Cyclical Fluctuations, Financial Frictions, and Firm Productivity Differences

 The core empirical observations documented in the sources center on the magnitude, pervasiveness, and cyclicality of productivity differences across firms, as well as their relationship with credit market conditions. These observations serve as the primary motivation for a model where financial frictions drive endogenous fluctuations in aggregate Total Factor Productivity (TFP).

1. Magnitude and Pervasiveness of Productivity Dispersion

The sources highlight that even within narrowly defined four-digit NAICS manufacturing industries, there are vast differences in productivity between establishments using the same measured inputs.

• The 90-10 Gap: A primary measure used is the "90-10 gap," which represents the percentage difference in productivity between an establishment at the 90th percentile and one at the 10th percentile in the same industry.
• Substantial Differences: The average 90-10 gap in U.S. manufacturing is approximately 100 percent, meaning a plant near the top of the distribution produces roughly twice as much output as one near the bottom from identical inputs.
• Widespread Phenomenon: These differences are not driven by outliers; the data suggests large within-industry productivity gaps are pervasive across the entire manufacturing sector.

2. Cyclical Variation of Productivity Gaps

A critical empirical observation is that this productivity dispersion is not static but fluctuates in sync with the business cycle.

• Widening in Downturns: The gap between high- and low-productivity firms tends to widen in years when GDP growth runs below average and is most visible during NBER-dated recessions.
• Narrowing in Expansions: Conversely, within-industry productivity dispersion tends to narrow when GDP growth is above average.
• Efficiency Implications: Because the spread of productivity widens and narrows over the cycle, the overall efficiency with which the economy uses its inputs—and thus aggregate TFP—also fluctuates.

3. Credit Market Co-movements

The sources also document how these productivity shifts co-move with credit market conditions, particularly loan delinquencies.

• Delinquency and Growth: Empirical data shows that delinquencies on business loans rise when GDP growth is depressed.
• Interest Rate Impact: There is a positive correlation between real interest rates and delinquencies; business-loan defaults tend to increase when real interest rates are high.
• Selection Margin: These observations support the model's mechanism where interest rates influence both the strategic default rate and the selection of which firms are productive enough to borrow and operate.

4. Significance for Aggregate Fluctuations

These empirical findings suggest that a significant portion of aggregate TFP is endogenous, rather than purely driven by exogenous "technology shocks".

• Misallocation: The sources argue these large, cyclically varying gaps are traced to financial frictions (adverse selection and moral hazard) that prevent capital from flowing to its most productive uses.
• Variance Contribution: Based on these empirical patterns, the authors' model suggests that the resulting misallocation accounts for approximately 30 percent of the variance of TFP at business-cycle frequencies.

The theoretical model framework presented in the sources is a tractable representative-agent model designed to deliver endogenous productivity fluctuations driven by financial frictions. It resolves the tension between powerful heterogeneous-firm models, which are difficult to solve, and standard business-cycle frameworks used to study aggregate fluctuations.

1. Dual Technology and Informational Frictions

The model endows each firm with two technologies: a production technology with idiosyncratic efficiency ($\omega$) that is private information, and a financial intermediation technology available to all firms. Two primary informational frictions drive the model's dynamics:

• Adverse Selection: Because a firm's idiosyncratic efficiency is not directly observable by investors, all firms receive an equal share of household savings regardless of their actual productivity.
• Moral Hazard: Firms with low productivity may find it more profitable to divert borrowed funds to an outside option (strategic default) rather than produce, which limits the borrowing capacity of even the most efficient firms.

2. Endogenous Sorting of Firms

The framework characterizes equilibrium by locating productivity cutoffs that sort firms into three distinct segments based on their realized productivity draw ($\omega$):

1. Lenders (Low $\omega$): Firms with the lowest productivity find it more profitable to deploy their intermediation technology, lending their funds to others at the prevailing inter-firm rate.
2. Strategic Defaulters (Medium $\omega$): Firms in the middle of the distribution borrow funds but choose to divert them to an outside option (government bonds) rather than produce.
3. Producers (High $\omega$): Firms with sufficiently high productivity borrow in the inter-firm market to purchase capital and produce goods.

3. Endogenous TFP and the Selection Margin

The central insight of this framework is that aggregate Total Factor Productivity (TFP) is endogenous. As macroeconomic conditions change, the cutoff points separating these three groups shift.

• Selection Effect: When conditions tighten and the productivity cutoff for producers rises, the economy "cleanses" itself of lower-productivity firms, concentrating production among the most efficient ones.
• TFP Decomposition: The measured Solow residual is decomposed into a standard exogenous technology shock ($Z_t$) and an endogenous prefactor ($\Phi_t$) that captures the changing composition of the producing cohort.
• Variance Contribution: This endogenous mechanism accounts for approximately 30 percent of the variance of TFP at business-cycle frequencies in the baseline model.

4. Role of Strategic Default

Unlike previous models that treat default as a "knife-edge" case or a result of involuntary insolvency, this framework incorporates strategic default as an equilibrium outcome. Strategic default serves a dual purpose:

• Amplification: It concentrates production among high-productivity firms more aggressively than models without a default margin.
• Stabilization: It acts as a buffer; when aggregate conditions shift, firms near the default threshold adjust first, which smoothes and stabilizes the dynamic path of the endogenous TFP response compared to models without default.

5. Tractability and Application

The model is highly tractable because the aggregate consequences of misallocation are captured by just a few objects: two cutoffs and an inter-firm interest rate. This allows the mechanism to be embedded as a "building block" in standard Real Business Cycle (RBC) models, enabling researchers to use off-the-shelf methods for estimation and policy analysis without tracking complex, evolving firm distributions over time.

In the provided source, financial frictions—specifically adverse selection and moral hazard—are identified as the fundamental drivers of capital misallocation and endogenous productivity fluctuations. These frictions prevent capital from flowing to its most productive uses, creating a link between credit market conditions and aggregate economic efficiency.

1. The Nature of the Frictions

The model framework is built around two primary informational barriers:

• Adverse Selection: Because a firm's idiosyncratic production efficiency ($\omega$) is private information, households and outside investors cannot distinguish between highly productive and less productive firms. As a result, every firm receives an aliquot (equal) share of household savings, regardless of their actual productivity.
• Moral Hazard: This friction arises because firms with low realizations of productivity may find it more profitable to strategically default by diverting borrowed funds to an outside option (such as government bonds) rather than using them for production. This possibility limits the borrowing capacity of even the most efficient firms, as lenders must price in the risk of diversion.

2. Financial Intermediation and Selection

To mitigate these frictions, the model introduces a secondary inter-firm lending market. In this market:

• Screening Technology: Lending firms utilize a screening technology that, while imperfect, allows them to identify and exclude firms with the lowest productivity from borrowing and defaulting.
• Endogenous Sorting: Firms sort themselves into three groups based on their productivity draws: lenders (lowest productivity), strategic defaulters (medium productivity), and producers (highest productivity).
• Credit Rationing: Because borrowers cannot credibly claim higher productivity to obtain more funds, credit is rationed, and all inter-firm financial contracts remain identical.

3. Frictions in the Context of Cyclical Fluctuations

Financial frictions cause the economy to respond dynamically to aggregate shocks through the selection margin.

• Interest Rate Impact: Fluctuations in the real interest rate influence the strategic default rate and the average productivity of the borrowing cohort. For instance, expansionary shocks can lower default rates by making production more attractive relative to the outside option.
• Countercyclical Dispersion: Data and model simulations show that productivity dispersion—the gap between high- and low-productivity firms—tends to widen in downturns and narrow when growth is above average.
• Strategic Default as a Stabilizer: The strategic-default margin serves as an "aggregator" that absorbs much of an aggregate shock's impact, stabilizing the dynamic path of productivity compared to models where default is not possible.

4. Impact on Firm Productivity and Aggregate TFP

The central finding of the source is that financial frictions make a significant portion of Total Factor Productivity (TFP) endogenous.

• Misallocation Cost: The presence of these frictions means the economy does not reach its "efficient limit," where all credit would flow to the single most productive firm.
• Variance Contribution: In the authors' baseline model, the misallocation resulting from these frictions accounts for approximately 30 percent of the variance of TFP at business-cycle frequencies.
• Cleansing Effect: When financial conditions tighten, the productivity "cutoff" for producers rises, effectively "cleansing" the economy of lower-productivity firms and lifting the average productivity of those remaining.

In the provided sources, endogenous firm sorting is the central mechanism through which financial frictions translate into aggregate productivity fluctuations. This process involves firms sorting themselves into different roles based on their idiosyncratic productivity draws, with the boundaries between these roles shifting in response to the business cycle.

1. The Sorting Mechanism: Three Firm Segments

The theoretical framework posits that each firm is endowed with a private production technology (with idiosyncratic efficiency $\omega$) and a common financial intermediation technology. Based on their realization of $\omega$, firms sort into three distinct groups:

• Lenders (Low Productivity): Firms with the lowest productivity ($\omega \leq \overline{\omega}_t$) find that the returns from their production technology are lower than the prevailing inter-firm interest rate. Consequently, they act as financial intermediaries, lending their funds to more productive firms.
• Strategic Defaulters (Medium Productivity): Firms in the middle of the distribution ($\overline{\omega}_t < \omega < \overline{\overline{\omega}}_t$) borrow funds in the inter-firm market but find it more profitable to divert those funds to an outside option (such as government bonds) and default rather than produce.
• Producers (High Productivity): Firms with the highest productivity ($\omega \geq \overline{\overline{\omega}}_t$) borrow funds to purchase capital and produce goods, as their production returns exceed both the cost of borrowing and the gains from strategic default.

2. The Role of Productivity Cutoffs

Characterizing the economic equilibrium reduces to locating the two productivity cutoffs ($\overline{\omega}_t$ and $\overline{\overline{\omega}}_t$) that demarcate these three groups.

• The lower cutoff ($\overline{\omega}_t$) is determined by an indifference condition where the expected return from production matches the return from lending.
• The upper cutoff ($\overline{\overline{\omega}}_t$) is determined where the marginal firm is indifferent between diverting borrowed funds and using them for production. A screening technology utilized by lenders prevents the least efficient firms from mimicking borrowers, thereby supporting the existence of a mass of lenders.

3. Sorting and Cyclical Fluctuations

These cutoff points are not static; they respond dynamically to aggregate macroeconomic conditions.

• Response to Shocks: During cyclical fluctuations—such as those triggered by aggregate TFP shocks, consumption shocks, or investment technology shocks—the boundaries between lenders, defaulters, and producers shift.
• Countercyclical Dispersion: In economic downturns, the spread between the most and least productive firms tends to widen. The model replicates this by showing how interest rate and output changes shift the cutoffs, reallocating capital across the firm distribution.

4. Impact on Firm Productivity and Aggregate TFP

The sorting of firms has profound implications for aggregate economic efficiency.

• Endogenous TFP: Because aggregate production is carried out only by firms above the producer cutoff ($\overline{\overline{\omega}}_t$), the economy's measured Total Factor Productivity (TFP) contains an endogenous component determined by the composition of this producing cohort.
• Selection Margin: Changes in financial conditions trigger a "cleansing" effect; for instance, a tightening that raises the producer cutoff forces less efficient firms out of production, concentrating activity among the most productive firms and lifting the average productivity of the active cohort.
• Quantitative Significance: The sources estimate that this sorting mechanism and the resulting misallocation account for approximately 30 percent of the variance of TFP at business-cycle frequencies. The strategic default margin specifically accounts for about one-third of that endogenous component.

In the provided sources, Total Factor Productivity (TFP) is a dynamic, multi-faceted variable that is central to understanding aggregate economic fluctuations. The authors move beyond the standard view of TFP as a purely exogenous "technology shock," arguing instead that a significant portion of measured TFP is endogenous, driven by the reallocation of capital across heterogeneous firms in response to changing credit conditions,,.

1. The TFP Decomposition: Exogenous vs. Endogenous

The sources define measured TFP (the Solow residual) as the product of two distinct components,:

• Exogenous Component ($Z_t$): This represents standard technology shocks that shift the productivity of all firms simultaneously,.
• Endogenous Prefactor ($\Phi_t$): This is the "selection margin," defined as the conditional mean of idiosyncratic productivity among producing firms,. Because financial frictions prevent the most efficient firms from operating at their full potential, this prefactor reflects the changing composition of the firms currently producing,.

2. Cyclical Variation and Productivity Dispersion

A core empirical motivation for the model is that within-industry productivity differences are both large and cyclically sensitive,.

• The 90-10 Gap: In U.S. manufacturing, the plant at the 90th percentile of productivity typically produces twice as much output as the plant at the 10th percentile using identical inputs,.
• Countercyclical Dispersion: This gap is not static; it tends to widen during recessions (when GDP growth is below average) and narrow during expansions,,. When this dispersion widens, the overall efficiency with which the economy uses its inputs—and thus aggregate TFP—declines.

3. Financial Frictions and Misallocation

The sources trace these TFP fluctuations to financial frictions—specifically adverse selection and moral hazard—that cause capital misallocation,.

• Adverse Selection: Because a firm's productivity is private information, investors cannot perfectly screen borrowers, leading to credit rationing where even the most efficient firms are limited in how much they can borrow,,.
• Selection Effect: When aggregate conditions shift (e.g., a rise in interest rates), the productivity "cutoff" for producers moves. A tightening of credit effectively "cleanses" the economy of lower-productivity firms, concentrating production among more efficient ones and lifting the endogenous TFP prefactor,.

4. Quantitative Significance

The sources highlight that this endogenous mechanism is a primary driver of macroeconomic volatility:

• Variance Contribution: Roughly 30 percent of the variance of TFP at business-cycle frequencies is endogenous in the authors' model,,.
• Role of Strategic Default: About one-third of this endogenous TFP component is specifically attributed to the strategic default margin,. By allowing firms to choose between production and default, the model captures a more aggressive concentration of production among high-productivity firms during shifts in credit conditions,.

5. Stabilizing and Amplifying Effects

Strategic default serves a dual purpose in shaping TFP dynamics. It acts as an amplifier by concentrating production among elite firms, but it also functions as a stabilizer for the dynamic path of TFP. By allowing firms near the default threshold to adjust first, the model produces a smoother and more persistent endogenous TFP response compared to models without a default margin, which often exhibit unrealistic oscillatory patterns,.

The assessment of the model's results focuses on its ability to match empirical data and its quantitative findings regarding the drivers of aggregate fluctuations. The authors conclude that their tractable framework successfully replicates key features of U.S. manufacturing data while revealing that a significant portion of productivity variation is endogenous.

1. Model Fit and Empirical Assessment

The model is evaluated based on its ability to match both targeted and untargeted moments from U.S. economic data between 1987 and 2021.

• Targeted Moments: Using the Simulated Method of Moments (SMM), the model successfully matches 10 out of 14 targeted second moments within sampling uncertainty. It accurately captures the variances of GDP, consumption, and delinquency rates.
• Untargeted Regressions: The authors perform OLS regressions on model-simulated data and find they reproduce the same signs as U.S. data: within-industry productivity dispersion narrows when GDP growth is high, and loan delinquencies rise when growth is depressed or real interest rates are high.
• Sign Consistency: Even for moments where the quantitative match is not exact (such as investment price correlations), the model correctly identifies the sign of the correlation in every instance.

2. Findings on Endogenous TFP Variance

A primary result of the model assessment is the quantification of the "selection margin" in driving aggregate productivity.

• Variance Contribution: The baseline model reveals that approximately 30 percent of the variance of Total Factor Productivity (TFP) at business-cycle frequencies is endogenous.
• The Default Margin: By comparing the baseline "two-cutoff" model to a "no-default" variant, the authors find that strategic default accounts for about one-third of this endogenous TFP component.
• Amplification vs. Stabilization: The results show that strategic default acts as both an amplifier, by concentrating production among elite firms more aggressively, and a stabilizer, by smoothing the dynamic path of TFP and preventing the unrealistic oscillations seen in models without a default margin.

3. Response to Macroeconomic Shocks

The model assessment includes an analysis of how firm productivity reacts to different aggregate shocks:

• TFP Shocks: An expansionary technology shock increases output immediately, but an endogenous TFP channel kicks in later. As the average return on capital eventually falls, the producer cutoff rises, "cleansing" the economy of less productive firms and narrowing the 90-10 productivity gap.
• Demand Shocks: Consumption and investment technology shocks raise interest rates, which increases borrowing costs and defaults. This forces production to concentrate among even more efficient firms, providing an "extra endogenous kick" to aggregate productivity.

4. Technical Robustness

The authors assess their solution method and find that a second-order perturbation is necessary for accuracy. While a first-order solution can lead to theoretical impossibilities (such as the two productivity cutoffs crossing), the second-order solution remains closely consistent with a fully non-linear perfect-foresight solution. This ensures the model's results regarding firm sorting and default remain theoretically sound during simulations.

Russian Offensive Campaign Assessment

 

Russian Offensive Campaign Assessment, June 30, 2026

The Kremlin continues to set unrealistic deadlines for the Russian military to complete the seizure of Donetsk Oblast that do not align with battlefield realities. Ukrainian President Volodymyr Zelensky stated on June 29 that the Kremlin has issued 15 separate deadlines for Russian forces to seize the entirety of Donetsk Oblast in total since 2022. Zelensky stated that the Kremlin gave five separate deadlines in 2022, including March 31, May 9, June 1, September 15, and December 31. Zelensky stated that the Kremlin gave Russian forces deadlines of March 1 and December 31 in 2023; March 1 and December 31 in 2024; September 1, December 1, and December 25 in 2025; and March 31, September 1, and now a deadline of December 31 in 2026.

Russian forces have repeatedly missed Putin’s demanded deadlines to seize specific territory in Ukraine, including Russian President Vladimir Putin’s early demand that Russian forces seize all of Donetsk and Luhansk oblasts by September 2022. The Kremlin’s deadlines for its military objectives continue to be divorced from the reality of Russian forces’ battlefield performance. Russian forced advanced on average 3.79 square kilometers per day in June 2026 — a rate far below Russian forces’ previous rate of advance in August 2025, when Russian forces advanced at a rate of 16.65 square kilometers per day. Russian forces still need to seize about 5,305 square kilometers to seize the remainder of Donetsk Oblast and are highly unlikely to seize the remainder of Donetsk Oblast by the newly set deadline of December 31, 2026. Russian forces have shown no ability to rapidly advance or restore operational maneuver in Donetsk Oblast.

These unrealistic deadlines for advance are contributing to Russian forces on the ground submitting “beautiful reports” up the chain of command, flag raising tactics, and Russian forces’ increasing use of (AI)-altered footage to claim advances in areas where Russian forces do not maintain positions. Russian forces continue to expend significant resources and manpower to try to fulfill these unrealistic objectives. Putin has likely developed a false perception of the Russian military’s successes and capabilities given the larger pattern within the Russian military of misrepresenting the battlefield geometry and providing inaccurate assessments. Zelensky’s comments on failed deadlines were likely in response to Putin’s June 28 claims that Russian forces are rapidly advancing across the theater and attempts to portray Russian victory in Ukraine as inevitable.

The Russian domestic population appears to be increasingly interested in the topic of the end of Russia’s war against Ukraine. Russian opposition source Meduza reported on June 30 that Yandex’s Wordstat service shows that there were over 137,000 search requests on Yandex asking when Russia will end its war against Ukraine from June 22 to June 28 – a record high since Russia launched its full-scale invasion in February 2022. Meduza reported that Yandex recorded a significant bulk of the searches in Moscow Oblast and St. Petersburg, Leningrad Oblast – regions where the Kremlin has prioritized installing air defense systems but largely failed to defend against Ukraine’s long-range strikes. The number of searches about when Russia will end the war has been growing for the second week in a row, with a previous peak occurring when Ukrainian forces struck St. Petersburg during the St. Petersburg International Economic Forum (SPIEF).

Polling from the Kremlin-linked Public Opinion Forum (FOM) from June 19 to 21 found that Russian President Vladimir Putin’s approval rating fell by five percentage points from 74 percent to 69 percent between June 12 and June 21, shortly after Ukraine’s largest strike on Moscow Oblast. Weekly FOM polling shows Putin’s trust rating consistently falling since February 2026. It is notable that FOM is acknowledging growing domestic discontent with Putin after over four years of war, suggesting the Kremlin has largely failed to isolate its constituents from the effects of Russia’s war effort.

Key Takeaways

1. The Kremlin continues to set unrealistic deadlines for the Russian military to complete the seizure of Donetsk Oblast that do not align with battlefield realities.
2. The Russian domestic population appears to be increasingly interested in the topic of the end of Russia’s war against Ukraine.
3. Ukrainian forces continued their long-range strike campaign against Russian military assets in Russia on the night of June 29 to 30.
4. Neither Russian nor Ukrainian forces made confirmed advances on June 30.

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Ukrainian Operations in the Russian Federation

Ukrainian forces continued their long-range strike campaign against Russian military assets in Russia on the night of June 29 to 30. USF Commander Major Robert “Magyar” Brovdi reported on June 30 that USF struck the Dubna Space Communications Center in Dubna, Moscow Oblast, overnight on June 29 to 30 – the second Ukrainian strike against the center since June 22. President Zelensky noted that the center is a special satellite communications facility used for reconnaissance and to coordinate Russian forces operating in Ukraine. Geolocated footage published on June 30 shows smoke rising from the center following the strike, and Moscow Oblast Governor Andrei Vorobyov acknowledged that Ukrainian drones damaged an administrative building in Dubna. Additionally, the Ukrainian General Staff reported that a June 28 strike against the Slavyansk Oil Refinery in Krasnodar Krai destroyed four tanks and damaged nine others, totaling 65,000 cubic meters of volume affected.

Russian Supporting Effort: Northern Axis

Russian forces continued offensive operations in northern Sumy Oblast on June 29 and 30 but did not make confirmed advances. A Russian milblogger posted a map claiming advances southwest of Sopych and into northern Marine, though this remains unconfirmed. Ukrainian forces continue to use drones and artillery to slow Russian advances, holding positions in Kindrativka and near Andriivka. A Russian milblogger claimed on June 29 that Ukrainian forces continue to hold their positions in Ryzhivka and are prioritizing striking Russian logistics routes toward Tetkino, Kursk Oblast.

Russian Subordinate Main Effort #1 – Kharkiv Oblast

Russian forces continued offensive operations north and northeast of Kharkiv City on June 29 and 30 but did not advance. Ukrainian officials reported that Russian forces are attempting to conduct infiltration operations in Hraniv but do not maintain any consolidated positions in the settlement. Russian forces appear to be attempting to tie down Ukrainian forces in certain non-priority areas of Kharkiv and Sumy oblasts to facilitate advances into northern Ukraine. Colonel Vitaliy Sarantsev stated on June 29 that Russian forces are attacking toward Kozacha Lopan with the intention of creating new limited offensive areas to prevent Ukrainian forces from moving force concentrations to priority sectors of the frontline. On June 29 or the night of June 29 to 30, Ukrainian forces struck a Russian drone control point near Veselaya Lopan, Belgorod Oblast. In the Velykyi Burluk direction, Russian forces continued limited offensive operations on June 30 without making confirmed advances.

Russian Subordinate Main Effort #2 – Oskil River

Russian forces continued offensive operations in the Kupyansk direction on June 29 and 30 but did not advance. A Russian milblogger implicitly refuted Putin’s June 28 claims of rapid advancement, stating that Russian forces are not advancing south of Kupyansk toward the Oskil River at the pace described in “public statements”. Russian forces also continued limited offensive operations in the Borova direction on June 29 and 30 but did not advance as Ukrainian forces counterattacked southeast of Borova.

Russian Subordinate Main Effort #3 – Donetsk Oblast

Russian forces continued offensive operations in the Slovyansk direction on June 29 and 30 but did not advance. Geolocated footage published on June 30 shows Russian Aerospace Forces (VKS) striking a Ukrainian position with a FAB-1500 guided missile in Mykolaivka. In the Kostyantynivka-Druzhkivka tactical area, the Russian MoD claimed that Russian forces seized Malynivka, and a milblogger claimed they seized Tykhonivka, though no confirmed advances were made on June 29 and 30.

Russian forces continue to deploy small, ill-equipped infiltration groups in an effort to accumulate behind Ukrainian positions in the Kramatorsk and Pokrovsk directions. In the Pokrovsk direction, Russian forces have stopped using armored vehicles due to the threat of Ukrainian drones. No confirmed advances were reported in the Novopavlivka or Oleksandrivka directions. Ukrainian forces are taking advantage of their drone superiority to undermine Russian efforts in the Oleksandrivka direction, disrupting logistics and forcing Russian forces to resupply positions using drones.

Ukrainian forces also continued an intermediate-range strike campaign against Russian assets in occupied Donetsk Oblast, striking an observation post near Staromlynivka and damaging gas stations in occupied Donetsk City. A Ukrainian strike on June 29 partially collapsed a bridge along the M-14 Rostov-Crimea highway near Novoazovsk.

Russian Supporting Effort: Southern Axis

Russian forces continued offensive operations in the Hulyaipole direction and western Zaporizhia Oblast on June 29 and 30 but did not make confirmed advances. The Russian MoD continues its cognitive warfare effort to exaggerate Russian advances northwest of Hulyaipole, claiming the seizure of Rivne and Lisne contrary to available evidence.

Ukrainian forces struck a road bridge near occupied Azovske and drone control points near Myrne, Luhove, and Skelky. In occupied Crimea, Ukrainian forces struck a railway bridge near occupied Ichki, four electrical substations in occupied Kurman and Dzhankoi, and a fuel train in occupied Feodosiya. These strikes are increasingly causing power outages in occupied Crimea, leading occupation authorities to order a temporary power supply restriction regime in Sevastopol.

Russian Air, Missile, and Drone Campaign

Russian forces conducted a series of long-range drone strikes against Ukraine on the night of June 29 to 30, launching 154 drones. Ukrainian forces downed 138 of these drones. Russian strikes left consumers in Dnipropetrovsk, Zaporizhia, Sumy, Kharkiv, and Chernihiv oblasts without power. Russian forces are also increasingly striking gas stations in Ukraine as part of a concerted campaign aiming to replicate the effects of Ukrainian strikes on Russia’s fuel infrastructure.

Newspaper Summary 010726

 Based on the sources provided, here is the reproduced article:

India emerges as UK’s second biggest FDI investor, creating 12,700 jobs

By Yashaswani Chauhan New Delhi

India has been the second most important foreign direct investor into the UK in 2025-26, helping create thousands of jobs. This position is likely to improve further once the India-UK Comprehensive Economic and Trade Agreement (CETA) comes into force on July 15. The agreement, which provides duty-free access for nearly 99 per cent of Indian exports to the UK and expands market access across 137 services sub-sectors, is expected to encourage companies to establish a stronger presence in each other’s markets.

Investment Data Data from the Department for Business and Trade, UK, shows that Indian companies undertook 93 foreign direct investment (FDI) projects in the UK, creating 12,687 jobs. This makes India the second largest job-creating investor after the US, which generated 15,796 jobs through 239 projects. Germany, France, and the Netherlands followed at a considerable distance.

The UK is also emerging as an important destination for Indian overseas investments. Between May 2025 and May 2026, Indian companies undertook 830 overseas investment projects in the UK, making it the country’s fourth-largest investment destination after the US, UAE, and Singapore.

Momentum and Key Sectors This investment momentum had begun building even before the FTA. Earlier in February 2025, the UK government had announced a pipeline of Indian investments, including:

• Aaseya Technologies: €25 million
• Time Cinemas: €20 million
• Novigo Solutions: €12 million

Sector-wise, India’s outward investments continue to be dominated by financial, insurance, and business services (4,607 projects), followed by wholesale and retail (2,599), and manufacturing (2,369).

The FTA Factor Experts believe the FTA could strengthen this momentum by converting trade relations into long-term investments. Pallavi Bakhru, Partner at Grant Thornton Bharat, noted that while traditional sectors will remain dominant, the FTA is likely to widen the scope of bilateral investments.

“Digital and technology services, fintech, advanced manufacturing, healthcare and medical devices, professional services and clean energy are expected to emerge as key investment drivers, supported by enhanced services access, greater regulatory certainty and stronger cross-border supply chain integration," she said. The FTA is expected to not only deepen investment in established sectors but also accelerate collaboration in high-value, innovation-led industries.

Industry bodies also expect British investments into India to gather pace. Nirmal K Minda, President of Assocham, said improved market access, lower tariffs, and streamlined customs procedures would create a more predictable business environment. “British companies will surely look at increasing investment in India considering the rate of economic growth and magnitude of the consumption base,” he added.

Based on the source provided, here is the reproduced article:

Indian refiners book oil supply for next 45 days

By Rishi Ranjan Kala
New Delhi

Indian refiners have stocked up on crude oil for the next 45 days, with Russia continuing as New Delhi’s top supplier and replacement barrels arriving from the US, Venezuela, Africa, and Oman. Indications suggest a buyer's market, driven by de-escalation in West Asia and an increase in Gulf cargos entering the market.

Supply Dynamics
Sources state that there is currently ample crude oil available as Ukraine’s drone attacks on Russian refineries have freed up more barrels for export. Additionally, a 60-day sanctions reprieve and a US-Iran MoU have seen supply return to the market, further bolstered by Saudi Arabia, the UAE, and Iraq pushing more barrels into the system.

“It’s a buyer’s market. For remaining August and September, refiners can buy Iranian crude, but it will depend on market dynamics and payment clarity,” stated a top official from a leading refiner.

Market Outlook
The sanctions reprieve allowing Iran to sell crude and refined products is set to end on August 21. While crude oil exports by Middle East Gulf (MEG) producers are recovering following the opening of the Strait of Hormuz, many analysts do not expect West Asian supply to be a major part of India's import basket for the rest of August and September.

Furthermore, India’s crude oil imports typically trend lower during the June to September rainy season.

Economy resilient but susceptible to energy, supply chain shocks: RBI

By K Ram Kumar Mumbai

The economy and the financial system continue to remain susceptible to geopolitical tensions and associated shocks despite headwinds from the West Asia conflict receding, according to the Reserve Bank of India’s Financial Stability Report. While India’s sound macroeconomic fundamentals provide ample buffers, the report highlighted that the economy remains exposed to energy price shocks and supply chain disruptions due to its high dependence on imported oil and other key commodities.

Resilience and Stability In his foreword to the report, RBI Governor Sanjay Malhotra stated that the economy and financial system have demonstrated remarkable resilience. “Strong growth, low inflation, healthy balance-sheets of financial and non-financial firms, and ample buffers have helped preserve macrofinancial stability,” he said, while committing to further strengthening the guardrails that protect the system from potential shocks.

External Shocks and Growth Malhotra acknowledged that the risk of adverse external shocks has increased, with geopolitical conflicts and fragmentation emerging as key challenges for policymakers. Despite these challenges, the economy recorded a strong growth of 7.7 per cent in FY26, supported by strong private consumption and fixed investment.

Outlook for 2026-27 High-frequency indicators for April–May point to continued resilience, suggesting that growth remained firm in the first quarter of 2026–27. However, the report cautioned that elevated oil and commodity prices, alongside weaker global growth, could adversely affect India’s domestic growth this year. The RBI has projected FY27 GDP growth at 6.6 per cent.

The report also warned that the fiscal deficit could come under pressure. Higher prices for energy and other commodities could adversely impact fiscal arithmetic due to a higher outgo on account of subsidies, excise duty cuts, and the limited pass-through of oil price increases.

India-Japan mobility partnership rolls along

By KE Seetharam

The forthcoming India–Japan Annual Summit in New Delhi from July 1-3, 2026, comes at a moment when both countries can move their partnership from infrastructure cooperation to strategic transformation. The summit is expected to review the full spectrum of bilateral cooperation, including the Mumbai-Ahmedabad High-Speed Rail (HSR) project, economic security, technology, supply chains, and industrial collaboration. This is considered the right time for Prime Minister Narendra Modi and Japan’s Prime Minister Sanae Takaichi to endorse a bold new idea: a Joint India–Japan Multi-modal Mobility 2036 Initiative.

Beyond the Bullet Train While the high-speed rail partnership is a visible symbol of trust, the next phase should go beyond the bullet train to build a seamless HSR-to-Airline and Logistic Mobility Corridor. This would link high-speed rail, airports, regional airlines, metro systems, logistics hubs, digital ticketing, tourism circuits, and clean-energy transport. Such a platform, featuring one ticket, one payment, and one baggage interface, would support India’s economic transformation and Japan’s long-term strategic engagement.

Japanese carriers such as Japan Airlines (JAL), ANA, ZIPAIR, Peach, and AirJapan can support this vision through expanded direct flights, airport operations, MRO (maintenance, repair, and overhaul), and cargo logistics. For India, this brings operational excellence and global connectivity; for Japan, it opens one of the world’s fastest-growing aviation markets.

Connecting Regions Integrated HSR-airport-regional airline systems can connect tier-2 and tier-3 cities to national and global markets, aiding MSMEs, food-processing zones, and medical tourism. With India’s 2026 aviation schedule already including regional carriers like Alliance Air, FLY91, Star Air, and IndiaOne Air, Japan can assist in making these links financially viable through efficient airport design and station-area development.

Tourism and Strategic Security Tourism serves as a central pillar, with Japan welcoming a record 315,100 Indian visitors in 2025. Better air links and integrated platforms can take tourists beyond major cities to lesser-known prefectures in Japan, while attracting more Japanese visitors to India's Buddhist circuits and wellness destinations.

Strategically, this multi-modal partnership aligns with the Joint Declaration on Security Cooperation, calling for deeper defense interoperability and maritime security. Civilian mobility systems can strengthen national resilience, supporting disaster response, humanitarian assistance, and emergency movement during crises in the Indo-Pacific.

Olympic Ambitions Finally, the partnership will strengthen India’s ambition to host the 2036 Olympic and Paralympic Games. Japan’s experience in crowd management, public safety, and major-event logistics can help India build an Olympic mobility model that leaves a permanent legacy, moving from "Bullet Train to Olympic-ready Bharat".

At the summit, the leaders could endorse a six-point framework to launch the 2036 initiative, integrate HSR with regional airlines, deepen Japanese airline participation, promote tourism, and link civilian mobility with Indo-Pacific security.

The writer is an Asian Development Bank Institute Fellow and an Associate Member of The Club of Rome.

Fujifilm India inks MoU for chip materials plant

Our Bureau Ahmedabad

Fujifilm India has signed a memorandum of understanding (MoU) with the Gujarat State Electronics Mission (GSEM) to explore setting up a “semiconductor materials production base” in Dholera. This marks the latest move by the Japanese company to tap into India’s rapidly growing semiconductor ecosystem.

The MoU was announced on Tuesday at the Vibrant Gujarat Regional Conference in Vadodara. Under the terms of the pact, Fujifilm India will collaborate with industry bodies and private companies to assist in strengthening the domestic semiconductor supply chain.

India-Peru FTA talks to resume after new govt takes office in Lima

By T E Raja Simhan Chennai

The negotiations for the proposed India-Peru Free Trade Agreement (FTA), which were expected to conclude by July this year, are likely to resume in the second half of 2026 after Peru’s newly-elected government takes office, said Javier Manuel Paulinich Velarde, Peru’s Ambassador to India.

The negotiations have been delayed following Peru’s recent presidential elections. The new government is scheduled to take office at the end of July and will first need to appoint ministers before resuming the trade discussions, the Ambassador told businessline.

“There is interest from both countries to continue the negotiations,” he said, expressing optimism that the talks would restart once the new administration is in place. So far, nine rounds of negotiations have been completed.

Latest Round The latest round of talks took place nearly a year ago, after which the country’s election campaign slowed progress. While the incoming government will decide the timeline for the next round, the Ambassador reiterated Peru’s commitment to moving the agreement forward.

The proposed FTA is expected to deepen bilateral trade and create new opportunities across sectors such as mining, pharmaceuticals, agriculture, renewable energy, and manufacturing. It is also intended to provide Indian companies with greater access to Peru’s abundant reserves of critical minerals.

Investment Opportunities Beyond the FTA, the Ambassador highlighted Peru’s vast mining potential, noting that the country has around $60 billion worth of mineral exploration and exploitation projects that present significant opportunities for global investors, including those from India.

Mega Port Project Indian companies were also invited to participate in Peru’s infrastructure development, particularly a proposed $6-billion mega port project. This would be the country’s second such facility after the Chancay port.

Sanmar Group evaluating sectors of growth, as engineering arm completes 50 years of JV with American partner

Our Bureau
Chennai

Sanmar Group is in the process of evaluating various sectors, including warehousing, that present growth opportunities in the future, Vijay Sankar, Chairman, The Sanmar Group, said. “At a group level, we are looking at a plan, that we will announce later this year, on areas where we are looking to grow. I think it will take us a few months to do this exercise,” he said.

Sankar was speaking at an event to mark 50 years of group company Sanmar Engineering, which was created by joint ventures with four American companies — Flowserve, Crane Company, Emerson and BS&B Safety. Of this, the JV with Flowserve is the oldest, completing a golden jubilee.

Between the four businesses, Sanmar Engineering delivers advanced products in the areas of fluid handling, industrial safety and flow control serving a range of industries including chemicals, refineries and petrochemicals, power and fertilisers. Thanks to ongoing investments, the companies have added capabilities over the years, Sankar said.

• Flowserve Sanmar is expanding seal system and gas panel capacity with a new plant at Thiruporur, near Chennai.
• Xomox Sanmar (Crane) is expanding capacity from 80,000 valves per year to 1.5 lakh valves per year at its facility in Viralimalai.
• Anderson Greenwood Crosby Sanmar (Emerson) is investing in advanced digital test benches and cryogenic testing facilities.
• BS&B India develops custom-engineered products in segments such as defence, space, nuclear power and more.

DEMAND TRENDS
Speaking on overall demand trends, Sankar said while capex growth has been a little slow in the last few years, the cycle is picking up.

On the JV track record, he stressed on the quality of relationship and understanding with partners, whereby Sanmar’s companies don’t export directly to third-party customers but only ship to the JV partners; likewise, the partners too do not sell into India, and do not come to India and set up a plant in Sanmar’s product ranges.

B Visweswaran, MD, Sanmar Engineering, said the market opportunity would be split into two — traditional energy security businesses and those where there are new opportunities. “For all the four businesses, the company follows high levels of localisation. It’s really make in India for India,” he said.

Banks, NBFCs can withstand losses under adverse scenarios: Report

By K Ram Kumar Mumbai

Stress test results conducted reaffirmed the resilience of banks and NBFCs to withstand losses under adverse scenarios and to maintain capital ratios well above the regulatory minimum at the aggregate level.

Projections and Scenarios The aggregate capital to risk-weighted assets ratio of 46 scheduled commercial banks may decline from 17.5 per cent in March 2026 to 15.6 per cent by March 2028 under the baseline scenario. It may further fall to 13.3 per cent and 13.0 per cent under adverse scenarios 1 and 2, respectively.

These tests attempt to project the capital ratios of banks under a baseline and two adverse macro scenarios over a two-year horizon. While the baseline scenario is derived from the latest forecast paths of macroeconomic variables, the two adverse scenarios are hypothetically stringent stress scenarios designed to test systemic stability.

TN can build a ₹37,000-cr defence electronics industry by 2040, says DRDO scientist

Our Bureau Chennai

Tamil Nadu has the potential to emerge as India’s defence electronics capital by 2040, with an annual production opportunity of ₹37,000 crore and exports of up to ₹10,000 crore. This strategic roadmap was presented by BK Das, DRDO Distinguished Scientist and Director General (Electronics and Communication Systems), at the CII TNDefX Conclave 2026.

Growth Drivers and Market Share The roadmap places Tamil Nadu at the center of India’s push for defence self-reliance. The state’s well-established electronics, semiconductor, aerospace, and automotive manufacturing ecosystems provide a unique advantage in developing next-generation defence technologies.

India’s overall defence electronics market is projected to expand to approximately ₹1.49 lakh crore by 2040. This growth will be driven by demand for:

• AI-enabled systems
• Electronic warfare
• Autonomous platforms
• Secure communications
• Space technologies

Tamil Nadu is realistically expected to capture 20-25 per cent of this national market.

Priority Product Segments Das identified six high-priority product segments for the state that could collectively generate between ₹34,500 crore and ₹37,000 crore in annual production by 2040:

1. Surveillance electronics
2. Autonomous systems
3. Radar and RF electronics
4. Electronic warfare systems
5. Secure communications and software-defined radios
6. Space electronics

Export Potential and Competitive Assets The state is also poised to become a significant exporter, with projected annual exports of ₹8,000-10,000 crore by 2040. Targeted markets include Asean, West Asia, Africa, South Asia, and Latin America.

To achieve this, Das proposed creating a network of specialised Centres of Excellence, building on the existing Tamil Nadu Defence Industrial Corridor. The state’s competitive assets include:

• Defence PSUs like BEL and HAL.
• DRDO facilities and a deep-tech startup ecosystem.
• Premier academic institutions such as IIT-Madras, Anna University, and NIT-Tiruchirappalli.

While specific details of upcoming programmes were not shared, Das indicated that numerous opportunities would soon emerge, benefiting companies across tier-I, -II, and -III supply chains.

Based on the sources provided, here is the reproduced article:

Kotak buys Deutsche Bank’s retail business

Frankfurt: Deutsche Bank said on Tuesday that Kotak Mahindra Bank would acquire its retail banking and wealth management business in India, as the German bank aims to streamline operations and redeploy capital. Kotak Mahindra stated the purchase price was approximately $30 million.

REUTERS

Iran Update: Escalation in the Strait and Lebanon Pilot Zones

 The following is a reproduction of the Iran Update Special Report published by the Institute for the Study of War (ISW) and the Critical Threats Project (CTP) on June 28, 2026.

Key Takeaways

1. Iran has continued to attack US forces in the region to try to deter the United States from undermining Iranian efforts to control the Strait of Hormuz. An Iranian drone struck the Panama-flagged M/T Kiku on June 27, prompting US military aircraft to target Iranian surveillance, communications, air defense, drone storage, and mine-laying infrastructure. On June 28, the IRGC launched drone and ballistic missile attacks against the US Fifth Fleet Naval Base in Bahrain and the Ali Al Salem Airbase in Kuwait.
2. Iran’s strikes may reflect an effort to dissuade Gulf states from resisting Iranian control over the strait. Iran likely intended these strikes to signal that it will respond with force to any opposition to its management of the waterway.
3. Iran is threatening to suspend negotiations as part of its efforts to deter the United States from challenging its sovereignty over the strait. The IRGC Navy stated that US strikes violated the ceasefire and will result in the "complete halt of all diplomatic processes."
4. The Israeli government confirmed the locations of two “pilot zones” in southern Lebanon where the Lebanese Armed Forces (LAF) will backfill the Israel Defense Forces (IDF) as part of a June 26 trilateral framework agreement. These zones lie beyond the IDF’s “anti-tank line,” which likely reduces the risk of Hezbollah attacks on Israeli territory from those areas.

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Escalation in the Strait of Hormuz

Iran has continued to attack US forces to deter the United States from undermining Iranian efforts to control the Strait of Hormuz. Following the drone strike on the M/T Kiku on June 27, US retaliatory strikes targeted a range of Iranian military infrastructure. In response, the IRGC Navy released a statement threatening US bases and launched missile and drone attacks on the US Fifth Fleet in Bahrain and Ali Al Salem Airbase in Kuwait on June 28. While Bahraini air defenses intercepted several projectiles, the Interior Ministry reported that one Iranian attack destroyed a residential building.

Iranian officials, including Foreign Affairs Minister Abbas Araghchi, have emphasized that Iran is “solely responsible” for managing the strait under the US-Iran memorandum of understanding (MoU). However, the fifth article of that MoU requires Iran to engage in dialogue with Oman and other Gulf states to determine the waterway's future administration. Artesh Spokesperson Mohammad Akraminia stated that Iran seeks to use this control to strengthen its regional power, rather than just for collecting tolls. ISW-CTP assesses that Iran is prioritizing recognized control over the strait as a strategic goal.

Iran's strikes also aim to signal to Gulf states that opposition to Iranian management will be met with force. This follows a June 25 declaration by the Gulf Cooperation Council (GCC) and the United States rejecting Iranian attempts to assert control or charge tolls. Omani officials have also publicly opposed mandatory fees, citing international freedom of navigation. Iranian media has responded with a harsher tone, accusing Gulf states of trying to "conceal" a new "regional balance" established by Iranian control.

Furthermore, Iran is using the threat of suspending negotiations to alter US decision-making. This tactic was previously used prior to the signing of the MoU to compel the US to pressure Israel regarding operations in Lebanon.

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Lebanon "Pilot Zones" and Hezbollah Opposition

The Israeli government has confirmed two “pilot zones” for the LAF to assume security responsibility:

• Northern Pilot Zone: Territory surrounding Zawtar el Gharbiyeh in the Nabatieh District.
• Southern Pilot Zone: Territory surrounding Ghandouriyeh and Froun in the Bint Jbeil District.

These zones are located on opposite banks of the Litani River and sit beyond the IDF's "anti-tank line," which should reduce the risk of Hezbollah anti-tank guided missile (ATGM) attacks on northern Israel. While the LAF is tasked with disarming groups in these zones, the IDF plans to retain positions on advantageous terrain near Ali al Taher, Beaufort Castle, and Kfar Tebnit for defensive purposes.

Hezbollah has responded by threatening civil war in Lebanon if the government attempts to implement the agreement and disarm the group. Hezbollah Parliamentarian Hassan Fadlallah claimed the agreement's purpose is to undermine the US-Iran MoU and warned that Iran will not sign any agreement without a guaranteed Israeli withdrawal from Lebanon. ISW-CTP assesses that Iran and Hezbollah are attempting to condition nuclear negotiations on a full Israeli withdrawal to preserve Hezbollah's presence in the south.

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Other Axis of Resistance Activity

In Iraq, political parties with Iranian-backed militia wings are reportedly planning to publicly announce their separation from their affiliated militias. This "removal of military uniforms" is seen as a move to covertly take over Iraqi state institutions and protect against US pressure to reduce Iranian influence. An estimated 3,000 senior civil servant positions could be redistributed to these parties as they further entrench themselves in the government.

This maneuver follows a mid-June meeting between Iraqi Prime Minister Ali al Zaydi and US Special Envoy Tom Barrack, who presented a plan of “investment in exchange for arms.” The US offered economic support in exchange for Zaydi’s government limiting Iranian influence by disarming militias, dismantling corrupt financial networks, and removing militia-aligned figures from the government. In response, Zaydi’s government has replaced the Central Bank governor and launched a large-scale corruption crackdown that has led to over 45 arrests.

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Researchers: Adham Fattah, William Doran, Carolyn Moorman, Benjamin Schmida, Kelly Campa, Annika Ganzeveld.

Newspaper Summary 290626

     The article titled "Inflection point" from the June 29, 2026, edition of The Hindu BusinessLine discusses the current state and potential of India's Micro, Small, and Medium Enterprises (MSMEs).

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Inflection point

With a little support, MSMEs can be a driving force

There cannot perhaps be a better time than the present to take stock of how India’s micro, small and medium enterprises are faring. After all, there are 8.77 crore MSMEs employing 38.9 crore people, contributing nearly a third of GDP and half our exports.

Quite apart from the fact that the week starting June 27 is observed as MSME week globally, the world has been through a period of extraordinary flux over the last year or more, starting with the Liberation Day tariffs last April and culminating in the Gulf war. Alongside, developments in AI and automation are rapidly redefining production processes, creating opportunities and challenges with respect to skilling. It is against this backdrop that this newspaper organised its annual ‘MSME Growth Conclave’ in Bengaluru and Hyderabad. At least three things define MSMEs, and the policies meant for them, are dealing with technological and geopolitical shifts. The first is an inclusive space for concerning MSMEs (actually an umbrella term that encompasses enterprises from ₹2.5 crore to ₹500 crore), came up for discussion — access to finance, human resource management and managing the growth path of the enterprise.

To take the last point first, industry leaders rightly observed MSMEs should overcome the ‘Peter Pan’ syndrome, which seems to arise from a fear of losing family control. This also means snapping out of the sub-contracting mindset and instead owning intellectual property, particularly in the dairy. The use of modern equipment and digitised processes can aid expansion and standardisation of products. To this end, synergies between industrial and educational system need be developed. But to hack this ambitious, and more so a for a place as a financial ecosystem are pre-requisites. MSMEs struggle to retain talent. It was observed that the workforce should be able to visualise a career path.

As for finances, MSMEs continue to struggle. According to a recently released Deloitte report, most MSMEs do not have access to formal credit and raise funds from informal sources. While the availability of gold loans seems to be a factor, the banking system must do some serious introspection. Specifically, taking credit and working capital requirements met or adjusted to deal with global shocks. Credit appraisal schemes seem to help up to a point. Bankers with intimate knowledge of local conditions must be rewarded for nurturing enterprises over time with patient capital. While being wary of NPAs, as in the present times, bankers need to account for circumstantial stress. As for working capital finance, the Trade Receivables electronic Discounting System is not doing very well, despite recent efforts to reform it. The 45-day payment norm is often circumvented. Yet, it is remarkable that MSMEs have shown great resilience — despite Covid, demonetisation and the war-induced shocks since 2022 — to put the economy back on the growth path. Ecosystem support can make a huge difference.

The article titled "Line & Length: It has merit, but it stood in India" by TCA Srinivasa-Raghavan, published on page 4 of the June 29, 2026, edition of The Hindu BusinessLine, provides a critical look at mercantilism and India's economic history.

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Line & Length: It has merit, but it stood in India

India has stood mercantilism on its head by importing far more than it exports.

A lot of highly intelligent people think China is the cat’s whiskers. Thus, “power in international trade disputes in a fundamental sense reflects power over supply, not power over demand, which is something economists have always tried to say.”

That, was Paul Krugman, the Nobel winning economist who is a trenchant critic of the Donald Trump government, wrote this in an article a few days ago. He was comparing the US and China.

Trump, he was implying, made the mistake of thinking that bottomless demand for goods mattered more than was China’s control of supply that has no substitutes.

Krugman is both right and wrong. China wins only because of its control of the supply of a few rare earths. Much of the rest of what it produces can be, and is, produced quite easily elsewhere.

Yes, it is true that it sells what it produces very cheaply. But that’s because of gigantic subsidies and currency manipulation. Economists have researched this to death. Countries can also fight back by taxing these import duties steeply. China doesn’t care.

When Trump increased tariffs on Chinese goods, he would have succeeded except that he made the same mistake that he made when he attacked Iran earlier this year. He forgot that China controls rare earths just as Iran controls the straits of Hormuz. Every Achilles has a vulnerable heel.

But to conclude from this that to supply that determines power in international trade is probably wrong. By that logic, Russia should control both Europe and the US because it could produce nearly $50 trillion worth of goods and services. It is often said that without the demand from China and Europe the Russian economy would collapse. The other buyers of the buyers would merely deflate while they diversify their sources of supply.

CHINA’S WEAKNESS Despite temporary phases of having the upper hand, a single seller is therefore always more vulnerable. The Chinese should bear this in mind while withholding supply. Actually, China knows this. And that’s why it’s constantly putting out the news that it’s invulnerable. But who is it fooling?

Let’s not forget that it can’t feed itself. Nor is it self-sufficient in energy. In fact, far from it. If tomorrow there were food or energy sanctions against it, together the two would very quickly bring it to its knees.

INDIAN MERCANTILISM But leave Krugman and China and let’s return to mercantilism. Where does India stand on it? Believe me, you don’t want to know. It’s enough to make a strong mind boggling.

In a typical inversion of policies which make neither economic nor political sense, India has stood mercantilism on its head. The core of mercantilism, as enunciated by the Englishman Thomas Mun in the 17th century, is to export as much as you can and import as little as you need. India does the exact opposite.

Two things have been mainly responsible for this economic absurdity. One was the political belief that we needed to save foreign exchange. So the model of being an exporting country that didn’t have any industrial base of its own and the other was the need to stop the colonial maltreatment of labour.

It never occurred to anyone that rapid industrialisation is inconsistent with the jellymoulding of labour. You can’t have both. Communist China understood this perfectly, we didn’t. Basically, to show we stood mercantilism on its head, because our comparative advantage in labour was wholly neglected.

In India equity for labour displaced efficiency for capital. And that is how we stood mercantilism on its head, because our comparative advantage in labour was wholly neglected.

Amongst the various counterproductive things we did, we ignored the basic fact that after 1947 China after 1978 did the exact opposite. It now has a $20 trillion economy. We have a $4 trillion economy. We used to follow China. Now we buy everything from it. It is not as if India’s first prime minister wasn’t told about the negative outcomes of his economic policies after 1957. He was, but he ignored all the warnings.

Can the fallout be fixed? Not unless we prioritise efficiency over equity. Will we do it? Yes but in homeopathic doses, as in the new labour codes.

What does that mean? I think we should replace that 0 in 2047 with 1, to make it 2147.

I mean, look at us. Even after 79 years of Independence we are governed by politicians and babus who can’t decide what is really sufficient to improve Indian citizenship. What can we expect of them?

The article titled Other Voices (South China Morning Post), found on page 4 of the June 29, 2026, edition of The Hindu BusinessLine, addresses the mental health challenges facing youth in Hong Kong:

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South China Morning Post

Hong Kong must tackle roots of youth mental health crisis

The mental health problems faced by the young, leading in extreme cases to suicide, are a long-standing issue experienced widely around the world. But they remain a source of deep public concern, requiring constant attention. There were 91 cases of students having suspected of committed suicide between 2023 and 2025. The figure rose from 28 in 2024 to 31 last year, despite a range of initiatives intended to help. This suggests we need to look even more closely at risk support. With the reasons for each suicide are complex. But the challenges and pressures resulting from the city’s competitiveness and toxicity on social media can limit their ability to develop people skills and can expose them to cyberbullying or other harmful content.

The article titled "The cost of over-reliance on antibiotics" by Rajeev Jayadevan, published on page 5 of the June 29, 2026, edition of The Hindu BusinessLine, is a book review of A World of Resistance by Aaron Doran and Alex Broom.

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The cost of over-reliance on antibiotics

The book presents a diverse array of useful perspectives — though India is not a lone contributor or victim as painted

The central theme of this work is antimicrobial resistance (AMR), with the authors choosing to highlight global India’s role within this public health challenge. Before evaluating the book’s specific focus on India, it’s vital to discuss what AMR means. It is a global problem identified by the World Health Organization where existing treatments can no longer effectively combat bacteria and other infections, leading to more severe illnesses, prolonged hospital courses, and worse clinical outcomes.

Incidentally, bacteria have always possessed the biological ability to overcome antibiotics. This is a natural part of their evolutionary survival over billions of years, helping them resist lethal chemicals deployed by other organisms in the environment. Thus, contrary to popular belief, the first case of bacteria suddenly acquiring an antibiotic happened long after man started using antibiotics.

It is true that antibiotic overuse and misuse contribute to larger bacterial populations that are relatively resistant through the process of selection. However, the cliché that only patient blame or irrational prescribing patterns obscures the fundamental nature of the problem globally. These drivers range from large-scale livestock antibiotic use, urban overcrowding, inadequate sanitation, shortcomings in infection prevention strategies, and diagnostic limitations and healthcare access, compounded by worldwide educational disparities.

Ultimately, the entire world needs to work together to reduce resistance, particularly because the number of new drugs in the pipeline does not match the rising need.

In the first paragraph of their introduction, the authors mention the controversial term New Delhi Metallo-beta-lactamase-1 (NDM-1), which was branded as “India’s superbug” by the international media in 2008. This created an unfortunate perception that India was exporting dangerous bacteria to the rest of the world, and there was an unsafe place for global health. Experts decried such criticism as scientifically inaccurate, given that resistance has evolved over billions of years and cannot be pinpointed to a specific location.

In subsequent sections, the authors discuss the considerable number of tuberculosis patients in India, noting that many suffer from drug-resistant strains. To provide necessary context, tuberculosis remains a monumental global challenge, and drug resistance is an escalating crisis present across many populous and developing nations.

HISTORICAL REFERENCES

The authors also present historical references to advisories regarding antibiotic use in India. However, these guidelines were relatively sparse in the early post-Independence era, when the primary focus was combating the larger share of illness and death from infectious diseases. The advent of antibiotics, improved sanitation, vaccination and modern aseptic practices that allowed life expectancy to rise quickly beyond the fourth decade. An unintended consequence of this successful historical transition was a lingering cultural and clinical practice of utilising an antibiotic whenever an infection was suspected.

Fuelled by an earnest desire to heal their patients, doctors in developing nations — not just in India — err on the side of overprescribing rather than under-prescribing. This is a multi-faceted process driven by a lack of rapid diagnostic tests that can differentiate between bacterial and viral infections, a mutual reluctance to perform these tests due to cost concerns and patient compliance, a higher prevalence of many types of bacterial diseases, avoidance of patient dissatisfaction at not receiving a prescription, and a defensive fear of missing a serious bacterial infection when initial symptoms mimic a viral fever. In India, unfortunately, this challenge is compounded by self-medication and the availability of antibiotics from pharmacies without a physician's prescription.

The next portion of the book addresses the rise of India as a hub for generic drug manufacturing, where the authors discuss environmental pollution caused by pharmaceutical effluents. Environmental contamination is indeed a recognised variable in AMR. When industrial waste containing active antibiotic residues enters water bodies, it can expose local bacteria to sub-lethal doses of these agents, selectively promoting the growth of resistant organisms. The book notes that this environmental resistance occurs as a side effect of lower-cost manufacturing, as well as widespread antibiotic use in agriculture, citing similar studies from China. While it is easy to point fingers at the developing world's manufacturing processes with all intensity, the fact remains that western countries are the beneficiaries of this cost-cutting, which incentivises pharmaceutical firms to manufacture generics at the lowest cost possible.

When discussing the veterinary use of antibiotics in India, the book highlights recent measures undertaken to regulate these practices. On a global scale, worldwide agricultural antibiotic use (which consumes three-quarters of all antibiotics produced) remains the hidden elephant in the room, even as the book extensively discusses individual doctors’ prescribing habits and corporate promotional activities grab the public’s attention more easily.

Ultimately, the book, A World of Resistance, offers diverse and useful perspectives collected from various segments of society, which will be useful for policymakers in the country to comprehend the multifaceted nature of AMR. Although the authors describe India as the “ground zero of the growing AMR crisis”, several processes that drive AMR in India are common to many other nations, including wealthy ones. AMR is an issue all countries — wealthy or otherwise, big or small, provider or recipient — have a vital role to play.

The article titled "Moving satellite data at laser speed" by M Ramesh, located on page 7 of the source, explores the advancements in optical communication for space technology.

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Moving satellite data at laser speed

ON A LIGHT BEAM. Bengaluru-based start-up is solving for an emerging bottleneck in space-tech: Limited radio spectrum for downlinks

Recently a Bengaluru-based start-up, Quosmic, raised at least $3.33 million fundraise from a group of investors that included Accel and Lightspeed. Quosmic has an interesting technology that promises to make a big difference in a crucial aspect of space-tech — data transfer.

Today, we are seeing an explosion of data from satellites. Modern satellites are remarkably capable machines. Earth observation spacecraft can capture detailed images of vast regions in a single pass. Weather satellites continuously monitor atmospheric conditions. Scientific missions generate tons of measurements from sophisticated instruments. The challenge is in moving the data from space to the ground.

For decades, satellites have largely relied on radio frequency (RF) communications. These systems are reliable and well-understood, but they have limited spectrum and finite bandwidth. As the number of satellites in orbit grows, the communications pipeline is becoming increasingly clogged.

The solution pursued by companies such as Quosmic is laser-based optical communication. Instead of encoding information using radio waves, the system uses beams of light. At its heart, the underlying principle is similar to fibre-optic cables that have transformed terrestrial telecommunications. The difference is light travels through free space rather than glass fibres.

Unlike radio transmissions, laser beams are extremely narrow. A satellite hundreds of kilometres above Earth must point its beam with extraordinary precision at a ground station or another spacecraft. Engineers refer to the process as pointing, acquisition and tracking — the ability to find, lock on to and continuously track a moving target. Quosmic says it has field-tested its optical communications over a 10 km terrestrial link, demonstrating these capabilities outside laboratory conditions.

LOOKING BEYOND RF

RF transmission is time-tested, but it is hitting a limit. A high-resolution satellite generates one to two terabytes a day, but only gets a few short windows over a ground station; over radio, it can push down only a fraction of that. “By industry estimates, roughly two-thirds of the imagery a satellite captures is overwritten before it is ever downloaded. They have paid to collect data they cannot deliver. That is the problem we solve,” says Shreyas Jain, Co-founder and CEO, Quosmic.

Earth observation is just the first wave — the volume problem is about to become orders of magnitude larger. Jain observes that the entire industry is moving to not just computers but also computing in orbit. In the last few months, SpaceX and Nvidia have announced AI computers that will go up. This means ‘orbital data centres,’ with partners including Starcloud, Axiom Space and Quosmic, building interconnects for space. “We are seeing an explosion of compute in space,” Jain says.

Radio frequency alone cannot carry the traffic. The ground link will be the bottleneck for the orbital economy. “Our job is to create a high-speed connection between space and the ground itself,” says Jain. “In-house we call it the ‘Optical Highway,’ infrastructure built indigenously, and the technology grows from here”.

USE CASE

The clearest operational example of such a performance is the European Space Agency’s (ESA) Sentinel satellites, which are behind the Copernicus programme. Previously, a high-speed low-orbiting satellite may be forced to wait for nearly half of its roughly 100-minute orbit before it comes in sight of a ground station to transmit data. The ESA has built a dedicated laser relay, which today moves nearly 40 terabytes a day and has carried more than a petabyte of data.

The agency says optical links will prove inadequate when its next generation high data-rate missions come online. “On rare performance, NASA’s TBIRD experiment sent data from a small satellite to the ground at 200 gigabits per second, moving more than a terabyte in a single pass under five minutes, which NASA calls more than a thousand times faster than a comparable radio link,” Jain points out.

ORBITAL DATA CENTRES

Today, many companies want to put up data centres in space — perhaps encouraged by the continuous supply of free solar energy. Another Bengaluru-based start-up, TakeMe2Space, is into this venture and Quosmic is building optical terminals for TakeMe2Space’s Moio constellation.

When you put gigawatts of AI compute in orbit, the data moving between these cloud-sized clusters at a radio scale cannot touch. Imagine a system where light has demonstrated a single optical connection transferring 40 gigabits per second in the lab, while a radio terminal is hard-pressed to hit 100 megabits to a few gigabits, Jain says. Starcloud has filed for a constellation of up to 88,000 computing satellites and envisions clusters in different orbits.

“For that traffic, optical is not a better alternative,” Jain suggests — “it is the only way to land the data at all”.

He makes another telling point: Radio spectrum is licensed, and licensing can take months. Optical communication needs no spectrum licensing.

ALTERNATIVE VIEW

The user industry has a slightly varied view. Akshat Bisht, CEO and Co-founder, GalaxEye, says achieving “pointing accuracy” takes a lot of effort and energy; he would rather use the energy to take more images. He also observes that cloud cover can interfere with optical communication links, making them less reliable than radio-frequency systems under some conditions.

“Optical communications is a great technology for the future,” Singh says, but for now GalaxEye is sticking with the old reliable radio frequency.

The article titled "Canada invests in making health systems climate-resilient" is found on page 9 of the June 29, 2026, edition of The Hindu BusinessLine. It details the Canadian government's financial commitment to preparing its healthcare infrastructure for the impacts of climate change.

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Canada invests in making health systems climate-resilient

Climate change poses a significant and growing risk to health, said Health Canada, adding that more frequent and severe extreme weather events are leading to injuries, loss of life and negative impacts on mental health.

The country recently announced an investment of over $17 million through the Climate Change and Health Capacity Building programme to support 24 community-designed projects that advance knowledge, capacity and strategies in adapting Canada's health sector to climate change. The programme intends to build resilient and low-carbon health systems (HealthADAPT), and protecting Canadians from extreme heat.

Many regions across Canada experience extreme heat events, often referred to as heat waves. Through HealthADAPT, over $13 million is distributed to entities such as the University of British Columbia (UBC) and BC’s Provincial Health Services Authority.

UBC is examining the complex health risks faced by individuals with schizophrenia during extreme heat waves and climate heat exposure. This will help develop critical insights into how decision-making, poverty, and other environmental quality and social inequities play into vulnerability to heat and other climate change events. BC's Provincial Health Services Authority's work will help strengthen partnerships, research and data expertise to better understand and respond to extreme heat impacts, including heat-related illness and mortality.

The Canadian government has invested more than $6.6 billion in climate change adaptation since 2011. This includes $2.1 billion in commitments since fall 2022 to implement the National Adaptation Strategy and support other adaptation-related activities. As part of HealthADAPT, nearly $4 million has been provided to organizations across Canada to support efforts to build climate-resilient and low-carbon health systems.

The article titled "How NDR built a warehouse empire" by T E Raja Simhan, published on page 8 of the June 29, 2026, edition of The Hindu BusinessLine, chronicles the growth of the Chennai-based NDR Group from its origins in rice milling to its status as a major player in India's logistics sector.

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How NDR built a warehouse empire

BRICK BY BRICK. From running a rice mill to boasting a ₹6,650-crore InvIT, the Group’s logistics-fuelled dramatic rise

India’s warehousing sector has transformed dramatically over the past decade, driven by the rollout of GST, rapid growth in e-commerce, the formalisation of supply chains, and the entry of global capital. Among the companies that have capitalised on this shift is the Chennai-based NDR Group, which launched nearly six decades ago with a rice mill and has evolved into one of the country’s largest warehousing platforms.

The group’s development pipeline includes projects currently constructing around 7 million sq ft (msf) of space across the warehousing and industrial park segment. This is part of a 12 msf land development pipeline scheduled for eventual transfer to the group’s infrastructure investment trust (InvIT), according to N Amrutesh Reddy, Managing Director, NDR.

The rice mills set up in the 1950s in Nellore by the founder, Naidu Amrutharai Reddy, worked only during peak seasons, and the storage space remained idle for a significant part of the year. Amrutharai’s sons began using the space to store cargo for others, an opportunity that eventually grew into a full-fledged dedicated warehousing business. The business subsequently expanded beyond agricultural storage. By the mid-1980s, it was a preferred choice for large consumer goods and industrial machinery companies like Hindustan Lever and Castrol.

During the 1990s, NDR entered bonded warehousing and container freight stations (CFS). Reddy says the company was the first to set up a private bonded warehouse and was one of the earliest CFS operators in Chennai. It was also an early mover in rail-linked logistics. In 2003, it developed a private freight terminal near Delhi-Gurgaon, at a time when there was no formal policy framework for such projects. The asset, which was later sold to Gateway Distriparks, provided the company with valuable experience in integrated logistics infrastructure.

ROLE OF GST

Reddy cites the introduction of GST as the turning point for the country’s warehousing industry. In the pre-GST era, companies maintained warehouses across multiple States largely for tax optimisation. GST enabled businesses to redesign supply chains around fewer, larger regional distribution centres, he says. This helped reduce inventory and transportation costs while improving operational efficiency.

Anticipating this shift, NDR focused on developing large, consolidated warehousing facilities in major consumption hubs. As demand for regional distribution centres increased, the portfolio expanded sharply from around 3 million sq ft in 2016 to more than 21 million sq ft currently.

The group’s growth received a further boost in 2021 when global asset manager Investcorp invested about ₹500 crore to accelerate the expansion of the platform’s portfolio. It hit a major milestone in February 2024 with the launch of India’s first listed warehousing InvIT, with 17 million sq ft of built warehousing space and around 2 million sq ft under development, cumulatively valued at ₹3,800 crore.

Since then, acquisitions and expansion have significantly increased the platform’s scale. The InvIT now manages around 22 million sq ft of warehouse and industrial assets, serving over 100 customers, with no single client contributing more than 5 per cent of revenue. The company recently raised around €800 crore from institutional investors for more acquisitions.

BUSINESS MODEL

NDR operates primarily as an asset owner and developer. It acquires land, develops warehouses and industrial facilities, and manages and leases them. The operational management is largely handled by third-party logistics providers and occupiers. Logistics accounts for about 10 per cent of the portfolio, or roughly 2 million sq ft. Under NDR InvIT, the focus remains on investing in infrastructure in various sectors such as electronics, engineering, and pharmaceuticals. Reddy says the company plans to add around 4 million sq ft annually through the InvIT. Expansion is underway in locations such as Coimbatore, Hosur, Pune and Varanasi.

Despite rising competition, NDR remains optimistic about the sector’s prospects. A substantial share of India’s warehouse stock does not meet modern standards for approvals, fire safety and infrastructure. Compliance requirements for tighter, organised developers are expected to benefit from the replacement and upgrading of outdated facilities. The company’s biggest challenge remains land acquisition, with large parcels becoming increasingly scarce and expensive.

NDR is also investing in sustainable practices such as rooftop solar power and exploring social infrastructure assets, including education, healthcare and hospitality, through asset-owning platforms, Reddy says.

The article titled "Human link in supply chains" by Rajesh Menon, found on page 8 of the June 29, 2026, edition of The Hindu BusinessLine, highlights the critical role of workers in the logistics sector and the progress of India's National Logistics Policy.

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Human link in supply chains

HOISTING THE ECONOMY. The toil of millions of logistics workers keeps supply lines moving 24x7

RAJESH MENON

Yesterday, June 28, was Logistics Day. Observed since 2019, it acknowledges the vital role played by this network in day-to-day life. It includes everything from the last-mile movement of couriers, e-commerce agents and truck drivers to the vast network of heavy infrastructure like highways and trains hauling immense industrial bulk to ships. This ecosystem also includes warehouses. Ultimately, logistics relies on the relentless, 24/7 toil of millions of workers who keep the world’s supply lines moving seamlessly through a robust infrastructure.

India’s own ambitions gathered pace when the government launched the landmark National Logistics Policy (NLP) in 2022. It provided a clear, unified direction to a historically fragmented sector by aiming to slash high costs, boost global competitiveness and integrate multimodal networks through digital transformation.

Since the policy’s implementation, India’s logistics ecosystem has undergone a paradigm shift, validated by its climb to the 38th rank (from 54th in 2014) in the World Bank’s Logistics Performance Index. This advancement, driven by infrastructural strides like the PM GatiShakti National Master Plan and the Unified Logistics Interface Platform (ULIP), has optimised part turnaround time and supply chain tracking, boosting the country’s manufacturing capabilities.

MULTIMODAL STRENGTHS

The momentum continued during the 2025-26 fiscal period, evidenced by media and government reports of multimodal execution across India. A major cornerstone is the operational growth of Vizhinjam International Seaport, which handled over two million TEUs while securing approvals to develop adjacent multimodal logistics parks (MMLPs). India’s major ports collectively handled a record 915.17 million tonnes of cargo in FY2025-26, while average vessel turnaround times plummeted below 50 hours.

On land, the ecosystem of dedicated freight corridors doubled to nearly 6,000 km, complementing along 2,741 km of track, accelerating freight speeds and decongesting traditional rail lines. Complementing this expansion is the operationalisation of MMLPs, marked by trial cargo flights at the new Noida International Airport and inland waterways cargo movement growing to nearly 180 million tonnes, respectively.

Further, the Ministry of Road Transport and Highways revamped the model concession agreement for MMLPs to fast-track public-private partnerships. The MMLP at Jogighopa became fully operational in 2025, with a growing potential for inland trade to Bhutan and Bangladesh. The MMLP at Mappeddu, Chennai, embarked on the first phase of operation in 2026; work has started on MMLPs in Bengaluru, Indore and Nagpur.

Simultaneously, highway construction increased under the Bharatmala Pariyojana, expanding the National Highway Network to 1,46,572 km by March 2026, which includes the inauguration of the 213-km Delhi-Dehradun economic corridor. Parallelly, Indian Railways hauled an all-time high of 1,670 million tonnes of freight, reinforced by 35 new Gati Shakti cargo terminals.

Even as the NLP continues to make an impact across the States, the human link remains vital. Policies are being chalked up with the future in mind. Initiatives like Logistics Day affords an opportunity to salute the 20-25 million men and women who power the logistics sector, which accounts for 13-20 per cent of GDP, valued around $350 billion and enjoying a CAGR above 8 per cent.

The writer is a maritime expert. Views are personal.