Newspaper Summary 020326

 

SECTOR IMPACT: India’s $10 billion West Asia IT exports face fresh headwinds

By Sanjana B, Bengaluru

Of India’s $233 billion in IT exports, roughly $10 billion is generated from West Asia. Although firms typically report this under the wider MENA classification, the region has been among the fastest-growing markets for Indian IT services, expanding at an annual rate of about 6 per cent. Analysts caution that the ongoing war could disrupt this momentum, compounding pressures on an industry already grappling with AI-led disruption.

“The Gulf region has been a growth driver for Indian companies in the last two-three years as they were diversifying the economy beyond oil," explained Pareekh Jain, founder and CEO of EIIR Trend. "As the region becomes a financial, tourism, energy, telecom and high-tech hub, disruption could hurt Indian IT companies’ growth”.

Client Base

The region has been a significant client base for Indian IT firms, spanning sectors such as oil and gas, telecom, BFSI, airlines, hospitality, energy, and large government-led smart city initiatives.

Reflecting this importance, Indian IT major Wipro relocated its West Asia regional headquarters last year from Al Khobar to Riyadh, Saudi Arabia. This new office adds to Wipro’s growing regional footprint, which includes locations in Riyadh, Al Khobar, Jeddah, and Jubail.

Jain further noted that a sustained rise in oil prices would affect all sectors. While growth was expected to rebound as companies increased spending, high oil prices could push those plans to the back burner. If the conflict drags on, heightened uncertainty may lead companies to deprioritise AI-led transformation in favour of cost optimisation.

Positive Side

On the positive side, the defence sector could see an upside, with Indian defence companies potentially seeing increased demand from Gulf countries. Additionally, India may gain importance as an alternative location for Global Capability Centers (GCCs) as Gulf hubs face competition. While the Gulf had become an attractive destination for expats and professionals returning from the US, India now stands to benefit as a more stable option.

“GCC regions are already facing challenges — first Eastern Europe, then Latin America after Donald Trump returned to office, and now the Gulf," Jain highlighted. "This could strengthen India’s relative positioning as a delivery and talent hub”.

Airlines cancel 350 flights on Sunday

Our Bureau, Mumbai

Indian carriers cancelled 350 international flights on Sunday following the closure of airspace amidst ongoing clashes in the West Asia region. Airspace in the UAE, Bahrain, Kuwait, and Qatar remains closed for air traffic due to drone assaults and attacks on local airports. While Oman and Saudi Arabian airspace remained partially open, Indian carriers avoided transit, cancelling their outbound Europe and US flights on Sunday.

Air India reported that close monitoring and assessment of the evolving situation resulted in the curtailment of scheduled operations to Europe and the US. Select flights to Birmingham, Zurich, and Copenhagen have been cancelled for Monday. Additionally, non-stop flights to New York and Newark will operate with a halt at Rome. IndiGo stated its Europe and West Asia flights would be cancelled, while Air India Express extended cancellations to GCC member countries until Monday midnight.

The shutdown of major West Asia hubs has led to massive disruption, with flights bound for Dubai and Doha diverting to European airports or returning to their points of origin. The Indian embassy in Hungary arranged meals for 130 passengers on an Emirates Chicago-Dubai flight that diverted to Budapest, while the Indian embassy in Kuwait is in touch with and assisting stranded nationals.

Meanwhile, the Directorate General of Civil Aviation issued instructions on Saturday requiring airlines and airports to set up disruption help desks to assist with passenger facilitation and operational coordination.

GST collection in Feb up 8%, ‘marks sustained growth’, say experts

By Shishir Sinha, New Delhi

Goods and services tax (GST) collections rose over 8 per cent in February, according to data released by the Finance Ministry on Sunday, which experts feel marks sustained consumption growth. GST collection in January recorded a growth of over 6 per cent. However, that figure was for 31 days, while the mop-up in February was for only 28 days, making the growth rate in the month under consideration more significant.

Data showed that while domestic collection grew by over 5 per cent, collection from imported goods increased by over 17 per cent, contributing to the growth in February. According to MS Mani, Partner at Deloitte India, the GST collection figures reflect a consumption uptick that has more than compensated for the rate reductions. “However, in terms of absolute numbers, the collections which were previously inching towards ₹2 lakh crore per month, have pulled back after the rate reduction and it will take some more time for the ₹2 lakh crore mark to emerge,” he said.

Broadbased Growth

Bigger States such as Maharashtra and Uttar Pradesh showed growth rates of 6 per cent and 5 per cent, respectively. However, these figures are lower than the national average. Also, States such as Tamil Nadu (-6 per cent), Madhya Pradesh (-8 per cent), and Rajasthan (-1 per cent) showed negative growth.

However, experts found an encouraging trend in other States. “The strong uptick in States such as Jammu & Kashmir, Bihar, Sikkim, Nagaland, Manipur, Meghalaya, Odisha and Ladakh reflects the deepening of economic activity across the breadth of the country, signalling that growth is becoming broader-based than ever,” said Saurabh Agarwal, Tax Partner, EY India.

Vivek Jalan, Partner at Tax Connect Advisory Services, felt that the impact of GST 2.0 was clearly showing on domestic consumption at ₹1.25 lakh crore, up 8 per cent against February 2025’s 6.2 per cent, even after the reduced GST rates from September 2025. “If we incorporate the impact of the GST 2.0 rate reduction, the y-o-y growth would be even more,” he said.

According to Jalan, the year-to-date GST numbers also reflect the robustness of the Indian economy, as even after rate rationalisation under GST 2.0, the net GST collections from domestic consumption stand at ₹13.37 lakh crore, which is still a growth of 4.9 per cent against ₹12.75 lakh crore in FY25.

Indian economy: Macro, 100. Micro 0

By TCA Srinivasa Raghavan

Why do successive governments of India manage the macro economy so well and make a complete dog’s breakfast of the micro economy? This question was first asked in the late 1960s by Jagdish Bhagwati and the late TN Srinivasan. As is to be expected in a bureaucratic state with a semi-colonial and semi-imperial outlook, no one paid a blind bit of attention to this highly perceptive insight and hugely uncomfortable question. But it remains valid even today.

Just look at the record of even governments that have tried to solve the problem. After nearly a dozen years, the three Modi governments have provided massive macroeconomic stability. But unfortunately nothing much has changed for the business environment. This, after trying quite hard since 2014 to improve the ‘ease of doing business’.

The low rate of private investment is proof of the comprehensive failure of this effort. India remains a very bad place to do business in. Sharad Marathe, one of India’s foremost economists between 1950 and 2008, put it baldly: “India is the only country that says to its businessmen, thou shalt not produce.” This is despite the fact that we have always needed an investment rate of at least 37-38 per cent. But we are stuck at about 30 per cent. China, and all of East Asia, managed to get close to or more than 40-plus per cent investment rate for three straight decades. That’s why they are where they are now and we are where we are.

All this has been known for many years. But our political, administrative and, of late, sociological arrangements are such that we are unable to dig ourselves out of this very deep hole.

Institutional Arrangements

Politics is about power and the way it is distributed in a country. In India there is very little clarity about this because the Constitution makers opted for the best design, forgetting that in these matters the best is the enemy of the good. I am referring to the three lists that distribute power in the Union of India: the Central list, the States list and the Concurrent list. This last is a colonial abomination. It well and truly muddies the waters especially in economic matters because much of microeconomic policy and execution is a State subject.

The economic consequences of split jurisdiction are absurd. Thus while interest rates are a Central subject, wage rates are a State subject. However, environmental policy is both a Central and a State subject. These examples can be multiplied. Suffice it to say that we have glorious confusion. So what should be done? The answer is simple but politically very difficult. We should abolish the Concurrent list by transferring most items in it — notably those in which the Centre has very little interest — to the States list.

The point is this: the Concurrent list was necessary as a reassurance in 1950. It isn’t any longer. Today it’s just a hindrance and a handy provider of excuses for non-action by the Centre as well as the States. In truth we have the worst aspects of both China and the US. In China there’s virtually no independence for the provinces. In the US it’s the federal government that’s constrained by the freedom that the states have. In India both the Centre and the States constrain each other, which, I must say, is a new interpretation of “checks and balances”.

As to the administrative aspects, they are easier to sort out, except when the sociological complications make them difficult. The central problem here is pervasive incompetence caused by flawed induction on the one hand and excessive job protections policies on the other. You can’t employ the unfit and then keep them on for 35 years. Efficiency is the victim.

Three Big Contradictions

There are three other huge contradictions. The judiciary tries to ensure “justice for all”. The executive tries to ensure equity via distribution and redistribution. But absolutely no one tries to ensure efficiency.

Indeed, the persistent and extreme focus on equity, orchestrated by the Left, damages both justice and efficiency. We thus have the worst of all worlds, at least where the microeconomics of India is concerned. Indian business has been reduced to a sad Kafkaesque spectacle of political, judicial and bureaucratic oppression.

It is no one’s case that equity and justice are not important. Of course they are. But should they come at the cost of efficiency to the extent that prevails in India? I mean why cripple your own racehorses? As that TV news anchor used to say, the nation wants to know. Or at least I do. Maybe you should too.

Well-intentioned, but politically fraught

By M Ramesh

Much water has flowed under the bridge since the government unveiled its first National Electricity Policy in 2005. Against a vastly altered backdrop — rising renewable energy, storage, distributed generation, electricity markets and cybersecurity concerns — the Ministry of Power released, in January, the Draft National Electricity Policy, 2026.

Key Features

The draft proposes a significantly revamped regime for the electricity sector. Its key features include:

• Tariffs indexed to inflation, allowing for automatic revisions.
• Recovery of full costs without deferring them as “regulatory assets”.
• Abolition of cross-subsidy surcharges, which currently make industry pay for subsidised power provided to poorer consumers.
• Complete solarisation of agriculture by 2030 to shift farm demand to daytime solar hours and ease sharp evening peaks.

At its core lies an anticipated rise in per capita electricity consumption, currently about 1,460 kWh. The draft projects this will rise to 2,000 kWh by 2030 and double that by 2047. Crucially, this expansion in demand is expected to be green.

Shifts in Thinking

The draft reflects deeper shifts in thinking, moving away from headline capacity addition toward structured resource adequacy planning and stronger demand forecasting. It also emphasizes financial discipline and the expanding role of energy markets through the "India energy stack".

Greening the grid finds explicit mention, including the development of capacity markets and building flexible coal-based capacity to complement renewables. Furthermore, cybersecurity receives due emphasis, with new regulations and a strict requirement for data localisation: all infrastructure and control systems storing or processing power sector data must be located within India.

Sensible, But Tough

While analysts have broadly welcomed the draft as a compilation of sensible ideas, the challenge lies in execution, particularly regarding the fragile financial health of State-owned distribution companies (discoms). State-run discoms have accumulated losses of ₹6.77 lakh crore and owe ₹7.11 lakh crore to creditors.

The policy seeks to impose discipline through automatic tariff adjustments and the timely payment of subsidies by State governments. However, these measures are politically sensitive. Rationalising tariffs could mean reducing industrial rates while raising domestic ones, which often faces resistance. Institutional constraints, such as litigation-induced stays and delayed regulatory hearings, also persist as obstacles to timely tariff implementation.

The Ministry has stated that the draft does not contain provisions that would adversely affect poor consumers, implying that direct benefit transfers could be used to compensate vulnerable households if tariffs rise.

Agri Solarisation

Perhaps the most significant directionally positive element is the push to solarise agricultural feeders. It mandates that states complete solarisation of all agriculture feeders by 2030, suitably backed by storage. By segregating agricultural load onto dedicated feeders, solar power can be supplied more effectively, aligning farm consumption with daytime generation and reducing the overall subsidy burden.

From agarbatti to aerospace — the radiating scent of success

By Venkatesha Babu

Mysuru is just 140 km southwest of vibrant and chaotic IT hub Bengaluru, but even today evokes nostalgic memories of a bygone era with its tree-filled avenues and old-world charm. The largest private sector business to have emerged out of the city is the ₹2,000-crore — in annual revenues — NR Group. Steering the fortunes of the group today is third-generation scion Arjun Ranga, managing a conglomerate that spans everything from agarbattis to aerospace engineering.

A Diversified Empire

The NR Group has interests in six core areas:

• Agarbatti (incense stick), perfumed candles, and fragrance-related business through N Ranga Rao & Sons.
• Natural and essential oils through NESSO.
• High-tech engineering through Rangsons Aerospace & Defence.
• Lifestyle and air care products through Ripple Fragrances.
• Internet of Things (IoT) and artificial intelligence through Rangsons Technologies.
• Neurocare and health services under NR Neuro Care and the Sitaranga hospital.

If you have used a Calvin Klein or Dolce & Gabbana perfume, there are high chances some ingredients were supplied by NESSO. In aerospace and defence, the group produces high-tech components like heat exchangers, SATCOM antennas, and flight data recorders for global OEMs and Indian agencies like HAL, DRDO, and ISRO.

Steady Pedalling: The Founder’s Legacy

The group’s success is rooted in the solid foundation laid by the patriarch, N Ranga Rao. Born in 1912 in Madurai, Ranga Rao lost his father at age eight and became the primary caregiver for his family. After working various jobs and showing early entrepreneurial sparks — such as selling peppermint to fellow students at a mark-up — he moved to Mysuru at the time of Independence to pursue his passion.

In 1948, supported by his wife who pledged her gold for initial capital, he launched N Ranga Rao and Sons. He identified the need for a universal brand and chose “Cycle” because it was a ubiquitous vehicle and pronounced the same in all languages. The group's enduring tagline remains: “everyone has a reason to pray”.

Innovation and Discipline

Arjun Ranga explains that his grandfather focused on three things: innovation, market fit, and financial discipline. At a time when incense sticks (then called ‘baalbatti’) were sold as thin strands of poor quality, Ranga Rao offered 30 thick, high-quality sticks in paper cartons instead of 100 poor ones in metal boxes. He even imported perfumery texts from France to develop his own unique fragrances.

Today, the group maintains a unique structure where family members meet at least once a month for collective decisions guided by elders. Arjun himself is a master perfumer who can often reverse-engineer a product's source just by its smell.

Table Talk at the Radisson

Meeting at a business centre in the Radisson hotel, Arjun Ranga reflects on the group's commitment to Mysuru. Despite the lack of frequent flights from the local airport, the group refuses to move to Bengaluru. Arjun, who is on the road meeting clients for at least two weeks a month, maintains a spartan diet of diet coke while recovering from a tennis-related hand injury, sticking to the values of discipline that have defined the group for three generations.

‘We have to start thinking of AI as a public good’

Nitin Paranjpe, Chairman of Hindustan Unilever (HUL), delivered the 44th Palkhivala Memorial Lecture in Chennai on the theme ‘AI for Aam Aadmi’. In a conversation with businessline before the lecture, he shared insights on the role of AI in India and the leadership philosophy at HUL.

On Small vs. Large AI Models

Paranjpe addressed the view that India should focus on "small" AI models for practical use by farmers and the general public, rather than trying to compete with global giants in large language models. He noted that while a few entities dominate large-scale datasets and infrastructure, India can excel in:

• Application Shaping: Determining how AI applications are designed and used.
• Governance and Deployment: Managing the rules and rollout of AI technologies.
• Domain-Specific Models: Developing targeted "small language models" for specific sectors like agri-services, which can sometimes outperform general-purpose large models in those areas.

He cited Mahavistaar, an agri-services digital platform in Maharashtra, and the national Bharat Vistaar initiative as examples of AI already serving the "aam aadmi".

AI as a Public Good

Paranjpe proposed a fundamental shift in how AI is viewed: “We have to start thinking of AI as a public good, like electricity or roads”. He argued that by treating it as infrastructure, the government can:

• Enable Private Innovation: Allow private entities to build applications on top of this "highway".
• Ensure Universal Access: Provide students, entrepreneurs, and SMEs with the tools needed to create real utility for society.

Leadership at HUL

Discussing HUL's reputation as a "school for CEOs," Paranjpe highlighted a long-standing commitment to talent development:

• Cultural Ethos: A focus on recruiting people who understand India's complex and diverse cultural landscape.
• Grooming and Mentoring: A tradition, dating back decades, of identifying top talent and "throwing them into the deep end" while providing strong mentorship.
• DNA of the Organisation: The belief that it is a leader's job to identify and mentor future leaders, ensuring the company remains an employer of choice.
• Meritocracy: Creating an enabling culture based on values and merit.

Turks cheer gold’s rise, rush to buy even more

Yellow metal holding swells to half the size of Turkey’s GDP, but most of it is ‘under the mattress’ Reuters

Gold-loving Turks grew $300 billion wealthier in the past year as record prices swelled the value of their holdings to nearly half the size of Turkey’s economy, but the resulting resilience in domestic demand has slowed the country’s already difficult fight against inflation.

With global bullion soaring to all-time highs in recent times, the total value of Turkey’s gold stock has climbed to more than $750 billion, which is exceptionally high by global standards, considering Turkey’s GDP of about $1.57 trillion.

The central bank says $600 billion of that stock is “under the mattress”, or “under the pillow”: gold held by households and companies outside the banking system, reflecting a long tradition of Turks holding tight to the metal as a safe, portable, tangible store of wealth.

The doubling of the value of these coins, bangles and other gold pieces in a year has encouraged spending, despite annual inflation above 30 per cent. Economists and the central bank say this has complicated a disinflation path, prompting slower interest rate cuts.

Buying Confidence

Gold hit $5,000 an ounce in January, driven by trade disruptions and geopolitical instability. For Turks, the global gold rush marks some relief after a nearly decade-long inflation and currency crisis that eroded the lira’s value.

“Gold is the only thing we trust,” said 34-year-old shopkeeper Furkan as he used cash to buy a gram of gold at an Istanbul shop. “I believe prices will rise even further. I’m planning to buy a car”.

Turkey has among the highest levels of household gold ownership alongside India, Germany and Vietnam. Beyond what is under the pillow, Turkish banks store some $80 billion of the metal in bank deposits and investment funds, while the central bank owns about $80 billion in reserves.

Slowed Rate Cuts

In a recent blog post, the central bank flagged that housing prices have risen markedly more in provinces with a higher share of gold deposits than elsewhere since the last quarter of 2023. When households use gold-related wealth to buy homes without relying on credit, “demand remains strong even amid tight financial conditions”, it said, calling this a “clear sign of a wealth effect”.

Asim Gursel, a gold shop owner in Istanbul, said that over the past year customers were increasingly selling gold to buy cars or first homes in a reversal from past practices when they were largely selling homes to buy gold.

The central bank cut its key rate to 40 per cent from 45 per cent on Thursday, its first reduction in over two years, but indicated that future cuts would depend on a sustained fall in underlying inflation.

What has changed in UFC recently

Why Communist reforms nearly always failed

By Michael hill

Why communist reforms nearly always failed

Communism had reforming optimists too . Understanding why they failed can help todays reformers to avoid the same fate.

Time and again in the communist bloc, economic reformers from Moscow to Pyongyang planned to introduce rationality and markets into planning. They often thought they had won the argument, and not just among dissidents in labor camps but at the highest levels of their Politburos. Yet almost every time, their proposed reforms were either whittled down to nothing before implementation, or passed and then reversed after a few months or years. Why?

These reformers had faith that what their countries had achieved was far from the limit of what was possible. They aimed for abundance. Many actively believed in the system they were part of, and none sought to overthrow it. Instead, they aimed to write reports and build coalitions; to win the argument in seminars and side rooms, and then in the corridors of power. They often had the impression that they had done just that, only to watch as the system reverted to its original form. Perhaps what they mistook for agreement was actually a surface-level nod from those who had no intention, or no capacity, to carry reform through. Maybe the system absorbed their language but not their logic. Maybe the system was irredeemable and needed to be swept away. Or did the system know things the reformers didn’t?

Some of these questions are still open to interpretation. However, two clear conclusions emerge. People in communist countries, perhaps even more so than people in capitalist ones, really did not like inflation. Reforms that raised prices or lengthened queues had to be delivering very tangible benefits, very quickly, or else they risked instability. Second, successful reforms needed a broad coalition of winners, including the top leadership and a very large percentage of the population. Few reformers were able to deliver that.

Freedom isn’t free

‘We shouldn’t put on colored glasses, and provoke people or find fault with them for allegedly supporting capitalist methods’, Kim Jong Un, December 2011, on tolerating advocates for economic reform.

‘Those who dispute the Party line and its policies should not have their leaves trimmed, but be ripped out at their roots’, Kim Jong Un, September 2012, referring to those who wanted to take economic reform further than he did.

Even discussing economic reform can pose dangers for authoritarian leaders. For their underlings, working out where the line between acceptable comradely debate and counter-revolutionary sabotage lies can be a matter of life and death. When Kim Jong Un assumed power in 2011, his top priority was improving living standards. He understood that achieving this required giving at least a small circle of policymakers more space to think and speak freely. This quickly caused problems. Younger cadres began comparing North Korea unfavorably with China, well aware of how much richer China was and which economic policies had led to this gap. For the Pyongyang elite, and for Kim himself, this was threatening. Though Kim continued to pursue limited reforms for several years, he quickly made clear where the boundaries lay.

This dilemma was not unique to North Korea. In the late 1950s and 1960s, Soviet leaders also encouraged economists to explore new methods, such as linear programming and input-output analysis. To shield their relative freedom, they were sent to the new scientific city of Akademgorodok in Siberia, far from Moscow. Distance allowed some experimentation, while reassuring the authorities that dangerous ideas were isolated thousands of miles from power.

Across communist states, economic liberalization has always implied a reduction of political control. When the market, not the state, provides food and housing, loyalty to the regime weakens. Protests on the scale of those in Tiananmen Square in 1989 would have been unimaginable without China’s ‘Reform and Opening’. It is impossible to understand the collapse of the Soviet political system without understanding the prior collapse of the Soviet economy. Communist leaders who embark on a path of reform increase their chances of leading a country that is economically strong. They also increase their chance of being shot in the head.

The price is wrong

‘You have no idea what the wrong price can do’, Premier of the Soviet Union Alexei Kosygin, in Red Plenty

Marx gave little guidance on how Communists should wield power. He imagined the Communist government would be easy to manage. Revolution would occur in advanced countries already brimming with abundance, not in Russia, China, or North Korea, societies of illiterate peasants that had barely begun the hard graft of industrialization. Yet he was clear about one thing: the labor theory of value. Market prices, he wrote, were a mirage concealing the true value of goods, which was derived from the amount of labor put into them. Communist planners, in theory, were to build prices on this foundation.

In practice, no price in the communist world was set this way. Prices were compromises between politics, economics, and inertia. The result was distortions everywhere: goods overproduced or scarce, resources misallocated, needs unmet. Yet Marx’s teachings armed reform’s opponents with a ready argument: prices that could adjust rapidly were ideological surrender.

Price stability also became part of communist identity and legitimacy. In China, hyperinflation had doomed the Nationalists. In Russia, World War I, the civil war, and a brief experiment with a post-money economy had collapsed the ruble until the Bolsheviks restored price stability with a gold-backed currency. From 1947 to 1948, Stalin went further. He announced the end of rationing, a currency reform, and price cuts. Further price cuts were launched every spring until 1954. These were partly underpinned by genuine productivity gains but were also a much propagandized ideological commitment that equated price cuts with progress. Citizens came to see stable and even falling prices as a right.

Reformers understood the problems and floated alternatives. Some designed elaborate new price systems, supposedly superior to the command economy and the market; others suggested computer systems that could replace the price system; others called for simple adjustments where supply and demand were furthest apart; a few even dared propose full marketization. Almost all failed.

The danger was not theoretical. In 1988, China’s leadership planned a sweeping liberalization of consumer prices, leaving only rice and bread prices under state control. Their slower reforms up to that point had created a ‘dual-track system’, which generated resentment as insiders enriched themselves by arbitraging between state and market prices. The proposed reform triggered panic buying, empty shelves, spiraling inflation, and is sometimes cited as a long-term cause of the Tiananmen Protests. The government retreated, reaffirming price controls and cutting investment to restore stability. Four years passed before they touched the live wire of price reform again.

The Soviet Union had learned the same lesson earlier. In 1962, aware that meat and dairy prices no longer covered costs, planners pushed for price increases. The Politburo agreed. Wages were trimmed at the same time. Protests erupted. In Novocherkassk, when a factory director told hungry workers to ‘eat cabbage’, demonstrations nearly swelled into insurrection. Khrushchev sent in troops. Dozens were killed. Academic economists would continue drawing up models of price reform until the USSR’s collapse. Many were always confused about why their ideas were never acted upon. Many likely didn’t hear of the Novocherkassk Massacre until after their country was gone.

Stable prices, it turned out, were a cornerstone of communist legitimacy. To touch them was to endanger the whole system.

All of the right policies, but not necessarily in the right order

A factory manager is interviewing for a new accountant. He asks only one question: ‘What is two plus two?’ Candidate after candidate gives the wrong answer. Finally, the right man walks in. ‘What answer do you need?”’ asks the applicant. Old Soviet Joke

Alexei Kosygin was a technocrat determined to leave his mark. Tired of Khrushchev’s chaos and reckless schemes, he joined the bloodless coup that brought the old boss down and emerged as Premier of the Soviet Union. His message was clear: reforms were necessary if the economy was to regain initiative, efficiency, and profitability.

But after the trauma of Novocherkassk in 1962, Kosygin avoided touching prices. Instead, he latched onto the ideas of economist Evsei Liberman. Liberman promised a simple fix: stop judging enterprises by crude output targets and start rewarding them for profitability. Profits would be the yardstick, and managers would receive bonuses for hitting targets. By 1965, this ‘Liberman reform’ became official policy.

It didn’t work. With prices set administratively and customers guaranteed, profits reflected politics, not economics. Factory managers gamed the system. They invented ‘new’ products, almost identical to old ones, so that they could raise prices. They lobbied planners to let them charge more. Output shifted toward whatever goods produced the highest paper profits, unrelated to what people wanted. On paper, enterprises looked healthier than ever; in reality, productivity had not budged.

Worse, these distortions rippled through supply chains. An upstream plant chasing fake profits at fake prices might abandon the goods its downstream customers needed. Whole factories could be left idle. Some argue that bureaucratic ‘vested interests’ stopped these reforms from succeeding. However, the economist Kontorovich argues resistance from central ministries and Gosplan wasn’t just self interest. They recognized the reforms would destroy the whole system of central planning, with nothing to replace it. Their resistance prevented the reform from producing an outright economic crisis.

Kosygin correctly recognized a genuine problem: Soviet enterprise managers lacked both the incentives and the autonomy needed to improve performance. The logical place to begin was price reform, since only with more realistic prices could profitability reflect efficiency rather than distortions. But price reform was off the table.

That left enterprise reform as the available lever. Yet here Kosygin faced an impossible dilemma. If the reforms were too cautious, they would deliver no visible results and quickly lose momentum. If they were too bold, they risked undermining the fragile balance of the command economy. Kosygin chose to gamble on bold enterprise reform without first addressing prices. The result was that his program was both too disruptive to be absorbed smoothly and too incomplete to generate real improvements. It ended up achieving neither transformation nor stability, and quickly ran aground.

He was never purged, and his reforms were never officially rolled back. They were just undermined one ministerial directive at a time. His failure strengthened his colleague Brezhnev’s hand and discredited reform itself. It would be another 18 years before serious attempts were made again.

Ignorance isn’t always bliss

‘Analyses of “Gorbachev’s economists” never mention the words “charlatan” or “ignoramus”’, Vladimir Kontorovich.

‘You don’t know what you’re doing’, British sports chant.

Economic reformers thought they knew best, but often didn’t.

Reforming an economy requires a lot of knowledge. In 1985, to better understand the market reforms they were contemplating, Chinese policymakers invited dozens of Western economists to give lectures on a five-day river cruise. North Korean academics have quietly written explanations for trade officials on how banks function in capitalist societies, hinting these institutions might one day be useful at home. Soviet officials in the late 1980s traveled back and forth to Europe and America almost constantly. The learning curve is steep.

Worse still, it is not clear that reformers fully understood their own systems. Planned economies can be almost as complex as market ones, but with far fewer people trained or incentivized to grasp them. In capitalist economies, there are entire professions, from academics to traders, devoted to understanding how markets work. In communist economies, expertise was confined to a small circle of planners. Secrecy made things worse: it may be that no one fully understood how the whole system fit together. When Gorbachev, still a Politburo member in 1983, asked to see the state budget, he was simply told ‘no’.

This ignorance had consequences. When he took power two years later, Gorbachev accidentally destroyed a system he may not have even known existed and certainly didn’t understand: Beznal. In the Soviet Union, enterprises kept two accounts. Nal (paper cash) was used by households for consumer purchases and by enterprises for paying wages. Beznal (noncash rubles) was used for transactions between enterprises, buying supplies, selling goods, and settling debts. Crucially, enterprises had strict limits on the amount of Nal they could hold. Excess cash had to be deposited in banks, converted into Beznal, and thus quarantined from the consumer economy.

This firewall mattered. It kept excess money trapped in enterprise accounts, preventing it from competing with citizens’ wages for scarce consumer goods. Enterprises could not convert Beznal back into Nal without explicit authorization. In effect, the system stored inflation out of sight.

Gorbachev tore down the wall by accident. His new law on private cooperatives allowed them to convert freely between Beznal and Nal. Enterprises quickly realized they could make fake Beznal transactions with cooperatives, which would convert the funds into cash and hand most of it back, keeping a cut for themselves. Suddenly, vast amounts of hidden money entered the everyday economy.

Cash-rich state enterprises spent freely on wages, while goods remained scarce. In sectors without price controls, inflation ran rampant. In those with controls, shortages and queues grew longer. Later changes to banking rules made things even worse, as new banks failed to enforce the Nal and Beznal distinction at all.

It is still unclear whether Gorbachev and his closest advisers understood the system they had demolished. But their blunder shows how reformers, blinded by secrecy and complexity, could unleash forces they neither anticipated nor controlled.

Is communism really so bad?

‘Comprehensively build a moderately prosperous society’, Chinese Communist Party slogan.

The Soviet Union was not a poor country. While far behind Western Europe and North America, it was firmly middle-income, with living standards far above most of the world. And it paired those living standards with genuine excellence in nuclear and space technology, an enormous army that kept up with the United States until the very end of the Cold War, and an elite with world-class education. That prosperity created a problem: reform carried real risks. Elites had much to lose, and even ordinary citizens feared the disruption of hard-won stability. In today’s North Korea, though much poorer, a privileged elite in Pyongyang thrives under the system, and reform would not only strip them of status but could threaten their lives.

Communist reform was easier where planning was never consolidated. China in the 1970s and Vietnam in the 1980s both launched reforms when their systems were weak, not entrenched. Vietnam’s ‘Đổi Mới’ reforms began in 1986, after decades of war and a single failed nationwide five-year plan. Most Vietnamese lived on less than a dollar a day. In China, the Great Leap Forward and Cultural Revolution had devastated both planning and the party elite. By 1976, many leaders had survived exile and persecution, and they knew firsthand how poor rural China was. Stable planned communism had existed for at most 10 of the 27 years of the Communist era when Reform and Opening began.

Where planning worked well enough, as in the USSR, it created vested interests that blocked reform. Where it failed to take root, as in China and Vietnam, there was little to lose and much to gain.

Where is that abundance you promised?

Every communist reformer promised abundance. Yet again and again, their reforms faltered, not because they lacked ideas, but because they underestimated the scale of the task. Prices became untouchable symbols of legitimacy; the wrong sequence of reforms shattered fragile balances; leaders tinkered with systems they barely understood; elites and ordinary people who had something to lose quietly strangled change. The result was not abundance but frustration, fear, and eventually collapse.

For political movements today, the warning is not that we live under a command economy, but that winning the argument, as we are in many countries, is never enough. Systems push back. Interests entrench. Complexity hides consequences from those who think they know best. Good ideas, launched in the wrong order, can backfire.

That is why the stories of communist reform matter. If we want to reach the frontier of abundance, we must do more than draft clever reports or whisper in the ear of the powerful. We must understand the order of reform, the risks of backlash, and the realities of the systems we hope to change. We must deliver quick wins to build momentum and develop a coalition that gains at least the acquiescence of the most powerful and the masses. And perhaps most importantly, we need to make sure that prices don’t go up. 

Newspaper Summary 010326

 

IT slump pushes 3-year SIP returns into red

The relentless sell-off in Indian IT stocks has begun to materially impact systematic investment plan (SIP) outcomes of sector-focussed mutual funds. A bl.portfolio analysis of actively managed IT funds shows that, as of late February, 3-year SIP returns have slipped into the negative territory — the first such instance since the pandemic-led disruption of early 2020.

However, the current phase is not comparable with 2020. During the Covid pandemic, the entire market corrected sharply. This time, the Nifty 50 is only about 4.3 per cent below its all-time high, while the Nifty IT index is 33.5 per cent off its peak. In fact, three months before SIP returns turned negative in April 2020, average three-year returns were still in double digits, slipping only after the Covid-driven market crash.

The average 3-year SIP XIRR for IT funds now stands at -1.6 per cent compared with -7.1 per cent for the Nifty IT TRI, ACEMF data shows. In contrast, the broader Nifty 50 TRI has delivered a positive 9.1 per cent, underscoring the sharp divergence between sectoral and diversified exposures. A little over 4 years back, the 3-year SIP XIRR for IT funds was as high as 56.6 per cent.

Over the past year, 3-year rolling SIP returns have steadily compressed, reflecting earnings downgrades, slowing US discretionary technology spending, pricing pressures and the uncertainty around AI-led disruption.

Of the 13 active IT sector funds, five with over nine years of track record were considered for detailed comparison. On a 3-year SIP basis (as of February 27, 2026), Franklin India Technology Fund and SBI Technology Opportunities Fund delivered marginally positive returns of 1–2 per cent. Meanwhile, Aditya Birla SL Digital India, Tata Digital India, and ICICI Prudential Technology Fund posted negative returns ranging from 1.4 to 5.2 per cent.

CHANGE IN EXPOSURE

A comparison of IT allocations between January 2025 and January 2026 across 373 actively managed equity-oriented schemes shows four funds — including Samco Flexi Cap, Motilal Oswal ELSS, Motilal Oswal Large and Midcap, and Samco Dynamic Asset Allocation Fund — fully exiting IT exposure.

As many as 18 schemes reduced exposure by over six percentage points, including Helios Flexi Cap, Helios Large & Mid Cap, and Groww Multicap Fund, indicating proactive risk management amid expectations of demand slowdown and valuation compression. Conversely, several funds maintained elevated exposure. Motilal Oswal Midcap, Motilal Oswal Flexi Cap, and Quantum Value held IT allocations of 17-19.5 per cent as of January 2026. Funds such as ICICI Pru Value, Motilal Oswal Balanced Advantage, Mahindra Manulife ELSS, and ICICI Pru Focused Equity increased exposure over the past year — a positioning that may weigh on near-term performance amid the sector’s correction.

BIG CHANGES

Within the 39 IT stocks analysed, fund managers displayed selective conviction. Holdings in Mastek rose 250 per cent, while exposure to Newgen Software and CE Info Systems increased 60-70 per cent.

In contrast, aggressive cuts were visible in high-beta names such as Nazara Technologies (Active funds' holdings down by 82 per cent), Tata Technologies (down by 74 per cent), Zaggle (down by 61 per cent) and Tata Elxsi (down by 60 per cent).

GAP WIDENS. The broader Nifty 50 TRI returned 9.1%, highlighting the sharp divergence between sector-focussed and diversified funds.

US, Israel launch major attack on Iran; Tehran hits back at US bases in region

Press Trust of India | Dubai

The US and Israel launched a major attack on Iran on Saturday, and President Donald Trump called on the Iranian public to “seize control of your destiny” by rising up against the Islamic leadership that has ruled the nation since 1979. Iran retaliated by firing missiles and drones towards Israel and the US military bases in the region.

Some of the first strikes on Iran appeared to hit areas around the offices of Supreme Leader Ayatollah Ali Khamenei. Smoke could be seen rising from the capital as part of strikes that Iranian media said occurred nationwide.

KHAMENEI ‘ALIVE’

It was not immediately clear whether the 86-year-old leader was in his offices when the attack occurred. Iranian Foreign Minister Abbas Araghchi told NBC News that Khamenei and President Masoud Pezeshkian are alive “as far as I know”.

“When we are finished, take over your government. It will be yours to take. This will be probably your only chance for generations,” Trump said in a video announcing “major combat operations”. “For many years, you have asked for America’s help, but you never got it”. Israeli Prime Minister Benjamin Netanyahu echoed that, saying, “Our joint operation will create the conditions for the brave Iranian people to take their fate into their own hands”.

The strikes during the holy fasting month of Ramadan opened a stunning new chapter in the US intervention in Iran and marked the second time in eight months that the Trump administration has used military force against the Islamic Republic.

DEMS RUE ACTION

Democrats decried that Trump had taken action without Congressional authorisation. Hakeem Jeffries, the top House Democrat, said that though Iran is a “bad actor,” the President must nonetheless “seek authorisation for the preemptive use of military force that constitutes an act of war”.

Tensions have soared in recent weeks as American warships moved into the region. Trump said he wanted a deal to constrain Tehran’s nuclear programme at a time when Iran is struggling with growing dissent following nationwide protests. The immediate trigger for Saturday’s strikes appears to be the unsuccessful latest round of nuclear talks.

Iran responded to the latest strikes as it had been threatening to do for months, including by launching missiles and drones targeting Israel as well as strikes targeting US military installations in Bahrain, Kuwait and Qatar. “The time has come to defend the homeland and confront the enemy’s military assault,” Iran’s Foreign Ministry said on X.

FLIGHTS CANCELLED

In an indication of the scope of the conflict, flights across the Middle East were disrupted and air defence fire thudded over Dubai, the commercial capital of the United Arab Emirates. Shrapnel from an Iranian missile attack on the capital of the UAE killed one person, state media said.

Trump had threatened military action, but held off, following Iran’s recent crackdown on protests spurred by economic grievances and evolved into a nationwide, anti-government push against the ruling clerics. The Human Rights Activists News Agency says it confirmed more than 7,000 deaths in the crackdown and that it is investigating thousands more; the government has acknowledged more than 3,000 killed.

Iran had hoped to avert a war, but maintains it has the right to enrich uranium and does not want to discuss other issues. The strikes could rattle global markets, particularly if Iran makes the Strait of Hormuz unsafe for commercial traffic. A third of total worldwide oil exports transported by sea passed through the strait in 2025.

Micron opens world’s largest semicon clean room at Sanand; ships first DRAM module to Dell

Avinash Nair | Ahmedabad

India marked a historic moment in its semiconductor journey on Saturday, as Micron Technology began operations at its Sanand ATMP facility in Gujarat and shipped out its first DRAM module to Dell Technologies from a 500,000 sq ft raised-floor clean room, the largest of its kind in the world.

“This is India’s first advanced memory ATMP site. It houses a 500,000 sq ft clean room — the largest single raised-floor clean room for semiconductor assembly anywhere in the world,” said Manish Bhatia, Executive Vice-President. The facility was engineered specifically for Sanand’s soil and climate conditions to prevent moisture-related risks.

The clean room is Class 1000 — meaning no more than 1,000 particles per cubic meter. The facility turns over the air twice per minute, or 120 times per hour. “ICs and the gold bonding wires we handle are thinner than fractions of a human hair. Even a single particle can impact yield or reliability,” Bhatia said.

$2.7-B MEMORY BET

The facility will assemble the non-volatile storage used in SSDs and computing devices. On Saturday, Prime Minister Narendra Modi inaugurated the plant, which represents India’s first advanced memory ATMP facility. The total planned investment across Phase-1 and 2 is $2.7 billion.

“Today, we are making our first revenue shipment — a finished DRAM module for personal computing — to Dell. We will also supply global customers, including Asus and Qualcomm, among others,” Bhatia said. He added that nearly half of the plant’s 1,300-strong workforce are fresh engineering graduates from Gujarat and neighbouring States.

Prime Minister Modi described the facility as a symbol of India–US cooperation in AI and chip technology, predicting it will catalyse a high-tech industrial ecosystem in the region similar to Sanand's transformation into an automotive hub. US Ambassador Sergio Gor added that this represents "India’s entry into the global semiconductor supply chain as a manufacturing nation".

Strait of Hormuz disruption can send crude soaring; impact 2.6 mb/d of India’s imports

Rishi Ranjan Kala | New Delhi

The escalating conflict between Iran and the US, which is now spreading across West Asia, is fuelling fears of a blockade of the world’s most critical energy choke point — the Strait of Hormuz. Such a disruption threatens around 2.6 million barrels per day (mb/d) of India’s crude oil imports.

ICRA points out that roughly 50 per cent of India’s crude oil and 54 per cent of liquefied natural gas (LNG) imports were routed through the Strait of Hormuz in FY25.

IMMEDIATE HIT

The situation poses an immediate risk to India and global oil markets, as the 2.6 mb/d of crude transit primarily comes from Iraq, Saudi Arabia, the UAE, and Kuwait. Industry experts noted that for India, any blockade would translate into higher import costs, freight and insurance spikes, potential short-term supply tightness, and pressure on producers (including Iran) regarding uninterrupted export revenues.

RISING CRUDE PRICES

Prashant Vasisht, Senior VP and Co-Group Head, Corporate Ratings at ICRA, warned that while Indian refiners could source crude from alternative locations such as the US, Africa, and South America, the resulting elevated energy prices could lead to a soaring import bill. Additionally, high crude prices would moderate the marketing margins and profitability of domestic oil marketing companies.

Experts like Ritolia suggested that diversification options for India include increasing sourcing from Russia to mitigate the impact of the disruption.

Getting started: All about investing for resident Indians and NRIs via Gift City IFSC

By Venkatasubramanian K | bl. research bureau

Think of Singapore, Dubai or even Morocco and their image as world-class financial hubs is matched by the sheer number of global majors making their presence felt in these cities and their special economic zones. In addition, these cities and economic zones also happen to be tax havens or low-tax regions making them all the more attractive for global investors and financial institutions to set up and run operations, given the ease of laws applicable.

To replicate at least a part of this success in a more light-touch regulations and moderate tax environment, the Indian government conceived the Gujarat International Finance Tec-City (Gift City) in 2015. Located between Ahmedabad and Gandhinagar, Gift City has two broad business regions – a domestic tariff area for business related to India operations and a multi-service special economic zone (SEZ). This multi-service SEZ spans two main entities – a notified international financial services centre (IFSC) and IT & ITES, support services export.

The IFSC is a hub of fintechs, asset management companies (AIF, PMS), banks, fund houses, stock exchanges, depository participants, and settlement firms allowing for a wide swathe of inbound and outbound investments. As of late 2025, Gift City had almost $30 billion in assets and commitments from 65 different jurisdictions and $100 billion in banking assets. It is envisaged as a jurisdiction that provides financial services to non-residents and residents in any currency other than the Indian rupee. All entities in the IFSC are regulated by a unified regulator, the International Financial Services Centres Authority (IFSCA), which combines the powers of the RBI, SEBI, PFRDA, and IRDAI.

OPTIONS OPEN FOR RESIDENT INDIANS

For resident Indians seeking overseas equity exposure via Indian mutual fund houses investing in global feeder schemes (the US, Europe, etc.), there is a key problem of positioning. Since investments in feeder fund of funds are restricted to $7 billion at an industry level, most of these schemes remain shut for fresh subscriptions or SIPs. This limit set by the RBI in 2008 has not been revised since then.

The choice that residential investors have is to use the LRS (liberalised remittance scheme) of the RBI for outbound/overseas investments. Resident Indians are allowed to remit up to $250,000 in a financial year per person for buying shares, properties, etc., abroad. For such investors, Gift City offers a wide array of choices from stocks, ETFs, domestic fund houses that invest in US stocks, and PMS (portfolio management services) with international investments.

SETTING UP TO INVEST

Before starting, you must first complete the KYC (know your customer) process, open a demat account, and start a new bank account. As a resident Indian, you will need your PAN, Aadhaar, passport, proof of address, and bank statement as common documentation.

The process is currently a mix of physical and digital; you have to send a scanned copy of various forms and self-attested proofs via e-mail. Your onboarding is usually done within 48 hours, though you may need to send physical copies if video KYC is not done. All main public and private sector banks (like SBI, HDFC, ICICI, etc.) and larger brokers (like Zerodha, Angel One, INDmoney, etc.) have a presence in Gift City via subsidiaries. Once accounts are established, you can transfer rupees from your Indian account to the Gift City account, where it gets converted to US dollars for transacting.

BUYING OVERSEAS STOCKS

India’s leading exchanges BSE and NSE have subsidiaries in Gift City: India INX (BSE) and NSE IX (NSE). These exchanges already have back-end tie-ups, so you do not need additional foreign brokerage accounts.

• India INX offers global equities and ETFs from 135 exchanges worldwide, along with derivatives and international bonds.
• NSE IX recently expanded its offerings with a platform giving access to 30 global markets.
• Both offer unsponsored depository receipts that mimic underlying shares, including fractional US shares, which allow for part ownership of high-priced stocks for a smaller price. A few hundred to a few thousand dollars are typically enough to buy stocks or ETFs.

FUNDS, PMS, AIF INVESTING OVERSEAS

Several Indian mutual fund houses like DSP, PPFAS, and Tata have rolled out schemes in Gift City investing in indices like the Nasdaq 100 and S&P 500. Minimum investments for these funds range from $500 (Tata) to $5,000 (DSP, PPFAS).

In the case of PMS and AIFs, the minimum investment is generally $75,000, though some can be higher. For instance:

• Marcellus Global Compounders Portfolio (PMS) asks for $150,000 for non-accredited investors and $25,000 for accredited investors.
• Mirae Asset Global Allocation Fund (Category III AIF) demands $151,000 for non-accredited and $10,000 for accredited investors. "Accredited investors" are defined by SEBI as those with high net worth (at least ₹7.5 crore with ₹3.75 crore in financial assets).

TAXES TO CONSIDER

Resident Indian investors face various levies:

1. TCS: Remittances over ₹10 lakh in a year for buying overseas stocks attract a 20 per cent Tax Collection at Source (TCS), which can be claimed as credit during IT returns filing.
2. LTCG: Gains on US stocks, ETFs, or depository receipts held for more than two years are taxed at 12.5 per cent (total 14.95 per cent with cess/surcharge).
3. STCG: Gains on holdings of less than two years are taxed at your marginal slab rate.
4. Dividends: US authorities apply a 30 per cent withholding tax, and Indian depository entities may deduct an additional 10 per cent service charge. Dividends are then taxed at your marginal slab rate.
5. Mutual Funds/AIFs: In these cases, the funds pay the taxes themselves. For gains beyond two years, the rate is 12.5 per cent (14.95 per cent total); short-term gains are taxed at 42.74 per cent, and dividends at 35.88 per cent. The declared NAV is net of these taxes.

DISCLOSURES AND ADVANTAGES

All Gift City income and gains must be reported in your income tax returns under Schedule FA (foreign assets). Non-disclosure can invite penalties of up to ₹10 lakh.

The Gift City advantage lies in its one-stop ecosystem of banks, brokers, and funds. Crucially, there is no securities transaction tax (STT), no commodities transaction tax (CTT), no GST on brokerages, and no stamp duty on trades. Since transactions happen in foreign currency, investors also worry less about rupee depreciation.

SWEET DEALS FOR NON-RESIDENT INDIANS

The advantages of Gift City are more tilted towards NRIs. NRIs, PIOs, and foreign nationals can invest in India and elsewhere via the hub.

• Currency: Unlike NRE accounts (denominated in INR), Gift City accounts are in US dollars or other overseas currencies, allowing NRIs to invest straightaway without currency conversion.
• Access: NRIs have access to outbound products as well as 22-hour trading on exchanges for India-specific indices (Nifty 50, Sensex) and over 200 single-stock futures.
• Concessional Taxation: Short- or long-term capital gains on stocks or derivatives are taxed at a concessional rate of 9 per cent. Dividends are taxed at a lower rate of 10 per cent. Income from Gift City funds does not suffer TDS for NRIs and OCIs.

For resident Indians, the goal of Gift City investing should be diversification and goal-based planning, such as funding a child's overseas education or buying property abroad. Ideally, it is most suited for HNIs and UHNIs.

The HYPE and SUBSTANCE of a ‘blog post’ that shook software stocks

By Nishanth Gopalakrishnan | bl. research bureau

Citrini who? Why are markets reacting to a ‘blog post’? These were some of the questions floating around when news emerged last Monday that an article published by Citrini Research added fuel to fears of how AI will devour the value of software stocks. An over 7,000-word essay titled ‘The 2028 Global Intelligence Crisis’ and defined as ‘A Thought Exercise in Financial History, from the Future’ is set in an apocalyptic June 2028 and seeks to warn of an unpleasant scenario that could play out if AI is allowed to grow unhinged.

As software stocks in India and globally got rattled, questions emerged on whether there was an attempt at market manipulation, though these remain unsubstantiated. However, the report was deemed important enough for responses from the top echelons of global finance. Federal Reserve Governor Christopher Waller disagreed with the extreme job-loss scenario, while Citadel Securities published a counter. Deutsche Bank, using its own in-house AI, termed it a "work of persuasive, emotional rhetoric disguised as a financial memo".

Despite the criticism, the fact that software stocks continued to slide makes the report important to consider. Here are the five key themes from the note:

1. END OF WHITE-COLLAR JOBS

Citrini bases its arguments on the fall of the white-collar job market, contemplating a scenario where AI operates independently without human oversight. It suggests that a single GPU cluster in North Dakota generating the output of 10,000 workers is an "economic pandemic" rather than a panacea.

This disruption begins with agentic coding tools in late 2025, impacting SaaS companies like Salesforce. By 2028, Fortune 500 clients may develop in-house software powered by AI, gutting the pricing power of SaaS firms. Furthermore, as clients cut white-collar labour, the number of per-employee software licences (like Slack) will plummet. This creates a "feedback loop" with no natural brakes: AI replaces workers, companies reinvest savings into better AI, leading to more layoffs. This spreads to legal, accounting, and auditing sectors, eventually causing discretionary consumption to lose its status as the top contributor to US GDP.

2. DEATH OF INTERMEDIATION

The report discusses businesses that solve consumer "friction" through intermediation, such as job portals, real estate marketplaces, or online travel agents. Citrini predicts that AI agents will soon scour the internet to bring tailored deals across all services, disrupting apps people are currently habituated to. Metrics like "average lifetime value" will no longer make sense. Additionally, AI agents may prefer stablecoins (like USDC) for payments because they cost virtually nothing, potentially ending the dominance of Visa and Mastercard.

3. PRIVATE CREDIT CRISIS

Failing SaaS companies could trigger a domino effect in the $2.5-trillion private credit market. Many leveraged buyouts (LBOs) were done at exorbitant valuations assuming perpetual mid-teen growth. By 2027, life insurers could become casualties if private credit firms default, especially since many alternative asset managers have used policyholders’ premiums to fund these private credit deals.

4. MORTGAGE CRISIS

If white-collar workers lose their earning power, the $13-trillion US mortgage market faces a crash as property prices collapse due to lack of demand. Citrini notes this crisis would differ from 2008: back then, loans were "bad on day one" due to poor underwriting. In 2028, the most prime of borrowers—the "bedrock of credit quality"—would be the ones defaulting. Delinquencies might take time to show as borrowers live off savings and credit cards first, but the pattern would be discernible through rising credit card debt.

5. ROLE OF THE STATE

Governments will face a shrinking revenue base as income and consumption taxes dwindle. Labour’s share of GDP could crash to 46 per cent (from 56 per cent in 2024), while jobless claims spike. The State may be forced into uncharted waters, such as taxing AI inference compute or taking stakes in AI companies to fund transfers to displaced workers.

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Our take on the report and its aftermath

Citrini’s note is not perfect and should not be treated as a definitive forecast, but it successfully alerted the market to the exponential strides of AI. For instance, the ongoing rout in Indian software stocks might have been less damaging to portfolios if investors were more open to the view that AI could be detrimental to the IT services business model.

Flaws in the report:

• It ignores a scenario where empowered workers co-exist with AI, becoming 10x or 20x more productive.
• It doesn't account for massive pushback from governments and stakeholders.
• It assumes stablecoins will become legal tender despite central bank concerns.

An interesting counter from Citadel Securities notes that if the marginal cost of compute rises above the marginal cost of human labour, substitution will not occur, creating a natural economic boundary.

Ultimately, while the reality of 2028 may differ, the report highlights that things are changing fast—evidenced by fintech company Block recently laying off 40 per cent of its workforce due to AI. Citrini’s purpose was to grab attention and offer an alternative perspective, and on that count, it deserves a 10 on 10.

How mutual funds played asset classes

By Dhuraivel Gunasekaran | bl. research bureau

ASSETS-WISE. We analyse allocation preferences between January 2025 and January 2026.

The Indian mutual fund industry’s assets under management (AUM) grew 20 per cent year-on-year to ₹80.8 lakh crore as of January 31, 2026, from ₹67.3 lakh crore a year earlier. The expansion was powered largely by robust net inflows of ₹9.4 lakh crore across categories. Equity schemes led with ₹3.7 lakh crore of net inflows, followed by debt funds at ₹1.9 lakh crore and hybrid funds at ₹1.7 lakh crore. Against this backdrop, portfolio holdings across asset classes witnessed meaningful shifts. Our analysis compares month-end disclosures between January 2025 and January 2026 to assess how allocation preferences evolved.

For the one year ended February 25, 2026, benchmark returns remained divergent: Nifty 100 TRI gained 15 per cent, Nifty Midcap 150 TRI rose 20 per cent, while Nifty Smallcap 250 TRI and Nifty Microcap 250 TRI returned 12 per cent and 6 per cent, respectively.

LARGE-CAP STOCKS

Large-cap holdings of mutual funds rose 22 per cent to ₹32.7 lakh crore in the year ended January 2026, the strongest growth among market-cap segments. Amid volatility and valuation concerns in broader markets, fund managers gravitated towards large-caps, offering earnings visibility and relative valuation comfort.

Notably, large-caps were the only market-cap category to increase their share in overall MF equity exposure, from 40.2 per cent to 40.5 per cent. HDFC Bank, ICICI Bank and Reliance Industries remained the top allocations at ₹3.3 lakh crore, ₹2.6 lakh crore and ₹1.8 lakh crore, respectively. In contrast, IRFC, Mazagon Dock Shipbuilders and Lodha Developers saw significant reductions in exposure.

MID-CAP STOCKS

Mid-cap allocations grew per cent to ₹10.1 lakh crore (approximate value based on context), broadly mirroring the 20 per cent return delivered by the Nifty Midcap 150 TRI. Allocation growth remained measured rather than aggressive, suggesting disciplined positioning despite strong index performance.

Funds increased exposure in the past year to improving mid-sized industrial, financial and capital goods names including Indian Bank, Nippon Life India AMC, GE Vernova T&D India, SAIL, APL Apollo Tubes, NALCO and Laurus Labs. Top mid-cap holdings include Max Healthcare, Tube Investments and Indian Hotels.

SMALL- & MICRO-CAPS

Small-cap holdings rose 20 per cent to ₹5.37 lakh crore, despite the Nifty Smallcap 250 TRI delivering a relatively moderate 11.7 per cent return. SIP inflows continued to support allocations. In contrast, micro-cap holdings saw a sharp decline of 18 per cent to ₹1.4 lakh crore, while the Nifty Microcap 250 TRI returned just 6 per cent. Stocks ranked beyond the top 500 by AMFI are considered as micro-caps.

Compared with large- and mid-caps, the small- and micro-cap segments saw relatively slower growth, reflecting valuation fatigue, liquidity tightening and rising risk aversion. Among small-caps, Cholamandalam Financial Holdings, Radico Khaitan and KPR Mill saw fresh scheme additions. In micro-caps, Equitas Small Finance Bank, Metropolis Healthcare and Ujjivan Small Finance Bank feature prominently in portfolios.

OVERSEAS EQUITIES

Domestic mutual funds’ overseas holdings expanded 26 per cent to ₹1.03 lakh crore from ₹81,925 crore a year ago, outpacing most domestic equity segments. The rise, however, largely reflects mark-to-market gains rather than incremental capital deployment, given the industry-wide $7 billion overseas investment cap.

For the year ended February 25, 2026, global markets delivered strong returns — S&P 500 rose 16 per cent (USD), Shanghai Composite gained 26 per cent (CNY), and Nikkei 225 surged 54 per cent (JPY). Importantly, the RBI cap applies to capital deployed and not to market value, allowing AUM to appreciate without breaching limits.

DEBT

Long-term debt allocations increased a modest 5 per cent to ₹10.8 lakh crore, while money market instruments and short-term debt grew 11 per cent to ₹10.1 lakh crore. The divergence reflects a duration recalibration. Early 2025 positioning was tilted towards longer duration to capture anticipated rate cuts. As easing expectations moderated and bond yields remained range-bound, managers shifted towards shorter-duration papers to manage interest rate risk.

GOLD AND SILVER

Precious metals emerged as standout performers. Gold holdings surged 257 per cent to ₹1.9 lakh crore alongside an 81 per cent rise in the MCX Gold Index. Silver allocations soared 744 per cent to ₹1.2 lakh crore, supported by a 172 per cent rally in the MCX Silver Index. Both price appreciation and fresh ETF launches drove growth, particularly in silver from a low base.

Gold retained its status as a strategic hedge amid global uncertainty and central bank buying, while silver gained traction as a tactical play benefiting from both precious and industrial demand themes.

REITS AND INVITS

MF exposure to REITs climbed 46 per cent to ₹21,218 crore, aided by both mark-to-market gains and incremental allocations. Embassy Office Parks REIT, Brookfield India Real Estate Trust and Mindspace Business Parks REIT delivered 21–33 per cent returns over the past year. SEBI’s decision to classify REITs as equity for mutual fund scheme categorisation expands their eligibility within equity schemes, potentially improving liquidity and institutional participation.

In contrast, InvIT holdings remained flat at ₹5,803 crore. Although select trusts such as Cube Highways Trust, IndiGrid Infrastructure Trust and Nexus Select Trust generated healthy market returns, InvITs continue to be treated as hybrid assets, limiting broader equity scheme participation.

CASH

Cash levels in active equity funds declined in percentage terms from 5.7 per cent to 4.9 per cent, even though absolute cash rose marginally. Sustained SIP inflows of nearly ₹28,000 crore flowed into the markets, keeping deployment active.

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KEY TAKEAWAY: Large-caps were the only market-cap category to increase share in overall MF equity exposure, from 40.2% to 40.5%.

Real Returns: Resetting retirement targets and making them achievable

By Aarati Krishnan | Contributing Editor

Young Indians looking to make a start on retirement savings often get a rude shock when they learn the amount of money they need to save to retire. Financial planners and online calculators come up with eye-popping numbers when you seek estimates of a target corpus.

For instance, a 30-year-old looking to retire at 60 may find that she needs a ₹20-crore or ₹21-crore corpus to retire. To get to this sum, systematic investment plan (SIP) calculators show she will need to invest ₹58,038 a month in equity SIPs for the next 30 years. Such targets look so outlandish to some folks that they completely give up on thinking about retirement and put off investing indefinitely.

But not thinking about retirement, or not saving for it, are the worst personal finance decisions you can make. Therefore, we decided to look at how you can trim those retirement targets and make them more achievable.

BUILT ON ASSUMPTIONS

Before taking a dive into the numbers, it is important to understand that the retirement targets thrown up by financial planners or calculators are not cast in stone. They are guesstimates built on several assumptions.

Usually, to arrive at a retirement target, calculators use six variables: your starting age, your retirement age, your longevity, inflation rate, portfolio returns before retirement, and portfolio returns after retirement. In deciding the size of the corpus you need, some variables have more influence than others.

For instance, 30-year-old Sarala, with expenses of ₹1 lakh a month at today’s prices, wants to retire at 60. To estimate her target corpus, the calculator assumes a 12 per cent return on her investments until 60, a 6 per cent return from age 60 to 90, a 6 per cent inflation rate, and a longevity of 90 years. The target corpus it throws up is ₹20.28 crore. To get there with a fixed monthly SIP, she needs to put aside ₹58,038 monthly for the next 30 years.

CORPUS TWEAK

In reality, even small tweaks in these assumptions can substantially trim the required corpus.

• Inflation: If Sarala faces 5 per cent inflation instead of 6 per cent, her required corpus drops dramatically to ₹13.3 crore from ₹20.28 crore. As the Indian economy matures, it is possible that inflation rates will trend down.
• Post-retirement Risk: If Sarala earns 7 per cent on her post-retirement portfolio instead of 6 per cent, she can get by with ₹17.6 crore. By switching from a fully debt portfolio to one with about 20 per cent equities, she may be able to achieve this.
• Longevity: Trimming the longevity assumption from 90 to 85 sharply reduces the target to ₹16.9 crore.

However, it pays to be conservative in financial planning, so it makes sense to budget for higher inflation and longevity rather than underestimating them.

INVESTMENT SIZE

If Sarala is clever, she can leave the target corpus unchanged and play around with the size of SIPs.

• Starting Early: If she starts at 25 instead of 30, she can reach ₹27.1 crore by age 60 with a SIP of ₹42,209. Advancing a SIP start by five years can boost the final corpus by 86 per cent.
• Retirement Age: Postponing retirement by five years to 65 allows her to manage with SIPs of ₹35,287 a month.
• Better Returns: Managing 13 per cent instead of 12 per cent during her working life trims the required SIP amount by 21 per cent.

STEP UP YOUR SIP

Calculations often assume your SIP remains flat for 30 years. However, stepping up your SIPs as your income rises can help you reach tall targets.

• A ₹30,000-SIP started at 30 with a 12 per cent return will yield just ₹9.96 crore by 60 if kept flat.
• But if you increase that same SIP by 10 per cent every year, you reach a corpus of ₹23.95 crore in the same time.

In your 30s and 40s, income often expands faster than spending, sharply boosting your saving ability—provided you don’t upgrade your lifestyle faster than your income.

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TAKE NOTE

• Don't let tall retirement targets scare you.
• Start early in equities and remain on track.
• Step up your investments as your needs grow.

REAL RETURNS. Not thinking about retirement, or not saving for it, are the worst personal finance decisions you can make.

‘With Micron’s Sanand facility, India now part of global chip supply chain’

Our Bureau | Ahmedabad

Prime Minister Narendra Modi on Saturday said the launch of Micron Technology’s first phase of $2.75 billion ATMP (Assembly, Test, Marking and Packaging) facility in Gujarat strengthens India’s role in the global technology and semiconductor value chain, signalling a new era of strategic cooperation with the US.

“The beginning of commercial production at Micron’s ATMP plant will strengthen India’s role in the global technology value chain. Today, India is moving rapidly in becoming a part of a global semiconductor value chain,” Modi said while addressing a formal event held at Micron’s facility at Sanand, about 40 km from Ahmedabad.

The Prime Minister described the Micron facility as a symbol of India–US cooperation in AI and chip technology. He emphasised that the ATMP plant is part of a broader government vision to build a pan-India semiconductor ecosystem. Drawing a parallel with Sanand’s transformation into an automotive hub after the arrival of Tata Motors, Modi said the Micron plant is expected to catalyse a similar high-tech industrial ecosystem in the region.

INDIA ENTRY

US Ambassador to India Sergio Gor, at the inauguration, reinforced the geopolitical and economic significance of the facility. He said India’s emergence as a semiconductor manufacturing hub is “not just welcome, but essential”. “As other nations aggressively expand production of legacy chips and seek to dominate the sector, India offers a secure and reliable alternative. Today marks India’s entry into the global semiconductor supply chain as a manufacturing nation. This is just the beginning,” he added.

“This facility represents the future. It represents American technology leadership working hand-in-hand with India’s manufacturing excellence. It represents supply chain resilience built on trust between our two great democracies,” the diplomat added.

Sanjay Mehrotra, Chairman, President and CEO of Micron Technology, noted that the groundbreaking ceremony for the ATMP plant was held in September 2023. “We poured enough concrete to fill 100 Olympic-sized swimming pools; used steel enough for building 3.5 Eiffel Towers and the backbone trusses that make this clean room weigh 24,000 elephants,” Mehrotra said while speaking at the launch ceremony.

Brace for further fall

Gurumurthy K | bl. research bureau

US MARKET OUTLOOK. Geopolitical tensions can knock down US indices.

The Dow Jones Industrial Average, S&P 500 and NASDAQ Composite indices have been struggling over the last few weeks to see a rise. The indices moved up in the first half last week but failed to sustain. They fell in the second half, giving away all the gains.

The US confirming its attack on Iran can weigh on the sentiment. It can drag the benchmark indices lower on the back of high risk-aversion.

DOW JONES (48,977.92)

The index is struggling to rise above 50,000. The price action on the daily chart indicates a possible head and shoulder formation, which is a bearish pattern. A fall below 48,650 will confirm the same, which in turn can drag the Dow down to 48,200 or 47,900 in the coming weeks.

A sustained rise above 50,000 is needed to get some breather. Only then the upside will open to see 51,000 and higher levels, but such a rise looks unlikely at the moment.

S&P 500 (6,878.89)

A break below 6,700 is coming. Such a break can drag the S&P 500 index down to 6,630–6,600 going forward. To avoid the aforementioned fall, the index has to sustain above 6,800. If it does, then it can oscillate between 6,800 and 7,000 for some time.

NASDAQ COMPOSITE (22,668.21)

The index has been stuck between 22,250 and 23,320 over the last three weeks. There is no change in the broader view; the outlook remains negative. Strong resistance is in the 23,000–23,300 region, which is continuing to hold well. The NASDAQ Composite index can fall to 21,900–21,600.

The index has to breach 23,300 to get some breather and go up to 24,000. However, as mentioned last week, the index has to rise past 24,000 to strengthen the bullish trend.

DOLLAR INDEX

The dollar index moved between 97 and 98 all through last week, which leaves the near-term picture unclear. It will be critical to see how the greenback reacts to the US attack on Iran. When the Russia-Ukraine conflict began, the dollar index fell initially but later started to move up. If this repeats, the dollar index can fall to 96 or even 95 first in the coming weeks. Thereafter it can see a fresh rise back towards 97–98 or even 100 eventually. On the other hand, if the index sustains above 97 this week and goes above 98.20, then that could be bullish, potentially rising to 99.50–100 from here itself.

TREASURY YIELD

The US 10Yr Treasury Yield (3.95 per cent) has a very crucial support at 3.93 per cent. A break below will be quite bearish, potentially dragging the yield down to 3.6 per cent in the coming weeks. Such a fall in the yield will be negative for the dollar index as well; if the yield declines below 3.93 per cent, the dollar index can go to 96–95 initially and then rise back again.

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CRUCIAL SUPPORT. The US 10Yr Treasury Yield has a crucial support at 3.93 per cent which has to hold to avoid more fall.

The Evolution of Marriage and Wealth

 The following text is the full article "More cows, more wives" by Olympia Campbell, as reproduced from the provided sources:

More cows, more wives

It is a truth universally acknowledged, that a single man in possession of a good agricultural surplus, must be in want of a wife.

In the 1930s in the Upper Nile region of what is now South Sudan, anthropologist EE Evans-Pritchard met a Nuer woman sitting by a thatched hut with her children. In the distance, the father of her children tended the cattle; they looked like an ordinary family, but this man was not her husband. The Nuer woman was married to a ghost, and her children were officially the children of this ghost.

Among the Nuer, if a man died without leaving any heirs, his kinsmen would find him a wife so that his name would live on, fearing his restless ghost would otherwise haunt them. Evans-Pritchard observed that ghost marriages were nearly as common as those between the living, often necessitated by warfare, disease, or childhood mortality claiming young men. In these unions, a kinsman might marry in the deceased's name—"kindling the fire of the dead"—and while cattle were paid as bridewealth, any children born belonged legally to the ghost.

This arrangement often led to a cycle where ghost marriage begat ghost marriage, as the man marrying on behalf of the ghost gained a family in all but name, and the family's cattle were then used to secure marriages for younger brothers. This Nuer example is just one of many diverse marriage customs that were once invisible to Northwestern Europeans, who assumed their lifelong monogamous religious marriages and nuclear families were the natural order.

By the twentieth century, anthropologists began reporting foreign customs that challenged these notions. Margaret Mead’s 1928 book Coming of Age in Samoa depicted a society where young women deferred marriage through casual love-making. Bronislaw Malinowski’s 1929 The Sexual Life of Savages in North-Western Melanesia described trial marriages among Trobriand Islanders, where young lovers lived together in a bukumatula (bachelors’ house) to see if the relationship worked, resembling modern dating.

The variety of marriage customs

In 1967, George Murdock and Douglas R. White formalized this scholarship in the Ethnographic Atlas, later refining it into the Standard Cross-Cultural Sample of 186 societies. Of these, only 31 were monogamous, 153 were polygynous (one man, multiple wives), and 2 were polyandrous (one woman, multiple husbands). It became clear that most people throughout history have not lived like Europeans. Marriage can be sanctified by religion or state, or simply occur when two people live together; it can be chosen or coerced.

Compared to other animals, human marriage is aberrant; while birds pair bond, only nine percent of mammalian species do. For most animals, relationships only last for the duration of copulation.

Interfering relatives

Humans are unique in that third parties—parents, siblings, and extended family—routinely interfere in marital decisions to shape, delay, or prevent unions. This ranges from South Asian purdah (seclusion of women) to the segregation of men, such as the Enga of Papua New Guinea, where boys were sent to live in men’s houses and could only marry after proving themselves and undergoing purification rituals.

Marriage is rarely a private matter because it serves the basic purposes of managing resources and building alliances. Evolutionary anthropologists suggest people seek to maximize descendants, and the best strategy to do so changes with the environment, often creating conflict between the sexes and families.

Marriage for hunter gatherers

For roughly 95 percent of human history, we lived as hunter-gatherers. In groups like the BaYaka of the Congolese rainforest, marriages are fluid; an enamored couple might simply walk into the forest and return to build a hut together. A young man may perform "bride service" by living and hunting with his girlfriend's family for a year, but the relationship can dissolve just as easily as it began, even with small children involved.

This fluidity is common in egalitarian hunter-gatherer societies with high mobility and no material wealth. Studies show that fathers in these populations have a surprisingly small effect on child survival compared to grandmothers and siblings. Because there is no stored wealth or inheritance, divorce and remarriage are frequent, and women often have children with two or three men over their lifetime.

How farming promotes inequality

Farming, which arrived 12,000 years ago, transformed marriage by allowing wealth accumulation and decreasing mobility. In northern Kenya, a Turkana man named Imana could support four wives and 13 children with his herd of over a hundred cows, while his poorer neighbor was limited to one wife.

The arrival of wealth led to the logic of "more cows, more wives". This shift may have been shaped by female choice; in Darwinian terms, it can pay for a woman to be the second or third wife of a rich man rather than the first wife of a poor one. However, not all polygyny is freely chosen. Among the Dogon of Mali, higher child mortality in polygynous households suggests coercion, whereas in Northern Tanzania, children of polygynous fathers are often wealthier and better nourished.

When women become a limited resource, they become economically valuable to parents who demand bridewealth. For example, the Chagga of Tanzania required a "deposit" of beer, goats, milk, and meat, followed by a "cascade of further obligations" to the bride's entire extended family. Fathers would sometimes allocate a sister to each son so her bridewealth could finance his marriage.

In these systems, wealth flows to sons because they can use inherited wealth to acquire more wives and descendants. These societies often invent ways to limit women's freedom to ensure paternity. The Dogon use menstrual huts to signal fertility; genetic data shows nonpaternity is lower among those who use these huts.

There are exceptions, like the Himba of Namibia, who are pastoralists but relaxed about infidelity. In one sample, 49 percent of children were not biologically the husband's, yet the husband helped raise them and paid for their marriages. This is possible because the Himba have low bridewealth and matrilineal inheritance, meaning men invest in their sisters' sons, whose biological relatedness is guaranteed.

Polygyny was also widespread in other cultures, with Quranic law capping wives at four and Papua New Guinea elites using pigs, shells, or more recently, cars and money to secure multiple wives.

Monogamy and primogeniture

Predominantly monogamous systems, like those in Europe and parts of Asia, often evolved to manage resources rather than as a mating preference. In ancient Greece, Rome, and under Confucian law, monogamy was the legal rule, yet elite men often had mistresses or concubines. Monogamy may have risen when dividing wealth among many heirs (like splitting a farm into tiny, unproductive plots) reduced its total value.

This led to unigeniture—where only one son inherits—and a system where women traded faithfulness for the guarantee that their children were the legitimate heirs. While women’s sexuality was strictly controlled, men often fathered children out of wedlock, but institutional systems were built to exclude "bastard" children.

Following the French Revolution, the government imposed equal partition of assets, which led families to limit their number of children to avoid the over-division of wealth, explaining France's early declining fertility. Similar trends are seen in Sub-Saharan Africa among groups with shared inheritance.

The end of marriage systems

In the contemporary West, marriage systems have become fluid again. Some people are monogamous, while others follow patterns resembling hunter-gatherers through divorce and remarriage, or Samoan-style trial marriages. Traditional controls have weakened as schooling, mobile phones, and urban migration reduce family involvement.

Christian missionaries also inadvertently undermined indigenous regulation systems while trying to ban traditional cults. Furthermore, changes to wealth mean we no longer differentiate between "legitimate" and "illegitimate" offspring, and women's integration into the workforce means they no longer need to trade fidelity for economic security.

While divorce rates are lower among the wealthy—partly because raising children and buying homes now often requires two stable incomes—the fundamental nature of marriage remains a tool to build connections and secure wealth. If marriage has a nature, it is to be reshaped to fit the world around it. In a world where familiar constraints have disappeared, perhaps all that is keeping us together is love.

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Author: Olympia Campbell is a research fellow at the Toulouse School of Economics.