Though, arguably, in the long run, more jobs must be created. There is no substitute for that.

Money saved with banks serve worthy purposes: Why deposits need a break: Mint 6th November 2025

 https://www.livemint.com/opinion/online-views/india-bank-deposit-fd-interest-income-tax-equity-mutual-funds-new-regime-old-regim-11762248036130.html

Why are 10-year bond yields sticky downwards? Businessline 27th October 2025

 

India's economy faces critical tests, results by March 2026 Free Press Journal October 27, 2025

 

Book review: Fixing the system: Financial Express 19th October 2025

 For a person who has been tracking Indian polity and economy for about eight decades, Shashi Budhiraja brings out a rather hard-hitting book on India’s progress, titled The Governance Gap. As the title suggests he points out the gaps in our political and economic systems based on facts and data and devoid of emotion. The political superstructure needs reforms that can come only from within, as people design the systems that they ultimately operate. The economic scenario needs improvement, which can be done provided we get the political ideology right, which is hence a circular puzzle. Yet, he is very optimistic about the future of India.

The book is partly a narrative of developments in various sectors since independence, along with his commentary on them. While these facts are well known, putting them together cogently with deep analysis is what makes Budhiraja’s book stand out.

Let’s start at the beginning. Yes, India has had fair elections since we started our democratic journey, which is something that we can be happy about, given how democracies have tended to wilt at different points of time. However, he points out that over time elections are driven significantly by money power and the majority of those who get elected have high levels of wealth. Moreover, given that up to over 40% of legislators have a criminal background does not bode well for a democracy.

The same degradation gets reflected in the quality of proceedings in both Parliament and state legislatures. Backed by data he shows how the number of sessions have come down, with most of the time spent in heckling one another, thus making meaningful debates impossible. Due to paucity of time it has been pointed out that even serious policies like the Budget have been passed without any discussion. He brings up an imperative point when he says that criminality and corruption are now well permeated in the legislature. This, he points out, holds true for all parties and none have been an exception, which is worrisome.

In the same vein, he highlights the challenges of governance. As criminality and corruption dominate elections, the winning set of parties have to accommodate all winning candidates. This has led to larger jumbo-sized ministries with several ministries being split to keep all parties happy. Coalition politics makes it expedient to do so. Yet, in recent times, he observes that the PMO has become even more important, with several decisions being taken without the ministries concerned being taken into confidence. This has actually meant that while there can be ministries and ministers, the power lies right up at the PMO. He gives examples of major revolutionary policies like the response to Covid or even demonetisation, which were all decided at the highest level. Also, there have also been conflicts in federalism. While the Finance Commission ensures there is distribution of income based on a formula, the process of allocations has been questioned by states as those that do well get fewer funds.

In the same vein he also has spoken of how the judiciary had to get involved even four to five decades back with constitutionally elected governments being dismissed. The problem at the judicial level can be seen by the number of pending cases. The courts are understaffed and vacancies pending for several years, which makes it hard to deliver speedy justice.

Lastly, on the political front, he discusses the touchy subject of reservations. These numbers can go up to 60% in several states. The politics in play is the inclusion of various categories of people under reservations for political gains. This is totally against the ethos of the concept when they were introduced. When we read on this subject almost every year in the media, one can sense the author’s angst as the issue has become fully political in most states, with every party supporting groups from where votes can be garnered.

Quite clearly these cogs need to be removed as India moves towards becoming a developed nation. The author then analyses progress in the economy with a historical perspective. The issues highlighted are agriculture, education, health and workforce. Rather than talking of the achievements in sectors such as manufacturing or services, which most books do, Budhiraja directly focuses on areas that need to be addressed.

India’s progress in agriculture has been remarkable, but in the past few decades it has slipped, with greater dependence on subsidies, resulting in overuse of fertilisers affecting the quality of soil. Clearly, the progress we made at the time of Green Revolution is not sustaining of late, and politics again has focused on issues like subsidies and loan waivers. This has resulted in little incentive at the farmer level to become more productive.

The issues of health and education are also well known and have to be addressed, as this has led to inequality in the country. The author quotes several standard publications to show that there is a lot of work to be done on this front.

While demographic advantage is definitely a strength, we often harp on this without paying attention to skilling the workforce, which starts with education. Mere enrolment does not help and we need to have more teachers and better administration of the curriculum to change the structure.

The fact that the bottom 50% own just 15% of income in the country means that development has missed a large section of the population. While growth at the macro level has been impressive without taking this section along, one can imagine the high potential if there is greater inclusion.

What one can conclude from this book is that India can become better. There has to be more political determination to improve social indicators, which is the route to foster equality. The political superstructure, however, still remains in suspension, and the author says things have not exactly improved over time. Clearly, it is the people that matter and there is need for a larger change to take place.

The Governance Gap: Unlocking India’s Superpower Potential

Shashi Budhiraja 
Edited by 
Rajeev Budhiraja
Rupa Publications

Pp 296, Rs 695

The importance of innovation: Financial Express 14th October 2025

 

he future of growth models will be driven by innovation, and this is both a challenge and an opportunity, as reflected in this year’s economics Nobel winners

The story of Kodak is now well-known to all—how the leader in the business of cameras became outdated. The same story was witnessed in areas such as music, where cassettes gave way to CDs that have now been replaced by the virtual delivery of content. Businesses built on these edifices have closed or had to innovate to remain viable. A similar wave can be seen in the electric vehicle or renewable spaces where the future of a petrol-driven car can be uncertain given how the world is moving. The oil-producing nations are cognisant of these change.

At a more macro level, AI has swarmed all businesses, and everyone is trying to balance its use with the given skill sets. Job losses are being spoken of in hushed tones. This is something which was never envisaged and jobs done by AI—starting from a rudimentary search on the Internet—have changed the way in which business operates. What does all this mean?
The future of growth models will be driven by innovation, and this is both a challenge and an opportunity. This is what Joel Mokyr, Philippe Aghion, and Peter Howitt have studied for decades. Their work on the subject has been rewarded with the Nobel Prize in Economics this year.

The role of innovation in driving economic growth is not new, though its importance is greater today. Innovation was also highlighted by economists such as Robert Solow who spoke of the importance of technology in getting out of the low-productivity trap. There were limits to productivity of labour and capital, which tended to come down beyond a point. The only way forward was to bring in technology to improve productivity given the same levels of factors of production (land and labour) and eschew the economic process of diminishing returns.

The Nobel winners have worked on this subject more at the macro level with mathematical models showing how progress in terms of growth can be accelerated with the use of innovation. The underlying concept, however, is the same.

Quite significantly, they draw a lot from Joseph Schumpeter’s concept of creative destruction where a natural process for obsolescence comes in. Economic evolution begins with inventions that take countries by storm, just like the Industrial Revolution did in the mid-19th century. But, after a point of time, there is a tendency to imitate where it becomes difficult to distinguish superiority or quality of products. Thus, monopolies turn to what economists call “imperfect competition”. With innovation, there would be a natural process of creative destruction—those who innovate move ahead, while the others wither away. This engenders subsequent growth cycles, seen when innovative products in automobiles, electronics, engineering, etc. replace existing ones. Innovation has driven the East Asian story or the ascent of China. The same held for Japan in the ’60s and ’70s and the Asian tigers subsequently..

Mokyr, Aghion, and Howitt did not just stop at these principles but also emphasised the role of the state. This is critical because countries need to have systems that encourage such creative processes. For that, countries need to invest a lot in R&D which can happen if there are high savings. Mokyr specifically spoke of distinguishing between what he called propositional knowledge, which is theoretically sound but not practically feasible, and prescriptive knowledge, which is what really works in the real world. So to derive the best results there is a need for support from the financial system that provides funds at competitive interest rates even as cost of experimentation can be high and results uncertain. This is probably why some economies of the West and East have galloped at high growth rates for sustained periods while those in say Africa, or even Latin America, have seen slower progress.

The question that comes up is how India stacks up in this theory of innovation-led growth. Significant strides have been made in several sectors, manifested not just by innovative products and processes but also in start-ups that have leveraged technology to contribute to growth. India is considered a pioneer in start-up founders. Also, in a globalised setting, borrowing technologies is easier than when the world economy was not flat. The fact that Indian manufacturing has done well can be judged from the fact that almost all products that were earlier imported at the consumer end are manufactured within the local economy. Further, with a favourable business environment being created, foreign direct investment has poured in. This has been the most convenient way to bring in innovation as technology comes along with such investment.

Funding too has become universal where besides investment, it is easy to borrow from external sources that can fill the gap in financing innovation. The government has had several schemes that offer direct support to start-ups. In fact, the performance-linked incentive scheme is another incentive provided by the government to encourage innovation and production.

Therefore, the importance of innovation in the growth process is extremely high. This is probably the only way to excel growth. A globalised world makes it easier to borrow both ideas and funds to prune the time taken to grow faster. At the micro level, firms have to constantly innovate as there are always new ones with new ideas that have an advantage over legacy companies which find it hard to dislodge outdated shibboleths.

Making sense of stock market in view of a high growth rate: FPJ 13th October 2025

What's behind the new depths being tested by the rupee against a weakening dollar? Mint 8th October 2025

 https://www.livemint.com/opinion/online-views/rupee-vs-us-dollar-exchange-rate-rbi-usd-to-inr-forecast-indian-depreciation-analysis-forex-current-account-deficit-11759732447150.html

Why are pvt investment levels not robust? Financial Express 4th October 2025

 The decibel levels calling for the private sector to invest more have gone up ever since the goods and services tax (GST) rates were rationalised. The argument is that when the government has done everything within its powers to increase consumption and the Reserve Bank of India (RBI) has cut rates by 100 basis points, it is time for the private sector to deliver. It is expected that the private sector will respond by investing more, which, by itself, will help generate more jobs and thereby initiate a new virtuous cycle of spending. While this is a logical expectation, the real world could be different.

Investment is surely happening in the country—the gross fixed capital formation (GFCF) rate is at around 30%. But the proviso here is that it is not broad-based but concentrated in industries that are more aligned with infrastructure—steel, metals, machinery, chemicals, etc. It is also limited to a handful of companies in the consumer goods space. It does look like where there is increasing capex, the government spends at the front end, but there is also a backward linkage to the industries concerned. In the best of times, the GFCF rate was 34-35%, and at the same time growth in GDP also averaged above 8%. Why, then, is investment not forthcoming?

First, companies typically invest when they find robust demand—it is only when this level crosses 80-85% that companies do so. Here, both current as well as future consumption matter. Companies need to see a higher growth trajectory in sales for a prolonged period to go in for fresh investment. This varies across industries and companies as well as across time.
This issue gets tied up with consumption or the ability to consume, which has been hampered a lot by high inflation over the years. While inflation is down presently, household consumption has been affected by cumulative inflation in the past, with income growth not keeping pace. It can be hoped that with the fiscal concessions on both direct and indirect taxes, there would be a turnaround this season.

Second, when companies invest, they always have to evaluate the returns. Hence, the return on capital comes into play. Building capacity financed by leverage involves a cost. There has to be commensurate output and profit for any investment.
This is one reason as to why companies hold back on prospective investment until it is absolutely necessary. Governments, on the other hand, have an outlay specified in the Budget that can be spent once approved. The government doesn’t have to bother about return on capital and the money can be spent—the focus is on achieving targets in terms of project completion. This difference has to be noted as the motivations are different for the two entities.

Third, with interest rates being lowered, logically more projects become viable. This begs the question why the private sector has not yet started investing. But as stated earlier, no company borrows to invest unless there is opportunity. Interest rates are rarely the limiting factor. For instance from 2005-06 to 2012-13, the average GFCF rate was as high as 34% and the repo rate averaged 6.85%. Yet, investment flourished—there was opportunity to invest as growth was buoyant. Therefore, investment decisions are not taken because of interest rates but “need”.

Fourth, the quantum of uncertainty in the economy has increased since April when the tariff issue came up. Until there is greater clarity, several industries—textiles, leather products, engineering, auto components, electronics, pharma, etc.—would not be in a position to invest, especially if there is export orientation.

Lastly, in a sector like real estate, the build-up of inventory has hindered fresh construction. Further, a sub-section in the area of affordable housing has slowed down mainly due to fewer projects being taken up. It is often argued that the value of such houses needs to be increased, given the cumulative inflation. In the absence of such a review, these projects have become non-viable fore realty firms.

All factors taken together, it does appear that building momentum in private investment will take time. It can be expected to gradually pick up across sectors and it may take up to two years for a more definite picture to emerge. The preconditions have been met to a large extent by the government, with affirmative action on taxation. The Centre and states’ commitment to capex does offer favourable conditions for private investment. Interest rates are down, and there could be another rate cut during the course of the year, though indications are the rate cut cycle has ended.

To reach a 33-34% investment level, big investments in infrastructure are needed. This is the main challenge. During 2005-13, when investment boomed, heavy industry was the driver. This segment can provide a big boost to capital formation as the industries in the consumer segment do not require bulky investment. In short, one needs to be more patient.

RBI MPC meet: A pause is most likely: Moneycontrol 30th September 2025

 https://www.moneycontrol.com/news/business/rbi-mpc-meet-a-pause-is-most-likely-13588571.html

The decision to be taken by the MPC will be interesting for several reasons. There have been several developments since the last policy was announced; and the uncertainty spectre still lingers. The tariff issue is still casting a shadow on global economic prospects. Amidst this environment the government has taken some aggressive steps to support the economy both in terms of aiding growth as well as bringing down prices through GST 2.0. Under these circumstances, one can logically argue for both a rate cut as well as a pause with compelling reasons. Hence, the majority view of the 6 members will be the clinching factor.

In the June policy, it was highlighted when the repo rate and CRR were cut that there are limits to which interest rates can support growth. That is true as no one borrows except if there is a strong reason which is growing demand. Therefore, the stance was changed to neutral indicating that this could be the end of this rate cycle. The bond market reacted with upward movement in the 10-years rate rather than a downward direction which should have been the case with the rate cut.

The GST cuts announced, however, changes the view now. With these cuts expected to raise consumption, there would be a tendency for capacity utilisation to improve leading to higher investment. A rate cut can then be justified on grounds of supporting growth.

The RBI forecast of inflation is quite benign at 3.1% for the year. With the GST cuts there would definitely be a downward revision for the year. As monetary policy is always forward looking, the inflation rate next year will be critical. For Q1FY27, the forecast was 4.9%. This will get moderated by 40 to 50 bps due to the virtual 10% cut in GST across a large basket of commodities; which means that it will be less than 4.5%. At this level, a rate cut can again be justified as inflation will still be within the acceptable limits. The logic here looks fair.

However, on the other side, there are compelling arguments for a pause. First, even at 4.5% inflation next year, the real inflation rate would be just 1%. This is the lower end of the thumb rule assumed for the real repo rate of around 1.5%. (This has never been defined but internal research of RBI had indicated a similar range). Second, heavy flooding in north and south west India has resulted in crop damage. Hence there can be some shock on the food prices front which will be known over the next two months. A pause hence makes sense. Third, a major reason for low inflation numbers is pure base effects which will automatically get reversed in the next cycle in FY27. Will we then be compelled to raise rates? Last, while transmission has taken place completely on the deposits side, there is still ample scope on the lending side. Hence, there should be more time given for such transmission to take place.

On balance, it does look like that a pause in rate cuts is what could be preferred by the MPC this time. Further rate cuts could always be considered whenever required given that the policy comes up every two months. Ideally, a rate cut, if at all is on the cards, should follow a change in stance which will provide the right boost to the bond market.

Liquidity Trap poses policy challenge: Business Line 26th September 2025

 

It’s all about the idea: Stories of successful startups and their strategies: Book Review in Financial Express 28th September 2025

 It is a well-known fact that most startups tend to fail within a few years of inception. Yet, there is a clarion call to give a push to startups because they bring in new ideas as well as have the potential to become what are called unicorn (companies valued at over $1 billion). There have been several instances of such unicorns spurting in India, which houses one of the largest numbers in recent years.

This is what is explored by Aditya Arora and Surya Pasricha in their book Startups of Bharat. They take the reader through different success stories and have certain lessons for those who wish to get into such ventures. There has been a tendency for several engineering and management graduates to get into something new; and with the spread of technology, has become easier. These startups have chosen the online route often to deliver new products and services to customers. In fact, as the authors show, most of these ideas germinate when they are studying in college and fructify as they end their courses and opt for this unconventional route rather than try for the placements. This is reflective of a very advanced level of intellect where students are already in this entrepreneurial role, albeit in the mind, from an early age.

The authors claim that this is not a book that teaches or preaches. It is more a collection of various ideas that have gone into creating startups that have worked. Hence, one cannot ask about those that have not worked. Each story covered in the book gives a gist of what the enterprise does and then traces how these ideas came up and were implemented. At the end of each chapter there are key takeaways. This would closely resemble a brief playbook that could be adopted by anyone thinking of such ventures.

Some of the questions that are posed relate to the business, while others are more behavioural, which will vary across persons. Hence when they talk of being resilient or dreaming big and being bold, the concept may look fairly nebulous. But talking on systems and not the product or focusing on communities and not just customers will be more specific thoughts that need to be pursued.

These stories of entrepreneurs have resulted into considerable amounts of money being raised in the market, with some achieving unicorn status. These startups have not just brought in new ideas but also created jobs. This is one way to go for the economy as conventional jobs become repetitive and probably scarce as technology-driven AI can create a certain modicum of redundancy of labour.

Trying to trace patterns in these enterprises, the authors conclude that there are essentially three prerequisites that have to be met for a successful venture. The first is the product or service (which they term as problem) should be one with a large potential market. This sounds logical because scale is important when bringing in any technology as otherwise there would be a levelling of demand. Along with size of the market, there must be what they call a ‘problem which is repetitive’ so that the venture can garner an income on a regular basis. This too sounds fair, because for the market size to be maintained over the years, there must be high growth registered continuously or else the idea will wane. Last, the product must be considered an essential and not of discretionary value. This is important because as economies progress there are business cycles. If products are not a necessity, then there will be reduction in demand in the natural course. However, if it is essential, then it would work well.

In this book, Arora and Pasricha provide several case studies to drive home this point. The first thought that comes to us would be education, which is something that is large given the demography of India. Several startups have focused on this field and derived fair returns over time.

Providing a platform for cattle is another rather novel idea. We are aware of a second-hand automobile market which is conducted online by several such enterprises. But trading of cattle is different which eschews the bother of going to cattle fairs. Besides the platform and other technical issues that have to be in place, there is a need to give wide scale publicity to these ideas so that a market is created.

They talk of another venture that created India’s largest student community where one can come and learn new skills and network with peers. Another example provided is of a property management app that helps landlords and property managers automate rent collection and streamlining tenant onboarding.

They also provide some guidance on how one finds mentors as this is something that is useful for sure. Similarly, they pose and answer questions on the funding aspect of such ventures as well as on where to register the company. Raising money is always a challenge for any individual, especially if the idea that is being worked on is new and not tested. These are useful tips where the suggestions are not based on any theoretical basis, but practical experience of how various entrepreneurs did the same.

The 15 chapters that are included here are what the authors quite appropriately call the 15 levels of simulation as each level has advice based on a specific company’s experience. This book will surely be of interest to anyone who is looking to do something new as it does do some hand holding from the stage of ideation to making the project work. For those who are not of this variety, the book provides interesting reading as it talks of how things got done for all these companies (the names have not been mentioned in this review as it would take the fizz out from reading the book).

Startups of Bharat: Stories of India’s Million-Dollar Founders Under Thirty
Aditya Arora, 
Surya Pasricha
Penguin Random House
Pp 240, Rs 399

Can’t Bet On Gold To Continue To Rise At The Same Pace: Free Press Journal: 22nd September 2025

 Global uncertainty caused by either war or any extreme policy, which can surround crude oil prices or tariffs, generally causes excess volatility in all markets. With a plethora of developments taking place in the current context, it is hard to conjecture whether currencies will decline or get stronger. The bond markets remain in flux as central banks evaluate the situation before taking a call on interest rates. The same holds with stocks, which get more volatile and can change direction daily depending on the sentiment. It has been observed that in the last two years or so, one asset which moves in a single direction and tends to thrive in such chaos is gold. This has actually been the story ever since Covid, as it has gained in strength for a variety of reasons.

From an average of $1462/ounce in 2019-20, the price has gone up to $2585/ounce in 2024-25. This is an increase of around 76% over 5 years. However, in 2025, due to the tariff issue, there has been a substantial rise from $2709/ounce in January to $3532/ounce in the first week of September, which is an increase of 30%. This comes at a time when stocks have been volatile, bond yields rising, and currencies moving in no particular direction. How can this be explained? And more importantly, can this be expected to continue?

First, gold is considered to be a safe haven and always does well when there is uncertainty. In the last five years, there have been several periods of uncertainty, including the pandemic, wars, political changes and, more recently, the tariff issue. Therefore, investors diversify their portfolios to include gold. The fact that one can invest through financial instruments makes it even easier from the point of view of transacting in the same. There may be no compelling reason to buy physical gold. The derivative market is active both overseas and in India, and the ‘future’ momentum gets reflected in the physical market too.

Second, gold ETFs have received a fillip as large institutional investments flow into these funds. As ETFs do maintain a backup of physical stock of gold, there has been an increase in demand for the metal, which has kept the price rising in the market. In fact, this has been one of the major sources of demand in the last five years, which was not the case earlier.

Third, central banks have been a big purchaser of gold. Ever since the Ukraine war erupted, there has been talk of de-dollarisation. Central banks have been picking up gold in parallel from the market to build their reserves. As gold does not belong to any country, it is a very good way of diversifying foreign exchange reserves. Some of the central banks, which have bought progressively more gold in the last few years, are from India, China, Turkey, the Czech Republic, Poland, etc. When central banks buy gold, it tends to be of considerable quantity and value, which adds to the price momentum.

Fourth, at the individual level, a boom in prices becomes self-fulfilling as individual households rush in to buy jewellery, trying to beat the cycle. By doing so, they contribute to the spiralling demand, which in turn pushes up the price. India and China are the two biggest consumers of gold. In fact, with interest rates declining in India, there is more reason for households to prefer to buy gold as a long-term investment. There was a gap in spending during the first phase of the pandemic, when there were lockdowns across the globe and it was difficult to buy jewellery. However, subsequently there was the pent-up demand phenomenon, which led to an increase in purchases, leading to the price increase.

The question to ask is how will the price go? The past track record has been impressive in the last five years. But there were periods when gold remained quite grounded. From roughly 2007 to 2015 the CAGR, over a ten-year period, tended to be in double digits every year. This was the period following the Lehman crisis, which acted as a good prop for gold.

However, it is only the upsurge in 2024-25 that has pushed the CAGR once again to the region of around 8%. During the interim period, the price tended to be volatile without any significant movement in either direction. Therefore, it cannot be assumed that the price will continue to increase by leaps and bounds, as has been witnessed in the last 18 months or so.

In the last 10 years, on four occasions there was high double-digit growth in the price of gold, while there were 3 years of negative growth. Hence, it cannot be assumed that the price will increase every year. While it can reasonably be assumed that the global environment will remain volatile for the next year, due to the realignments taking place in global trade and hence currencies, conjecturing beyond may still be tough. Besides, with the price of gold at a level of $3500/ounce, a sharp increase from now on would not look likely in the absence of a major shock.

While the theory of gold delivering good, steady returns would still hold over the longer term, the annual increases could be muted. A lot will also depend on how the ETFs and other investors look at gold as an investment when it comes to buying the metal. The central banks’ acquisition is always in a gradual manner and can be expected to tick along as they continue the diversifying act over the next five years.

How hungry and able is consumer: Economic Times: 16th September 2025

 

Why corporate borrowers need to track the credit default swap rates: Mint: 14-15 September 2025

 https://www.livemint.com/opinion/online-views/sovereign-ratings-india-credit-p-moody-s-fitch-government-bonds-cds-brazil-south-africa-israel-insurance-swaps/amp-11757666673267.html

Why targeting headline inflation is essential to control inflationary expectatio...Forbes September 9 2025

 The credit policy targets headline inflation, which is the practice in almost all countries. The Monetary Policy Committee (MPC) also targets the same in India as this has been the mandate from the start and not changed when it was reviewed after running for the first term. However, each time the policy is announced, there is the economist’s debate on why core inflation should be targeted as, in the last year or so, it has run lower than headline inflation. The reason is that, last year, food inflation was high, which increased headline inflation while core inflation was relatively low.

An ideological issue is whether policy should narrowly focus on core inflation, which is theoretically what can be targeted by monetary policy. The logic here is that food prices cannot be influenced by policy. There can be no argument here as prices of pulses or cereals are not dependent on interest rates but supplies. Therefore, core inflation makes more sense. Or so goes the argument.

The argument here is that monetary policy deals with the entire economy and not just the ‘core inflation’ sectors. Policy is to impact inflationary expectations and adjust the real interest rate accordingly. After all, the rate influences not just lending but also savings and, hence, cannot ignore the broader macros. Therefore, the headline inflation number should be under focus.

Now let us look at how inflation has behaved in the last 15 years or so since the CPI index was instituted. The average headline inflation has been 5.8 percent since 2012-13. In the last 10 years, which is roughly when the MPC was actioned, it was 5 percent. And in the last five years, it was 5.7 percent. The corresponding numbers for core inflation were 5.6 percent, 5 percent and 5.2 percent. Therefore, we can see convergence of the two series inflation averages. The differences are mainly due to the food segment, which kept the headline numbers higher in general. Hence, if one went by pure numbers, the rate action should have largely been unaffected on almost all occasions, though monthly trends could have led to different outcomes. Quite surely, the MPC would have looked at these trends when coming to a decision.

An issue which comes up here is that if the core inflation argument is based on the premise that interest rates do not affect food prices, does this hold for core inflation at the theoretical level? Clothing and footwear (weight of 6.5 percent) is rarely financed by loans, though credit cards are used. Normally, purchases are based on need, which can be a festival where interest rates may not matter.

The same holds for, say, housing rent (10 percent), household goods (3.8 percent) which is rarely based on leverage. This can also be said about education (4.5 percent), personal care (3.9 percent), health (5.9 percent), recreation (1.7 percent). A part of transport inflation (1.3 percent) may be affected by policy, though prices are rarely affected by demand conditions.

Therefore, when one looks at policy targeting, it has to be headline inflation as this is what drives decisions on savings as well as investment. The repo rate has to be aligned with real interest objectives, which may not be overtly stated. Just like it is said that some minimum inflation is needed for industry to produce, as there has to be profit made, the same holds for savers where there needs to be an incentive. Further, even industry looks at both interest rates and inflation when taking decisions. Foreign funds look at comparable real interest rates when taking a decision to invest. High inflation economies can be a deterrent, especially if monetary policy is not aligned. Last, targeting headline inflation is essential to control inflationary expectations.

Based on these arguments, it stands to reason that monetary policy should continue targeting headline inflation. Should it target wholesale price inflation instead, where manufacturing has a higher weight and so does core products? This can be a different discussion as the WPI (wholesale price index) is more susceptible to excess demand forces, which can be influenced by interest rate policy. But this is not the mandate of the MPC, which looks logical, too, for two reasons. The first is that the WPI is incomplete as it excludes services. The second is that it does not represent the major segment of the economy: The consumer.

Hence, the present practice of targeting CPI headline is appropriate. It can be argued which number it should be and whether 4 percent or the band is appropriate. But, quite certainly, the argument for targeting core inflation is not convincing. As a consolation, for those who favour core inflation targeting, as pointed out in the beginning, there has been a tendency to converge with the headline numbers and would, hence, not have changed the outcomes.

The silent de-dollarisation: Financial Express 10th September 2025

 US treasuries are considered the safest forex asset as the dollar continues to be the main global currency. In fact, the US virtually controls the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payments system, as all banks get linked to this set-up. When the Ukraine war started, all payments to Russia were blocked by the US which had imposed sanctions on the aggressor. The blow was severe but also a signal to other nations of such possibilities. US treasuries, hence, are still preferred by all central banks; but things have been changing.

The US’s infallibility was questioned when the debt ceiling issue emerged on several occasions. These limits were then raised, but discussion has focused on exploring alternatives to the dollar. This is why countries have been diversifying their forex holdings, even as the dollar remains dominant.

Shifting patterns in US debt holdings

A look at the ownership pattern of US treasury securities is interesting. Over the last 10 years or so, the US’s total public debt increased from $18.15 trillion in March 2015 to $36.21 trillion in March 2025—an increase of almost 100%. The share of foreign holdings, largely those held by various central banks, was as high as 34% in 2015. It has come down to 24.9% in March 2025. This does reveal two things that are reflections of each other. First, central banks are diversifying their holdings. Second, the US government is less dependent on foreigners for subscribing to their debt, which is compensated for by domestic holders.

Further, the holdings of the Federal Reserve has come down from 41.4% in March 2015 to 31.8%. This can be explained by the fact that when the Fed went into the quantitative easing mode, banks tended to sell their treasuries to the Fed for liquidity. As this process eased, the Fed’s share tended to move downwards. Mutual funds have increased their treasury holdings—the share has gone up from 6.4% to 12.2%. The support provided by the Fed is still very significant, at almost a little less than a third. This can be contrasted with the Reserve Bank of India’s holding of central government debt—12-13%. Clearly, the US government’s dependency on the central bank is greater.

The same also gets reflected when the share of currencies in overall forex reserves at the global level is considered. Between 2016 and 2025, International Monetary Fund data shows, the dollar’s share has come down from 65.5% to 57.7%. In contrast, there has been an increase for other currencies like the euro (19.6% to 20.1%), pound sterling (4.7% to 5.2%), yen (3.7% to 5.1%), and renminbi (from virtually nil to 2.1%). Such diversification is also the result of the gradual change in the balance of power across the world economy. While the dollar is still dominant, countries are investing in other hard currencies. The euro will continue to be the second most dominant currency as all member countries hold their forex assets in this form. It will get progressively popular as its acceptability has been growing, given the orderly management of the economy since the 2011 euro crisis.

Gold’s resurgence as a safe haven

It has also been observed that central banks have been increasing their gold holdings as part of their forex reserves over time. World Gold Council data for June 2015-June 2025 shows some interesting patterns. All big economies have increased the share of gold in forex reserves. Covid-19 was the turning point, followed by the Russia-Ukraine war, leading to sanctions being imposed by the US. With the tariff issue causing further uncertainty, gold becomes the natural safe haven.

Gold share in forex reserves rose from 5.9% to 13.1% for India, from 1.7% to 6.7% for China, 8.3% to 16.6% for the UK, 10.1% to 19.4% for South Africa, and 6.3% to 13.2% for Australia. In a way, there is a case to believe that countries are de-risking their interests from the idiosyncratic policies followed in the US. Even developed countries like Germany, Italy, and France have increased their share of gold holdings by over 10 percentage points during this period. It is not surprising that the price of gold has received an impetus due to this demand factor.

The recent episodes of tariffs, sanctions, and interference of the US in economic decisions of sovereigns would only hasten this shift away from the dollar. The world has already started moving towards more free trade agreements as well as economic blocs that the US is opposed to. As these agreements become stronger and wider in terms of coverage of nations, it is natural that the currencies used will tend to change. The payments systems will also see the rise of alternative channels to SWIFT. The lesson is that the US needs to be more flexible in taking on the role of the anchor nation and currency vis-à-vis developing and maintaining the global economic order.