Newspaper Summary - 031225

 The sources provide a comprehensive overview of India’s Monetary and Financial Markets as of December 2025, highlighting areas of volatility, strategic regulatory reforms, and shifts in corporate finance, all set against the backdrop of global trade challenges and ongoing domestic economic development.

Here is a discussion of the key monetary, currency, and financial market developments and their regulatory context:

I. Monetary Policy and Currency Markets

Rupee Performance and RBI Stance

The Indian rupee (INR) has faced significant pressure, reaching a record intraday low of 90.00 against the US dollar and settling at an all-time closing low of 89.95 on Tuesday, December 2, 2025. So far this calendar year, the rupee has depreciated by 5.2% against the dollar, making it one of the most undervalued emerging market (EM) currencies.

Key factors driving the currency slide include a very strong US dollar, India-specific trade shocks, softer foreign inflows, FPI selling in the equity market, and sustained importer demand. The depreciation is also linked to the Reserve Bank of India (RBI) allowing more currency flexibility this year, intervening less aggressively than in earlier bouts of volatility.

• Valuation: The rupee’s real effective exchange rate (REER), calculated by the Bank of International Settlement against 64 currencies, hit 94.95 on October 30. A value below 100 indicates the rupee is undervalued. This undervaluation benefits exporters, such as the IT and pharmaceuticals sectors.
• RBI Intervention: With the rupee nearing the psychologically crucial 90-to-a-dollar mark, the focus shifts to how firmly the RBI manages this zone. The central bank must remain active below 90, as sustaining above this level could rapidly accelerate depreciation towards 91.00 or higher, potentially triggering unnecessary volatility.
• Interest Rate Outlook: Given the CPI inflation is at a record low of 0.25 per cent, coupled with strong GDP growth (8.2% in Q2 FY26), the RBI has been able to tolerate some depreciation. However, market attention is now fixed on the upcoming Monetary Policy Committee (MPC) decision, with some economists seeing scope for a further 25-50 basis points (bps) easing in the repo rate, while a Mint poll indicated that nine out of 13 economists expected the rates to be held steady.

II. Banking Sector and Credit Dynamics

Systemic Importance and Stability

The RBI reaffirmed that State Bank of India (SBI), HDFC Bank, and ICICI Bank continue to be identified as Domestic Systemically Important Banks (D-SIBs). These banks are perceived as "Too Big To Fail" (TBTF), which requires them to maintain an additional Common Equity Tier-1 (CET1) buffer, with SBI prescribed a requirement of 0.80 per cent of its risk weighted assets.

Public sector banks (PSBs) have seen a significant improvement in asset quality, with the Gross Non-Performing Assets (NPAs) ratio declining to 2.51 per cent in June 2025, down from 9.27 per cent in March 2016.

Deposit Rate Transmission Challenge

State-owned lenders have flagged concerns to the RBI regarding compressed interest margins resulting from the linking of floating-rate loans to an external benchmark (like the repo rate).

• Asymmetry: When the RBI cuts the repo rate, loan rates adjust immediately, but deposit rates are fixed and can only be reduced on fresh deposits or renewals. Banks reported passing on 100 bps of rate cuts on the asset side but only achieving a 30 bps reduction on deposit rates, leading to a 70-bps spread compression.
• Liquidity Management: Experts suggest that the RBI could assist transmission by injecting significant liquidity into the banking system, potentially requiring ₹2 trillion in liquidity to maintain core liquidity above a 1% threshold by March 2026.

Credit Information and Financial Inclusion

The use of credit information, crucial for India’s lending-led growth and financial deepening, is facing regulatory scrutiny regarding its scope beyond lending decisions.

• Exclusion Risks: Extending the use of credit scores to unrelated areas like employment or renting raises ethical concerns and risks trapping small borrowers, particularly students with defaulted education loans (8% NPA as of FY2025), in a cycle of exclusion.
• Asymmetry in Default Treatment: A moral asymmetry exists, where large corporate defaulters might "wash their sins" under frameworks like the Insolvency and Bankruptcy Code (IBC) and return to the market, while small borrowers face severe, life-altering consequences for defaults often beyond their control.

III. Capital Markets and Regulatory Developments

Market Performance and Indices

Stock markets saw declines on Tuesday, December 2, 2025, primarily due to profit-booking, especially in heavyweight financial stocks like HDFC Bank and ICICI Bank.

• Index Overhaul: The National Stock Exchange (NSE) finalized a major overhaul of the Nifty Bank Index methodology to align with SEBI's weight concentration norms. The index will expand to 14 constituents with fixed weight caps for the top three banks (19%, 14%, and 10%).
• Impact of Revisions: This re-shuffle is projected to result in cumulative inflows for Yes Bank ($140 million) and Union Bank of India ($109 million), but outflows for HDFC Bank ($322 million) and ICICI Bank ($348 million).

SEBI Regulatory Overhaul

The Securities and Exchange Board of India (SEBI) is preparing for a far-reaching revision of regulations affecting mutual funds, stockbrokers, and corporate disclosures.

• Mutual Fund Norms: SEBI proposed capping brokerage and transaction costs charged by funds beyond the Total Expense Ratio (TER) and scrapping the extra five bps charge over the exit load to enhance transparency in costs and charges. Asset management companies (AMCs) have criticized these suggestions, fearing reduced income and curtailed research work.
• Stock Broker Rules: SEBI plans to streamline outdated regulations, formalize definitions for algorithmic and proprietary trading, and lower compliance complexity for intermediaries.

Corporate Finance and IPO Activity

Corporate fundraising saw a significant revival in Q3 FY26 (July-September), increasing by 58.1% year-on-year to ₹7.5 trillion. Net profits emerged as the dominant source of funding (40% of funds raised), suggesting corporations are prioritizing robust, debt-light balance sheets.

• IPO Momentum: The Meesho IPO anchor book faced controversy due to the allotment of a large share tranche to SBI Funds Management. Meanwhile, Swiggy is planning to raise approximately $1.1 billion through a Qualified Institutional Placement (QIP).
• Fintech & Cross-Border Payments: Fintechs like Razorpay and Cashfree Payments have secured the RBI’s Payment Aggregator-Cross Border (PA-CB) license, enabling the compliant onboarding of global platforms for India-specific payment methods like UPI and RuPay.

IV. Broader Regulatory and Legal Context

Insolvency and Corporate Accountability

The overall recovery rate under the Insolvency and Bankruptcy Code (IBC), as of March 31, 2025, stood at 33% of admitted claims. Recommendations for improving IBC processes include setting up an advance ruling mechanism to reduce litigation and providing transparent "no dues" certificates immediately upon completion of a resolution plan.

The Supreme Court upheld a SEBI fine on Reliance Industries Ltd (RIL) for violating fair disclosure norms concerning the Jio-Facebook deal, emphasizing the higher onus on large entities to meticulously comply with disclosure principles. Conversely, a separate Supreme Court order relating to the Sandesara brothers case raised concerns by annulling criminal and regulatory proceedings upon payment of ₹5,100 crore, despite legislation intended to prevent the compromise of economic crimes through financial settlement.

Digital Economy Governance

The Finance Minister emphasized the need for global coordination and co-operation to manage new challenges arising from the digitalization of the economy, the emergence of new financial products, and evolving structures of beneficial ownership. She asserted that innovation must be balanced with accountability to maintain the strength and credibility of financial systems.

Furthermore, the new Digital Personal Data Protection Rules 2025 (DPR25) mandates that banks, as extensive data fiduciaries, must strengthen their data management systems to protect highly sensitive customer data (KYC, credit reports, etc.), under the threat of penalties up to ₹50 crore.

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Analogy: The current state of India's Monetary and Financial Markets is like a ship navigating choppy international waters (strong dollar, trade shocks) while undergoing a complete engine overhaul (regulatory reforms by SEBI and RBI). The ship is stable, driven by strong internal momentum (high corporate profits and growth), but the captains (RBI and PSBs) are keenly monitoring the fuel levels (deposit rates) and making difficult maneuvers (less aggressive currency intervention) to ensure the internal machinery runs efficiently (rate transmission) and fairly (SEBI transparency, credit fairness).

The sources reflect that corporate activities and funding in India, as of December 2025, are characterized by strong internal financing, dynamic capital market shifts, strategic sectoral investments, and intense regulatory scrutiny focusing heavily on corporate governance, accountability, and the ease of doing business.

Here is a comprehensive discussion drawing from the sources:

I. Corporate Funding Landscape and IPO Momentum

Revival in Fundraising and Internal Accruals

Corporate fundraising activity saw a significant revival in the quarter ending September 2025 (Q3 FY26), showing a 58.1% year-on-year growth, reaching an estimated ₹7.5 trillion. This represents the fastest growth rate since June 2023.

• Dominance of Profits: The primary source of funding for non-financial companies remains net profits, which accounted for nearly 40% (₹3 trillion) of all funds raised during the quarter. This high reliance on internal accruals reflects a strategic preference among corporations to remain relatively "debt-light" and prioritize robust balance sheets, a lesson learned from previous borrowing cycles.
• Bank Credit Rebound: While outstanding bank credit declined in the preceding quarter, it saw a resurgence in Q3 FY26, surging by a substantial ₹2.4 trillion, contributing about 31% of the total funds mobilized by non-financial enterprises.

IPOs, QIPs, and Venture Capital

The capital market saw significant activity, particularly among digital companies:

• Large Offerings: Food deliverer Swiggy is preparing to raise as much as ₹10,000 crore ($1.1 billion) from institutional investors through a Qualified Institutional Placement (QIP) as early as the following week.
• IPO Controversy (Meesho): The anchor book for the Meesho IPO, planned to raise ₹5,421 crore ($603 million), faced a setback after major investors reportedly pulled out due to a substantial share allocation to SBI Funds Management. The IPO, which will make Meesho the first large multi-category e-commerce marketplace to list, is perceived as being "priced fully" in the absence of a clear path to profitability.
• Fund Closures: Fireside Ventures closed its fourth consumer-focused fund at $253 million (₹2,265 crore). Notably, this fund saw a shift towards a more diverse investor base, with 50% of the capital coming from global limited partners (LPs), including US university endowments and sovereign wealth funds like ADIA and ICD.
• Debt/Equity Raising: Hindustan Construction Company (HCC) approved raising up to ₹1,000 crore via rights equity shares. IndiGrid acquired an inter-state transmission (ISTS) project for an enterprise value of ₹372 crore, funded through a mix of equity, internal accruals, and debt.

II. Strategic Corporate Activity and Sectoral Shifts

Focus on Manufacturing, Green Energy, and Defence

Corporate strategy is heavily focused on long-term national priorities like manufacturing and critical infrastructure:

• National Mandate: Anant Goenka, the new FICCI President, stated that the organization’s main priority is to raise the share of manufacturing in GDP from 15% to 25%. This growth is expected to be pushed by consumption growth resulting from recent GST rate cuts and income tax exemptions, which should stimulate private capital expenditure (capex).
• Green Transition: L&T Group is pursuing a two-fold strategy: strengthening its traditional hydrocarbon Engineering, Procurement, and Construction (EPC) business while expanding into low-carbon and green segments such as renewables, CCUS, and green hydrogen-ammonia. The company previously announced plans to invest $2.5 billion in green energy over 3-5 years. However, attracting global capital for green hydrogen requires the Central government to establish a systematic long-term framework.
• Critical Electronics and Defence: JSW Defence launched a $90 million project to establish a military drone manufacturing facility in Hyderabad in partnership with US-based Shield AI. Separately, Syrma SGS commenced construction of a printed circuit board (PCB) manufacturing plant in Andhra Pradesh.
• Global Expansion and Partnerships: PVR INOX Pictures is focusing sharply on distributing international content, having distributed 42 international titles out of 78 films released between April and November. PepsiCo has signed a global pact with the Mercedes F1 team.

Talent Retention Strategies

Firms are implementing aggressive measures to retain talent, especially those hired from elite institutions:

• Clawbacks and Bonuses: Companies are incorporating clawback provisions into campus hiring contracts, requiring employees to forfeit compensation (like a joining bonus) if they leave before a stipulated period (e.g., TVS Motor Ltd’s ₹300,000 joining bonus includes a three-year clawback).
• Equity and Deferred Pay: High-frequency trading (HFT) firms offer performance and joining bonuses. Other methods include Restricted Stock Units (RSUs) with vesting periods (Texas Instruments) and deferred bonuses (Publicis Sapient). Razorpay and OYO Rooms’ Esops are also becoming more attractive as their IPO timelines approach.

III. Regulatory Developments and Corporate Accountability

The larger context of economic and regulatory development centers on balancing growth with accountability and improving the business environment.

Judicial and Regulatory Accountability

The Supreme Court delivered significant rulings impacting corporate governance and financial integrity:

• Fair Disclosure (RIL Case): The Supreme Court upheld a SEBI penalty of ₹30 lakh on Reliance Industries Ltd (RIL) and two compliance officers for failing to make a prompt clarification to the stock exchange regarding the Jio-Facebook deal, which had been reported in the media. The Court stressed the "bigger onus" on large entities to meticulously comply with disclosure principles, even regarding market speculation.
• Compromise of Economic Crimes (Sandesara Case): A different Supreme Court order raised concerns by directing the quashing of all criminal and regulatory proceedings, including those under PMLA and the Black Money Act, upon the deposit of a consolidated sum of ₹5,100 crore. This set a worrying precedent as it allowed economic crimes, which are typically non-compoundable under recent legislation, to be compromised via financial settlement. The opaque nature of the settlement figure, derived through a sealed cover process, was highlighted as undermining public justice.
• Insolvency (IBC): The overall recovery rate under the Insolvency and Bankruptcy Code (IBC) stood at only 32.8% of admitted claims as of March 31, 2025. A parliamentary committee recommended improvements, including introducing an advance ruling mechanism to reduce unnecessary litigation, and issuing transparent "no dues" certificates immediately post-resolution to help revitalized debtors start with a clean slate.

Regulatory Overhaul and Ease of Business

The government is pushing deregulation to reduce the burden on enterprises:

• Regulatory Thicket: Efforts have begun to reduce the regulatory burden, with the government withdrawing several Quality Control Orders (QCOs) and moving towards trust-based governance.
• SEBI Reforms: SEBI is preparing the most sweeping revision of regulations in decades, covering mutual funds, stockbrokers, and disclosure norms. This includes simplifying outdated rules and formalizing modern trading activities like algorithmic and proprietary trading.
• Digital Data Protection: The implementation of the Digital Personal Data Protection Rules 2025 (DPR25) mandates that banks, as extensive data fiduciaries, must strengthen their data management systems to avoid penalties up to ₹50 crore for breaches.
• Global Coordination: Finance Minister Nirmala Sitharaman urged the need for global coordination to deal with economic governance challenges arising from the digitalization of the economy, the emergence of new financial products, and evolving beneficial ownership structures, emphasizing that innovation must be balanced with accountability.

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The current phase of corporate India is like a juggling act where companies are fueling massive growth using their own cash reserves (high profits) while simultaneously contending with ambitious, yet complex, strategic goals (green energy, defense manufacturing) and navigating a judicial and regulatory system that is tightening accountability (SEBI fines) while attempting to loosen bureaucratic burdens (QCO withdrawals, IBC reforms). The success of this corporate growth hinges on the ability of the regulatory system to finalize reforms that foster competition without sacrificing systemic fairness and transparency.

The sources indicate that India's Technology and Digital Regulation landscape, as of December 2025, is defined by an aggressive push towards enhanced security and digital sovereignty, significant regulatory attempts to govern online content, and mandatory data protection norms for financial entities, all while the IT and digital sectors undergo strategic development and face global competition.

Here is a discussion of the key aspects drawn from the sources:

I. Digital Security, Surveillance, and Content Regulation

Mandatory Cybersecurity App and Privacy Concerns

A major development is the controversy surrounding the government’s attempt to mandate the use of the ‘Sanchar Saathi’ app on mobile devices.

• DoT Directive and Intent: The Department of Telecommunications (DoT) directed smartphone manufacturers to pre-install the Sanchar Saathi app on all new devices and push it through remote updates on older ones, ensuring the app is "readily visible and accessible" and its functionalities are "not disabled or restricted". Telecom Minister Jyotiraditya Scindia clarified that the app's use is voluntary and users can delete it if they wish. Scindia maintained that the app is necessary for security, helping to disconnect 1.45 crore mobile connections and trace about 20 lakh stolen phones.
• Privacy Violations: Pro-privacy groups and activists have condemned the move. They contend that requiring the app to be permanently pre-installed and non-disabled is intrusive. They argue that the persistent link between a device's unique IMEI and the user’s identity could be exploited for continuous surveillance, unauthorized profiling, or hyper-targeted marketing if the data were shared with private players.
• Contradiction with Data Protection: Critics highlight a legal paradox, noting that the mandatory installation, which demands blanket permissions for sensitive data like call logs and SMS, exposes the "hollowness" of India's privacy framework, especially in light of the recently notified Digital Personal Data Protection (DPDP) Rules, 2025. The government is accused of potentially weaponizing Section 17 exemptions of the DPDP Act to bypass safeguards and institutionalize "surveillance-by-design".
• Market Response: Smartphone manufacturer Apple reportedly does not plan to comply with the DoT mandate to pre-install the app. Critics suggest the app’s adoption should be driven by its utility, like the voluntary use of the DigiYatra or Digi-Locker apps, rather than coercion.

Mandatory SIM-Binding for Messaging Apps

In a related security measure, the DoT issued directives requiring messaging apps to link services continuously to the SIM card installed on the user’s device (SIM-binding), along with forcing periodic six-hour logouts for web/desktop versions.

• Industry Response: Zoho-owned Arattai is working toward compliance, seeing it as a "security-first initiative". However, the Broadband India Forum (BIF) criticized the mandates, arguing they offer limited incremental benefit against sophisticated fraud but could severely inconvenience users and disrupt services.
• User Impact: BIF noted the negative impact on travelers and NRIs who rely on Wi-Fi, professionals needing uninterrupted web-client access, and users employing multi-SIM setups. BIF also raised technical feasibility questions concerning OS-level restrictions (especially on iOS), dual-SIM, and eSIM complexities. They recommended stronger SIM-KYC enforcement instead.

Judiciary and Social Media Filtering

The Supreme Court has triggered concern by suggesting the Centre consider pre-screening all social media posts, potentially through an independent agency, to create a preventive framework against online harm like hate speech, defamation, or misleading content before it spreads.

• Conflict with Precedent: This idea runs counter to the Supreme Court’s landmark 2015 ruling (Shreya Singhal v. Union of India), which emphasized that intermediaries must act only upon receiving a court or government order, thereby striking down vague restrictions on online speech.
• Risk of Censorship: Mandatory pre-screening risks sliding into sweeping censorship due to the potential for arbitrary enforcement and a resulting "chilling effect," especially when defining terms like "fake" or "anti-national".
• Global Model: The sources suggest India should look to models like the European Union’s Digital Services Act (DSA), which mandates rigor and rapid action against harmful content while avoiding the pre-censorship of user speech.

II. Digital Economy Governance and Accountability

Data Protection for Financial Institutions

Following the recent implementation of the Digital Personal Data Protection Rules 2025 (DPR25), banks are mandated to align their extensive data management systems to protect highly sensitive customer data.

• Scope and Risk: Banks are repositories for huge amounts of digital personal data (over 300 crore deposit accounts, 32 crore loan accounts), including KYC, AML checks, credit reports, and transaction histories. The sources warn that failure to implement reasonable security measures could lead to significant financial penalties, with a maximum penalty of up to ₹250 crore for security failures and up to ₹50 crore for other breaches of the Act.
• Compliance Needs: Compliance requires strengthening internal systemic controls, enforcing consent and transparency, establishing clear standard operating procedures (SOPs), and regular training for staff.

Fintech and Digital Payments

The fintech sector continues to drive innovation, particularly in cross-border payments:

• PA-CB Licenses: Fintech companies like Razorpay and Cashfree Payments have secured the RBI’s Payment Aggregator-Cross Border (PA-CB) license, allowing them to provide compliant payment infrastructure for international businesses operating in India.
• UPI/RuPay Expansion: This licensing enables global platforms to onboard and offer India-specific payment methods like UPI and RuPay without necessarily requiring a local entity. Cashfree’s partnership with JP Morgan will strengthen its import transaction processing and settlement infrastructure under RBI regulations.

Need for Global Digital Coordination

Finance Minister Nirmala Sitharaman stressed the need for global coordination and co-operation to manage new economic governance challenges arising from the digitalization of the economy.

• She emphasized that confidentiality and cybersecurity are challenges that no single country can address alone, demanding coordination, trust, and timely information exchange between jurisdictions.
• Sitharaman added that technology and artificial intelligence offer opportunities to make sense of information efficiently, but innovation must always walk hand-in-hand with accountability to ensure systems maintain strength and credibility.

III. IT Sector Performance and Technology Adoption

IT Services and Talent Landscape

The Indian IT majors experienced sequential market share gains in Q2 FY26, led by Infosys, HCL Tech, and Cognizant, especially in the Americas and Europe, although their aggregate share remains lower year-on-year compared to global rivals.

• Challenge of AI: Industry commentary suggests that when Indian IT loses annual market share, it indicates that "big transformation budgets" related to Smart GenAI and cloud-migration deals are landing elsewhere. Maintaining market share relies on capability relevance in areas like cloud computing, AI, and cybersecurity.
• Acquisitions: Wipro completed its $375 million acquisition of Harman’s Digital Transformation Solutions (DTS) business unit, incorporating around 5,600 employees to strengthen its Engineering Global Business Line. Tata Communications acquired a 51% stake in Commotion Inc., an AI-native enterprise SaaS platform, to accelerate its own AI adoption and journey towards becoming an AI-first firm.
• Hiring Competition: Startups and fintechs (like Razorpay, Fractal Analytics) are aggressively competing with tech giants and High-Frequency Trading (HFT) firms for top engineering talent at IITs, offering high salaries, bonuses, and Esops.

AI Development and Global Competition

The race for Artificial Intelligence dominance is noted in the sources:

• Apple’s AI Strategy: Apple, having largely been "on the sidelines" of the AI boom, is depending on Indian-origin engineer Amar Subramanya to help navigate its AI future, following a management revamp.
• OpenAI's "Code Red": OpenAI CEO Sam Altman declared a "code red" effort to improve the quality of ChatGPT, indicating pressure from competitors and a need to improve speed, reliability, and personalization.
• Global Divide: A UN report warned that AI could widen the gap between developed and developing countries, leading to a possible "great divergence" in economic performance, skills, and governing systems, calling for policies to mitigate this impact.

Digital Infrastructure and Manufacturing

India is making strategic investments in critical electronics manufacturing and digital service delivery:

• PCB Manufacturing: Syrma SGS commenced construction of a Printed Circuit Board (PCB) manufacturing plant in Andhra Pradesh to produce a full spectrum of PCBs.
• Enterprise Tech: Workday, an enterprise AI platform for HR and finance, is significantly expanding its footprint in India, opening a new data center in the India region (running on AWS) for provisioning customers from December 2025.
• Census Digitization: The upcoming Census 2027 will be conducted through digital means, using mobile Apps and providing an online provision for self-enumeration.

The current phase is a complex balancing act: regulating the pervasive digital space to ensure security and fair usage (SIM-binding, Sanchar Saathi) while upholding constitutional rights (privacy debates), aggressively adopting AI for economic efficiency (Tata Comm acquisition), and strengthening digital infrastructure (DPR25 compliance for banks). This tension between state security, enterprise innovation, and user privacy forms the core of India’s digital regulatory environment in late 2025.

The sources paint a detailed picture of India’s International Relations and Trade environment in December 2025, which is characterized by rising global protectionism, significant currency depreciation driven by international factors, strategic diplomatic engagement with key partners (Russia and the US), and a domestic regulatory drive aimed at boosting self-reliance and global competitiveness.

Here is a discussion of the major themes in International Relations and Trade:

I. Global Trade Environment and Protectionism

Massive Surge in Global Trade Barriers

The sources highlight an alarming increase in global protectionism, which directly impacts India’s trade position. According to the World Trade Organization (WTO) Director-General’s latest annual overview:

• Trade Affected: Global goods imports affected by new tariffs and other trade measures increased more than four times between mid-October 2024 and mid-October 2025. Imports worldwide worth $2,640 billion (or 11.1% of total imports) were affected by tariffs and other trade measures introduced during this period.
• Total Affected Trade: Including similar measures on exports, the total trade affected was worth $2,966 billion, which is more than three times the value recorded in the preceding period.
• Need for WTO Reform: WTO Director General Ngozi Okonjo-Iweala stressed that WTO members should use these trade disruptions as an opportunity to advance long-overdue reforms of the WTO to safeguard trade.

Impact of US Tariffs on India

The US administration, under President Trump, imposed reciprocal tariffs ranging from 10% to 41% on most of its trade partners earlier this year.

• Direct Hit: The US imposed a 25% reciprocal tariff on India, along with an additional 25% penalty for India buying Russian oil.
• Export Decline: These tariffs affected India’s shipments of over 50% of items to the US. As a result, India's goods exports to the US fell 11.9% year-on-year to $5.5 billion in September 2025, the first full month of tariff imposition, and declined by 8.6% to $6.3 billion in October 2025.
• Affected Sectors: US imports from India, including labor-intensive sectors like textiles, gems & jewelry, shrimps, and engineering goods, declined due to these new tariffs. However, diversification of markets has helped certain exports like gems and jewelry and marine products to grow recently.
• Trade Deal Uncertainty: Lingering uncertainty over a potential Indo-US trade deal is contributing to fragile investor sentiment. FICCI President Anant Goenka believes that challenges on the trade front will be resolved in a "very" short period of time.

II. Geopolitical Strategy and Bilateral Relationships

Strategic Autonomy and Foreign Policy

FICCI President Anant Goenka asserted that India follows a policy of strategic autonomy, forging partnerships that serve its national interest rather than being dictated by third parties.

Relations with Russia (Focus on Trade Insulation)

During Russian President Vladimir Putin’s visit to India, Moscow sought discussions on an "architecture" to insulate their bilateral trade from outside interference.

• Bilateral Trade Security: Russia emphasized that India and Russia must secure their trade relationship to ensure mutual benefit, especially concerning interference from third countries.
• Trade Imbalance: Kremlin spokesperson Dmitry Peskov acknowledged New Delhi’s concerns over its large trade deficit with Russia, which widened to about $59 billion in FY25, and stated that Moscow is jointly looking at possibilities of increasing imports from India to fix the imbalance.
• Sanctions and Oil Trade: India’s purchases of Russian crude oil are expected to decline for a “brief period” due to Western sanctions. Moscow plans to boost supplies and use sophisticated technology to avert the impact of Western sanctions on its oil production sector, assuring that the decline will be temporary. Indian refiners have reportedly stopped buying Russian oil from sanctioned entities, while others are in negotiation to buy from non-sanctioned entities.
• Currency Architecture: Local currency trade between India and Russia is viewed as very important as it protects trade and the sovereignty of both countries.
• Crude Import Diversification: Despite Russian crude accounting for a significant portion of India's imports (around 36.30% in November 2025), sanctions are expected to drag Russian cargoes down by roughly one-third in December 2025. India has actively sought diversification, with imports from the US and Africa rising to record levels in November 2025.
• Russian Investment Interest: Russia's largest bank, Sberbank, expressed interest in partnership and participation in large-scale infrastructure projects in India.

Cooperation with the US and Western Partners

India is seeking to strengthen its ties with Western partners across several strategic sectors:

• Bilateral Cooperation: India’s ambassador to the US, Vinay Kwatra, held “fruitful conversations” with US lawmakers on strengthening bilateral cooperation in energy, defence, and trade.
• Defence and Technology: JSW Defence launched a $90 million project to establish a military drone manufacturing facility in Hyderabad in partnership with US-based Shield AI, transferring technology for the manufacture of VBAT Unmanned Aerial Systems. India is also procuring additional satellite-linked Heron MK II drones under emergency provisions from an Israeli defence industry source.
• Agriculture Technology: US agritech major Corteva Agriscience is investing in developing hybrid wheat varieties specifically tailored for Indian conditions, calling India a "top priority" market.
• Global Financial Governance: Finance Minister Nirmala Sitharaman urged the need for global coordination and co-operation to manage challenges arising from the digitalization of the economy, new financial products, and evolving beneficial ownership structures, emphasizing that cybersecurity and confidentiality demand coordination and timely information exchange between jurisdictions.

III. Currency and Foreign Investment Dynamics

Rupee Valuation and Global Trade Shocks

The rupee's depreciation is heavily linked to international pressures:

• Undervalued Currency: The Indian rupee (INR) is described as one of the most undervalued emerging market (EM) currencies, having depreciated by 5.2% so far this year. The Real Effective Exchange Rate (REER) against 64 currencies hit 94.95 on October 30, with a value below 100 indicating undervaluation.
• Drivers: The depreciation is primarily driven by a very strong US dollar, coupled with India-specific trade shocks and softer foreign inflows. The rupee began sliding below the 100 REER level with the onset of the trade war.
• Capital Flows: Fragile investor sentiment due to Foreign Portfolio Investor (FPI) selling in the equity market is a continuous pressure point. FIIs offloaded equities worth ₹3,642.30 crore on Tuesday.
• Benefit to Exporters: The depreciating currency benefits exporters, particularly the IT and pharmaceuticals sectors.

Global Capital and Green Energy Demand

India's ability to attract global capital is critical, particularly for new strategic sectors:

• Green Hydrogen Framework: To rapidly scale up the production of green hydrogen and ammonia and attract global capital in this segment, the Central government needs a systematic long-term framework.
• VC Investment: Fireside Ventures closed its fourth fund with 50% of capital commitments coming from global limited partners (LPs), including sovereign wealth funds like the Abu Dhabi Investment Authority (ADIA) and the Investment Corporation of Dubai (ICD), indicating sustained international interest in Indian brands.
• Foreign Holding in PSBs: Foreign shareholding in five out of 12 public sector banks (PSBs) decreased at the end of FY25, though the government has no plan to raise the threshold on foreign holding.

IV. Trade Policies and Corporate Competitiveness

Deregulation and Export Focus

India is actively working to reduce regulatory burdens and boost competitiveness:

• Quality Control Order Rollbacks: India has begun one of its most sweeping standards overhauls, withdrawing 22 Quality Control Orders (QCOs) in the past month (15 in mid-November and 7 recently). The withdrawal of QCOs was undertaken in the public interest to remove potential bottlenecks for downstream manufacturers and ease compliance.
• Trade Agreements (FTAs): Utilization levels of India’s new Free Trade Agreements (FTAs) with Australia and the UAE have been better than past trade agreements. FICCI aims to improve trade and supply chain, and leverage FTAs better, including eliminating non-tariff barriers.
• Exporter Mentality: Anant Goenka urged the Indian industry to stop looking for protection and sops, and instead focus on thinking globally and investing to enter global markets. He lamented the lack of a single Indian product brand that has gone global.
• Export Promotion: FICCI recommended increasing the outlay for the RoDTEP (Remission of Duties and Taxes on Exported Products) scheme, which currently stands at ₹18,000 crore, to provide benefits to affected sectors and MSMEs.

Sectoral Trade Dynamics

• Rare Earths and EVs: India is reworking its electric mobility strategy due to supply chain shocks, including the rare-earth magnet crunch. Chinese rare-earth magnet companies are seeking workarounds to China's export restrictions to maintain sales to Western buyers, though foreign buyers are developing alternative sources outside China.
• Import Vulnerabilities (Arecanut): Despite being self-sufficient in arecanut production, India saw significant imports (42,236.02 tonnes in 2024-25) led by countries like Bangladesh and Sri Lanka. Imports from Least Developed Countries (LDCs) enjoy zero customs duty under the DFQF (duty-free quota-free) preferential trade scheme, which domestic farmers argue nullifies protection and causes price crashes.
• Agrochemicals and Exports: The agrochemical industry's revenue growth this fiscal is set to rely on a rebound in exports, with over 65% of export revenue accruing from Latin America, supported by stable global supply chains and improving demand. The US market remains steady, with 80-85% of Indian shipments exempt from tariffs.
• Diamond Trade: A Belgian government decision to permit foreign diamond sorters and polishers is unlikely to have a major impact on the Indian cut and polish trade due to India's established supply chain, unmatched cost efficiency, and large skill availability.

The sources provide a detailed perspective on Socio-Economic & Sectoral News in India as of December 2025, highlighting profound developments in manufacturing ambitions, digital governance's impact on employment, critical issues in rural economics and food supply, and strategic shifts in major industries like healthcare, entertainment, and consumer goods.

Here is a discussion of the key socio-economic and sectoral developments:

I. Socio-Economic Issues and Justice

Exclusionary Impact of Credit Information

A critical socio-economic issue raised is the widening use of credit information beyond its original purpose of assessing financial contracts. The expansion of credit scores to unrelated domains such as employment decisions, renting, and matrimony raises ethical and economic concerns.

• Vulnerability of Small Borrowers: This overreach disproportionately affects small borrowers, notably students with defaulted education loans (where approximately 8% of outstanding loans are classified as Non-Performing Assets as of FY2025). If these young, often first-generation graduates, are blacklisted by employers due to poor credit scores, they are trapped in a cycle of exclusion.
• Moral Asymmetry: The sources highlight a moral asymmetry where large corporate defaulters can "wash their sins" and return to the market via frameworks like the IBC, while small borrowers face severe, life-altering consequences for defaults. The misuse of credit scores undermines the fairness and transparency intended by India’s financial inclusion agenda.

Rural Economic Distress and Price Deflation

Despite optimistic GDP figures, the rural economy faces significant headwinds due to widespread price deflation in the agriculture sector.

• Nominal Income Stagnation: While real GDP growth in the farm sector was 3.5% in Q2 FY26 (July-September), the nominal growth (at current prices) plummeted to just 1.8%, a sharp decline from 7.6% a year prior. This indicates that the agriculture sector, which contributes about 14% to GDP and employs nearly 46% of India’s workforce, is experiencing stagnant incomes.
• Price Crash: Prices of most consumed perishable crops, such as onions and potatoes, were lower year-on-year by 73% and 43%, respectively, as of the end of November. Prices of crops where Minimum Support Price (MSP) is announced, such as cotton and soybean, are also trading significantly lower than the MSP in wholesale markets.
• Impact on Consumption: Stagnant nominal farm incomes could directly impact household spending in rural areas, threatening the recent trend where rural FMCG volume growth had outpaced urban growth for seven consecutive quarters until September 2025.

Digital Surveillance and Privacy Rights

The government’s directive to mandate the installation of the 'Sanchar Saathi' app on mobile devices has sparked widespread concerns about digital surveillance and privacy. Pro-privacy groups argue that requiring permanent pre-installation of an app that demands blanket permissions for sensitive data like call logs and SMS exposes the "hollowness" of India's privacy framework and risks weaponizing state power for surveillance-by-design, contradicting the spirit of the new Digital Personal Data Protection Rules 2025 (DPR25).

II. Sectoral Developments and Growth Priorities

Manufacturing Ambition

A core focus of India’s economic development remains the massive scaling of the manufacturing sector. FICCI President Anant Goenka stated that a main priority is to raise the share of manufacturing in GDP from 15-17 per cent to 20-25 per cent over time.

• Strategy: This ambition is supported by expected consumption growth stemming from GST rate cuts and income tax exemptions, which is anticipated to push private capital expenditure (capex) and raise capacity utilization levels. Goenka urged industry to focus on thinking globally and investing in R&D rather than relying on government protection or sops.
• Defence and Electronics: JSW Defence launched a $90-million military drone manufacturing facility in Hyderabad in partnership with US-based Shield AI. Syrma SGS commenced construction of a new Printed Circuit Board (PCB) manufacturing plant in Andhra Pradesh.

Infrastructure and Energy Transition

Strategic infrastructure and energy projects continue to draw focus and investment:

• Green Energy: L&T Group is expanding into low-carbon and green segments (renewables, green hydrogen-ammonia, CCUS) and sees Saudi Arabia becoming one of its largest and most consequential markets by 2030. However, attracting global capital for green hydrogen requires the Central government to establish a systematic long-term framework. IndiGrid acquired an Inter-State Transmission (ISTS) project in Karnataka for ₹372 crore, aimed at evacuating solar power from the Gadag Solar Energy Zone.
• Logistics and Urban Mobility: Intercity smart mobility platform zingbus aims to expand its electric bus fleet to 1,000 vehicles amid rising demand, though it highlights the need for a supportive ecosystem for bus operators to transition to EVs. The government plans to launch a ride-hailing mobility app called ‘Bharat Taxi’, operated by a co-operative society, to free commercial vehicle drivers from dependency on private companies. Separately, Ola Consumer launched a non-AC ride category pan-India to offer value-driven fares and reach a larger base of riders.

Healthcare and Pharmaceuticals

The healthcare sector is seeing significant capacity building and consolidation:

• Hospital Expansion: Rainbow Children’s Medicare, which runs the Rainbow Children’s Hospitals chain, is steadily expanding, especially in tier-2 locations, and plans to infuse ₹1,000 crore over three years. The company noted a lot of activity in the healthcare sector, including major multi-specialty chains lining up big expansion plans and heightened private equity activity leading to consolidation.
• Pharmaceuticals: Biocon Biologics reached a settlement agreement with Amgen Inc., allowing it to commercialize two biosimilars, Vevzuo and Evfraxy, in Europe and the rest of the world starting December 2, 2025.

Media, Entertainment, and Consumer Trends

Consumer-facing sectors are adapting to market shifts:

• Entertainment Distribution: PVR INOX Pictures is focusing sharply on distributing international content to Indian screens, having distributed 42 international titles out of 78 films released between April and November.
• Consumer Goods Premiumization: French spirits major Pernod Ricard India is shifting its focus to premium alcohol, having sold its mass-market Imperial Blue whisky brand. The move frees resources for higher-margin categories and aligns with a strategic shift toward premiumization, following India’s growth as a world fastest-growing alcohol market.
• Fashion Trends: Go Colors, a listed bottom-wear focused company, has struggled as leggings, once half of its business, now account for only about 35% of sales due to evolving tastes and widening garment silhouettes. This illustrates the peril of building a business on a single, long-lasting trend.
• Advertising Industry: The global merger of Omnicom and Interpublic Group is set to lead to job cuts of over 4,000 people globally, with the impact in India expected mainly in finance, HR, and IT roles.

IV. Social Data, Demographics, and Labor

Census Digitization

The government announced that the Census 2027 will be conducted in two phases between April and September 2026 and then again in February 2027. The census will be conducted digitally, using mobile apps, and include an online provision for self-enumeration.

Job Growth and Labour Reform

FICCI expects job growth to happen as utilization levels go up and private capex comes in, despite headwinds from AI affecting the IT sector and productivity improvements in factories. The new FICCI President vehemently defended the new labour codes, calling them "absolutely necessary" and a big benefit to the working population.

Talent Retention

To combat the tight hiring environment, firms are using clawback provisions in campus hiring, requiring forfeiture of compensation (like joining bonuses) if employees leave early. Startups and fintechs, including Razorpay and Fractal Analytics, are competing intensely with tech giants and High-Frequency Trading (HFT) firms for top IIT talent, offering higher salaries, bigger bonuses, and more Esops.

V. Regional Economic Disparities

Jammu & Kashmir Fiscal Stress

Official data shows that GST revenues in Jammu & Kashmir registered a steep decline for the second consecutive month in November 2025, contracting 14% year-on-year. This signifies deepening stress in consumption and business activity across key sectors like trade, transport, hospitality, and construction. The decline is attributed to region-specific shocks, including damage to horticulture, and a steep drop in tourism following a terror attack.

Cyclone Damage in Andhra Pradesh

The government of Andhra Pradesh pegged the total loss from Cyclone Montha at ₹6,356 crore. The most severely affected sectors included agriculture and allied sectors (₹271 crore) and roads and infrastructure (₹4,324 crore).

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In sum, the socio-economic and sectoral picture of India in late 2025 is one of stark contrast: a powerful drive for industrial and digital transformation (manufacturing boost, AI adoption, Green Hydrogen framework) is running alongside deep-seated socio-economic challenges (rural deflation, credit exclusion, and privacy concerns related to state technology mandates). The success of India’s economic reforms hinges not just on achieving the 25% manufacturing goal, but also on implementing regulation that manages digital disruption and addresses the widening fairness gap for small citizens and rural populations.

RBI Financial Stability Report

 The Reserve Bank of India's Financial Stability Report (FSR) of June 2025 frames the discussion on global macrofinancial risks against the backdrop of an uncertain and volatile global macroeconomic environment that is currently testing the resilience of the global financial system.

FSR June 2025 Key Findings Context

The FSR emphasizes that despite a challenging global economic backdrop, the Indian economy remains a key driver of global growth, underpinned by strong macroeconomic fundamentals and prudent policies. The domestic financial system continues to exhibit resilience, supported by healthy balance sheets across banks and non-bank financial companies (NBFCs), robust capital buffers, and low non-performing loans.

However, the report clearly identifies that while the Indian system is relatively well-positioned, risks emanating from external spillovers and escalating geopolitical conflicts remain a key concern. The report notes that the overall financial system stability remains resilient, though there is some build-up of stress, primarily in financial markets, due to global spillovers.

The latest Systemic Risk Survey (SRS) conducted in May 2025 found that all major risk groups stayed in the 'medium risk' category, but the risk perception of global and institutional risks increased marginally. Around two-thirds of respondents expressed decreasing confidence in the stability of the global financial system.

Specific Global Macrofinancial Risks Discussed

The sources highlight several interconnected risks driving global instability:

1. Geopolitical and Trade Policy Uncertainty

The central driver of heightened risk is policy uncertainty and geopolitical friction.

• Tariffs and Trade Fragmentation: The announcement of large tariffs by the US administration in April 2025 introduced a new paradigm in trade and economic policy, leading to increased policy uncertainty and unpredictability that influence global growth. Elevated economic and trade policy uncertainties are specifically testing the resilience of the global economy and financial system.
• Geopolitical Conflict: Geopolitical risks remain elevated. Protracted geopolitical hostilities and growing fragmentation in trade are identified as structural shifts reshaping the global economy, making economic forecasts difficult and policy interventions challenging. In the SRS, geopolitical conflicts/geo-economic fragmentation scored the highest risk assessment among global risks and was identified as a major near-term risk to domestic financial stability.
• Market Volatility: The April market turbulence was a stark reminder of how sudden shocks amplify existing global financial system vulnerabilities. Financial markets, while stabilized post-April, remain volatile and highly sensitive to geopolitical and economic developments.

2. Macroeconomic and Fiscal Vulnerabilities

Global growth prospects have weakened, and multilateral agencies including the IMF, OECD, and the World Bank have revised global growth downwards due to trade disruptions and heightened volatility.

• Debt Sustainability: The risk associated with elevated public debt remains high globally. This is a recurring issue highlighted in recent FSRs. Global public debt as a percentage of GDP is projected to reach above 95% this year and 100% by the end of the decade. Debt sustainability is adversely impacted by high debt levels, slowing growth, and rising debt servicing costs. The interest rate-growth rate differential is becoming increasingly adverse for debt sustainability in the US and Europe.
• Growth-Inflation Dynamics: Globally, output is expected to stay below its historical average, while inflation is projected to be above its long-term average in 2025. While Emerging Market Economies (EMEs) generally see inflation ruling below target, disinflation momentum has stalled in Advanced Economies (AEs), posing upside risks to global inflation, especially alongside uncertainty regarding tariff impacts.

3. Risks in Global Financial Markets and Institutions

The report notes specific structural fragilities in global finance:

• Asset Valuations: Risks remain associated with possibilities of further corrections in asset prices. Asset valuations in several markets stay high relative to fundamentals, particularly US stocks, which form nearly 55% of the global equity market. The forward price-to-earnings (P/E) ratio of the S&P 500 Index is well above the historical median.
• Core Bond Market Fragility: Core government bond markets, such as the US treasury market, are exhibiting vulnerabilities driven by falling liquidity, the rising footprint of highly leveraged NBFIs, and elevated volatility. Highly leveraged relative-value trades (like basis trades) carried out by hedge funds are funded through the repo market, making these trades a source of financial system vulnerability, susceptible to disorderly unwinding.
• Global NBFIs Leverage: Existing vulnerabilities are amplified by excessive risk-taking and high leverage in the non-banking financial intermediaries (NBFIs) sector globally. Global hedge funds have significantly increased their use of synthetic leverage through derivatives, which stands above 20 for multiple strategies. The growing interconnectedness and interdependence between global NBFIs and the banking sector is identified as a source of systemic risk, enabling potential spillovers and spillbacks.
• US Dollar Primacy Challenge: The USD's primacy and safe-haven status are being challenged due to structural changes in the global economy, such as the shift in US trade policy and the resetting of the global economic order.

4. Cyber Risk

The sources note that the expanded scale of digital financial services and interconnected systems have exponentially increased the cyberattack surface. Cyber risk continued to remain in the high-risk category in the latest SRS, signaling a rising risk perception. Globally, supervisors recognize cyberattacks and technology failures as a significant threat to financial stability, leading to efforts to standardize incident-reporting frameworks (like the FSB’s FIRE).

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In essence, while the domestic Indian financial system shows remarkable institutional and structural resilience, the FSR pinpoints that the main threat to stability originates externally, characterized by a potent cocktail of protectionist trade policies, volatile geopolitical conflict, and systemic vulnerabilities embedded in global sovereign debt markets and highly leveraged non-bank financial sectors.

The Reserve Bank of India’s Financial Stability Report (FSR) of June 2025 provides an optimistic assessment of the Domestic Macrofinancial Outlook, highlighting India’s strength as a key global economic driver, even while acknowledging vulnerability to mounting external challenges.

The sources frame the domestic outlook within the context of the FSR Key Findings: the Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent policies. The domestic financial system is exhibiting increasing resilience, supported by robust capital buffers, strong profitability, and multi-decadal low non-performing loans (NPLs).

The outlook is detailed through four primary components: Macroeconomic stability (growth and inflation), Fiscal position, External sector strength, and the Resilience of the financial system.

1. Domestic Macroeconomic Outlook

Growth and Demand

The Indian economy continues to be the fastest growing major economy globally during 2024-25. The growth momentum is sustained by buoyant domestic growth drivers.

• Growth Projections: The RBI has projected the real GDP to grow at 6.5 per cent in 2025-26, matching the 2024-25 estimate.
• Drivers: This growth is supported by factors such as the revival in urban demand, buoyant rural demand, favorable financial conditions, and the government’s continued thrust on capital expenditure (capex) and investment activity.
• Insulation: Since India’s growth is mainly driven by robust domestic demand, it remains relatively insulated from global headwinds compared to many other economies.
• Downside Risks: The primary downside risks to growth stem from external spillovers and escalating geopolitical conflicts. It is estimated that a slowdown of 100 basis points (bps) in global growth can potentially pull down India’s growth by 30 bps.

Inflation Dynamics

The outlook for inflation is considered benign, inspiring greater confidence in the durable alignment of inflation with the Reserve Bank’s 4 per cent target.

• Headline CPI inflation recorded a six-year low of 2.8 per cent in May 2025.
• The risk of imported inflation is largely low, as the anticipated global slowdown is likely to soften crude oil and commodity prices.

2. Fiscal Position and Debt Management

India’s fiscal credibility has been significantly enhanced due to ongoing fiscal consolidation and efforts to improve the quality of expenditure.

• Debt Profile: The government debt is predominantly rupee-denominated.
• Maturity: The weighted average maturity of the outstanding stock of central government market borrowings has increased from 10.4 years in 2018-19 to 13.2 years in 2024-25. Furthermore, around 97 per cent of these are issued at a fixed rate.
• Debt Trajectory: Flow data points to a lower debt trajectory supported by strong nominal GDP growth.
• Sustainability: India benefits from a favorable interest rate-growth rate differential for the central government, which augurs well for debt sustainability.

3. External Sector Resilience

The strength of the external sector contributes significantly to overall macroeconomic and financial stability.

• Current Account: The Current Account Deficit (CAD) for 2024-25 remained manageable at 0.6 per cent of GDP, bolstered by sustained buoyancy in remittances and services exports, and even turned into a surplus of 1.3 per cent of GDP in Q4:2024-25.
• Reserves: Foreign exchange reserves stood at US$ 697.9 billion as of June 20, 2025, sufficient to cover more than 11 months of merchandise imports.
• External Vulnerability: External vulnerability indicators remain robust; for example, external debt was a moderate 19.1 per cent of GDP at end-March 2025.
• Capital Risk: While Foreign Direct Investment (FDI) remained high, net capital flows fell short of the CAD during 2024-25, causing a depletion in foreign exchange reserves. An analysis found that under extreme adverse shocks, there is a five per cent probability that total capital outflows (FPI and FDI) could reach about 7 per cent of GDP.

4. Financial System Soundness and Resilience

The domestic financial system remains resilient, supported by healthy balance sheets of banks and non-banks.

• Banking Sector (SCBs): Scheduled Commercial Banks (SCBs) are bolstered by robust capital buffers and low non-performing loans (NPLs). The GNPA ratio and NNPA ratio declined to multi-decadal lows of 2.3 per cent and 0.5 per cent, respectively, in March 2025.
  • Stress Tests: Macro stress test results reaffirm this strength, showing that SCBs' aggregate capital levels are projected to remain well above the regulatory minimum even under adverse stress scenarios by March 2027.
  • Stability Indicator: The Banking Stability Indicator (BSI) strengthened during H2:2024-25, indicating overall resilience.
• Non-Bank Financial Companies (NBFCs): The NBFC sector remains healthy, exhibiting robust interest margins, earnings, and capital adequacy well above the regulatory minimum. Although credit growth moderated following regulatory measures, the sector is well-positioned to support economic growth.
• Market Stress: Despite the overall domestic stability, the Financial System Stress Indicator (FSSI) recorded a marginal rise, reflecting a build-up of stress primarily in financial markets stemming from global spillovers.

5. Systemic Risk Survey (SRS) Findings

The latest Systemic Risk Survey (SRS) conducted in May 2025 generally affirmed the positive domestic outlook while pinpointing vulnerabilities.

• Confidence: 92 per cent of respondents expressed a higher or similar level of confidence in the Indian financial system.
• Banking Outlook: Around 80 per cent of panelists expected better or similar prospects for the Indian banking sector, and about 60 per cent expected asset quality to remain unchanged or improve marginally over the next six months.
• Key Domestic Risks: All major risk groups remain in the 'medium risk' category. However, the respondents identified external factors—specifically Geopolitical conflicts, capital outflows/Rupee depreciation, and reciprocal tariff/trade slowdown—as major near-term risks to domestic financial stability.
• Sector Vulnerability: Respondents perceived export-dependent manufacturing sectors (like textiles and electronics) and Micro, Small, and Medium Enterprises (MSMEs) in export clusters to face the highest risk due to global trade disruptions. Cyber risk also continued to be categorized as a high-risk area.

The Reserve Bank of India's Financial Stability Report (FSR) of June 2025 emphasizes that the domestic financial system is exhibiting resilience and its soundness is continuously improving, a key factor underpinning India's role as a major driver of global growth. This resilience is bolstered by strong capital buffers, multi-decadal low non-performing loans, and robust profitability across major financial institutions.

The detailed assessment of financial institution resilience is documented across various sectors:

1. Scheduled Commercial Banks (SCBs)

The soundness and resilience of Scheduled Commercial Banks (SCBs) are robust. Stress test results consistently reaffirm the strength of the banking sector, projecting capital levels to remain well above the regulatory minimum even under adverse shock scenarios.

• Capital Adequacy: The Capital to Risk-Weighted Assets Ratio (CRAR) of SCBs increased to a record high of 17.3 per cent in March 2025. The Common Equity Tier 1 (CET1) capital ratio also increased across bank groups.
• Asset Quality: SCBs continued to record significant improvement in asset quality. The GNPA ratio and NNPA ratio declined to multi-decadal lows of 2.3 per cent and 0.5 per cent, respectively, in March 2025. The Provisioning Coverage Ratio (PCR) remained healthy at 76.3 per cent.
• Profitability: The profitability of SCBs remained strong in 2024-25, with profit after tax (PAT) increasing by 16.9 per cent (y-o-y), driven significantly by Public Sector Banks (PSBs).
• Liquidity: SCBs further improved their liquidity positions. Both the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) were comfortably above the regulatory minimum of 100 per cent across all bank groups as of March 2025.

Resilience under Stress

Macro stress tests confirm SCBs' high capacity to absorb shocks.

• Macro Stress Tests: Under the baseline scenario, the aggregate CRAR of 46 major SCBs is projected to marginally dip to 17.0 per cent by March 2027 from 17.2 per cent in March 2025. Crucially, the aggregate capital levels are projected to remain well above the regulatory minimum of 9 per cent even under the severe Adverse Scenario 1 (14.2 per cent CRAR) and Adverse Scenario 2 (14.6 per cent CRAR).
• Credit Risk Sensitivity: A severe hypothetical shock resulting in a two standard deviation (SD) rise in the GNPA ratio would reduce the system-level CRAR by 370 basis points (bps) to 13.5 per cent, remaining well above the regulatory minimum.
• Liquidity Stress: Under severe liquidity stress scenarios involving high deposit run-offs, the average LCR of select banks would drop but all banks but one would be able to maintain LCR above the minimum requirement of 100 per cent.

2. Non-Banking Financial Companies (NBFCs)

The NBFC sector is assessed as remaining healthy.

• Financial Health: The sector shows robust interest margins, earnings, and low levels of impairment. The system-level CRAR of NBFCs (Upper and Middle Layers) was healthy at 25.8 per cent in March 2025, significantly exceeding the regulatory minimum.
• Vulnerabilities: While overall healthy, the sector remains vulnerable to stress in household balance sheets and a rise in funding cost for lower-rated companies. Slippage ratios have been trending upwards, particularly for upper layer NBFCs.
• Stress Test Results: Under the high-risk credit scenario, the aggregate CRAR of sampled NBFCs is projected to decline to 20.4 per cent by March 2026, though a limited number of NBFCs (fifteen in the middle layer, representing 3.7 per cent of total advances) may fail to meet the regulatory minimum CRAR.

3. Urban Cooperative Banks (UCBs)

The capital position and asset quality of Urban Cooperative Banks (UCBs) continued to strengthen.

• Capital and Asset Quality: The overall CRAR of UCBs rose to 18.0 per cent in March 2025. GNPA and NNPA ratios decreased significantly across both Scheduled UCBs (SUCBs) and Non-Scheduled UCBs (NSUCBs).
• Stress Test Results: Under severe credit default risk stress, the system level CRAR would reduce to 15.6 per cent. While the system remains resilient, one bank in the largest category (Tier 4) would not meet its regulatory minimum CRAR under severe credit and concentration stress, although the smallest UCBs (Tier 1) exhibited resilience for all risk factors except liquidity risk.

4. Other Financial Entities

The sources also confirm the resilience of key market institutions and the insurance sector.

• Insurance: The consolidated solvency ratio of the insurance sector (life and non-life segments) remained above the minimum prescribed threshold limit of 150 per cent as of December 2024 (Life: 204 per cent; Non-life: 166 per cent).
• Mutual Funds and Clearing Corporations: Stress test results of mutual funds and clearing corporations affirm their resilience to shocks. Liquidity analysis of open-ended debt schemes generally showed liquidity ratios well above the required threshold limits.

5. Interconnectedness and Contagion Resilience

The FSR explicitly addresses the systemic risk posed by interconnectedness, particularly between banks, NBFCs, and Housing Finance Companies (HFCs).

• Contagion Buffer: Contagion analysis shows that hypothetical failures of the single most impactful bank, NBFC, or HFC would cause solvency losses to the banking system's Tier 1 capital (3.4%, 2.9%, and 3.7% respectively), but importantly, none of these failures would trigger the subsequent failure of any bank.
• Post-Shock Contagion: Furthermore, even after applying the initial capital loss projected under severe macroeconomic stress, there would be no additional solvency losses to the banking system due to contagion.

In summary, the FSR of June 2025 finds that the Indian financial sector possesses deep structural and institutional buffers, demonstrating robust financial institution resilience that allows it to withstand extreme credit and macroeconomic shocks without system-wide failure, despite rising external macrofinancial risks.

The Reserve Bank of India’s Financial Stability Report (FSR) of June 2025 contextualizes regulatory initiatives and developments as essential tools for enhancing the resilience of the financial system against a backdrop of global uncertainty, structural shifts, and rising risks from trade fragmentation, technology, and climate change.

The FSR highlights the commitment of financial sector regulators to striking the right balance between improving efficiency and growth, and maintaining safety and soundness.

Global Regulatory Developments

Global standard-setting bodies and regulators are focused on strengthening systemic resilience, particularly concerning liquidity, credit risk management, cyber threats, and climate-related vulnerabilities.

1. Strengthening Banking and Credit Standards: The Basel Committee on Banking Supervision (BCBS) reviewed the impact of Basel III standards, noting that Group 2 banks generally showed an increase in both the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), while Group 1 banks showed a slight decrease in LCR. The BCBS also updated its Principles for the management of credit risk to align with the current Basel Framework, emphasizing a sound credit-granting process, suitable risk environment, and adequate controls.

2. Enhancing Financial Market Resilience:

• Securitization and Leverage: The Financial Stability Board (FSB) evaluated G20 reforms on securitization, noting that while market transparency and overall resilience have improved, it remains challenging to definitively assess resilience as these markets (especially for Collateralized Loan Obligations or CLOs) have not yet faced a full credit cycle. Concerns remain regarding monitoring risks in synthetic risk transfers and private credit.
• Derivatives and Margin: Policy prescriptions were issued on initial margin in centrally cleared markets (by BCBS, CPMI, and IOSCO) recommending margin simulation tools for clearing members and disclosure of anti-pro-cyclicality tools. For non-centrally cleared markets, a joint report advised improving the effectiveness of variation margin and enhancing initial margin responsiveness (e.g., through improvements in the ISDA Standard Initial Margin Model or SIMM).

3. Systemic Risk Monitoring and Governance:

• The International Organization of Securities Commission (IOSCO) assessed the implementation of its standards, noting that the Indian SEBI and IFSCA demonstrated high overall compliance with Principles 6 and 7.
  • Principle 6 (Systemic Risk): India's comprehensive process for identifying, monitoring, and mitigating systemic risk is structured through multiple groups under the Financial Stability and Development Council (FSDC), such as the Early Warning Group and the Technical Group.
  • Principle 7 (Perimeter of Regulation): India affirmed that its regulatory review process is structured around the FSDC and involves coordination among authorities like SEBI, IFSCA, and State Level Coordination Committees.

4. Addressing Non-Traditional Risks (Cyber and Climate):

• Cyber Resilience: The FSB finalized the Format for Incident Reporting Exchange (FIRE), a common framework designed to standardize information elements for reporting operational incidents, including cyber incidents, across financial and third-party service providers.
• Climate Finance: The FSB introduced an analytical framework for assessing climate-related vulnerabilities, providing a toolkit with metrics such as proxies, exposure metrics, and risk metrics (e.g., carbon earnings at risk, climate beta) to quantify financial impacts and monitor systemic risk drivers. Separately, the IAIS published an application paper highlighting the significance of climate risks for the insurance sector.

Domestic Regulatory Initiatives

Domestic regulators are implementing reforms aligned with global best practices, prioritizing stability, transparency, and consumer protection.

1. Prudential Norms and Liquidity Resilience (RBI):

• LCR Framework Amendments: The Reserve Bank introduced calibrated amendments to the Liquidity Coverage Ratio (LCR) framework, implementing additional run-off rate factors for retail deposits enabled by internet and mobile banking (recognizing their higher propensity for withdrawal during stress) and calibrating haircuts on High-Quality Liquid Assets (HQLA). These measures are intended to improve banks' liquidity risk resilience following observations from global banking turmoil.
• Project Finance Directions: New directions established a harmonized prudential framework for financing projects, covering infrastructure and commercial real estate sectors, including the treatment of exposures upon changes in the date of commencement of commercial operations.
• Monetary Transmission: The RBI permitted forward contracts in government securities to further develop the interest rate derivatives market and enable long-term investors (like insurance funds) to manage interest rate risk.

2. Digitalization, Fraud Prevention, and Consumer Protection (RBI & SEBI):

• Digital Lending: The Reserve Bank of India (Digital Lending Directions), 2025 were issued, consolidating previous instructions and introducing measures to promote transparency. Key additions include enabling borrowers to objectively compare loan offers from different Lending Service Providers (LSPs) and aiding borrowers in verifying the association of Digital Lending Apps (DLAs) with Regulated Entities (REs).
• Combating Fraud: Measures were taken to prevent financial and digital payment fraud, including introducing the '.bank.in' internet domain for legitimate bank identification. REs were advised to make transaction/service calls only using the ‘1600xx’ numbering series and promotional calls using ‘140xx’ series. REs were also advised to monitor and clean customer databases using the Mobile Number Revocation List (MNRL).
• Algorithmic Trading Safeguards: SEBI issued a regulatory framework outlining rights and responsibilities to facilitate the safer participation of retail investors in algorithmic trading through brokers.
• Intraday Monitoring: SEBI introduced intraday monitoring of position limits for equity index derivatives contracts (minimum four random snapshots daily) to detect potential breaches beyond permissible limits on the day of expiry.

3. Enhancing Investor Access and Market Structure (SEBI):

• Retail G-Sec Access: SEBI facilitated registered stock brokers' access to the G-Sec market through the NDS-OM platform under a Separate Business Unit (SBU), aiming to facilitate retail participation in Government securities.
• Mutual Fund Reform: SEBI introduced the ‘MF Lite Framework’ for passively managed schemes to encourage entry of new players and reduce compliance. It also mandated disclosure of Risk Adjusted Return (RAR) (specifically the Information Ratio - IR) for equity schemes for more holistic performance assessment by investors. The platform MITRA (Mutual Fund Investment Tracing and Retrieval Assistant) was developed to help trace inactive and unclaimed mutual fund investor folios.

4. Corporate Restructuring and Debt Management (IBBI):

• The Insolvency and Bankruptcy Board of India (IBBI) implemented amendments to the Corporate Insolvency Resolution Process (CIRP) Regulations to enhance efficiency and stakeholder participation. This included enabling the Committee of Creditors (CoC) to invite real estate land authorities to meetings, improving information disclosure regarding development rights, and strengthening resolution plan monitoring mechanisms.

5. IFSC and Insurance:

• IFSC Development: The International Financial Services Centres Authority (IFSCA) issued the Fund Management Regulations 2025, which simplifies processes, lowers investment thresholds, and introduces adequate safeguards for investor protection. The total banking asset size at GIFT-IFSC reached US$ 88.7 billion in March 2025.
• Insurance: The IRDAI issued guidelines allowing insurers to use equity derivatives to hedge their equity investment portfolios, thereby safeguarding against market volatility. IRDAI also mandated electronic record-keeping for regulated entities with robust security and privacy measures.

The collective efforts of domestic regulators are intended to ensure the stability and security of the Indian financial system, enabling it to better promote macroeconomic stability and support India’s growth potential.

ICAI journal Dec 2025 pt2

 The article titled, “Overview of Certain Key Accounting Aspects in Media and Entertainment Industry,” authored by CA. Pravin Sethia, Member of the Institute, provides guidance on key accounting issues in the transforming Media and Entertainment (M&E) industry using the framework of Indian Accounting Standards (Ind AS).

The M&E Industry has seen significant growth and transformation over the last decade, driven by changing consumer behaviors, technological advancements, and new business models, leading to increased complexity in accounting and auditing practices that require greater application of judgment and estimates.

Background and Key Industry Shifts

The Indian M&E Industry revenue was approximately USD 16 billion in 2015 and grew to about USD 31 billion in 2025. The revenue from Over-The-Top (OTT) platforms expanded to approximately USD 4 billion in 2025, with the number of OTT platform users reaching around 600 million in 2025.

Key shifts in the industry include:

• Digital Transformation: The shift of audiences from traditional TV to on-demand viewing via digital streaming platforms.
• Technological Advancements: Technologies such as AI, AR, and VR have reshaped distribution and content creation.
• Content Diversification: Platforms are making significant investments in original content, spanning a wide variety of formats and genres.
• Rise in demand for Regional Content: Viewers increasingly favor stories and characters that resonate with their own experiences.

Accounting and auditing professionals in this industry face challenges related to the classification, amortization, and impairment of motion picture film costs, as well as the treatment of participation costs and revenue recognition.

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1. Motion Picture Film and Other Content Assets – Whether Inventory or Intangible Assets?

Classification depends on the intent and business model of the entity.

A. As Intangible Assets (Ind AS 38)

Motion picture films generally meet the criteria for Intangible Assets because they exhibit identifiability (each film is distinct), the producer/acquirer exercises control (contractually or through copyright registration), the film lacks physical substance, and it generates future economic benefits through exploitation of rights.

• Classification as an intangible asset is usually appropriate because the producer primarily holds the film to generate economic benefits over its life, typically assigning rights to third parties (like exhibitors or distributors) for a period, after which most rights devolve back to the producer.

B. As Inventory (Ind AS 2)

The film is classified as Inventory if it is acquired and held for sale in the ordinary course of business and the entity intends to retain little or no intellectual property rights in the film upon sale.

• The source notes that diversity in practice exists among film and media companies regarding the presentation of content costs as either inventory or intangible assets.

2. Accounting for Costs Related to the Production of a Motion Picture Film

The process of making a film involves various stages, including Pre-production (script development), Production (shooting, music), and Post-production (editing, dubbing).

Capitalization Criteria

Costs incurred for a specific motion picture film are accumulated and capitalized from the date the recognition criteria specified in Ind AS 38 (Intangible Assets) are met, which marks the commencement of the development phase.

An intangible asset can be recognized at the development stage when the entity can demonstrate:

• Technical feasibility of completing the asset for use or sale.
• The intent and ability to complete and use or sell the asset.
• Probable future economic benefits, or the existence of a market.
• Availability of adequate technical, financial, and other resources to complete development.
• Reliable measurement of the cost during development.

Capitalization must occur up to the date of completion of post-production work, or when the film is ready for distribution, or until the date the censor certificate is issued, whichever is earlier.

• Costs to be capitalized must be directly attributable to production, such as salaries of the key creative team.
• Costs not to be capitalized include internal costs related to support functions like compliance, office administration, and selling and distribution costs.
• Once the censor certificate is received, the asset is reclassified from “Intangible Under Development” (IUD) to “Intangible Asset,” and amortization commences.

3. Accounting for Participation Costs

Participation Costs are contingent payments made to actors, directors, or artists, based on the financial results of the film (e.g., a percentage of theatrical revenue).

• Timing of Recognition: The liability for participation costs is recognized only when the related revenue has reasonable certainty and the costs can be reliably measured.
• Presentation: These costs are presented as part of the artists’ costs within film production costs. They are not netted off from Revenue, unless the artist is directly paid through the assignment of rights relating to that revenue stream.

4. Amortization of Motion Picture Film

The amortization of motion picture film and media rights must be allocated on a systematic basis over its finite useful life as per Ind AS 38.

• Revenue-Based Amortization: Using an amortization method based on expected revenue is generally not permitted under Ind AS 38, except when the entity can demonstrate that revenue and the consumption of economic benefits are highly correlated, or when the predominant limiting factor is the achievement of a fixed revenue threshold.
• Accelerated Amortization: The industry commonly uses an accelerated amortization profile based on the observable decline in the film’s value. This profile is modeled using the expected revenue over the film's useful economic life. This approach is generally accepted because the amortization is based on the decline in value, not a direct matching to actual revenue, avoiding contravention of Ind AS 38.

5. Impairment of Media Assets

As per Ind AS 36 (‘Impairment of Assets’), an entity must assess at each balance sheet date whether there is any indication that a media asset may be impaired.

• If impairment is indicated, the enterprise must estimate the recoverable amount, which is the higher of the fair value less costs to sell or the value in use (VIU).
• An impairment loss is recognized if the carrying amount of the asset exceeds this recoverable amount.
• Internal and external indicators of impairment include restrictions on film release, substantial delays in release schedules, poor box office performance compared to expectations, or actual costs substantially exceeding budgeted costs.
• VIU calculations should include all reasonably estimable future cash flows, such as revenue from digital platforms, theatrical releases, licensing sales, and merchandising.

6. Principles of Revenue Recognition

For licenses granted to customers regarding intellectual property (IP), the entity must determine the nature of the license to correctly time revenue recognition.

• Right to Use IP: If the license provides the customer the right to use the IP as it exists at the point the license is granted, revenue is recognized at a point in time.
• Right to Access IP: If the license grants the right to access the IP as it exists throughout the license period, revenue is recognized over time as performance obligations are satisfied.

Revenue Recognition in Specific Scenarios:

Scenario	Nature of License/Arrangement	Timing of Revenue Recognition	Citation
Sale of Rights (No Restrictions)	Agreement does not contain restrictions on the acquirer's ability to exploit the content	Upon transfer of control of the content (physical or digital delivery)
Sale of Rights (Restrictions)	Agreement contains a restriction period (e.g., cannot be broadcast until a future time)	When the restriction period is over and the acquirer is free to exploit the rights
Theatrical Release	Minimum guarantee deals (non-refundable amount)	On the date of release of the movie
Theatrical Release	Commission/revenue share	As the exhibition of the movie occurs
Music Rights	Fixed fee for perpetual rights	On the commencement date when the music company obtains unrestricted right to market the music
Royalty Income	Income over sales exceeding a certain threshold	When the sales exceed the threshold amount
Satellite/Home Video	Right of broadcaster/partner to telecast the movie	When the right to telecast commences (after the no-broadcast period)

Conclusion

The author concludes that accounting for motion picture films under Ind AS requires balancing technical guidance with dynamic business realities. Every accounting decision, whether on classification, amortization, or revenue recognition, significantly impacts how financial statements are prepared and consequently shapes stakeholders’ perception of the media enterprise’s financial health. As new monetization models like digital rights and streaming platforms disrupt traditional practices, professionals must continuously exercise sound judgment and foresight.

The article titled "Non-compliances observed in the Ind AS Financial Statements pertaining to Equity and Liabilities in Balance Sheet," contributed by the Financial Reporting Review Board (FRRB) of the Institute of Chartered Accountants of India (ICAI), highlights critical presentation and disclosure deficiencies observed in financial statements prepared under the Indian Accounting Standards (Ind AS) framework.

The FRRB conducts reviews of General-Purpose Financial Statements to identify non-compliances with Ind ASs, Standards on Auditing (SAs), The Companies Act, 2013, and other relevant statutes. This article is part of the FRRB’s ongoing effort to update members and stakeholders to promote adherence to robust reporting practices.

The article details several observations of non-compliance related to both Equity and Liabilities:

I. Observation Related to Equity

Non-Compliance: Non-Disclosure of Nature and Purpose of Each Reserve within Equity.

• Case Summary: A company's Note on Other Equity disclosed items such as "Reserve for Equity Instruments through Other Comprehensive Income," "Treasury Reserve," and "Employee Stock Option Reserve".
• Observation: The nature and purpose of these reserves were not disclosed.
• Principle Violated: This non-compliance contravenes:
  • Ind AS 1, Paragraph 79(b): Requires an entity to disclose a description of the nature and purpose of each reserve within equity, either in the balance sheet, the statement of changes in equity, or in the notes.
  • Division II, Schedule III to the Companies Act, 2013, Note 6D II (d): Requires specifying the nature and purpose of each reserve and the amount in respect thereof under 'Other Equity'.

II. Observations Related to Liabilities

The FRRB observed several issues related to the classification and disclosure of liabilities:

1. Non-Current Borrowings – Incorrect Classification of Preference Shares

• Case Summary: A company included Redeemable Cumulative Preference Shares under "Non-current Borrowings" in its financial statements for FY 2018-19. A footnote indicated these shares were redeemable at par five years from the date of allotment (January 10, 2015).
• Observation: Since the allotment date was January 10, 2015, the shares were due for redemption within 12 months from the end of the financial year under review (March 31, 2019).
• Principle Violated: The preference shares should have been classified as current liabilities, not non-current liabilities, as they did not meet the condition in Ind AS 1, Paragraph 69(d), which requires an unconditional right to defer settlement for at least twelve months after the reporting period.

2. Financial Liabilities – Misclassification of Employee Benefit Liabilities

• Case Summary: A company presented "Employee Benefits Payable" under "Other Current Liabilities" and "Leave Encashment Payable" under "Other Non-Financial Liabilities" in the notes to the financial statements.
• Observation: The FRRB viewed that ‘Employee Benefits Payable’ and ‘Leave Encashment Payable’ are contractual obligations of the company to deliver cash to employees for services rendered. Therefore, these liabilities should be classified as financial liabilities.
• Principle Violated: This contravenes Ind AS 32, Paragraph 11, which defines a financial liability, in part, as a contractual obligation to deliver cash or another financial asset to another entity.

3. Current Tax Liabilities – Non-Disclosure on Face of the Balance Sheet

• Case Summary: "Income Tax Payable" was grouped under "Other Current Liabilities" in the Notes to the financial statements.
• Observation: Tax payable should be shown as “Current Tax Liabilities (Net)” on the face of the Balance Sheet under the “Current Liabilities” section, as prescribed by Division II of Schedule III.
• Principle Violated: The reporting was not in line with the required format of the Balance Sheet prescribed under Part I, Division II, Schedule III to the Companies Act, 2013.

4. Trade Payables – Incomplete Disclosure on Face of the Balance Sheet w.r.t MSME Dues

• Case Summary: The Note on Trade Payable indicated outstanding dues payable to vendors registered under the MSME Act. However, on the face of the Balance Sheet, the total trade payable was reported without bifurcation.
• Observation: Trade payable should have been bifurcated into dues to MSME and other payables, in line with the format prescribed in Division II, Schedule III.
• Principle Violated: This omission was not compliant with the requirements of Division II, Schedule III to the Companies Act, 2013.

5. Provisions – Incomplete Disclosure

• Case Summary: The company disclosed "Provision for Indirect Tax Matters" under the note on provisions.
• Observation: The company failed to provide a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits.
• Principle Violated: This violates Ind AS 37, Paragraph 85(a), which requires disclosure of a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits for each class of provision.

6. Defined Benefit Plans – Non-Recognition of Gratuity Provision

• Case Summary: The company’s accounting policy stated that it does not operate a defined benefit gratuity plan requiring contributions to a recognized fund and, therefore, does not carry out actuarial valuation or make a provision for gratuity.
• Observation: The liability for gratuity arises as soon as the employee starts rendering the services, and liability should be recognized as and when incurred.
• Principle Violated: Non-recognition of the provision for gratuity is not in line with Ind AS 19, Paragraph 72, which establishes that employee service gives rise to an obligation under a defined benefit plan even if the benefits are conditional on future employment (i.e., not vested), and liability should be accounted for based on the probability that the specified event will occur.

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These observations emphasize the critical need for preparers and auditors to ensure that financial statements are complete, accurate, and aligned with all applicable statutory and regulatory frameworks.

The following is a reproduction of the Expert Advisory Committee (EAC) opinion regarding the accounting treatment of costs incurred during the testing phase of a new restaurant outlet:

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Accounting treatment of salary paid to staff/employees and cost related to food trials during testing phase prior to opening of a new restaurant, under Ind AS framework

A. Facts of the Case

A private company, engaged in owning and operating contemporary and fine-dine luxury restaurants, typically opens 8 to 10 new outlets annually. It is crucial for the company to ensure that every element of the restaurant services—including the taste of food and beverages, presentation, ambience, lighting, cooling, and service quality—is well-rehearsed and consistent across all outlets from the very first day of operation.

The company conducts necessary food and beverage trials of each menu item by the chefs and kitchen staff. The restaurant also deploys various machinery and equipment (e.g., kitchen equipment, air conditioning, audio/visual projection equipment, computer systems). The company ensures all installed equipment is functioning properly and delivering the desired results before commercial operation.

The food and beverage trials, along with testing and calibration of equipment, take about a month. The necessary personnel are recruited in advance to handle and test the equipment and prepare for the opening day. The Company intends to capitalize the following costs incurred during this testing period as part of the cost of construction of the outlet, relying on Ind AS 16, ‘Property, Plant and Equipment’:

1. Employee benefit costs (salaries) for employees who test and handle the equipment.
2. Food and beverage material costs incurred during the trial phase.

The company believes these costs are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

B. Query

The opinion of the Expert Advisory Committee was sought as to whether the accounting treatment proposed by the Company—capitalizing the (i) employee benefits costs and (ii) food and beverage material costs incurred during the testing period to the cost of property, plant and equipment (PPE)—is correct.

C. Points Considered by the Committee

The Committee examined the issue from the perspective of Indian Accounting Standards (Ind AS).

1. Unit of Account for PPE: The Committee noted that the cost of a restaurant outlet as a whole is typically not considered a unit of measure or an item of PPE. Instead, individual items constituting the outlet (e.g., leasehold improvements, kitchen equipment, air conditioning systems, furniture, computer systems, etc.) should generally be treated as separate items of PPE, as they are acquired/disposed of separately and expire in different patterns. The recognition principle must, therefore, be examined in the context of these individual items of PPE rather than the outlet as a whole.

2. Principles of Capitalization (Ind AS 16): The basic principle for capitalizing an item of cost to PPE is that it must be directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Costs that are not to be included in the carrying amount of an item of PPE include:

• Costs of opening a new facility.
• Costs of introducing a new product or service (including advertising and promotional activities).
• Costs of conducting business in a new location or with a new class of customer (including costs of staff training). Recognition of costs ceases when the item is already in the location and condition necessary for it to be capable of operating in the manner intended by management.

3. Analysis of Employee Benefit Costs: The employee benefit costs are incurred for preparations and arrangements in connection with opening a new outlet to maintain consistency in taste, ambience, etc., across all outlets. These costs do not appear to be incurred for the construction or acquisition of any specific PPE, nor for bringing any specific PPE to the location and condition necessary for it to be capable of operating. These costs are similar to the costs of operating a new facility or conducting business in a new location, and thus cannot be capitalized as cost of PPE; they should be expensed in the statement of profit and loss as incurred.

• Exception/Clarification: If it can be clearly demonstrated that a part of the employee benefit costs (e.g., the cost of a technician, but not chefs, kitchen, or serving staff) was incurred for fixing or resolving technical operational problems necessary for bringing a specific asset (e.g., sound and lighting system) to the condition intended by management, that portion can be capitalized.

4. Analysis of Food and Beverage Material Costs: The trials are conducted to focus on taste, presentation, and consistency to meet management standards, not primarily to check the operating functioning of the kitchen equipment. The kitchen equipment seems to be already in operational condition. Since these expenses are incurred to achieve a certain level of output/services and do not add value to any specific equipment, they are not directly attributable costs. Costs incurred after an asset is operational and able to produce a commercially feasible quality/quantity of goods should not be capitalized. Therefore, the food and beverage material costs for trial runs should be expensed in the statement of profit and loss as and when incurred.

D. Opinion

The Committee is of the opinion that the proposed accounting treatment to capitalize the costs of employee benefits and food and beverage material costs incurred during the testing phase/period is not appropriate.

However, if it can be clearly demonstrated that a part of the employee benefit costs was incurred for bringing any specific PPE to the location and condition necessary for it to be capable of operating in the manner intended by management (e.g., cost of a technician fixing technical operational problems, as opposed to chefs or serving staff), the same can be capitalized to that extent.

The Opinion was finalized by the Committee on May 21, 2025.

The article titled “Micromanagement – How to Cope with this Greatest Curse at the Workplace,” authored by CA. Amrendra Kumar Singh, Member of the Institute, explores the nature, impact, and coping mechanisms for micromanagement.

Micromanagement – How to Cope with this Greatest Curse at the Workplace

Overview and Definition

Micromanagement is a management style marked by excessive supervision and control, often leaving employees with minimal autonomy or decision-making power. It is frequently mistaken for "attention to detail," but the distinction is crucial: attention to detail empowers precision, while micromanagement stifles initiative.

According to a 2022 MIT Sloan Management Review study highlighted by Forbes, a toxic workplace culture is ten times more likely to drive employees away than compensation, and micromanagement is a key contributor to this toxicity. The core issue is that micromanagement is a control mechanism, not a catalyst for excellence. True leadership is about trust, inspiration, and empowerment; leaders cultivate growth, while micromanagers constrain it.

When Micromanagement May Be Justified

Micromanagement may be temporarily justified in specific scenarios, but even then, it must be applied with clear communication and a defined exit strategy:

• High-stakes projects requiring flawless execution.
• Underperforming individuals or teams needing close guidance.
• New hires who benefit from structured onboarding.
• Process corrections where standards must be re-established.

When this style is prolonged or habitual, however, it becomes a toxic management style that erodes employee confidence, suppresses creativity, and fosters a culture of dependency and fear. At its core, micromanagement often stems from the manager’s fear, insecurities, and lack of trust, rather than team performance.

Traits of Micromanagers

Micromanagers typically exhibit the following characteristics:

• Enforcing unrelenting dominance over their teams.
• Getting into unnecessary and excessive details.
• Seeking constant updates and continuously reminding the team.
• Expecting superfluous perfection.
• Interfering in even the smallest things.
• Struggling to trust their subordinates.
• Raising their voice instead of raising the trust.
• Denying creativity, autonomy, and freedom to their people.
• Being an avid attention seeker.
• Very often issuing arbitrary orders.

Micromanagement and Narcissism

Micromanagement and narcissism (excessive and self-centered interest in oneself) go hand in hand, as both traits reinforce each other and stem from a lack of trust and an excessive need for control.

Managers who exhibit narcissistic traits often delegate tasks but continue to tightly control the performance of subordinates. This behavior allows them to claim credit for successful outcomes while conveniently shifting the responsibility for any failures onto their team members. Such managers frequently manipulate subordinates, colleagues in other functions, and even top management to retain control.

Impact on Subordinates

Working under a micromanager, especially one who is also narcissistic, can create a toxic and damaging work environment that ruins an employee's potential and personality. Key impacts include:

• Erosion of confidence and fear, causing employees to hesitate to speak up.
• Diminished creativity and productivity due to constant anxiety, which affects both professional and personal life.
• Approval-seeking behavior where employees focus on pleasing the boss rather than achieving results.
• Dependency on the manager’s moods and preferences instead of focusing on the actual work.
• Stifled personal and professional development.
• Erosion of trust between the manager and the team.

Over time, the employee mindset shifts from asking, "What is the best way to achieve this goal?" to "How does my boss feel about this?"—a pattern that drains innovation and motivation.

Impact on the Employer (Organization)

Micromanagement can destabilize entire organizations, and the company ultimately suffers the long-term consequences, often resulting in the absence of a robust succession plan.

• Leadership Vacuum: Employees are rarely groomed for leadership roles or empowered to make decisions, leading to a void when the micromanager exits.
• Dependency Culture: Teams become overly reliant on one person for direction, creating bottlenecks and reducing agility, particularly during a crisis or transition.
• Stunted Innovation: Lack of autonomy hampers the willingness of employees to propose new ideas or experiment, which makes the company less competitive.
• Talent Drain: High-potential employees leave the organization when they feel micromanaged or undervalued, resulting in the loss of institutional knowledge and increased turnover.
• Operational Disruption: The sudden departure of the micromanager can cause morale to dip, projects to stall, and productivity to plummet.

How to Cope with Micromanagement

Coping with micromanagement is difficult, but there are navigational strategies.

1. Simulate the Action Plan: The author suggests deciding on a solution or action plan for a given situation and then comparing it with the manager's action and the resulting outcome. Repeating this process across different scenarios can help sharpen strategic thinking, understand leadership dynamics, and prepare the employee to act decisively when required.

2. Vedantic Teachings on Duty (Karma): If direct methods fail, Vedantic teachings offer a rescue by classifying duties into three categories:

   • Obligatory Duty (Karyam Karma): This involves developing the habit of doing what is necessary in the organization's best interest, independently of the boss's reaction. The focus should be on performing one’s duty with commitment and love, without being attached to the outcome or results, as results are not entirely within one’s control.
   • Desire-Driven Duty (Kaamya Karma): Working based on desires—such as chasing promotions, pleasing the boss, seeking high raises, or trying to be the center of attention—is bound to fuel disappointment, mental agitation, and restlessness when desires are not fulfilled.
   • Prohibitory Duty (Nishiddha Karma): Indulging in illegal or immoral things to survive or please the boss should be avoided, as this will lead to ruin.

3. Know When to Walk Away: If the negative environment persists for eight to ten hours a day and drains energy, the remaining options are to change the boss or leave the organization. A person should consider leaving a place where there is no respect, no well-wishers/friends, and no learning or professional growth. Specifically, if contributions, efforts, and talents go unrecognized, and opportunities for professional and financial growth are non-existent, one should consider moving on.

Conclusion

Micromanagement is a corrosive force that stifles initiative and replaces confidence with compliance, breeding dependency and fear instead of trust and innovation. True leadership is characterized by empowerment and trust, where leaders build other leaders, not followers.