The Confucian Fertility Paradox and Education Competition

 The Confucian Fertility Paradox refers to the phenomenon where East Asian societies—deeply rooted in a Confucian heritage that historically prioritized large families and lineage continuity—now exhibit the lowest total fertility rates (TFR) in the world,. Despite the cultural dictum that "among three forms of unfilial conduct, the gravest is to leave no posterity," countries like South Korea (TFR of 0.72 in 2023) and China (TFR of ~1.0 in 2024) have seen a fertility collapse that is "qualitatively different from anything observed elsewhere",,.

The sources define and resolve this paradox by separating Confucianism into two distinct strands that reacted differently to modernization:

1. The Erosion of the Pro-Natal Strand

Historically, Confucianism promoted high fertility through institutional and normative mechanisms. This pro-natal strand was built on:

• Lineage Continuity: Rituals of ancestor worship required male descendants to perform sacrifices,.
• Old-Age Security: The norm of "raising children to provide for old age" (yang er fang lao) made sons an economic necessity for support in the absence of state pensions.
• Collective Incentives: Large lineages (zongzu) commanded more political and economic resources, creating incentives for demographic expansion.

Modernization effectively "switched off" these mechanisms. As child mortality fell, incomes rose, and state pensions replaced family-based support, the material and utilitarian foundations for large families dissolved,,.

2. The Reversal of the Education and Status Strand

The second pillar of Confucian culture—the veneration of education and status won through meritocratic examinations—did not erode but instead "reversed sign" in its effect on fertility,,.

• The Historical Gamble (Quantity): Under the old imperial examination systems (keju in China, gwageo in Korea), success was rare but highly rewarding. Families pursued an "extensive-margin gamble," having many sons to increase the statistical odds that at least one would succeed and bring honor to the entire lineage,,.
• The Modern Tournament (Quality): In contemporary East Asia, education has evolved into a "single-shot tournament" (such as China’s gaokao or Korea’s suneung) where success depends on relative rank rather than clearing a fixed bar,,. This forces parents into a "positional arms race" or "rat race",.

The Core of the Paradox: The Quantity–Quality Tradeoff

The paradox dissolves when one recognizes that the same underlying value—family honor through scholarly success—now dictates the opposite fertility strategy,. Because modern competition requires extreme levels of "intensive investment" in each child (private tutoring, "examination hell," and constant parental supervision), having many children becomes prohibitively expensive,,.

Consequently, the quantity–quality tradeoff has turned a once pro-natal culture into a powerful engine of ultra-low fertility,. Parents are not abandoning Confucian values; rather, they are pursuing them through the optimal modern strategy: concentrating all resources on one or two intensively educated children to ensure their status in a hyper-competitive environment,,.

The resolution to the Confucian Fertility Paradox—where cultures that traditionally valued large families now exhibit the lowest fertility rates on earth—lies in understanding two distinct "strands" of the Confucian tradition that have been pulled apart by modernization. These two strands, which were historically complementary, now operate in a way that aggressively suppresses childbearing.

Strand 1: The Pro-Natalist Foundations (The "Subtracted" Pillar)

Historically, the first strand of Confucianism provided the institutional and normative basis for high fertility. It was centered on family continuity, filial piety, and the religious and social necessity of male heirs.

• Normative Obligations: Ethical teachings, such as the dictum that "among three forms of unfilial conduct, the gravest is to leave no posterity," made producing descendants a moral duty.
• Institutional Support: The lineage system (zongzu in China, jokbo in Korea, and ie in Japan) functioned as a primary social organization. Larger lineages commanded more political and economic resources, creating a collective incentive for demographic expansion.
• Economic Utility (Yang er fang lao): The tradition of "raising children to provide for old age" made sons an economic necessity. In the absence of state welfare, children were the primary source of material support and care for elderly parents.

The sources argue that modernization "switched off" this strand. As child mortality fell, incomes rose, and state pensions replaced family-based security, the material and utilitarian foundations for large families dissolved.

Strand 2: The Culture of Education and Status (The "Surviving" Pillar)

The second strand is the veneration of education and the pursuit of social status through meritocratic achievement. This was rooted in the imperial examination systems (keju in China and gwageo in Korea) that governed elite recruitment for over a millennium.

• Historical Complementarity: In the pre-modern era, this educational ambition actually encouraged high fertility. Because examination success was rare but highly rewarding, families pursued an "extensive-margin gamble," having many sons to increase the statistical probability that at least one would succeed and elevate the entire lineage.
• Cultural Persistence: While the imperial examinations were eventually abolished, the belief in education as the decisive route to social status remained deeply ingrained in the cultural fabric of East Asia.

The Reversal and the Quantity–Quality Tradeoff

The "paradox" is resolved because, while the first strand lost its influence, the second strand "reversed sign" in its effect on fertility. Under modern conditions, the educational system has transformed into a "single-shot tournament" (such as China’s gaokao or Korea’s suneung) where success depends on relative rank rather than clearing a fixed bar.

• Intensive vs. Extensive Investment: Unlike the historical gamble where more children were better, the modern "educational rat race" rewards concentrating all family resources on one or two intensively educated children.
• The Status Externality: Because parents seek relative standing for their children, they are locked in a "positional arms race," spending excessive time and money on private tutoring and "shadow education" to keep up with other families.

In the larger context of the paradox, the sources conclude that East Asian parents have not abandoned their traditional values. Instead, they are pursuing the same goal their ancestors did—family honor through scholarly success—but in a modern economic environment where the quantity–quality tradeoff makes having multiple children prohibitively expensive.

The Modern Reversal is the specific mechanism that explains why East Asian societies, historically defined by pro-natalist Confucian values, now experience the world's most extreme fertility collapse. The sources describe this reversal as a two-step process that transformed the cultural emphasis on family and education from a driver of high fertility into a powerful engine for its decline.

Step 1: The Subtractive Process (Eroding the Pro-Natal Strand)

The first phase of the reversal involved the "switching off" of the traditional Confucian mechanisms that once encouraged large families.

• Loss of Material Foundations: Modernization—specifically falling child mortality, rising incomes, and urbanization—eroded the practical necessity of having many children.
• Erosion of Old-Age Security: The traditional norm of yang er fang lao ("raising children to provide for old age") once made sons an economic necessity for support in the absence of state welfare. The introduction of state pension systems in Japan, Korea, and China substituted for this family-based support, removing the primary utilitarian motive for childbearing.

Step 2: The Sign Reversal (Transforming Educational Ambition)

While the pro-natal strand faded, the Confucian veneration of education survived but "reversed sign" in its impact on fertility.

• From Extensive Gamble to Intensive Investment: Historically, the imperial examination system (keju or gwageo) encouraged high fertility as an "extensive-margin gamble"—having many sons increased the statistical odds that at least one would succeed and bring honor to the lineage. In the modern era, the examination system has shifted to a "single-shot tournament" (like China’s gaokao or Korea’s suneung) where success depends on relative rank rather than clearing a fixed bar.
• The Educational "Rat Race": Because modern rewards favor the highest-ranking students, families are locked in a "positional arms race". This forces parents to shift from having many children to concentrating all their time, money, and emotional energy on one or two intensively educated children to ensure their status in a hyper-competitive environment.

The Paradox in Context: Cultural Continuity

The sources emphasize that this reversal is not a story of cultural decline, but of cultural continuity operating within a transformed economic environment. The fundamental Confucian goal—attaining family honor through scholarly success—remains the same. However, the modern quantity–quality tradeoff means that the most rational way to achieve that goal today is to have very few children.

This "modern reversal" explains why standard pro-natalist policies, such as cash subsidies, often fail; they treat the symptom of high costs without addressing the underlying competitive tournament that makes children "prohibitively expensive" in terms of status investment.

In the context of the Confucian Fertility Paradox, the sources identify education competition as the primary "engine" of fertility decline,. While modernization "switched off" the traditional Confucian motives for large families—such as lineage continuity and old-age security—the cultural veneration of education not only survived but "reversed sign" in its effect on childbearing,,.

The engine operates through several key mechanisms:

1. From Extensive Gamble to Intensive Tournament

Historically, education and high fertility were complements. Under the old imperial examination systems (keju or gwageo), families pursued an "extensive-margin gamble," having many sons to increase the statistical probability that at least one would succeed and elevate the family’s status,.

In contrast, modern East Asian education is structured as a "single-shot tournament" (e.g., China’s gaokao or Korea’s suneung) where success depends on relative rank rather than clearing a fixed bar,,. This structural shift forces a quantity-quality tradeoff: families now concentrate all resources on one or two children to maximize their rank in a continuous distribution,,.

2. Status Externalities and the "Rat Race"

The engine is fueled by status externalities, where the return to education depends on a child's standing relative to others. This creates a "positional arms race" or "educational rat race":

• Excessive Investment: Families have an incentive to invest beyond the socially optimal level to maintain relative standing,.
• Inability to Disarm: Individual families cannot afford to "disarm" (invest less) without their children falling behind, even if all families would be better off with lower costs and more children.
• Economic Impact: In South Korea, eliminating this status externality is estimated to raise the fertility of married women by 28%.

3. Why the Engine is More Powerful in East Asia

The sources argue that education competition is more extreme in East Asian Confucian societies than in Europe due to three factors:

• Tournament Structure: Unlike European systems with multiple vocational or apprenticeship pathways, East Asian career prospects are sharply tied to a single examination outcome,.
• Cultural Legitimacy of Intensive Parenting: Confucian culture celebrates the "sacrifice-oriented parent" who devotes everything to a child's success, removing social constraints that might otherwise moderate the competition,.
• Limited Alternative Pathways: Academic achievement remains the dominant, and often only, legitimate route to social mobility and prestige,.

4. Causal Evidence: The Tutoring Ban

Direct evidence for this "engine" comes from China’s 2021 "Double Reduction" policy, which banned for-profit private tutoring,. Research found this ban raised expected fertility by 7-8%, with over half of that effect attributed specifically to the perceived reduction in education competition. Interestingly, this competition depresses fertility more through psychological burdens—stress, anxiety over rank, and loss of family time—than through direct financial costs,.

5. Synergy with Other Costs

The education engine is amplified by other factors, most notably housing. In China and Korea, school quality is tied to residential location, creating a "school district premium" that bundles the high cost of housing with the cost of education competition,. Furthermore, the burden of being the "education manager" falls disproportionately on mothers, intensifying the motherhood penalty and discouraging childbearing among highly educated women,.

In the context of the Confucian Fertility Paradox, while education competition is identified as the primary "engine" of decline, the sources highlight several complementary mechanisms that reinforce and amplify this effect. These forces form an interconnected system that makes the fertility-suppression environment in East Asia particularly robust.

1. Housing Costs and the "School District Premium"

Rising housing costs significantly increase the material burden of childrearing, particularly in metropolitan areas. However, in East Asian societies, this is not just a general economic pressure; it is intimately connected to education competition.

• The Premium: In China and Korea, school quality is tied to residential location, creating a "school district premium".
• Bundled Costs: Families are forced to purchase or rent expensive housing in specific neighborhoods to secure access to elite schools, effectively bundling high housing costs with the costs of the educational "arms race".
• Space Constraints: These high costs often push families into smaller apartments, making additional children physically burdensome as well as financially taxing.

2. Gender Norms and the "Education Manager" Role

The collision of modern economic participation with traditional Confucian gender norms creates a powerful deterrent to childbearing, often referred to as the motherhood penalty.

• Career vs. Family: As women's education and labor force participation rise, the traditional division of domestic labor creates an acute conflict. After the first child, mothers' earnings typically fall sharply while fathers' careers remain undisturbed.
• The Burden of Competition: The intensity of education competition places a unique burden on mothers, who act as the "education manager". This role involves coordinating tutoring schedules, supervising homework, and managing the child's progress through the "tournament," making the decision to have a child a decision for the mother to absorb immense personal and career costs.
• Marriage Decline: Because childbearing outside of marriage remains rare and stigmatized (under 5%) in East Asia, the reluctance to enter into these demanding traditional family structures leads many to delay or forgo marriage entirely, directly lowering birth rates.

3. Policy Legacies: The "Low-Fertility Trap"

Specifically in China, the legacy of the One-Child Policy (OCP) has created a self-reinforcing demographic and sociological mechanism.

• Intergenerational Transmission: Being an only child significantly reduces a person's "ideal family size" (by an estimated 0.6–0.7 children).
• Socialization of Norms: Children raised in small families come to view them as the default norm. This socialization persists even after restrictive policies are removed, meaning liberalization (like the Universal Two-Child policy) has a limited impact because the desire for large families has been "switched off" across generations.

The Interconnected System

The sources conclude that these mechanisms do not operate in isolation; they amplify one another. For example, high housing costs (driven by school access) discourage women who are already wary of the "education manager" role, while shrinking marriage pools and intergenerational small-family norms further suppress desired fertility. This systemic nature explains why standard pro-natalist policies, such as cash subsidies, often fail—they address individual symptoms (like direct costs) without dismantling the broader competitive and cultural equilibrium that makes children "prohibitively expensive".

In the larger context of the Confucian Fertility Paradox, the sources argue that standard pro-natalist interventions typically fail because they address the symptoms of high costs rather than the underlying disease: the competitive educational "rat race" driven by status externalities.

Key policy takeaways from the sources include:

1. The Failure of Permissive Policies and Cash Transfers

Standard tools often prove ineffective in East Asian contexts:

• Relaxing Birth Restrictions: China’s experience with the Universal Two-Child policy shows that removing quotas does little when desired fertility has already fallen below the policy ceiling. Permissive policies cannot compel births once families have adapted to a hyper-competitive cost structure.
• Cash Subsidies: Despite massive spending (e.g., South Korea spent $37 billion in 2020), these subsidies fail because children are not too expensive in absolute terms, but prohibitively expensive relative to the investment others make. Subsidies may even backfire by loosening budget constraints and intensifying the arms race in private education.

2. Targeting the "Competitive Equilibrium"

Effective policy must address the status externalities where each family’s investment raises the bar for everyone else.

• Pigouvian Taxes: Research suggest that a tax on private education spending (around 22%) could allow families to "disarm" without losing relative standing, potentially raising fertility by nearly 11%.
• Direct Bans: China’s 2021 “Double Reduction” ban on for-profit tutoring is a real-world attempt to curb this competition. Evidence suggests it raised expected fertility by 7-8%, primarily by reducing the psychological burden and anxiety over relative performance rather than just saving money.

3. Structural Reform of Educational Pathways

The sources emphasize that the tournament character of East Asian education must be dismantled.

• Diversifying Tracks: Moving away from a single, high-stakes examination system (like the gaokao or suneung) toward models like Germany’s dual vocational system could reduce the weight placed on a single ranking.
• Reducing Stakes: Structural reforms are necessary so that career prospects and social status are not entirely dictated by a single examination outcome.

4. Redistributing the "Education Manager" Burden

Because the intensity of education competition falls disproportionately on mothers, policies must target the gendered division of labor.

• Workplace Flexibility and Paternity Leave: Promoting male parental-leave take-up (which rose in Japan from 2.65% in 2015 to over 30% in 2023) is a critical step in alleviating the "motherhood penalty" associated with being a child's primary education manager.

5. Addressing the Systemic "Low-Fertility Trap"

The sources warn that East Asia may be in a self-reinforcing trap where addressing any single mechanism (like housing or tutoring costs) in isolation is unlikely to succeed. Because the force holding fertility down is a rational, yet socially self-defeating competitive equilibrium, the sources conclude that only systemic policies aimed at the competition itself have a prospect of changing the outcome.

Reclaiming the Real Adam Smith

 A Preface to Alessandro Roncaglia’s Essay on Adam Smith By Thomas Ferguson JUN 23, 2026 | HISTORY | PHILOSOPHY & ETHICS

As America marks 250 years of independence, Adam Smith is again being pressed into service as a founding myth. A deeper reading of The Wealth of Nations reveals a far richer thinker than today’s easy invocations of markets and liberty suggest.

To the New England mind, roads, schools, clothes, and a clean face were connected as part of the law of order or divine system. Bad roads meant bad morals. The moral of this Virginia road was clear, and the boy fully learned it. Slavery was wicked, and slavery was the cause of this road’s badness which amounted to social crime—and yet, at the end of the road and product of the crime stood Mount Vernon and George Washington. — Henry Adams, The Education of Henry Adams

Henry Adams knew how easily founding myths inspire doublethink. As America gears up to celebrate 250 years of American independence this 4th of July, the point is worth recalling again. The way a lot of people are telling it, we are all really celebrating not just the Declaration of Independence, but Adam Smith’s Wealth of Nations, which was also published 250 years ago. We will leave for another time all deep questions of historical fact or remarks about the irony of suddenly discovering that Smith, not Hamilton, offers the truest reflection of America’s political economy.

From its founding, INET (Institute for New Economic Thinking) has tried to take economic history very seriously. We, too, consider Adam Smith a towering figure in the history of thought and believe everybody should read at least some of his work. But we also see that the customary appropriations of his legacy are often very shallow.

So rather than simply scoff at the idea that the Wealth of Nations is really a subtext of the Declaration of Independence, we thought it would be better to seize the occasion to bring a brilliantly learned and sophisticated treatment of Smith and his work before a broad audience.

Alessandro Roncaglia is an economist of great distinction, who has published on many subjects. He is recognized worldwide for his glittering achievements as a historian of economic thought. We knew that he was finishing a comprehensive treatment of the history of economic ideas, so we asked if we could present his chapter on Adam Smith as an INET Working Paper. We are delighted when he and Cambridge University Press agreed.

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INET has assisted in the production of the new work with a small grant; and his earlier study of Power and Inequality appeared in INET’s book series published by Cambridge University Press.

Thomas Ferguson Research Director Professor Emeritus, University of Massachusetts, Boston

Social Security and the Vanishing Paycheck

 Social Security and the Vanishing Paycheck By Pia Malaney JUL 26, 2026

Social Security runs on the paycheck. But a growing share of American wealth now comes from profits, assets, and ownership. The program that ended old-age poverty was never built for an economy that pays people this way.

There is, once again, talk of Social Security “running out of money,” the kind of phrase that surfaces every few years and usually says more about the state of Washington’s nerve than about the state of the program’s finances. Before wading into the financing problem, it is worth pausing on the program’s monumental achievements, because the scale of its accomplishment is easy to forget in the middle of debates about percentages and depletion dates.

Social Security transformed old age in America from a period commonly marked by dependence on children, on charity, or on the poorhouse into one underwritten by a national system of social insurance, and it did so within a single working lifetime. The scale of that transformation shows up in the numbers: recent estimates from the Center on Budget and Policy Priorities find that without Social Security, poverty among Americans 65 and older would exceed 40 percent in nearly a third of states, and that with it, poverty in nearly two-thirds of states falls below 10 percent.

That success is precisely what makes the current debate so charged, because everyone involved understands the stakes. Before weighing the numbers, it helps to be clear about what the trust fund that is predicted to run out actually is. Social Security runs largely pay-as-you-go: today’s payroll taxes fund today’s benefits, and the “fund” holds only the accumulated surplus of richer years, parked in special-issue Treasury bonds. The fund has always been as much a political instrument as a financial one, and Roosevelt built it that way deliberately. When an adviser suggested in 1941 that the payroll tax had been a mistake, FDR agreed on the economics but not the politics: “We put those payroll contributions there,” he said, “so as to give the contributors a legal, moral, and political right to collect their pensions… With those taxes in there, no damn politician can ever scrap my social security program”. The earmarked tax and the named account were meant to make Americans feel they had bought their benefits; that this was their money, not relief; and as it turned out it worked remarkably effectively.

The 2026 Trustees Report dourly projects that the combined trust funds will be “depleted” in the third quarter of 2034, when incoming revenues would still cover 83 percent of scheduled benefits. Looked at on its own, the Old-Age and Survivors Insurance fund is projected to run out even sooner, in late 2032, leaving 78 percent of benefits payable. None of this qualifies as bankruptcy in the conventional sense: payroll taxes will keep flowing in, and checks will keep going out. But a sudden across-the-board cut of one-fifth in retirement income would land on millions of households that have nothing else to fall back on. Private retirement savings in America are concentrated overwhelmingly among people who already have money, which means that for a large share of the population, Social Security is retirement security. There is no other tier underneath it to catch anyone.

Where the Money Went

The usual explanation for the shortfall is demographic, and it is not wrong as far as it goes. The baby boom generation has retired, Americans are living longer, fertility has fallen well below replacement, and the result is fewer workers supporting more beneficiaries than the system’s designers ever anticipated. The 2026 Trustees Report attributes much of the latest deterioration in the numbers to precisely this kind of assumption, particularly lower projected fertility and lower projected net immigration.

But treating demographics as the whole story misses something important about how the program was actually built. Social Security was designed around a specific model of the American economy, one in which most people worked for wages, those wages rose steadily over time, and a payroll tax levied on that wage growth financed the benefits of the generation that came before. It also assumed a largely closed economy, where the rich could not so readily move their money abroad.

In the mid-1930s, when the act was signed into law by President Roosevelt, it was somewhat aspirational. Written in the depths of the Depression, when wages and employment had collapsed far below their 1929 peak, the premise of steadily rising wages was a wager that the long upward trend would resume and continue. For the next forty years the wager largely paid off. Each cohort of workers paid into the same compact it would eventually draw on. The assumption embedded in that design was that the wage base itself would keep growing in step with the economy as a whole. It is that assumption, more than the birth rate, that has quietly stopped holding.

The Social Security Act has never been a static piece of legislation. Congress has repeatedly revised it to respond to changing economic conditions, demographics, and political priorities. The 1935 Act left out roughly half the workforce, including agricultural laborers, domestic servants, the self-employed, and many government and nonprofit employees. These exclusions fell disproportionately on Black and women workers, since a large majority of Black workers at the time were employed in farm or domestic service. Coverage was then extended in stages: most farm and domestic workers and the self-employed were brought in beginning in 1950, with further expansions in 1954 and 1956. The system that now looks close to universal reached that point gradually, by repeatedly widening the base of covered earnings it taxed.

Social Security is financed by payroll taxes on covered earnings, and only up to a cap: in 2026, any wages above $184,500 are exempt entirely, with employees and employers each paying 6.2 percent below that line and the self-employed paying 12.4 percent, half of which is then deductible (Medicare’s separate payroll tax, notably, has no such ceiling). That cap is supposed to rise automatically with average wages, which sounds like it should keep the system’s coverage stable over time. But average wages are not the same thing as the distribution of wages, and when income at the top grows faster than income in the middle, more of the economy’s total earnings simply escape the tax by sailing over the cap. In 1983, after the last major overhaul of the program, roughly 90 percent of covered earnings fell under the taxable maximum; by 2020, according to the Congressional Budget Office, that figure had fallen to about 83 percent. Multiply that seven-point gap across the entire American wage bill and the dollars involved are enormous, which is why the taxable maximum has become central to the policy debate.

The shift underneath that number is larger still, and harder to fix with a single formula. Social Security taxes labor income; it was never built to reach capital gains, dividends, business income, or the unrealized appreciation of assets that increasingly makes up the wealth of people at the top of the distribution. There is plenty of evidence that technology and automation shrink labor’s share of production. Something similar has been happening to the aggregate wage share for decades, technology aside: compensation of employees accounted for 51.9 percent of gross domestic income in 2024, according to the Bureau of Economic Analysis, down from a range more typically in the mid-to-high 50s during the postwar decades.

Economists have, over the years, attributed the decline in wage share to different factors. Duménil and Lévy point to the reassertion of a wealthy capitalist and managerial class under neoliberalism. Lazonick argues that the deeper driver is the rise of a “maximizing shareholder value” model of corporate resource allocation, which since the 1980s has funneled corporate gains toward shareholders and top executives rather than the broad workforce. Of course some of those executive gains are themselves counted as wages in the statistics, so the labor share as measured understates how much the broad workforce has actually lost. Taylor documented roughly eight percentage points of primary income shifting from labor to capital since around 1980, driven above all by what he called wage repression. However one weighs these accounts, they point in the same direction: a growing share of national income now arrives as something other than a wage, and much of what still counts as a wage flows to those at the very top.

The shift is not only between labor and capital but also between here and elsewhere. Globalization rearranges where work happens faster than a system tied to domestic wages can adjust, carrying some share of American earnings beyond the program’s grasp. It is one more way the economy has drifted from the model the program assumed.

None of this converts mechanically into the Social Security shortfall. The actuarial deficit has plenty of causes that have nothing to do with inequality, from interest rate assumptions to disability incidence to the moving 75-year projection window the actuaries use. But a retirement system financed entirely by a tax on paychecks becomes structurally more fragile in an economy where a growing share of the gains show up somewhere other than a paycheck.

The Menu of Fixes

Restoring the taxable maximum to the point where 90 percent of covered earnings are once again subject to tax, phased in gradually between 2026 and 2035, would close about 22 percent of the 75-year actuarial deficit if the newly taxed earnings also earned benefit credit, and about 28 percent if they did not, according to the Social Security actuaries. More aggressive versions of the same idea go further still: applying the 12.4 percent payroll tax to earnings above $250,000, and eventually to all earnings once the current-law cap catches up to that threshold, would close a considerably larger share of the shortfall, with the exact figure again depending on whether the additional taxes generate additional benefits.

The issue of benefits is a critical one, both financially and politically. The current design caps both the tax and the benefit together: pay in on covered earnings, and you earn benefits on those same earnings, nothing more. Kathleen Romig of the Center on Budget and Policy Priorities, along with others who favor lifting the cap, has effectively proposed breaking that link. This would make the program more redistributive and a good deal more solvent, but it also moves away from the earned-benefit self-image that has protected it politically for ninety years. Leaving the link intact, however, means much of the solvency gain disappears. Social Security has always lived with that tension. Measured against what people contribute, it treats lower earners more generously than higher ones, and it has never really worked like a private retirement account. Yet almost everyone pays in, and almost everyone expects to collect; a near-universal stake that explains much of why it has lasted.

There is a further distributional wrinkle that makes the cap debate thornier than it first appears. Because the payroll tax reaches only wages and self-employment income, sharply raising or removing the cap falls hardest on high-earning working professionals such as physicians, attorneys, engineers, and small-business owners, while much of the country’s largest fortunes escape almost entirely. The income of private equity and hedge fund principals arrives largely as capital gains and carried interest, which are not wages and never touch the payroll tax at all. A fix built solely on the wage base therefore risks squeezing the salaried and merely affluent while leaving the genuinely rich, whose income flows from capital rather than a paycheck, largely untouched. This is both a political liability and, for a program that depends on being seen as fair, a substantive one.

Congress, of course, has other levers besides the cap. It could simply raise the combined payroll tax rate: the Social Security Administration’s Office of the Chief Actuary estimates that lifting the rate from 12.4 to 16.65 percent starting in 2026 would close the long-range shortfall outright. The trouble is that this raises taxes on the checkout clerk and the surgeon alike, which is why most reform proposals gravitate toward the cap instead. A rate increase also runs into an old feature of the tax that is easy to miss. The payroll tax is formally split between employer and employee, but economists have long held that employers largely shift their half onto workers through lower wages, so that labor ultimately bears most of the burden regardless of who writes the check—an outcome the program’s designers broadly anticipated. That shifting, however, depends on there being wage growth to absorb it, and in an era of stagnant pay the mechanism has very nearly ground to a halt. A higher rate today would be harder to pass discreetly through to workers’ wages and would therefore bite more visibly, part of why raising the rate has become so much more politically fraught than it once was.

Congress could also cut benefits, most commonly by raising the full retirement age, an idea with an appealing one-line justification: people are living longer, so people can work longer. But the premise deserves some scrutiny. Woolf and Schoomaker (2019) found that while US life expectancy rose for most of the postwar period it stalled around 2011 and then actually declined, a trend that only reversed itself several years later. More importantly, perhaps, the gains that did occur are unevenly shared: Bosworth, Burtless and Zhang find that a man born in 1920 in the top tenth of the income distribution could expect to live about five years longer than a man born the same year in the bottom tenth; for men born twenty years later, in 1940, that gap had widened to twelve years. Raising the retirement age treats a warehouse worker, a roofer, a nursing aide, and a delivery driver as though they were living the same actuarial life as a tenured professor with a flexible schedule and better health care, when in fact the people least able to work into their late sixties are disproportionately the people who depend on Social Security the most.

Every one of these options asks some specific, sympathetic group to absorb a visible cost: ordinary workers under a rate hike, the most vulnerable retirees under a later retirement age, high earners under an uncapped payroll tax. That distribution of pain, not any lack of technical solutions, is why meaningful Social Security reform has historically required both parties to share the political risk. The 1983 amendments, built on the Greenspan Commission’s report, combined revenue increases with benefit cuts so that neither party could be blamed alone for the pain, and the deal held for a generation. Nothing like that bargain looks achievable today: Democrats want to protect or expand benefits and pay for it by taxing high earners; Republicans resist new taxes while conceding, in private, that benefit cuts are radioactive. There is renewed talk of a bipartisan commission modeled loosely on 1983, meant to force the issue back into a shared process before the 2032 and 2034 deadlines force it instead. The risk with any commission, though, is that the process itself becomes a substitute for the substance it was created to resolve, because everyone at the table already knows the menu: tax below the cap, tax above it, cut benefits, delay retirement, tap general revenues, bring capital income into the mix. They are all versions of one question nobody wants to answer out loud, namely, “Who pays?”

Beyond the Paycheck

Raising or eliminating the cap addresses the clearest wage-inequality problem embedded in the existing payroll-tax structure, but it leaves a deeper question sitting untouched at the center of the whole debate. If wealth at the top of the distribution increasingly arrives through capital gains, dividends, business ownership, carried interest, rents, and asset appreciation rather than through a paycheck, why should the financing of retirement security remain tied so narrowly to wages in the first place? Medicare already supplies one instructive contrast: its Hospital Insurance payroll tax has no ceiling at all, which does nothing to solve Medicare’s own long-term problems but does establish that Congress has already accepted, in at least one corner of the social insurance system, that taxing wages need not stop at an arbitrary cap. Extending that logic to Social Security could take several forms: taxing investment income directly, as the Sanders-Warren Social Security Expansion Act proposes; treating stock-based compensation more consistently as labor income; or layering in a new revenue source tied explicitly to capital. Any of these would raise genuine design problems, since capital income is more volatile and more mobile than wages. They would raise genuine political problems too, since that income is also more aggressively defended by the people who hold it. But those difficulties are not an argument that the underlying shift in where American income actually comes from will simply reverse itself if Washington looks away for long enough.

Artificial intelligence turns this from a backward-looking accounting problem into a forward-looking one. Acemoglu and Restrepo’s research on automation offers a useful frame here: new technology does not have to eliminate jobs outright to shrink labor’s share of the pie, it only has to automate tasks faster than it creates new ones where human labor has a comparative advantage.

The optimistic case is that AI will complement workers, raise productivity, and open new kinds of work, as electricity and the automobile did after their own bruising transition periods. The more troubling possibility is that it weakens labor’s bargaining position across a much broader swath of occupations at once, and steers a growing share of the economy’s gains toward the owners of capital, data, platforms, and intellectual property, and away from the workers whose paychecks are what Social Security actually taxes. Even short of mass unemployment, that possibility raises the same question the payroll tax cap already raises in miniature: if the productivity gains from AI mostly show up as corporate profits, stock valuations, and executive compensation, the country could grow measurably richer while Social Security’s financing base continues to fall further behind. While the economy would be more productive little of that extra output would reach the wages the tax is levied on. A system built to finance retirement security through the paychecks of a wage-earning population would be operating inside an economy increasingly organized around ownership instead.

America is not too poor to support its elderly; that is the illusion embedded in the phrase “running out of money,” and it obscures the actual question, which is whether the country will keep financing old-age security primarily through the paychecks of workers while a growing share of its gains flow somewhere else entirely. Social Security’s next crisis runs deeper than demographics. The program was built for a wage-centered economy, and it functioned exactly as intended for decades because that was still a reasonably accurate description of how Americans earned a living. If the sources of American income are genuinely shifting away from the paycheck, and the evidence increasingly suggests they are, then the sources of Social Security’s financing will eventually have to shift as well, deliberately and by design, rather than being dragged there by a trust fund deadline that simply forces a worse version of the same choices Congress has been avoiding for years. Social Security did what it was built to do: it ended mass poverty in old age and gave a generally risk-tolerant country a floor under one of the least predictable stretches of life. Whether that achievement survives the next fifty years may depend less on the actuarial tables than on whether Washington can bring itself to tax the economy Americans actually have, rather than the one the payroll tax was designed for in 1935.

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Social Security is not one fund but two legally distinct trust funds: Old-Age and Survivors Insurance (OASI), which pays retired workers and the families of workers who have died, and Disability Insurance (DI), which pays workers who can no longer work along with their dependents. Each receives its own earmarked slice of the 12.4 percent payroll tax and keeps its own separate balance, and under current law money cannot simply move from one to the other. The “combined” OASDI trust fund that dominates the headlines is really an accounting convenience: it treats the two as a single pool, something that would itself require an act of Congress to make real.

See, for example, Autor, Levy and Murnane, 2003 or Acemoglu and Restrepo, 2018.

The Incalculable Scale of Life and the Macroeconomy

 The article titled "The world is bigger than you can imagine: Why it is difficult to evaluate an economy" by Scott Sumner explores the theme that the vastness and complexity of both human life and the macroeconomy make them nearly impossible to accurately evaluate.

The Scale of Human Life and Memory

The author begins with the philosophical claim that a human life is so vast that individuals cannot reasonably evaluate their own. He compares this to a visual blind spot where the brain fills in gaps, giving the false impression that a person is seeing their entire life when they are actually only seeing tiny fragments. For example, he recalls that at age nine, his life felt much richer and more significant in "utility" terms than at age seventy, yet he can only remember a few dozen events from that entire year.

Sumner argues that life is composed of a diverse "iceberg" of events—work, school, travel, illness, and committee meetings—most of which are forgotten or inaccessible until a sudden memory triggers the feeling of "sonder," the realization that life is much bigger than what one can recall. He also emphasizes the role of the narrative arts, suggesting that films can make life feel three times as long by providing experiences more engrossing than "real life". He questions whether common life evaluations focus too much on career and family while underrating the importance of hobbies, music, and "trivial" pursuits that may feel more real than actual acquaintances. Ultimately, he concludes that his own life evaluation changes based on his current mood, making any objective appraisal difficult.

Part 1: There’s a Great Deal of Ruin in a Nation

Turning to the macroeconomy, Sumner argues that bad analysis often stems from underestimating the economy's size and complexity. He cites an admission from The Economist regarding Donald Trump’s policies: while observers predicted that tariffs and immigration stops would be "unambiguously negative," the U.S. economy continued to grow faster than other G7 countries.

Sumner explains that while policies like the "MAGA tax" might have reduced growth by $300 billion, that amount is only about one percent of GDP and is easily obscured by offsetting factors like an AI boom or monetary policy changes. He notes that people often overestimate the impact of shocks to a single sector—such as the 2006 homebuilding collapse, which was only 6% of GDP—while underestimating nominal monetary shocks that affect all markets simultaneously. This complexity explains why doomsday scenarios regarding resource depletion or sanctions often fail to materialize.

Part 2: Policy Regimes are More Complex Than They Appear

Policy regimes are similarly vast and difficult to categorize. For instance, Singapore is ranked as one of the world's freest economies despite having highly interventionist elements. The U.S. federal government alone has over 1.1 million distinct regulatory restrictions filling nearly 200,000 pages, not counting state and local rules. This complexity allows people to engage in "motivated reasoning," finding specific examples to support their preferred policy positions.

To make sense of this, Sumner relies on natural experiments where economies "took off" after major reforms, including:

• West Germany after ending price controls in 1948.
• South Korea after removing trade barriers in 1964-65.
• China after improving rural property rights in 1979.
• Poland after privatization in 1990.
• India after deregulation in 1991.

He notes that while economic theory generally predicts that freer markets encourage wealth creation through competitive equilibrium and secure property rights, reality is multidimensional; for instance, Denmark combines free markets with a large welfare state.

Conclusion: The Universe of the Unknown

The author concludes with several other examples of things being larger than imagined:

• Physical Size: A safari covers only a tiny, two-dimensional thread of Tanzania, which is just one of Africa's 54 countries.
• Culture and Life: Cultures are often contradictory, and the diversity of biological ecosystems is beyond comprehension.
• History and Arts: History is constantly revised with new evidence, and there are far more "top" films and great writers than any one person can discover.

Sumner ends by reflecting on a quote from Scott Alexander regarding whether the increased quantity and variety of modern music compensates for a decreased profundity of experience. He concludes that we only know what we know and "vastly underestimate the universe of things that we don’t know".

 

Russian Offensive Campaign Assessment, July 27, 2026

Assessment as of: 7:45 PM ET. Data Cutoff: 12:30 PM ET.

Toplines Russian President Vladimir Putin is trying to militarize Russian society and to shift the responsibility for the war in Ukraine onto the Russian State Duma deputies and the Russian population.

Key Takeaways

1. Russian President Vladimir Putin is trying to militarize Russian society and to shift the responsibility for the war in Ukraine onto the Russian State Duma deputies and the Russian population.
2. Putin continues efforts to persuade personnel mobilized in 2022 to sign contracts with the Russian Ministry of Defense (MoD) and continue fighting in Russia’s war against Ukraine.
3. Putin continues to marginally increase the authorized end strength of the Russian Armed Forces as part of ongoing Russian military reforms.
4. Ukrainian forces continued their long-range strike campaign against Russian export and oil infrastructure from July 26 to 27.
5. Russia launched 147 drones against Ukraine overnight on July 26 to 27.
6. Neither Russian nor Ukrainian forces made confirmed advances on July 27.

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Putin Efforts to Militarize Russian Society and Shift War Responsibility

Russian President Vladimir Putin is attempting to militarize Russian society and shift responsibility for the war in Ukraine to the Russian population and State Duma deputies. During a speech on July 26 for Russia’s Navy Day, Putin heavily emphasized the importance of national unity around the war effort. He claimed that Russia must “imbue the consciousness” of its civil society with the importance of the conflict, maintaining this unity even after the war ends. Putin asserted that nothing is more important currently than the forces fighting in Ukraine and claimed that Russian volunteers are eager to help, portraying the population as willing to bear sacrifices for victory.

On July 27, Putin met with Russia State Duma deputies, highlighting the government's unity. He noted that the Duma has passed nearly 3,000 bills since 2021, with two-thirds passing with support from all factions to support the military, defense industry, and domestic economy. Putin specifically mentioned that deputies passed laws to integrate illegally occupied Luhansk, Donetsk, Zaporizhia, and Kherson oblasts into Russia. These actions are likely intended to deflect personal responsibility for the costly war and to portray broad support ahead of the Duma elections in September 2026.

Recruitment of Mobilized Personnel

Putin continues to urge personnel mobilized in 2022 to sign contracts with the Russian MoD. During Navy Day celebrations on July 26, Putin had a likely scripted encounter with a mobilized sailor who claimed he intended to sign a contract after fighting since September 2022. Putin held this up as a "great example" of a serviceman finding a calling in the war. This is part of a broader effort to retain forces without formal demobilization, a strategy the MoD has pursued since mid-2025 through both incentives and coercion.

Increase in Armed Forces End Strength

On July 27, Putin signed a decree setting the authorized strength of the Russian Armed Forces at 2,426,130 total personnel, which includes 1,535,000 military personnel. This marks an increase of 27,000 total personnel from a previous June 2026 decree. While Russia has expanded its end strength significantly each year since the 2022 invasion (adding 137,000 in 2022, 170,000 in 2023, and 180,000 in 2024), the 2026 increases have been relatively marginal. These expansions support the broader force structure reforms initiated in January 2023.

Ukrainian Operations in the Russian Federation

Ukrainian forces continued a long-range strike campaign against Russian infrastructure between July 26 and 27. Notable strikes include:

• Rostov-on-Don: An export terminal was struck, causing fires.
• Sarapul, Udmurt Republic: Drones likely struck the Prioritet Federal State Budgetary Institution, a long-term fuel and petroleum storage facility.
• Yaroslavl Oblast: President Zelensky confirmed strikes on oil facilities over 1,300 kilometers from the border.

These strikes are significantly impacting Kazakhstan’s oil output, which more than halved (dropping from 2.16 million to roughly one million barrels per day) as strikes forced the closure of a main Black Sea exporting terminal. Russia is responding by building new Pantsir air defense sites around Moscow City, with 24 new towers constructed since late May 2026 to protect key facilities like the Moscow Oil Refinery and Putin’s residence.

Russian Supporting Effort: Northern Axis

Russian forces continued operations in northern Sumy Oblast on July 26 and 27 but made no advances. On July 27, Ukrainian forces intercepted a Russian Forpost-R heavy strike drone—only the sixth confirmed downing of this type—over Kursk Oblast.

Russian Main Effort: Eastern Ukraine

• Kharkiv Oblast: Offensive operations continued in northern Kharkiv and the Velykyi Burluk direction with no advances.
• Oskil River: Russian operations in the Kupyansk and Borova directions were met by Ukrainian counterattacks; no advances were confirmed.
• Donetsk Oblast: The Russian MoD claimed forces pushed Ukrainian groups out of Lyman and seized Torske, though ISW has not observed geolocated evidence confirming these claims. In the Oleksandrivka direction, Russian sources have used likely AI-altered footage to claim advances in Khrystoforivka.

Russian Supporting Effort: Southern Axis

Russian forces are largely limited to infiltration missions in groups of three to four in the Hulyaipole direction. While they maintain a numerical advantage, Russian logistics in the area are considered "vulnerable" due to Ukrainian strikes on ground lines of communication. In western Zaporizhia, geolocated footage showed Russian infiltrators surrendering to a Ukrainian drone in northern Plavni.

In occupied Crimea, Ukrainian strikes targeted 14 electrical substations on July 26 and 27, causing widespread power outages. Additionally, the GUR reported the destruction of a Russian S-400 air defense launcher and radar on the night of July 25 to 26. These strikes have likely forced a reduction in Russian aviation and naval activity in the Black Sea.

Russian Air, Missile, and Drone Campaign

Russia launched 147 drones on the night of July 26 to 27, targeting residential, energy, and port infrastructure. Ukrainian forces intercepted 123 of these drones. Russia is increasingly utilizing jet-powered drones (like the Geran-4), which are harder to intercept and have been used to target civilian areas, including a supermarket in Chernihiv City and railway workers in Donetsk Oblast.

Significant Activity in Belarus

Nothing significant to report.

Newspaper Summary 280726

 Canara Bank profit up 72% to ₹4,856 cr on credit growth

AIMING BIG. Management has guided for 11-12% growth in global advances in FY27

Our Bureau Bengaluru

State-owned Canara Bank on Monday reported a 2.19 per cent rise in its standalone net profit at ₹4,856 crore for the first quarter ended June 30, 2026, supported by double-digit credit growth and steady improvement in asset quality.

Net interest income (NII) grew 13.39 per cent y-o-y to ₹10,215 crore, while total income grew 14.16 per cent to ₹39,684 crore.

The lender’s global business grew 10.82 per cent y-o-y to ₹25,05,066 crore in Q1FY27. Net advances jumped 17.97 per cent to ₹11,93,881 crore, driven primarily by retail, agriculture, and MSME (RAM) credit, which surged 21.2 per cent y-o-y.

Within retail, housing loans grew 17.85 per cent to ₹1,29,036 crore, and vehicle loans rose 26.34 per cent. Total global deposits increased 11.63 per cent y-o-y to ₹16,11,685 crore, with domestic deposits increasing 11.23 per cent to ₹14,73,447 crore.

Fee income for the bank improved 5.35 per cent to ₹1,542 crore, while operating profit rose marginally by 0.96 per cent to ₹8,636 crore.

ASSET QUALITY

The bank’s asset quality indicators strengthened across key metrics. Gross non-performing assets (GNPA) improved by 27 basis points quarter-on-quarter to 1.57 per cent as of June 2026, down from 1.84 per cent in March 2026 and 2.69 per cent in June 2025.

Net NPA fell by 7 basis points sequentially to 0.36 per cent from 0.43 per cent in March 2026 and fell from 0.63 per cent a year ago.

The provision coverage ratio (PCR) improved to 94.76 per cent from 94.21 per cent as of March 2026.

CAPITAL POSITION

The bank maintained a comfortable capital base, with its capital to risk-weighted assets ratio (CRAR) standing at 17.17 per cent, of which common equity tier-1 (CET1) was 14.29 per cent.

Slippages remained low at 0.6 per cent, while credit costs improved by 23 basis points year-on-year to 0.49 per cent.

The bank is also projecting the FCNR (B) and overseas borrowing window for the first quarter to exceed $2.3-2.5 billion, said Managing Director and Chief Executive Officer Brajesh Kumar Singh.

The management has guided for an 11-12 per cent growth in global advances and 9-10 per cent growth in deposits for the full year, while expressing confidence in achieving milestones on its loan growth target based on recent momentum.

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Scorecard

Metric	Q1FY26	Q1FY27	% Change
Net profit (₹ crore)	4,732	4,856	2.19
NII (quarterly) (%)	2.55	3.02	—
Net interest income (₹ crore)	9,009	10,215	13.39

China’s industrial profit sees weakest growth

Bloomberg News

China’s industry saw profit gains slow in June, adding to evidence of an uneven recovery for companies across the world’s second-largest economy.

Industrial profits rose 15.1 per cent last month from a year earlier, the weakest increase this year and down from 21.1 per cent in May, according to data published by the National Bureau of Statistics on Monday. For the first half of the year, profits at firms grew by 18.7 per cent, compared with a Bloomberg Economics forecast of 21.6 per cent.

China ended its record deflationary run last quarter even as price increases remain largely confined to oil and other commodities such as steel and copper. Though the cost of goods at the factory gate rose in June at the fastest in almost four years, producer prices had their first drop since July 2025 on a month-on-month basis, in a sign inflationary momentum has waned.

DEMAND FOR TECH GOODS

The global build-out of AI and other infrastructure has fuelled demand for China’s advanced manufactured goods, while disruptions to energy markets caused by the conflict in the Middle East have lifted commodity costs.

But slumping domestic investment and sluggish household spending could be more of a hurdle for profitability in the months ahead, especially in the absence of stronger stimulus to boost demand.

While industrial profits rose “relatively rapidly” in the first half, “the external environment remains complex and uncertain, international commodity prices continue to fluctuate unpredictably, and industrial enterprises still face challenges including weak market demand and tight cash flow,” Yu Weining, an NBS analyst, said in a statement published alongside the data release.

Looking ahead, the government will continue to “cultivate and strengthen” emerging and future industries, while also using technology to transform traditional sectors, to enable a smooth transition between the old and new growth drivers, Yu said.

The yield on the government’s 10-year debt was steady at 1.72 per cent after the data publication. With traders expecting looser monetary policy ahead, China’s 30-year bond futures rose as much as 0.2 per cent to the highest since November, extending their gains from last week.

Coal India net rises marginally to ₹8,850 crore, total income up 8%

Our Bureau Kolkata

State-run coal behemoth Coal India on Monday reported a marginal 0.7 per cent year-on-year increase in consolidated net profit at ₹8,849.81 crore for the first quarter this fiscal, with total income and total expenditure rising around 8 per cent each.

The coal miner had reported a net profit of ₹8,787.84 crore in the first quarter of the last fiscal year.

Backed by a 7.77 per cent increase in its overall operations, the company’s total income in Q1FY27 witnessed an increase of 8.44 per cent y-o-y at ₹44,575.06 crore, compared with ₹41,105.06 crore in the same period last year.

CIL’s revenue from operations in the period under review was ₹46,254.48 crore, up 28.72 per cent from ₹35,933.21 crore in the year-ago period, even as it had to take an exchange-rate impact on account of its US dollar-linked exchange filing.

Overall average realisation per tonne of coal for the first quarter stood at ₹2,276.62 compared to ₹2,168.10 in the same period last year, marking a 5 per cent y-o-y growth. In the first quarter, the fuel supply agreement (FSA) sales volume was 1.35 per cent lower than a year ago at 168.07 million tonnes and also a 1.32 per cent rise in per-tonne realisation in the period.

E-AUCTION

For the e-auction in Q1FY27, the Maharatna company saw a 3.38 per cent increase in quantity at 26.52 million tonnes, and per-tonne realisation improved by 5.77 per cent to ₹3,085.44.

Total expenses witnessed 11.89 per cent y-o-y increase at ₹36,810.23 crore against ₹32,903.19 crore in the same period last fiscal. Cost of materials consumed, however, increased by 27 per cent, while there was a significant increase in oil and lubricant expenses.

In the first quarter this fiscal, EBITDA remained flat at ₹14,536.49 crore compared to ₹14,348.68 crore in the corresponding period last fiscal. EBITDA margin fell 200 points y-o-y at 31 per cent. The board of CIL, at its meeting, declared an interim dividend of ₹5.2 per share for FY27.

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Scorecard

Metric	Q1FY26	Q1FY27	% change (y-o-y)
Net profit (₹ crore)	8,787.84	8,849.81	0.71
Revenue from operations	35,933.21	46,254.48	28.72
Total income	41,105.06	44,575.06	8.44
Total expenses	32,903.19	36,810.23	11.89

                                                                                                                                                                                

Zepto in talks with anchor investors ahead of IPO

Jyoti Banthia Mumbai

Quick commerce firm Zepto has begun discussions with several potential anchor investors for its upcoming initial public offering (IPO), targeting a valuation of roughly $8 billion to $9 billion, according to people familiar with the matter.

The company, which competes with Blinkit and Swiggy Instamart, is expected to price its anchor book at a pre-money valuation of about ₹24,000 crore ($2.8 billion). The company is looking at a fresh issue of ₹3,000 crore and a small offer for sale (OFS) component.

The indicative price works out to roughly ₹18.76 a share, according to the deal terms being discussed with private investors.

The move marks a sharp reset in Zepto’s valuation expectations from its last private funding round. The company was valued at $7 billion when it raised $450 million from investors, including US Calpers, in October 2025.

Zepto had filed its DRHP last month, which had proposed an offer for sale (OFS) of up to ₹2,500 crore and an offer for subscription of up to 410 million shares by existing investors. Current investors include Nexus Ventures, Contrary, Glade Brook Capital, and entities linked to Kaiser Permanente among the selling shareholders.

VALUATION RESET

The revised valuation reflects a more cautious pricing environment in the public market, where investors are increasingly rewarding companies with proven paths to profitability and sustainable business models over expensive private market multiples.

Zepto recently received the Securities and Exchange Board of India’s approval for its IPO in April and has since been working towards its market debut.

The quick commerce sector continues to be a high-intensity battleground, where it competes against Blinkit, backed by Eternal, and Swiggy Instamart, backed by Swiggy.

The sector continues to see rapid growth, but listed players have been under pressure to balance expansion with profitability, exercising investor expectations for new-age technology companies.

An email sent to Zepto for a comment did not elicit a response.

US' new tariff needn't rattle exporters

NOT A HARD BLOW. Section 301 tariff on many of India’s principal competitors is either higher or similar. Our competitiveness hence may not get affected.

AJAY SAHAI

The US' decision to impose an additional 10 per cent tariff on most imports from India has understandably created concern among exporters. Yet, while the measure is undoubtedly a setback, it should not be viewed as a blow to India's export prospects. Compared with several competing countries, India could even emerge with fresh opportunities in a number of sectors.

It is important to note that this is not a country-specific penalty against India, nor is it a measure against any unfair manufacturing practices or forced labour. It is a broad-based tax under Section 301 following its assessment of how trading partners prohibit and prevent the import of goods produced through forced labour. India has been placed in the lower 10 per cent tariff category after taking policy measures to improve the regulatory framework in this area, while several competing countries have been subjected to a higher tariff of 12.5 per cent.

COMMERCIAL REALITY

For exporters, however, the commercial reality is straightforward. The new levy will be an additional cost of 10 per cent on existing US customs duty. Thus, if an Indian product currently attracts a normal US import duty of 5 per cent, the new tariff will raise it to 15 per cent, and the total duty incidence to around 15 per cent. This could increase the landed cost of Indian products in the US market and may make price negotiations more difficult for exporters. Unless absorbed by the US importer, buyers are likely to seek price concessions from Indian contracts, or ask exporters to share part of the higher duties. At a time when firms operating on narrow profit margins will feel the heat, the US move could hurt sectors supplying specialised or high-value products.

At the same time, looking only at the additional 10 per cent tariff can create a misleading picture. Many other countries in the US crosshairs are in the same boat, and some of those competitors face lower, similar or even higher duties.

Many of India's principal competitors — such as Bangladesh, Cambodia, Indonesia, Malaysia, Pakistan, Sri Lanka, Mexico, Canada, the UK and several EU nations — are subject to the same 10 per cent tariff. This means that in sectors such as textiles, garments, leather products and several labour-intensive industries, Indian exporters do not become less competitive merely because of the new tariff. Buyers comparing Indian products with those from Bangladesh or Sri Lanka, for example, will find both facing similar tariff treatment.

Interestingly, India may actually gain a modest competitive advantage over several important exporting nations. Vietnam, Thailand, China, Türkiye, Australia, New Zealand, Saudi Arabia and the UAE have all been placed in the higher 12.5 per cent tariff category. Although the difference is only 2.5 per cent, it could become significant in highly price-sensitive industries. US buyers looking to diversify away from suppliers facing higher tariffs may increasingly consider Indian manufacturers, provided they can offer competitive prices, consistent quality, reliable delivery schedules and adequate production capacity.

The picture becomes less favourable when India competes with developed economies. The European Union and Taiwan have been granted a much more favourable capped duty arrangement, under which the combined customs duty generally does not exceed 10 per cent. Japan, South Korea and Switzerland also enjoy a similar arrangement with a cap of 12.5 per cent. Consequently, Indian exporters may find themselves at a slight disadvantage in machinery, electrical equipment, engineering goods, chemicals, medical devices, furniture and other technology-intensive sectors where European and East Asian suppliers are India’s principal competitors. This underlines an important lesson: there is no single answer to the impact of the tariff. Every product has to be examined individually after comparing the tariff treatment applicable to competing supplier countries.

The impact will also vary considerably across sectors. The gems and jewellery industry, where competition is intense and margins are often low, may face considerable pressure. Textiles and garments, on the other hand, may find the impact cushioned because most competing South Asian suppliers face the same tariff. However, the proposed US tariff quota rate for Bangladesh, Cambodia, and textile inputs could potentially provide Bangladesh, Cambodia, Indonesia and Malaysia with an additional advantage if implemented favourably.

Pharmaceuticals appear comparatively insulated because several pharmaceutical products and ingredients fall within the exemption framework, although exporters should verify product-specific classification rather than assuming blanket exemptions. Similarly, certain agricultural commodities, fertiliser inputs, seeds and essential products have also been kept outside the scope of the new tariff.

GREATER SCRUTINY

Another consequence of the new measure is likely to be greater scrutiny of supply chains by American buyers. Exporters should therefore strengthen documentation relating to labour practices, wages, employment conditions, supplier declarations, raw material sourcing, social audits and traceability. Businesses with transparent supply chains and strong environmental, social and governance practices are likely to inspire greater confidence among overseas buyers.

The immediate response of exporters should be to obtain confirmation of the precise US tariff classification applicable to their products and verify whether any exclusions are available. They should calculate the total landed duty, taking into account the normal customs duty, the Section 301 tariff, any applicable Section 232 duties, and other trade remedies wherever relevant.

Existing export contracts should also be reviewed carefully to determine who bears the additional duty burden and whether price revisions are permissible under the contract. Instead of immediately offering a 10 per cent reduction in prices, exporters would be better advised to negotiate balanced commercial solutions such as partial cost sharing, larger order commitments, improved logistics, revised payment terms or longer-term supply arrangements. Most importantly, exporters should assess every product on a tariff-line-by-tariff-line basis and compare their position with the principal competing countries rather than drawing broad conclusions.

The new US tariff undoubtedly increases the landed cost of Indian products. Businesses operating on margins of only 3-8 per cent will find it difficult to absorb an additional 10 per cent tariff without affecting profitability. Nevertheless, the overall picture is more balanced than it appears at first glance.

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The writer is Director General and CEO, FIEO.

Exporters seek govt intervention as W. Asia crisis disrupts shipping

GROWING CONCERN. FIEO flags higher ocean vessel mail vouchers, surging freight costs; carriers roll out new surcharges

Amiti Sen New Delhi

Escalating shipping disruptions triggered by the continuing crisis in West Asia have prompted Indian exporters to seek urgent government intervention, amid warnings that soaring freight rates, fewer direct calls by mother vessels at Indian ports, and increasing dependency on foreign transshipment hubs are hurting India's export competitiveness.

Last week, the Federation of Indian Export Organisations (FIEO) sought an appointment with the Commerce Ministry to discuss immediate and long-term measures to address the disruptions.

KEY DEMANDS

"We want to take up with the Shipping Ministry the escalation in shipping related customer schedules, portlers and look for some solutions," FIEO DG Ajay Sahai told businessline.

Key demands include rationalisation and greater transparency in freight and contingency charges, restoration of more direct mother vessel calls at Indian ports, more container availability, vessel capacity and schedule reliability, and the creation of contingency mechanisms to protect exporters during future geopolitical crises.

The situation has been further reinforced by continued hikes by global shipping lines, the latest being French carrier CMA CGM's announcement of a fresh Peak Season Surcharge (PSS), effective August 15, on cargo originating from India, Pakistan, Sri Lanka, the Middle East Gulf and Red Sea ports and bound for the US East Coast, Gulf Coast and inland destinations.

FRESH SURCHARGES

The surcharge has been fixed at $3,000 per container across major categories.

In its letter, FIEO highlighted that the West Asia crisis had disrupted shipping networks, resulting in fewer direct calls by mainline vessels at Indian ports and forcing a larger share of export cargo to be routed through overseas transshipment hubs such as Colombo, Singapore and Jebel Ali.

The increased reliance on transshipment not only adds transit time, cargo handling costs, and overall logistics expenses, but irregular sailing schedules and container shortages have added to the uncertainty.

The continuous rise in freight charges is taking place as shipping lines are re-routing services and adjusting capacity in response to security concerns in the Red Sea.

"These developments are coming at a particularly critical time when India is pursuing an aggressive export-led growth strategy and has set its sights on achieving merchandise and services exports of $2 trillion by 2030. Reliable, efficient and cost-competitive maritime connectivity is vital for achieving this and protecting this significant national objective," the letter noted.

FIEO also urged the government to review the port shipping lines and port authorities to ensure direct mainline connectivity, improve schedule reliability, and strengthen domestic port infrastructure against future geopolitical disruptions.

It said timely intervention would help keep costs down and safeguard the competitiveness of Indian exports.

Billionaire taxpayers surged more than 4 times in last 5 years

Shishir Sinha New Delhi

The number of billionaires in India has surged over four times in the last five years, according to data presented along with a written response by the Finance Ministry in the Lok Sabha on Monday. However, the government used various indicators to explain that income inequality in the country was down.

According to data, part of the response by the Minister of State in the Finance Ministry Pankaj Chaudhary, the number of individuals reporting a total income of ₹100 crore or more in the income-tax returns filed for assessment year 2021-22 was 142, which surged to 576 in 2025-26 (till July 15, 2026), showing a growth of over 300 per cent in five years.

“Wealth Tax, 1957 was abolished with effect from April 1, 2016, and the last data on aggregate wealth of taxpayers,” he said.

He emphasized that the government had taken several measures to reduce income and wealth inequality, promote broad-based employment generation and inclusive economic growth, which include a progressive Income-tax structure and increased spending on food, health, education, housing and social security.

INEQUALITY METRICS

He highlighted variations in indicators showing a reduction in income inequality. As per the latest Household Consumption Expenditure Survey 2023-24, the Gini Coefficient for rural and urban areas is 0.237 and 0.284, respectively, down from 0.266 and 0.314 in 2022-23. “This shows that the rural-urban gap is narrowing,” Chaudhary said.

The Gini Coefficient is one of the most widely used measures of income inequality. The score ranges from 0 to 1, where 0 represents complete equality and 1 represents total inequality.

Further, the Annual Periodic Labour Force Survey reports showed that labour markets have recovered beyond pre-Covid levels in urban and rural areas. The unemployment rate for individuals aged 15 and above fell to 3.1 per cent from 6.3 per cent in 2017-18.

IPOs of Indo-MIM, Xtranet, Lohia witness strong response

Our Bureau Mumbai

The three initial public offerings — Indo-MIM, Xtranet and Lohia Corp — that closed on Monday saw heavy subscription, especially the former attracting all categories of investors.

The Indo-MIM Ltd IPO closed with overall subscription of 72.34 times. The qualified institutional buyer (QIB) category drove the surge, subscribing a massive 204.13 times its allotted portion.

Domestic financial institutions, including banks, financial institutions and insurance companies, were the major bidders in the ₹6,000-crore QIB segment, bidding for 143.96 crore shares while 69.86 crore shares came from foreign institutional investors.

The non-institutional investors category was subscribed 30.63 times and overall retail investors 6.67 times. The employee reservation portion closed at 9.44 times.

The public issue came out with a price band of ₹461-485 per share. The IPO comprised a fresh issue of ₹500 crore and an offer-for-sale (OFS) of approximately ₹5,312 crore.

LOHIA CORP

The Lohia Corp Ltd IPO closed was subscribed 13.25 times.

The QIB category was the standout performer, subscribing 44.02 times, followed by non-institutional investors and retail investors at 25.53 times and 2.77 times respectively. The employee reservation portion was subscribed 1.77 times.

The IPO, priced at ₹404-425 per share, is entirely an offer for sale of 2.59 crore shares. Lohia Corp, a global manufacturer of machinery with a 40.7 per cent market share in 2025, reported revenue of ₹1,717 crore in FY26 with EBITDA margins of 18.6 per cent.

XTRANET TECH

Xtranet Technologies Ltd’s ₹300-crore IPO witnessed an overall subscription of 12.24 times.

The Non-Institutional Investor (NII) category was the standout, subscribed 26.63 times, followed by the large NII bucket (bids above ₹10 lakh) and the smaller NII bucket (bids above ₹2 lakh) clocking approximately 26.7 and 26.4 times respectively.

Xtranet Technologies Limited, a specialized IT solutions provider, launched its IPO in a price band of ₹120 to ₹127. Retail investors subscribed 11.88 times and the QIB category 7.13 times.

The Bhopal-based integrated IT solutions provider, incorporated in 2004, will price its fresh issue at approximately ₹127. Net proceeds are earmarked for primary working capital requirements (₹102 crore), repayment of debt (₹35 crore) and capital expenditure (₹8.5 crore).

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IPOs: Who bids (Subscription times)

Company	QIB	Non-institutional	Retail individual	Employee	Total
Indo-MIM	204.13	30.63	6.67	9.44	72.34
Lohia Corp	44.02	25.53	2.77	1.77	13.25
Xtranet Technologies	7.13	26.63	11.88	—	12.24

Why are Forward Deployment Engineers in demand?

Forward Deployment Engineers work directly with clients to integrate and customize the software to their own needs.

bl.explainer Rohan Das

As AI increasingly becomes central to the building of software, work IT roles are set to evolve. Forward Deployment Engineer (FDE) is one such function that has found a second wind recently, with multiple global and Indian tech firms ramping up hiring for the role. But what exactly do these engineers do?

What are Forward Deployment Engineers?

FDEs are essentially software engineers with the mindset of a consultant, working directly with clients to integrate and customize software to meet their specific needs. They often have a degree of technical expertise to deploy complex and take-out-of-the-box software solutions within the client’s ecosystem, while also continually improving them based on real-world use.

What did FDEs do before the introduction of AI?

In the pre-AI era, FDEs, who were also referred to as professional services or implementation teams, had a straightforward job. Broadly speaking, when clients buy software like SAP, Oracle NetSuite, Microsoft Dynamics or Tally, these engineers would handhold them to set up the tools on their own systems. This meant configuring them for their users, ensuring they had the right applications and workflows while also training employees to use them and fix any issues after deployment.

How has AI changed their role?

Unlike traditional software, however, AI products rarely work well out of the box. As Ashwin Yardi, Chief Strategy and Innovation, Consulting, Deloitte South Asia, puts it, in the traditional software era, engineers usually worked against relatively fixed requirements, while AI tools today are more probabilistic in nature.

This means outputs can vary depending on the prompts, the underlying models can change and the performance that works well in one company while failing for another. As a result, FDEs have to constantly work on updating the AI solutions based on user feedback and the specific business need, more so than traditional software.

Why are AI companies on the hunt for FDEs?

Enterprise software vendors like SAP or Oracle made tools while engineers in IT service firms integrated them into client systems. However, AI start-ups like OpenAI and Anthropic are looking for their own FDEs that work in client environments. They expect the feedback from these deployments to help them in improving the core product for future iterations.

OpenAI launched the Deployment Company, a $4 billion business unit that works exclusively on staffing configurations and enterprises with FDEs. Anthropic also announced an AI services company where FDEs will work with customers to build custom solutions. AWS, Google Cloud, and Microsoft have also announced intentions to expand FDE hiring in response to customer demand.

How will this trend impact the business of IT service companies?

Will they also have to hire FDEs? The industry opinion remains mixed. While some have flagged significant overlap, others have also suggested that the scale of large enterprise AI projects cannot be met by FDEs from model builders alone as they would require specialist service firms.

Be that as it may, many service firms have also started to hire in excess to ramp up FDE teams. Tata Consultancy Services is building a unit of 5,000 forward-deployed engineers. Cognizant plans to scale to 5,000 Frontier Certified engineers and 10,000 Frontier Business Operators to help deploy AI in enterprise environments. Mid-tier IT firm Coforge has also announced plans to scale its FDE team to 100 engineers.

What are the skills companies are looking for in FDEs?

FDEs are usually expected to have a mix of strong technical skills alongside a deep understanding of the client’s business. Beyond just writing code, FDEs must know how various enterprise systems work together with the AI models while also being able to communicate with customers and understand their business challenges.

According to Sanchit Gogia, Founder & CEO of Greyhound Research, unlike traditional software solutions that build products, FDEs start with the customer's problem, tailor the AI solutions to their needs and decide which of the customisations need to eventually be part of the core product.

US-Saudi nuclear agreement

The Guardian

Even as he threatened to unleash a nuclear fuel war in part as preventing Iran from gaining a nuclear weapon, Donald Trump opened the door to proliferation in the region on Wednesday. The US announced that it had signed a deal with Riyadh which would potentially allow the kingdom to enrich uranium in future and to avoid the fullest inspection rights for the international watchdog.

Experts had long warned that a civilian nuclear programme could create a path towards a nuclear-armed Riyadh. Mohammed bin Salman, the Saudi crown prince, has said that if Iran ever gets a nuclear weapon, “we will have to get one”.

Concerns are magnified by the agreement’s lack of safeguards. Critics had previously argued that the “gold standard” was the UAE’s agreement to permanently forgo enrichment and accept full monitoring by the IAEA.

LONDON, JULY 26

Japan’s Arctic Policy

THE YOMIURI SHIMBUN

The Arctic is a treasure trove of natural resources. Leveraging the Arctic Sea could also shorten shipping routes connecting Japan with Europe and the Middle East. In addition, other countries such as China are already active in securing their interests.

The government has taken steps to strengthen its policies regarding the Arctic. Prime Minister Fumio Kishida has directed that there be a revision of the basic policy formulated in 2015, regarding resource development, the construction of a base for observations or the establishment of international rules. A revised policy will be compiled within the next fiscal year. Given the current circumstances, a revision is legitimate.

TOKYO, JULY 27

A nude deal with a rider The US thrusts Abraham Accords on Saudi Arabia

Sridhar Krishnaswami

Less than a day after the announcement of a US-Saudi Arabia civilian nuclear agreement, President Donald Trump dropped a bombshell making many wonder if there is an accord at all. "The agreement... (there will be no enrichment of material!)" which pertains only to non-military use... will be approved, but is totally subject to a rider, the President tweeted on his recently respected and successful social media platform, Truth Social. In the absence of any available text, it is unclear if this is a rider or a part of the accord.

It is no secret that Washington and Riyadh have been discussing a civilian nuclear deal for some time, but Saudi Arabia has been one of the staunch supporters of the Palestinian cause, pushing for a meaningful two-state solution and holding off on joining a part of the Abraham Accords that would have opened the door for the formal recognition of the Jewish state.

And in the last two years or more what complicated the nuclear deal was the October 7, 2023, terrorist attack on Israel and the savage response of Tel Aviv in the Gaza in the name of wiping out the Hamas. The scale of death and destruction and the lack of retaliation did not sit well in the Arab world, to put it mildly.

BACKLASH BREWING

Even before Trump came up with his Abraham Accords conditionality, the backlash had started on Capitol Hill and elsewhere especially in the non-proliferation community. The proposed deal, according to many experts, lacked the "gold standard" that has been upheld as the "gold standard" in previous nuclear energy agreements: a commitment by the nation to use American built plants to enrich nuclear fuel; no reprocessing of fuel; and no plants subject to international inspection.

"A bad nuclear deal with Saudi Arabia is coming for congressional review — regardless of what you hear from the Biden administration," Andreas Stricker of the Foundation for the Defense of Democracies said. "Congress should block it. If it doesn't, the long-term damage will be reversed by a subsequent administration before too much damage is done in terms of watering down safeguards, setting negative precedents for other states, and failing to contain the spread of enrichment and reprocessing — which we just put back in the box in Iran via force".

From what is available from media reports, the deal would be open to inspections only by the US and Saudi Arabia with no involvement of the International Atomic Energy Agency (IAEA).

In the immediate context, the Saudis getting a nuclear deal — even without the conditionality of the Abraham Accords — would create additional headaches on the Iran front if and when negotiations resume. For the Trump administration which had come down hard on Iran for its nuclear programme and still give Saudi Arabia a wide berth with no protocols and its Additional Protocols makes discussions on the Iranian issue with Tehran more complicated. It also strengthens the hands of the hardliners in Tehran who have always pointed to the dual standards of Washington.

What has been consistently pointed out is that for all the noise made on the nuclear programmes of Iran and North Korea, there is hardly a murmur on Israel which is generally seen as an undeclared nuclear weapon state.

The American nuclear industry must be elated seeing the billions and perhaps even trillions coming its way through these nuclear deals, accord designed to keep China and Russia out.

"But this is the business of non-proliferation worry about. Some in Washington are already cutting their own exclusives and without the involvement of the IAEA and its Protocols. Add to this the possibility of mischievous and known proliferationists lending their weight — and it is truly a nightmare scenario".

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The writer is a senior journalist who has reported from Washington DC on North America and United Nations.