Thursday, June 11, 2026

Newspaper Summary 120626

Rafale deal unlikely during PM Modi’s visit to France

Dalip Singh & Amiti Sen, New Delhi

The estimated ₹3.25 lakh crore government-to-government defence deal with France for 114 Rafale fighter jets is unlikely to be announced during Prime Minister Narendra Modi’s upcoming two-day visit to Paris, starting on Saturday. More significantly, the Macron government is engaging seriously with India’s demand for access to source codes, which would allow the indigenous integration of weapons and systems.

Another issue under extensive consideration is India’s push to execute the entire project under the ‘Make in India’ procurement policy, French diplomatic sources said on Thursday ahead of Modi’s visit.

MAKE IN INDIA

The current proposal stipulates that 90 of the 114 Rafale jets will be produced in India, while the remaining 24 will arrive in a fly-away condition.

SHIFT FROM THE PAST

This marks a significant shift from the two earlier Rafale contracts with France. When India purchased 36 Rafales for the Indian Air Force in 2016 and another 26 marine versions last year, all aircraft were acquired in 100 per cent fly-away condition — they were built, assembled and tested entirely in France by Dassault Aviation. This time, however, 90 of the fighters will be manufactured in India.

“Everything is open when the two leaders sit across the table,” said French diplomatic sources, noting that India formally issued a letter of request (LoR) last month seeking a commercial and technical response for what will be its biggest-ever defence acquisition. “Both the French government and French companies are committed to integrating ‘Make in India’ into our defence deals, including the Rafale,” said sources.

As negotiations move into the formal stages of finalising costs, Indian content and manufacturing cooperation, the bilateral procurement route is visibly evolving from a traditional client-provider relationship. “It’s not a supplier-customer relationship. It’s equal to equal,” said diplomatic sources.

Defence Secretary Rajesh Kumar Singh earlier said that Dassault Aviation had offered 40 per cent localisation during initial discussions. However, he stated that the Ministry of Defence is pushing for 50 per cent or more Indian content to boost self-reliance. For the first time, the aircraft will be manufactured outside France.

‘DIFFERENT DEAL’

French diplomatic sources reiterated that this contract is a departure from previous defence agreements. “This Rafale deal will be different from earlier deals. Unlike the past, the integration of Indian components and weapons will be an inherent part of this contract,” said a source.

Prime Minister Modi and French President Emmanuel Macron are scheduled to hold a bilateral meeting in Nice on Sunday.

Ahmedabad crash probe ‘not fair’, says pilot association

Avinash Nair, Ahmedabad

A year after the Air India Boeing 787 crash in Ahmedabad claimed 260 lives, a pilots’ body has questioned the fairness and direction of the investigation, alleging that key evidence is not being followed and lapses in the probe are fuelling speculation instead of closure.

The Federation of Indian Pilots (FIP) on Thursday said critical questions surrounding the disaster remain unanswered, citing “investigative gaps” ranging from the delayed examination of the sole survivor to concerns over the handling of technical evidence.

According to FIP President Captain CS Randhawa, Vishwash Kumar Ramesh, the lone survivor of the crash, was formally interviewed by investigators only about 10 months after the accident.

TECHNICAL EVIDENCE

The federation questioned whether all available technical evidence, including aircraft communication messages transmitted before departure, had been adequately examined and whether sufficient independent aviation experts had been involved in the probe.

“We are almost completing one year, and there is still no conclusion. We have been unable to investigate a flight that crashed seconds after take-off. So much time and effort has gone into the probe, yet there is no finality. Investigators are expected to share a draft report 30-60 days before the final report but till date no draft has been circulated,” Randhawa said.

He questioned the decision to send the aircraft’s two black boxes to the US for analysis, alleging that it contradicted claims that India possessed the capability to decode and examine flight recorders domestically.

“We have informed the Ministry that this is not a fair investigation... investigations are not proceeding as per the evidence given,” the FIP President said. He added that FIP officials will meet the families of those killed in the crash on Friday.

TECHNICAL FINDINGS

The pilots’ body also alleged that Aircraft Communications Addressing and Reporting System (ACARS) messages transmitted by the aircraft shortly before departure had not been adequately addressed in the preliminary findings. According to Randhawa, several messages were sent approximately 15 minutes before take-off, but there was no mention of them in the preliminary report.

Another concern flagged by the federation involved the composition of the investigation team. Randhawa alleged that the inquiry had not sufficiently relied on independent subject matter experts, despite the technical complexity of the crash, and questioned the presence of officials from the aviation regulator on the investigation board.

Randhawa cautioned against releasing any interim findings before the investigators reach a definitive conclusion. “An interim report at this stage will only add to confusion and fuel further speculation,” he said, urging both the government and the AIIB to refrain from issuing a partial report.

“If investigators need more time to establish the facts, the final report can be delayed. Accuracy is more important than meeting a timeline,” he said.

China wins $2.9 b Kenya airport deal

Press Trust of India, New Delhi

Kenya has awarded a $2.9 billion contract to China Communications Construction Co (CCCC) to expand and modernise Nairobi’s Jomo Kenyatta International Airport (JKIA). This move marks a return to large-scale Chinese-backed infrastructure development in the region, coming nearly two years after the collapse of a proposed deal with India's Adani Group.

The value of this new contract is roughly 50 per cent higher than the Adani Group’s proposed airport concession, which was estimated at approximately $2 billion. The previous deal was scrapped by President William Ruto’s government in November 2024 amid significant political opposition, legal challenges, and public scrutiny.

FTA effect: Price drop on British luxury cars in India

Bentley, Aston Martin, Rolls-Royce could be cheaper by ₹1 crore to ₹3 crore

Amit Vijay Mohile, Mumbai

Luxury automakers are pre-empting the proposed India-UK Free Trade Agreement (FTA) by slashing prices of British-built imported cars. Car buyers can look forward to savings ranging from about ₹8 lakh on the Mini Cooper S to ₹75 lakh on the Range Rover SV, and as much as ₹3.32 crore on the McLaren 750S Spider.

For brands such as Bentley, Aston Martin and Rolls-Royce, the FTA could potentially trigger price reductions ranging from ₹1 crore to over ₹3 crore, depending on engine size and model specifications.

FUEL DIFFERENTIAL

While some of the country’s most expensive petrol-powered supercars and luxury SUVs are suddenly becoming dramatically cheaper, premium electric vehicles and hybrids remain excluded from the benefits and will continue to attract steep import duties for years.

McLaren Automotive and Jaguar Land Rover have already started revising prices downward in anticipation of the agreement. Customs duties on qualifying British-built completely built units (CBUs) are expected to drop from 110 per cent to 30 per cent initially, before tapering further gradually under a quota-based system.

The biggest rebate so far is on the McLaren 750S Spider, whose ex-showroom price is expected to fall by ₹3.32 crore to ₹5.46 crore from ₹8.78 crore earlier. Jaguar Land Rover has reduced the price of the Range Rover SV by ₹75 lakh and the Range Rover Sport SV by ₹40 lakh.

The duty relief applies specifically to imported British petrol cars with engines above 3,000 cc, putting the McLaren 750S Coupe, 750S Spider and GTS directly within the qualifying bracket.

EVS LEFT OUT

The biggest surprise in the agreement may be what it excludes. EVs, hybrids and hydrogen-powered models are locked out of duty reductions for the first five years after implementation. Premium British EVs such as the Lotus Eletre will continue to attract higher duties during this period.

India requires more than 200 satellites in 3 years: ISRO chief

Our Bureau, Ahmedabad

India will need to launch over 200 satellites in the next three years to meet growing national and commercial requirements, Indian Space Research Organisation (ISRO) Chairman V Narayanan said on Thursday, calling for deeper participation from private industry, start-ups and academia in the space sector.

“Currently, we have 56 satellites in orbit. But we require 200-plus satellites in another three years for the country. ISRO alone cannot do this. The entire space ecosystem has to work towards that. Lot of opportunities are there,” Narayanan said at the 10th Industry Connect event organised by IN-SPACe in Ahmedabad.

He said ISRO is increasingly positioning itself as an enabler for the broader ecosystem rather than working in isolation.

SECTORAL REFORMS

Narayanan noted that India’s space start-up ecosystem has expanded significantly following sectoral reforms, with more than 400 start-ups now operating in the domain. He stressed that future growth will depend on coordinated efforts across ISRO, industry and research institutions.

Highlighting long-term ambitions, the ISRO chief said India is also moving ahead with plans for an indigenous space station.

“We are also building our own space station. You can see the model. It is a 52-tonne space station. India will have its own space station by 2035,” he said.

Narayanan also outlined the evolution of India’s space programme — from early sounding rocket experiments to complex deep-space and commercial missions.

MAJOR MILESTONES

On commercial capabilities, he said India has transitioned into a global launch hub, including missions carrying large foreign payloads.

“From that humble beginning, India progressed to a purely commercial launch of a 6,000 kg satellite for an American company using an Indian rocket,” he said.

He added that India has conducted over 4,000 sounding rocket launches, while its satellite fleet has expanded from early experimental systems to advanced platforms.

Meanwhile, on Thursday, IN-SPACe signed a deal with the government of Tamil Nadu to develop a common technical facility at the upcoming Space Vehicles Cluster at SIPCOT Allikulam, which is being set up with a focus on ‘manufacturing, testing and integration of launch vehicle systems’.

Opendoor India layoffs reignite debate over AI, future of offshore work

Sanjana B, Bengaluru

US real estate technology firm Opendoor’s decision to shut its India operations and cut nearly 250 jobs has re-ignited concerns over AI-driven workforce disruption. Industry experts warn that routine, process-oriented roles are increasingly vulnerable as companies automate operations and re-assess offshore delivery models.

Opendoor CEO Kaz Nejatian announced the move in a post on X, stating, “Our customers are in America, and that’s where our operational work belongs”. He also shared that the company is accelerating its AI-driven transformation.

Anuj Agrawal, Founder & CEO of Zyoin Group, highlighted that Opendoor’s exit was forced by financial distress, noting revenue was down 75 per cent from its peak with losses of $1.4 billion. While the real driver was a collapsed US housing market, AI removed the reason to keep those roles when the money ran out.

“What made the India centre cuttable was how it was built — Operations Associates, Transaction Co-ordinators, and Data Annotation Engineers, hired to bridge manual gaps between disconnected systems,” Agrawal explained. “That’s what AI now does natively. Centres built on cost arbitrage are vulnerable”.

Several other major firms, including Amazon, Block, Cisco, Atlassian, and Standard Chartered, have cut jobs in 2026 citing AI, with over 40,000 tech roles lost this year. However, industry observers note that AI has also become an explanation for general financial distress. Agrawal added that more cuts are likely and AI will shrink the size of offshore teams while raising the value of what they do.

Neeti Sharma, CEO of TeamLease Digital, observed that teams in India often handle process-driven and repetitive tasks, which is where AI is making the most significant impact.

LARGE TALENT POOL

“For years, India’s advantage was its ability to provide large-scale talent at competitive costs,” Sharma said. She noted that demand may not grow at the same pace for large teams doing routine work, and instead, organisations will look for smaller, highly-skilled teams that can build, manage, and improve AI-powered systems.

India’s opportunity lies in moving up the value chain to become a centre for innovation rather than just execution. AI reducing dependence on large teams for repetitive work may actually strengthen India’s position. “Global organisations are expanding their investments in India because talent is available at scale... As AI automates routine work, companies will look for locations that can provide advanced skills, innovation capability, and execution excellence,” said Ganesh S Padmanabhan, VP — Recruitment Business at CIEL HR.

Hiring data from upGrad Rekrut validates this trend, indicating that demand for roles such as prompt engineers, AI trainers, automation specialists, and data specialists is among the fastest-growing across its client base. “India’s position in this flux is stronger than the anxiety suggests. The opportunity is to move up the value chain faster from execution to innovation, from process to intelligence,” said Husain Tinwala, CEO, upGrad Rekrut.

Third Wave Coffee aims to achieve breakeven this fiscal, plans to open 100 new cafés

Mithun Dasgupta, Kolkata

Third Wave Coffee is aiming to achieve company-level break-even in the current financial year as the coffee chain is on an expansion spree and plans to open 100 new cafés this fiscal. The Bengaluru-based coffee chain currently has over 220 stores across the country. The coffee-first QSR brand operates under a COCO (company-owned-company-operated) model and does not have any plans to open stores through a franchise model in the near future.

GROWTH PLANS

“We are quite a bit positive as far as unit economics is concerned. We are well funded. So we are expanding our own stores at this point,” Third Wave Coffee CEO Rajat Luthra told businessline. “We definitely will open 100 stores during this financial year. We will always have enough funds available to us as and when it is required,” Luthra said.

The coffee chain has forayed into the East with the launch of three new cafés in Kolkata — two in Ballygunge and one in Salt Lake. For strengthening its presence across the city, the company aims to add another five to six stores in Kolkata within the current financial year.

“In the East, it is not only Kolkata, we will also be looking at Guwahati, Ranchi, Patna and Bhubaneswar. So, these are the markets we will be looking at in the near future,” he said. He added that around 60-70 per cent of the new stores to be opened in FY27 would be launched in the existing cities where the company operates, while the rest (30-40 per cent) will come up in new markets.

“We will open two to three stores in each of the new markets. Kolkata has a major role in this as the city should have total stores between 10-12. And, in the remaining cities the company will open a couple of stores,” Luthra said.

CURRENT PRESENCE

Currently, the coffee chain has 64 stores in Bengaluru, 48 stores in Delhi NCR, 40 stores in Mumbai, 18 stores in Pune, 13 stores in Hyderabad, and eight stores in Chennai.

“At the store-level we are highly EBITDA positive; around 90 per cent of our stores are EBITDA positive. We are trying to break even at the company level this year (FY27). We are very close to it now,” Luthra said. “We use Indian coffee, not importing any coffee from outside. As we are scaling up at present, it is helping us to navigate the cost,” he added.

Monsoon momentum shifts East; rain may revive over West Coast during June 22-23

Vinson Kurian, Thiruvananthapuram

The monsoon may have eased along the West Coast, but its vigour remains intact over the Bay of Bengal, where stronger south-westerly flows and expanding cloud bands have developed over the west, west-central and southern Bay off Tamil Nadu and concentrated around the Andaman and Nicobar Islands.

The initial monsoon surge along the West Coast appears to have exhausted itself after an extended onset phase. On Thursday morning, the most intense thunderstorms were confined to the Mangaluru-Kannur belt along the Karnataka-Kerala coast.

NEXT PHASE

Rainfall activity is expected to revive along the West Coast when the next monsoon pulse arrives around June 22-23, according to guidance from the European Centre for Medium-Range Weather Forecasts (ECMWF). The fresh spell is likely to begin with heavy rain over coastal Karnataka and Goa before spreading northward across Konkan, Mumbai and south Gujarat up to Surat.

Meanwhile, a western disturbance entered North-West India on Thursday morning, stretching from Jaisalmer in west Rajasthan towards north and west Gujarat. Cooler westerly winds associated with the system are expected to interact with prevailing heat, triggering thunderstorms. The disturbance will also interact with moisture-bearing south-easterlies from the Bay across parts of North-West and East India.

ISOLATED HEAVY RAIN

The India Meteorological Department (IMD) has forecast isolated heavy rainfall over the hills of West Bengal and Sikkim starting Friday for five days, and over Jharkhand, Odisha and Bihar for the next two days.

Thunder squalls with wind speeds of 50-60 km/hr, gusting to 70 km/hr, are likely over Jharkhand and Bihar during the next two days. Fairly widespread to widespread rainfall is expected over:

The Andaman and Nicobar Islands and the hills of West Bengal and Sikkim during the next five days.
The plains of West Bengal and Jharkhand during the next two days.
Odisha on Friday.

Policy uniformity, public trust vital for ethanol blending success

Richa Mishra, Hyderabad

To ensure that the Ethanol Blending Programme (EBP) succeeds, the government must standardise state-level taxes and educate consumers to resolve lingering doubts about the fuel.

To accelerate the EBP, the Centre is granting complete excise duty exemptions on higher ethanol-blended petrol variants—specifically targeting E22, E25, E27, and E30 blends. This financial and technical framework is designed to curb India’s reliance on expensive crude oil imports, though industry experts suggest these measures alone may not be enough.

STATE TAX ALIGNMENT

Bharati Balaji, Deputy Director General of the All India Distillers’ Association (AIDA), told businessline that excise exemptions provide a vital commercial route for surplus ethanol capacity. She emphasised the need for coordination between the Ministries of Petroleum & Natural Gas, Road Transport, and Food to address consumer concerns regarding potential reductions in fuel efficiency.

“Consumer awareness is a vital pillar for the long-term success of India’s ethanol blending programme," Balaji said. "Historically, introducing new products to the Indian market triggers immediate resistance... These challenges are simply standard, temporary hurdles”.

EFFICIENCY AND VEHICLE DESIGN

Balaji noted that while ethanol has a lower energy content, the impact is balanced by lower running costs, improved energy security, and environmental benefits.

“The minor mileage drop we are talking about applies to vehicles built before 2023,” she explained, noting that modern vehicles are already designed and calibrated for E20. She added that these newer engines are engineered to optimise performance, emissions, and fuel efficiency even under higher ethanol blends.

CAPACITY AND DEMAND

AIDA members, which include top grain, molasses, and integrated distilleries, currently control approximately 80 per cent of India’s ethanol production.

According to Balaji, India’s current installed ethanol capacity is close to 2,000 crore litres. This capacity is more than sufficient to meet the EBP requirement of 1,100 crore litres, alongside the 334 crore litres consumed by alternative sectors such as potable alcohol, pharmaceuticals, and chemicals.

External Finance Premia: Market Integration versus Bank Fragmentation

The study context for the research provided in the sources is situated within the analysis of the external finance premium (EFP)—defined as the additional cost a firm incurs when raising external funds compared to the opportunity cost of holding cash. The authors simultaneously investigate market-based finance (corporate bonds) and bank-based finance (loans) across the two largest monetary unions: the United States and the euro area.

Study Context and Scope

The research addresses a significant gap in existing literature, which has traditionally focused on the US and relied heavily on corporate bond data because bank lending rates are often difficult to observe. The authors leverage a unique, granular micro-level dataset covering the period from 2006 to 2023 to compare how geographical location (state-level in the US and country-level in the euro area) affects firms' financing costs.

Key elements of this context include:

Monetary Union Comparison: Using the mature US monetary union as a baseline to evaluate the degree of financial integration in the euro area.
Granular Data Integration: Merging bond characteristics, firm balance sheets, and proprietary investor data (from the ECB SHSS) with bank-level loan data (from the euro area's AnaCredit registry).
Focus on Heterogeneity: Investigating whether a firm's country or state of origin leads to different borrowing costs or affects how monetary policy shocks are transmitted to the firm.

External Finance Premium Analysis

In the broader framework of EFP analysis, the sources contribute to the understanding of how financial frictions and firm heterogeneity impact economic fluctuations and monetary policy transmission.

Market Integration vs. Fragmentation: A central finding is that while the euro area is often viewed as fragmented, its corporate bond market is as integrated as the US one. The state or country of a firm explains less than 10% of the variance in bond spreads.
The "Nature of Finance" Distinction: The study highlights a fundamental difference in how the EFP is determined. For the same set of firms, bank-based premiums are determined at the country level (reflecting fragmentation), whereas market-based premiums are independent of geography.
Monetary Policy Transmission: The sources show that the transmission of monetary policy to corporate bond spreads is homogeneous across different countries and states in both unions. This is particularly surprising for the euro area, where risks of "financial fragmentation" are a recurring concern for policymakers.
The Role of Lenders: The research suggests that the geography-dependent costs in banking are due to the local nature of the banking system, where banks are closely tied to their domestic sovereigns. In contrast, market finance involves geographically diversified investors, leading to bond pricing that is based on firm fundamentals rather than the firm's location.

By contrasting these two forms of finance, the sources suggest that the project to unify capital markets in the euro area is further along than previously believed for corporate debt, even though the market remains smaller than its US counterpart.

In the context of external finance premium (EFP) analysis—the additional cost a firm pays for external funds compared to the opportunity cost of holding cash—market-based finance, specifically corporate bonds, serves as a primary metric for understanding financial frictions and integration. The sources provide a detailed examination of how corporate bond spreads function as the market-based component of the EFP in both the United States and the euro area.

Geographic Integration and Independence

A central finding of the sources is that market finance is remarkably geographically integrated. Unlike bank-based finance, where premiums are heavily influenced by the firm's country of operation, market-based premiums (measured by corporate bond spreads) are largely independent of geography.

Minimal Country/State Effects: In both the US and the euro area, the state or country of origin explains less than 10% of the unconditional variance in corporate bond spreads.
Comparison to Banking: This stands in stark contrast to bank loan spreads for the same set of firms, which remain strongly determined at the country level.
Mature Market Integration: The sources argue that, contrary to conventional beliefs, the euro area corporate bond market is as integrated as the US one, suggesting that the project to unify capital markets in Europe has progressed further than previously recognized for corporate debt.

Transmission of Monetary Policy

The analysis reveals that the transmission of monetary policy through market finance is homogeneous across monetary unions.

Uniform Response: A common monetary policy surprise—whether from the ECB or the Fed—affects corporate bond spreads similarly regardless of whether the issuing firm is located in a high-rated or lower-rated state or country. For example, a bond issued by an Italian firm responds to policy changes in a manner nearly identical to one issued by a German firm.
Channels of Transmission: Monetary policy impacts these spreads through two primary channels: the expected default risk channel (as tighter conditions make debt servicing harder) and the excess bond premium channel (which captures shifts in investor risk appetite).

Determinants of the Market-Based Premium

The research indicates that the external finance premium in bond markets is driven primarily by firm-level fundamentals rather than location.

Firm-Specific Factors: Approximately half of the variance in bond spreads is explained by firm-specific default risk, such as distance-to-default.
Investor Diversification: The "nature of market finance" is characterized by a geographically diversified investor base. Because corporate bonds are held diffusely by international and euro-area investors rather than local banks, they are less prone to "home bias" or the "sovereign-bank doom loop" that often plagues bank-based finance.

Strategic and Policy Implications

Because market finance is independent of local country risk, the sources suggest that expanding this sector is vital for economic stability.

Reducing Dependency: Deepening the corporate bond market would allow firms to become less dependent on their country of operation for funding costs, mitigating the impact of local financial fragmentation.
Macroeconomic Understanding: The sources conclude that understanding the behavior of corporate bond spreads—which are closely linked to economic activity and forward-looking risk appetite—is essential for accurately analyzing macroeconomic fluctuations and the effectiveness of the bond lending channel.

In the context of external finance premium (EFP) analysis—defined as the additional cost a firm faces when raising external funds compared to the opportunity cost of holding cash—bank-based finance is characterized by significant geographic fragmentation, particularly within the euro area. While market-based finance (corporate bonds) is highly integrated, the sources indicate that bank-based premiums are primarily determined by the firm's country of operation.

Geographic Fragmentation and Country Effects

A central finding of the research is that bank finance is "very local". For the same set of firms that have access to both bond and loan markets, their bank-based EFP is heavily influenced by national factors, whereas their market-based EFP is not.

Explanatory Power of Geography: Country or country-time fixed effects explain a substantial portion of the variance in bank loan spreads—approximately half of the variation for the general population of firms and between 63% and 70% for the subset of bond-issuing firms.
Contrast with Market Finance: This stands in stark contrast to corporate bond spreads, where the issuer's country or state of origin explains less than 10% of the variance in both the US and the euro area.
Firm vs. Market Properties: Because the same firms face country-dependent costs for loans but country-independent costs for bonds, the sources conclude that this fragmentation is a property of the banking system itself rather than the characteristics of the borrowing firms.

Monetary Policy Transmission

Unlike the homogeneous transmission observed in corporate bond markets, the transmission of monetary policy to bank loan spreads is heterogeneous across member countries. Changes in the central bank's policy rate do not pass through to bank lending rates uniformly, often due to the differing financial health and sovereign conditions of the countries where the banks operate.

The Role of Lenders and Sovereign Ties

The sources provide several insights into why bank finance remains fragmented:

Local Nature of Lending: Banking in the euro area is predominantly domestic. For the universe of non-financial corporations, the share of loans issued by domestic banks is overwhelming, often reaching 90%.
Bank-Sovereign Link: Euro area banks remain closely tied to the sovereign conditions of their home country, a phenomenon often described as the "bank-sovereign doom loop".
Cost Pass-Through: Banks appear to pass their own financing conditions (their own bond spreads) on to the loans they provide, meaning a firm's loan cost is indirectly tied to its bank's national environment.

Substitutability and Comparative Costs

The research highlights a puzzling observation: many firms continue to borrow from local banks even when bank loans are more expensive than issuing bonds.

Relative Costs: For a median euro area firm active in both markets, bond financing is typically cheaper (1.18% yield) and offers longer maturities (eight years) compared to bank loans (1.30% interest rate with four-year maturities).
Policy Implications: The sources suggest that reducing firm dependence on fragmented bank finance by deepening the corporate bond market is a critical goal for the Capital Markets Union, as it would help firms decouple their financing costs from local country risk.

In the broader context of External Finance Premium (EFP) analysis—which measures the additional cost a firm pays for external funds over the opportunity cost of holding cash—the sources reveal a fundamental divide in how monetary policy transmits through different financial channels. While the transmission to market-based finance (corporate bonds) is remarkably homogeneous, the transmission to bank-based finance (loans) remains highly fragmented and dependent on geography.

Homogeneous Transmission in Market Finance

The sources demonstrate that in both the United States and the euro area, the transmission of monetary policy surprises to corporate bond spreads is geographically uniform.

Uniformity Across Borders: A common monetary policy surprise (from the Fed or ECB) affects corporate bond rates similarly, regardless of whether the issuing firm is located in a high-rated or lower-rated state or country. For instance, a bond issued by an Italian firm responds to ECB policy surprises in a manner nearly identical to its German peer.
Integration as a Shield: This homogeneity indicates that the corporate bond market is highly integrated. Unlike sovereign debt markets, which often experience "financial fragmentation" during crises, the market-based EFP is independent of the borrower's country of origin.

Heterogeneous Transmission in Bank Finance

In contrast to the bond market, the transmission of monetary policy through bank loans is characterized by significant heterogeneity, particularly in the euro area.

Country-Level Determination: Bank-based external finance premia are determined primarily at the country level. Half of the variance in bank loan spreads is common to the firm's country of operation, meaning that the same firm would face different financing costs depending on the national banking environment.
The "Local" Nature of Banking: Because banking is "very local" and banks are closely tied to their domestic sovereigns, monetary policy does not pass through to bank lending rates uniformly across the monetary union.

Channels of Transmission to the EFP

The sources identify two primary channels through which monetary policy shocks impact the external finance premium:

Expected Default Risk Channel: A surprise policy tightening creates tighter financing conditions and lower demand, making it harder for firms to service debt. This increased risk leads investors to demand higher compensation, widening the EFP.
Excess Bond Premium Channel: This channel captures shifts in investor risk appetite. A surprise tightening often increases the risk premium component of bond spreads—the portion of the yield that is not directly attributable to default risk.

Implications for Policy and Research

The findings suggest that the Capital Markets Union project has been more successful for corporate debt than previously believed, as this market already facilitates a unified transmission of policy. However, because the euro area remains heavily bank-dependent, the overall EFP remains subject to geographic fragmentation. Researchers conclude that understanding these disparate transmission mechanisms is essential for accurately analyzing macroeconomic fluctuations and the effectiveness of the bond lending channel of monetary policy.

The key findings from the sources provide a novel comparison between the two primary components of the External Finance Premium (EFP)—market-based finance (corporate bonds) and bank-based finance (loans)—across the United States and the euro area. The EFP is defined as the additional cost a firm incurs when raising external funds compared to the opportunity cost of holding cash.

The research offers several breakthrough conclusions regarding financial integration and monetary policy transmission:

1. Surprising Integration of Market Finance

The primary finding is that euro area corporate bond markets are as integrated as those in the United States, contradicting conventional beliefs that the euro area remains heavily fragmented.

Geographic Independence: In both monetary unions, the state or country of origin for bond issuers explains a negligible share of the variance in bond spreads—specifically less than 10%.
Homogeneous Transmission: The transmission of monetary policy surprises (from the Fed or ECB) to corporate bond spreads is homogeneous across different states and countries. For example, a bond issued by an Italian firm responds to ECB policy surprises similarly to one issued by a German peer.

2. Persistent Fragmentation of Bank Finance

In stark contrast to market finance, bank-based external finance premiums remain highly fragmented and determined at the national level.

Country Effects: For the same set of firms that issue bonds, their bank loan spreads are strongly influenced by their country of residence. Country-time fixed effects explain more than half of the variation in bank loan spreads.
Local Nature of Banking: The sources find that banking remains "very local," with approximately 90% of loans to non-financial corporations being issued by domestic banks.

3. The "Nature of Finance" vs. Firm Characteristics

A critical insight of this research is that the difference between integrated bond markets and fragmented bank markets is not due to the characteristics of the firms themselves, but rather the nature of the financial instrument.

Investor Base: Corporate bonds are held by geographically diversified and dispersed investors, making the market less prone to home bias.
Sovereign Link: Bank-based finance is intimately tied to the sovereign-bank "doom loop". Banks often pass their own financing conditions—which are tied to their home country's sovereign risk—on to the firms they lend to.

4. Comparative Costs and Substitutability

The sources document a puzzling observation regarding the relative costs of these two finance types for firms with access to both:

Cheaper Market Finance: For a median euro area firm, bonds are a cheaper source of financing (1.18% yield) compared to bank loans (1.30% interest rate) and offer maturities twice as long (eight years versus four).
Substitutability Gap: Despite the lower cost of bonds, many firms continue to rely on local bank loans at higher interest rates, suggesting a need for further research into the degree of substitutability between these two sources.

Policy and Research Implications

From a policy perspective, these findings suggest that the project to unify capital markets in the euro area (Capital Markets Union) has progressed further than previously believed for the corporate debt market. However, because this market is still much smaller than its US counterpart, helping firms increase debt issuance would allow them to become less dependent on their countries of operation for funding costs. Furthermore, the study emphasizes that corporate bond spreads provide essential, forward-looking information on investor risk appetite that is critical for understanding macroeconomic fluctuations.

The sources highlight significant policy and research implications arising from the discovery that the market-based external finance premium (EFP) is highly integrated, while the bank-based EFP remains fragmented along national lines.

Policy Implications

The research suggests that the current state of financial integration in the euro area necessitates a strategic shift in policy focus:

Success of the Capital Markets Union (CMU): The sources state that the project to unify capital markets in the euro area has progressed further than previously believed for the corporate debt market. Unlike bank lending, the corporate bond market is already as integrated as that of the United States.
Decoupling from Local Risk: A major policy goal should be helping firms increase their corporate debt issuance. Because bond pricing is independent of a firm's country of operation, deeper capital markets would allow firms to become less dependent on their home country's financial condition for their funding costs.
Competitiveness and Innovation: Deepening these markets is described as a "very important endeavor" for the CMU to help firms scale up innovation and regain competitiveness.
Uniform Monetary Policy Transmission: Since monetary policy transmits homogeneously through corporate bonds across the union, expanding this market can help ensure a more uniform pass-through of central bank decisions, mitigating the risks of financial fragmentation.

Research Implications

The findings also point to several critical areas for future economic research:

The Debt Issuance Paradox: There is a "fundamental need" to understand why firms in the euro area are not issuing more corporate debt. This is particularly puzzling because for firms active in both markets, bonds are typically cheaper (1.18% median yield) than bank loans (1.30% median interest rate) and offer much longer maturities.
Substitutability of Finance: Researchers need to investigate the degree of substitutability between bank and market finance. The sources observe that many firms continue to borrow from local banks at interest rates higher than their bond yields, suggesting that these two types of finance are not yet perfect substitutes.
Macroeconomic Fluctuations: A better understanding of the dual nature of the EFP—integrated bonds versus fragmented loans—will help researchers better analyze macroeconomic fluctuations and the "bond lending channel" of monetary policy in the euro area.
The Role of Lenders: Future research should delve deeper into why the "nature of finance" differs so drastically. The sources suggest that while banking is local and tied to the sovereign-bank "doom loop," market finance benefits from a geographically diversified investor base that prices debt based on firm fundamentals rather than location.

Newspaper Summary 110626

The full article from the source, titled "Meta and Reliance Industries partner to develop 168 MW, AI-enabled data centre in Gujarat" (referenced in the paper's highlights as "TECH PARTNERSHIP: Reliance, Meta to develop data centre in Jamnagar"), is reproduced below:

Meta and Reliance Industries partner to develop 168 MW, AI-enabled data centre in Gujarat

By Vallari Sanzgiri, Mumbai

Meta Inc is set to have its own 168 MW capacity artificial intelligence-enabled data centre in Jamnagar, set up by Reliance Industries (RIL), within two years.

The data centre, separate from the 1 GW facility that was announced by Reliance in 2025, will act as part of Meta’s global infrastructure, supporting its core business and AI compute needs. As the first built-to-suit (BTS) data centre capacity in India for Meta, the project underlines India’s emergence as a global hub for AI infrastructure.

Meta will lease capacity from the facility, expanding the company’s global infrastructure, supporting its core business and AI compute needs, while RIL will provide end-to-end services for the data centre lifecycle. This includes design, ongoing management of utilities, renewable power supply, network connectivity and fully-managed operational services.

“Building India’s first built-to-suit data centre for a global technology leader of Meta’s scale demonstrates India’s readiness to be at the forefront of the global AI revolution. Jamnagar will become a landmark destination for hyperscale AI computing, and we are proud to partner with Meta to make this vision a reality,” said Mukesh D Ambani, Chairman and Managing Director, Reliance Industries.

SCALE INFRA

Similarly, Mark Zuckerberg, Founder and CEO, Meta, said the facility will help the company scale its AI infrastructure globally while deepening long-term investment in India’s economy.

A BTS facility indicates an intention to host AI models like Llama for its Indian customers and offer the AI infrastructure as a service to India as well as global customers, according to Rajiv Ranjan, Associate Research Director at IDC.

“A 168 MW capacity points to a long-term commitment of Meta to host its AI services here in India. Usually for traditional workloads, the rack power densities range from 5 to 20 kw per rack. For AI workloads, it starts anywhere from 40 kw to up to 150 kw. Meta might be starting with a smaller footprint and scale to 168 MW in a few years depending on AI demand,” he said.

The tech giant is assembling an energy position in India by taking up the single-tenant project at roughly a tenth to a seventh of India’s operational data centre base, while separately backing the country’s renewable energy, said Sanchit Vir Gogia, Founder-CEO of Greyhound Research.

The project positions Reliance as a single-window solutions provider for hyperscale AI infrastructure in India. The data centre will be powered by renewable energy and cooled with desalinated seawater, demonstrating both RIL’s and Meta’s commitment to sustainability.

Equity MF inflows slump 40% in May over April

UNCERTAINTIES. Heightened market volatility, FPI exits drag flows to one-year low By Suresh P Iyengar, Mumbai

Volatility in equity markets and concerns over economic growth dampened inflows into mutual fund schemes, including SIPs, in May.

According to AMFI data released on Wednesday, equity inflows fell to a one-year low, dropping 40 per cent to ₹22,908 crore in May from ₹38,440 crore in April, as investor sentiment was hit by a market downturn driven by persistent foreign portfolio outflows and heightened volatility. Inflows into hybrid schemes nearly halved month-on-month (m-o-m) to ₹10,560 crore (from ₹20,565 crore), while debt funds registered an outflow of ₹96,949 crore in May as against an inflow of ₹2.47-lakh crore in April.

SIP inflows also edged down to ₹30,954 crore (from ₹31,115 crore) with the number of contributing accounts slipping marginally to 9.64 crore (from 9.65 crore).

RISING CONFIDENCE

Venkat Chalasani, CEO, AMFI, said, “Despite lower SIP flows, they remain above the ₹30,000-mark, reflecting investor confidence in MFs.” He stated that while there are no absolute data, the majority of fresh SIPs opened are from B30 (beyond top-30) cities, as investors look to reap the benefit of the country’s long-term economic growth potential.

Archit Doshi, Senior Vice-President at PL (Prabhudas Lilladher) AMC, noted that while the m-o-m decline in SIP contributions was marginal, it marked a second consecutive drop, following a 3 per cent decline in April, which he described as "a cause for concern." With flat to negative returns observed in several SIP vintages over the last one-two years, retail investors are viewing sustained allocations as a challenge that is testing their long-term conviction, he said.

NET INFLOWS

Vaibhav Chugh, CEO, Abakkus Mutual Fund, said, “The moderation in net inflows during May reflects a degree of geopolitical uncertainty and investor caution.” He added that the outflows seen in fixed income categories are indicative of liquidity management and corporate treasury requirements, rather than weakening demand. In the current environment, where opportunities exist across market-caps, it becomes increasingly important to rely on experienced investment managers for stock selection, he said.

After 13 months of positive inflows, gold ETFs registered net outflows of ₹725 crore in May (compared to an inflow of ₹3,040 crore in April) as investors preferred to book profit. The hike in import duty to 15 per cent pushed up domestic gold prices despite weak global trends. Silver ETF outflows increased to ₹2,133 crore (from an outflow of ₹127 crore).

Nehal Meshram, Senior Analyst, Morningstar Investment Research India, said, “The reversal in gold ETFs was driven by profit-booking and a shift in investor risk appetite leading to shift away from safe-haven assets.” The rising opportunity cost of holding gold, particularly in an environment of relatively attractive yields in fixed income, also contributed to the pull-back, she added. SIF (Specialised Investment Fund) inflow was steady at ₹1,396 crore in May (₹1,219 crore in April) with AUM increasing 12 per cent to ₹13,814 crore (from ₹12,329 crore).

Here are the reproductions of the two articles requested from the source material:

Despite near-term global uncertainties, long-term investment case for India remains intact, says KKR

By Suresh P Iyengar, Mumbai

Despite near-term global uncertainties, leading global investment firm KKR believes the long-term investment case for India remains intact, positioning the country as a key beneficiary of emerging market consumption growth.

In a report titled The Divergence Conundrum, KKR stated that India is experiencing one of the fastest global expansions in affluent and upper-middle-income households. This trend is creating major opportunities for businesses providing high-quality services and experiences in sectors such as healthcare, financial services, education, travel, sports, entertainment, and leisure.

The report added that increased access to credit, financial products, and digital financial services has accelerated consumption upgrades, expanding the addressable market for Indian businesses. While higher energy prices and artificial intelligence (AI) disruption in legacy IT services are tempering growth in the near term, KKR maintains that the structural case for long-term investment remains solid.

However, the firm cautioned that inflation is likely to remain "stickier than expected" as geopolitical tensions rise and nations prioritize supply chain resilience over efficiency. The report also warned that the global monetary easing cycle is losing momentum, noting that as of May-end, 10% of the world’s top 30 central banks were raising interest rates compared to only 3% at the end of 2025.

“The cycle is not over, but it is becoming more selective,” said Henry McVey, Head of Global Macro and Asset Allocation at KKR. As Asia becomes more self-reliant and intra-regional trade deepens, India is positioned to benefit from significant structural tailwinds.

Zepto’s marketplace pivot may hold key to profitability

By Jyoti Banthia, Bengaluru

As quick commerce company Zepto prepares for its proposed ₹8,010-crore initial public offering (IPO), a significant disclosure in its updated draft red herring prospectus (UDRHP) is its transition to a marketplace-led business model. This shift could have major implications for both its profitability and its regulatory standing.

The company, which recently filed updated IPO papers with SEBI, intends to raise funds through a fresh issue of shares, alongside an offer-for-sale from existing investors like Nexus Venture Partners and Contrary Capital. Zepto plans to use these proceeds to expand its dark-store network, invest in technology and cloud infrastructure, fund lease payments, and pursue strategic acquisitions.

New Revenue Streams

The pivot to a marketplace model marks a change in how Zepto intends to monetize its growing user base. Under this structure, third-party sellers list products on the platform, and Zepto earns income through commissions, advertising, and service fees rather than relying purely on inventory ownership. The company noted it has a limited operating history under this new structure.

This move comes at a critical time. While Zepto more than doubled its operating revenue to ₹22,624 crore in FY26, its losses also widened to ₹5,905 crore due to heavy investments in customer acquisition and logistics.

Capital Efficiency

Industry observers suggest the marketplace model can improve capital efficiency by reducing working-capital requirements and inventory-related risks. Furthermore, these revenue streams typically carry higher margins than direct product sales.

The transition may also help Zepto align with India’s evolving e-commerce regulations, as marketplace structures are often viewed as more compliant with foreign investment norms regarding seller relationships and inventory ownership. For potential investors, this pivot toward a less capital-intensive, higher-margin business model may be as vital as the company's rapid revenue growth.

Banks kick off rate hikes for NRI dollar deposits

Our Bureau Mumbai

Banks have kicked off rate hikes on FCNR (B) US dollar deposits in the three-five years tenor, with interest increased to 6-7 per cent from the earlier 3 per cent levels.

The sharp rise in the interest rates on Foreign Currency Non-Resident (Bank) deposits denominated in US dollars follows the RBI’s measures to bolster dollar inflows, which include bearing the full hedging cost for raising fresh 3/5-year FCNR (B) deposits.

RATES RISE

On an FCNR (B) deposit of up to $1 million and above $1 million in the three years and above but less than four years tenor, State Bank of India (SBI) is now offering interest of 5.25 per cent and 5.5 per cent, respectively. Earlier, the rate on these deposits, irrespective of the amount, was 3.35 per cent.

On an FCNR (B) deposit of up to $1 million and above $1 million in the four years and above but less than five years tenor, India’s largest bank is quoting interest rates of 5.5 per cent and 5.75 per cent, respectively. The earlier rate was 2.95 per cent.

On an FCNR (B) deposit of up to $1 million and above $1 million of five years tenor, SBI is quoting interest rates of 5.75 per cent and 6 per cent, respectively. The earlier interest rate was 3.05 per cent.

“The RBI’s move to attract dollars via FCNR (B) deposits is a win-win for all stakeholders — depositors, banks and the RBI,” said K Arvind, Head – Treasury, Tamilnad Mercantile Bank (TMB). He noted that depositors will receive better returns, banks will augment deposits during healthy credit growth, and the central bank can achieve its objective of reducing volatility in the rupee.

Karur Vysya Bank has increased its FCNR(B) US dollar deposit rates for maturities of three to five years to 7 per cent per annum from the earlier 2.63 per cent, effective June 10. TMB has also upped its rates for the same maturity period to 7 per cent from the earlier 3.50-3.90 per cent range.

India’s outward FDI falls 49% in May: RBI

Press Trust of India, Mumbai

India’s total outward foreign direct investment (FDI) commitments declined 49.02 per cent month-on-month to $4.49 billion in May 2026 from $8.84 billion in April. According to RBI data, this drop was primarily driven by lower equity investments, loans, and guarantees issued by Indian companies.

While the month-on-month figures showed a decline, total financial commitments by Indian entities under overseas investment increased 34.6 per cent year-on-year from the $3.34 billion recorded in May 2025.

Breakdown of Overseas Commitments:

Equity Investments: These dropped sharply by approximately 64.72 per cent, falling to $1,247.82 million in May from $3,537.35 million in April.
Overseas Loans: Loans extended by Indian companies declined to $632.12 million in May, down from $1,299.69 million the previous month.
Guarantees Issued: This category, which remains the largest component of India's overseas commitments, fell to $2,608.83 million in May from $3,999.79 million in April, marking a decline of roughly 35 per cent.

Planet sizzles as May becomes 2nd warmest on record globally

The average May 2026 sea surface temperature was the second warmest on record for the month at 20.9°C, behind 2024 (20.93°C) By Srikrishnan PC, Chennai

May 2026 was the second warmest ever recorded globally on land and sea, according to a report from the Copernicus Climate Change Service (C3S), implemented by the European Centre for Medium-Range Weather Forecasts (ECMWF). The ERA5 record indicates that the average surface air temperature for the month was 15.81°C, which is 0.55°C above the 1991-2020 average and only surpassed by May 2024. This temperature was 1.42°C higher than the estimated average for the pre-industrial period of 1850–1900.

The sea surface temperature (SST) for May 2026 also ranked as the second warmest on record at 20.9°C, narrowly behind the 20.93°C recorded in 2024. During this period, Europe transitioned from unusually cold conditions to one of its earliest and most intense heatwaves on record in Western Europe.

HEAT EXTREMES

The intense heatwave shattered several June records, particularly in France, the UK, Ireland, and the Benelux countries. While the month was drier than average in some regions, other parts of the world experienced contrasting extremes: northwest Europe, Scandinavia, Finland, Turkiye, and the Black Sea region saw above-normal rainfall, which triggered widespread flooding in Turkiye, Bulgaria, and Moldova.

Samantha Burgess, strategic lead for climate at ECMWF, noted that May 2026 featured near-record temperatures in both the atmosphere and the ocean. She stated, “In Europe, an unusually early and intense heatwave demonstrates how quickly climate extremes are becoming the new normal rather than the exception”. Additionally, SSTs continue to remain very warm over a broad expanse of the globe.

Monsoon stalls, rain belt shifts to South, East India

By Vinson Kurian, Thiruvananthapuram

The belt of heavy to very heavy rainfall has shifted away from India’s West Coast and is now concentrated over Tamil Nadu, Puducherry and Karaikal, while extending eastward to the sub-Himalayan districts of West Bengal and Sikkim.

Mumbai, meanwhile, missed its tryst with the monsoon on Wednesday, with forecasts suggesting a further delay of a few days. The northern limit of the monsoon remained stalled for the third consecutive day on Wednesday.

MANGALURU IN FOCUS

According to the European Centre for Medium-Range Weather Forecasts (ECMWF), Mangaluru in coastal Karnataka could receive the heaviest rainfall on Thursday, with the accumulations exceeding 17 cm. Neighbouring north Kerala districts, including Kasaragod, Kannur, Kozhikode and Malappuram, are also expected to receive intense rainfall, while lighter showers may extend southward along the coast up to Alappuzha.

Subdued rainfall over west India has widened the seasonal deficits. During the first nine days of June, rainfall was more than 60 per cent below normal in Saurashtra, Kutch, Konkan, Goa and Madhya Maharashtra. The current forecasts provide little indication of an early return of widespread heavy rain capable of substantially narrowing these deficits.

RAIN FOR KONKAN-GOA

Isolated heavy rainfall is, however, likely over Konkan and Goa on Thursday as a western disturbance moves into the adjoining parts of North-West India.

Over the next six days, isolated to scattered showers are forecast across east Gujarat, Konkan, Goa, Madhya Maharashtra and Marathwada, while Saurashtra and Kutch may witness similar activity for three days from Sunday. Thunderstorms, accompanied by lightning and gusty winds, are likely over Konkan and Goa on Thursday, and over Madhya Maharashtra and Marathwada through Friday.

‘India has 102 GW floating solar power potential’

New Delhi: Minister for New & Renewable Energy Pralhad Joshi said that India has a potential for more than 100 GW of floating solar power projects. Releasing a report on floating solar photovoltaics (FSPV) potential in India by the National Institute of Solar Energy on Wednesday, the Minister said that reservoirs and other water bodies are emerging as important assets for clean energy generation through floating solar projects. The NISE study estimates India’s total floating solar potential at around 102.18 GW, with a constraint of using only 20 per cent of the reservoir area.

OUR BUREAU

Planet sizzles as May becomes 2nd warmest on record globally

The average May 2026 sea surface temperature was the second warmest on record for the month at 20.9°C, behind 2024 (20.93°C) By Srikrishnan PC, Chennai

HEAT EXTREMES

How India can protect its digital ecosystem

By Pocket Ravikanth

In May 1940, the world’s military elite believed that the Belgian fortress of Eben-Emael was the most impregnable structure ever built. It was a masterpiece of concrete and steel, designed to withstand any imaginable siege. Yet, it fell in just 15 minutes. It wasn’t destroyed by a massive army, but by a handful of paratroopers using a new, secret technology: the shaped charge. The defenders were prepared for a war of attrition; they were erased by a war of speed and specific intelligence.

Last month, the global cybersecurity landscape hit its own Eben-Emael moment. For 27 years, a subtle flaw lay dormant in the code of OpenBSD — an operating system whose entire reputation is built on being the world’s most secure foundation. For nearly three decades, the finest human auditors, state-sponsored “red teams”, and automated scanners looked at that code and saw a fortress. Then came Mythos.

Developed by Anthropic, Mythos is not a chatbot; it is a Reasoning Agent for Cyber-Offense. It did not just “suggest” a bug; it understood the systemic logic of the flaw and autonomously executed a 32-step exploit in seconds. It achieved an 83.1 per cent success rate in reproducing known hacks on its first attempt. This is what I call the “End of Surprise”. When a machine can hunt for “zero-days” (previously unknown flaws) at a scale and speed that humans cannot register, the concept of a periodic security audit is no longer a safety measure. It is a dangerous hallucination.

The shockwaves from Mythos have fundamentally rewritten the geopolitical script. After months of advocating for a “light touch” approach to AI, the Trump administration has executed a stunning pivot towards what can only be described as the Nationalisation of Intelligence.

Reports from Washington suggest a new framework where the Pentagon and the NSA will act as the ultimate gatekeepers for “frontier” AI models. By mandating military-led safety tests before any public release, the US is treating high-level AI as a dual-use weapon system, akin to nuclear enrichment technology. This is “Fortress America” in digital form. The realisation has dawned: in a world of Mythos-class agents, a leaked model is not a commercial loss; it is a national security catastrophe.

For India, however, following this defensive, gatekeeping model would be a historic strategic blunder. We are a nation built on Digital Public Infrastructure (DPI) — from the UPI rails that power our economy to the Aadhaar stack that defines our identity. Our strength is our openness. If we wait for Western “safety certificates” while our systems remain exposed to the tools they have already unleashed, we are essentially building our own Maginot Line and waiting for the Blitzkrieg.

THE INDIAN VALUATION CLIFF

The threat to India is not just a matter of national security; it is a matter of national business. Our IT services giants — TCS, Infosys, Wipro — have spent three decades building a global empire on the “billable hour”. Thousands of engineers are employed to conduct manual audits, patch vulnerabilities, and maintain legacy code.

Mythos represents a “Valuation Cliff” for this model. If an AI can perform a month’s worth of security auditing in five seconds at near-zero marginal cost, the human-led audit becomes a bottleneck rather than a service. The Indian IT sector must pivot immediately from being “service providers” to “resilience architects”. We must move from charging for the time it takes to fix a bug to charging for the integrity of a system that can defend itself.

THE PHYSICIST’S LENS

As a physicist, I view this crisis through the lens of Epistemic Drift. This is the point at which the complexity of our digital foundations exceeds our human ability to verify their safety. We are building structures we can no longer see through. When we can no longer trust the very foundation of our software because an AI has found a 27-year-old “hole”, the social contract of the digital age begins to fray.

In physics, entropy is the natural slide into disorder. In the digital world, Mythos is an entropy engine. It can find and weaponise disorder faster than we can organise a defence. To counter this, we must stop thinking about “safety” as a lock on a door and start thinking about “resilience” as a biological immune system.

I have often spoken of “sovereign resilience”, but in the wake of Mythos, this must evolve from a policy suggestion into a biological necessity for the state. This requires a fundamental shift in our national architecture.

First, we must acknowledge that sovereignty is compute. India cannot be a “Tier-2” participant in restricted US programs like Project Glasswing. We must use initiatives like BharatGen to build sovereign “Defensive LLMs”. These are not chatbots for the public; they are internal “Guard Dogs” trained specifically on the India Stack to hunt for vulnerabilities and simulate attacks 24/7. We must be the first to find our own flaws.

Second, we must move toward Autonomous Self-Healing. In a world of autonomous attacks, a human “admin” logging in to fix a server is a relic of the past. Our power grids, our telecommunications, and our financial stacks must be redesigned to detect an anomaly and “re-wire” their own logic in real-time. This is not about building better firewalls; it is about building a system that can “bleed” and still keep running.

Finally, we need a Post-Audit Regulatory Framework. Our regulators, including the CS Setty Committee looking into banking risks, must stop focusing on the “prevention” of attacks. In the age of Mythos, the attack is an automated certainty. The only metric that matters now is Time-to-Resilience. How many milliseconds does it take for a bank to detect a breach, isolate it, and return to a “verified” state? That is the only audit that matters in 2026.

THE NEW ATMOSPHERE

History shows us that whenever technology increases the speed of the attack, the only way to survive is to increase the speed of the adaptation. The tank made the trench obsolete; the aircraft made the battleship a target; and now, autonomous AI has made the static firewall a ghost of the past.

The Mythos event is not a software update; it is a change in the digital atmosphere. It is the end of the era where we could afford to be surprised. For India to lead, we must stop trying to build better walls. We must build a more agile, self-correcting nation.

In the age of autonomous intelligence, the only true fortress is the ability to adapt faster than the machine. The old walls have already been bypassed. It is time for India to learn how to move.

The writer is a physicist at the University of North Carolina at Chapel Hill, and a columnist on AI, infrastructure, and global systems.

Monday, June 08, 2026

Reserve Bank of India Bulletin May 2026

The following is the full text of the keynote address, “Indian Financial Markets – Resilience and Resurgence,” delivered by Shri Sanjay Malhotra, Governor of the Reserve Bank of India, at the 25th FIMMDA-PDAI Annual Conference on May 1, 2026, in Amsterdam:

Indian Financial Markets – Resilience and Resurgence

Shri Sanjay Malhotra

Distinguished participants, it gives me great pleasure in addressing the 25th FIMMDA-PDAI Annual Conference. The development of India’s fixed income and derivatives markets owes much to such conferences, which provide an opportunity for all stakeholders to get together and deliberate on not only the journey so far but more importantly the way forward. I am confident that this conference will give us many innovative ideas and suggestions for the further development of the markets.

We could not have met at a more appropriate city for this conference to deliberate on the challenges and the opportunities that the markets offer today. It was in Amsterdam where merchants started trading shares and bonds of the Dutch East India Company more than four centuries ago. What emerged in the 17th century was one of the earliest examples of a modern financial marketplace: an organised system where investors could pool capital, transfer risk, and finance ambitious commercial ventures across continents. The innovations that took root – tradable securities, secondary markets, and financial intermediation – in many ways, laid the foundations of modern global finance, as we know it today.

I. Challenges for the global economy & financial system

The conference could not have been at a more opportune time, when the global financial system is navigating through a period of elevated uncertainty and challenges. These have implications not just for the real sector but also for the financial markets.

Geo-economic fragmentation caused by tariffs, trade restrictions, and industrial policies are reshaping not only global supply chains, they are also affecting the free movement of capital and led to fragmentation of financial flows.

High levels of public debt in several major economies is another concern. Their continued fiscal expansion has made it difficult for them to return to the path of fiscal consolidation that was expected post the pandemic related stimulus. On the other hand, geopolitical pressures are compelling a significant rise in defence spending – a shift that could pose major challenges for fiscal sustainability.

Stretched valuations in certain asset classes, particularly equities including a few tech stocks, could also have implications across markets and geographies.

The rapid expansion of private credit markets globally has introduced new areas of opacity and potential systemic risk through increasing interconnectedness with regulated segments.

AI is another source of uncertainty. While AI holds promise to enhance productivity, concerns remain about viability of certain business propositions, the level of efficiency gains, the speed of change and its impact on jobs.

Overlaying these challenges is the recent escalation of geopolitical tensions in West Asia. Energy prices have risen sharply amidst damages to energy infrastructure and disruptions in supply chains. It has already affected economic activity. If the crisis persists longer, it may also translate into second order inflationary pressures.

II. India’s Economic Resilience Amid Global Turbulence

Against this challenging global backdrop, the Indian economy has shown remarkable resilience. In view of this, the theme of this conference, “Indian Financial Markets – Resilience and Resurgence,” is most apt and timely.

Since the pandemic, India has consistently been among the fastest-growing major economies in the world. This performance reflects a combination of strong macroeconomic fundamentals, structural reforms, and prudent macroeconomic management. Growth impulses in the economy have remained robust. Domestic demand continues to be supported by strong consumption and public investment. The government’s emphasis on capital expenditure has helped crowd-in private investment and improve productive capacity. Resultantly, we have recorded an average growth of 8.2 per cent during 2021-25. In 2025-26, the economy is estimated to have grown by 7.6 per cent. Growth in 2026-27 is projected at 6.9 per cent.

Inflation, although vulnerable to periodic supply shocks, has broadly remained within the tolerance band of the monetary policy framework. The flexible inflation targeting (FIT) regime has provided a credible anchor for managing inflation expectations, and reducing average inflation and volatility post its adoption. In the recent period, headline inflation has remained below the inflation target of 4 per cent. We have projected an average CPI inflation of 4.6 per cent for FY 27.

India is firmly on a path of fiscal consolidation. On the revenue side, adoption of GST and other sweeping tax reforms have helped improve tax buoyancy. On the expenditure side, targeted government spending has improved the quality of expenditure, while reducing revenue expenditure as a percentage of GDP.

India’s banking and NBFC sectors have undergone a remarkable transformation in recent years. Their balance sheets have been strengthened significantly, with improvements in capital adequacy, asset quality and profitability. Corporate balance sheets have also improved, supported by stronger earnings. The fund mobilisation by Indian corporates through public markets, especially corporate bond markets, has remained strong over the last two financial years, pointing to a steady broadening of financing channels beyond traditional bank credit.

On the external front:

Our foreign exchange reserves remain comfortable, with 11 months of import cover.
The current account deficit (CAD) is sustainable; while elevated energy prices will exert upward pressure on the deficit, the recently concluded trade agreements should offset some of the impact.
On the capital account, gross FDI has been encouraging. This will remain robust with the recent spree of greenfield FDI announcements especially in the finance and tech sectors.
With recent correction in financial asset valuations, we expect repatriations to moderate, improving the net capital account position going forward.

To sum up, India’s strong macro-economic and macro-financial fundamentals remain strong, supported by continued focus on policy certainty, price stability, financial stability, and thrust on reforms, ease of doing business and inclusive growth.

III. Indian Financial Markets – Measures undertaken for development

Moving from the broader economy to financial markets, I must acknowledge that our financial markets have matured considerably over the past few years. This is an outcome of conscious policy choices over the years.

Money Market Starting with money markets, which serve as the primary channel for monetary policy transmission, we have moved towards a more agile liquidity management framework to ensure adequate liquidity in the financial system.

Government Securities Market Government securities markets continue to be deep and liquid, but our efforts are to broaden the investor base, especially by encouraging retail and non-resident participation. The benchmark issuance strategy which has helped build a credible sovereign yield curve and improve price discovery in fixed-income markets, is now being extended to State Development Loans from FY27.

Derivatives Markets The regulatory framework for derivatives markets too has evolved to facilitate ease-of-doing business, wider participation, and innovation. We are facilitating greater product diversity through introduction of total returns swaps on corporate bonds and derivatives on corporate bond indices. These are intended for supporting a well-developed corporate bond market by management of credit risk.

We have also introduced forward contracts on government securities. It has been heartening to see long term investors especially insurance companies utilising this product instead of relying on synthetic financial constructs to manage their long-term interest rate risks.

Efficient Financial Market ecosystem While taking measures for the development of various market segments, we have focussed on strengthening market infrastructure; enhancing transparency and ease of Investments for foreign investors across market segments.

Strengthening market infrastructure: I would like to highlight three recent initiatives. First, Electronic trading platforms have been introduced for new products such as forex options and Modified MIFOR based derivatives. Second, FX forwards up to 36 months tenor are now being centrally cleared; earlier, forwards up to 13 months tenor only were centrally cleared. Third, the regulations for initial margin for non-centrally cleared derivatives have come into force.
Enhancing transparency: To enhance transparency, we now have the reporting of OTC Rupee foreign exchange and interest rate derivative contracts undertaken by related parties of market-makers, as well as various cash and OTC gold derivative transactions.
Ease of Investments for foreign investors: We have eased macroprudential norms for FPI investment in corporate bonds, expanded the Voluntary Retention Route, permitted Special Rupee Vostro Accounts to be invested in debt securities, allowed non-residents to open Rupee accounts in their own regions, and are connecting NDS-OM with global bond trading platforms.

IV. Areas of improvement

While we have made considerable progress, more needs to be done. I am mentioning five areas of improvement:

Scope to improve liquidity across all tenors and securities in the central government securities market.
OTC derivatives markets remain concentrated in few products; efficient interest rate hedging options need wider availability.
Indian banks need to evolve as global market-makers by dealing directly with end-users rather than just offshore makers.
Usage of the FX Retail platform remains limited; banks should prioritize this for retail users.
Development of credit derivatives is largely an underutilised area.

At the same time, market participants must acknowledge that while a privilege bestows some benefits, it also entails responsibilities. These include ensuring easy access for every user, transacting on fair and transparent terms, meeting regulatory objectives in letter and spirit, and sustaining market integrity.

Conclusion

Let me conclude now. This year marks the 250th anniversary of The Wealth of Nations by Adam Smith. His insight regarding the importance of markets remains profoundly relevant in current tumultuous times.

Our priorities at RBI remain clear: we will continue to deepen financial markets, broaden participation, and further strengthen institutional frameworks. We will strive for efficiency, consumer protection, fairness, transparency, and ethical conduct.

But we cannot do it alone. Strengthening financial resilience is a collective and shared responsibility. Institutions such as trade repositories, FIMMDA, and PDAI must play a vital role in strengthening market conventions and discipline. I am confident that with continued collaboration, Indian financial markets will become deeper, more efficient, and more dynamic in the years ahead.

Thank you.

The following is the full text of the article titled “Monetary Policy in a Time of Heightened Uncertainty – Transcript of the Intervention” by Shri Sanjay Malhotra, Governor of the Reserve Bank of India, as published in the May 2026 RBI Bulletin:

Monetary Policy in a Time of Heightened Uncertainty – Transcript of the Intervention*

Shri Sanjay Malhotra

Transcript of the intervention by Shri Sanjay Malhotra, Governor, Reserve Bank of India during a panel discussion titled “Monetary Policy in a Time of Heightened Uncertainty” jointly organized by the Swiss National Bank (SNB) and the International Monetary Fund (IMF) on May 12, 2026, as part of the 12th High-Level Conference on the International Monetary System. The panel was moderated by Mr. Adam Posen, President of the Peterson Institute for International Economics. Other panelists included Mr. Joachim Nagel, President of the Deutsche Bundesbank; Mr. John C. Williams, President and CEO of the Federal Reserve Bank of New York; and Mr. Erik Thedeen, Governor of the Central Bank of Sweden.

Good morning, Adam and my fellow panellists.

First of all, let me quote Alan Greenspan, former Chair of the Federal Reserve who said that “uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape”. In other words, uncertainty is the only certainty in monetary policy.

This is so because even in times of low uncertainty and volatility, the economy, monetary policy transmission, and economic models are complex and ever-changing, bringing uncertainty into policymaking. So, central bankers have learnt to live with uncertainty. The monetary policy frameworks have embedded principles which help them navigate uncertainty:

First principle is to prioritise robustness over optimality during uncertain times.
Second is the Brainard principle of attenuation, which essentially talks about gradualism in policymaking.
Anchoring inflation expectations, maintaining transparency, and effective and clear communication are some other principles.

Let me also mention that in India, we are also used to frequent supply shocks. Food items comprise roughly 40 per cent of our CPI basket. Indian agriculture, being significantly dependent on monsoons, is vulnerable to supply shocks.

Supply shocks pose a challenge – pre-emptive and sharp policy tightening, if the shock is temporary, can exacerbate loss of output (growth foregone), while delaying the same can lead to unhinging of inflation expectations, making it difficult to rein in inflation.

In a supply shock, we generally try to “look through” the first-round impact, if we believe that it is transitory and will dissipate quickly. However, if a sustained increase in prices drives up wages, production, and transportation costs (second-round effects) and leads to generalization of inflation pressures, the “look through” approach is no longer optimal, requiring tighter policy.

Since the pandemic, and particularly after the outbreak of the Russia-Ukraine war, central banks have moved towards a more flexible, meeting-by-meeting approach in policy formulation. They are now dependent on a wider array of information variables, using high-frequency data to make faster and more informed decisions. Moreover, while targeting headline inflation, they are increasingly distinguishing between transitory headline spikes and persistent core inflation trends to avoid any pre-emptive policy tightening that is unwarranted.

Central banks have also realised that in the face of structural supply challenges, monetary policy alone cannot handle supply-side bottlenecks. Close coordination with fiscal and structural policies is necessary to address the nature and source of shocks. For instance, in case of adverse supply shocks that have an impact on food inflation, the government has to ease supply constraints through various means – imports, prevention of hoarding, and use of food reserves and buffers – to contain such inflation.

Thus, frameworks focused on price stability are essential anchors. Moreover, conventional economic models often fail during unprecedented supply disruptions, making data-dependent decisions (meeting-by-meeting approach) more important. To be effective, central banks must be flexible enough to handle the immediate impact of shocks without losing sight of the medium-term goal.

Moreover, they need to clearly explain the trade-offs to maintain credibility without adhering rigidly to short-term targets. The future of price-stability-focused frameworks lies in enhancing their agility and credibility rather than in abandoning them.

Given the above backdrop, India’s monetary policy framework, which is a rule-based framework with elements of flexibility embedded in it, has helped in navigating through the persisting shocks and provided us the flexibility to respond depending upon evolving circumstances. I may mention that average inflation, after inflation targeting was introduced, has reduced by about two percentage points.

The sufficiently wide tolerance band of (+)/(-) 200 basis points around the inflation target of 4% provides the necessary policy space to accommodate supply-shock-induced volatility in the short run while maintaining focus on the medium-term objective of price stability. It allows for deviations from the target in the face of temporary shocks without frequent changes in the interest rate. The wide tolerance band had come in handy during earlier supply shocks like the pandemic, when temporary deviations from the target due to supply disruptions – even when it breached the upper tolerance band of inflation – were ignored in order to remain growth supportive.

The sufficiently longer target horizon of three quarters (nine months) also gives us the due flexibility to address transmission challenges in an uncertain environment.

Regarding the current energy shock, we have clearly articulated in our MPC resolution of April 2026 that the economy is confronted with a supply shock and it may be prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook. We have been transparent and communicated the conditions which will necessitate the tightening of monetary policy.

That being said, we are aware that the global situation is still fluid, and its macroeconomic implications are still unfolding. We are keeping a close vigil on whether and when the supply shock can become embedded in the general price level that may warrant monetary policy action. We have been maintaining a neutral stance since June 2025, which gives us the flexibility to remain nimble in our approach and respond judiciously to incoming data and information.

Summing up, faced with supply shocks and uncertainty, it is important that policy frameworks focused on price stability are flexible enough to allow central banks to look through transitory shocks while remaining agile and nimble, maintaining a broad policy stance, and avoiding making firm commitments on the future path of policy. In such circumstances, the broad approach is to be even more data-dependent and to continuously reassess the balance of risks. Whether to look through or not depends on the duration of inflation and whether it is generalised in the economy.

Thank you.

The following is the full text of the speech, “Inflation Targeting in India: The Past, The Present and The Future,” delivered by Dr. Poonam Gupta, Deputy Governor of the Reserve Bank of India, at a joint seminar organized by the National Council of Applied Economic Research (NCAER) in New Delhi on May 5, 2026:

Inflation Targeting in India: The Past, The Present and The Future

Dr. Poonam Gupta

It is a pleasure for me to be here at NCAER to speak on India’s current monetary policy framework. My remarks focus on how the existing framework has evolved over the past decade, where it stands today, and the issues that may shape its next iteration in five years from now.

As you know, the Government of India issued a Gazette notification on March 25, 2026, renewing the existing inflation target of 4 per cent with ±2 per cent tolerance band for five more years, extending the current inflation target (IT) mandate through March 2031. This renewal, wherein all the features of the framework were retained, invites reflection, not merely on continuity, but also on what a decade of experience has taught us and what refinements, if any, may be warranted in the future.

My remarks are organised as follows. I begin with a brief account of the framework’s architecture and a decade of monetary policy decisions and outcomes. I then turn to the public consultation process followed in the latest review, focusing on the four questions that structured it, presenting for each the national and international evidence, and the feedback received. Finally, I will touch on a few issues that may warrant consideration when the framework comes up for its next review in 2031.

1. Framework’s architecture and a decade of monetary policy decisions and outcomes

India’s monetary policy framework has evolved continuously during the past decades, responding to domestic macroeconomic realities as well as advances in global best practices. The impetus for a more fundamental rethink started to emerge around early 2010s in the context of high inflation that exceeded India’s own historical averages and other peer economies, highlighting the need for a strong and explicit nominal anchor for monetary policy. By this time, many countries had successfully implemented inflation targeting and their impacts were broadly assessed to be favourable. India, too, came to regard IT as the appropriate framework to adopt.

Inflation targeting was formally institutionalised with the amendment of the Reserve Bank of India (RBI) Act, 1934 in May 2016. RBI was entrusted with the responsibility of conducting monetary policy in India with the primary objective “to maintain price stability while keeping in mind the objective of growth”.

Section 45ZA of the RBI Act, 1934 mandates that “The Central Government shall, in consultation with the Bank, determine the inflation target in terms of the Consumer Price Index, once in every five years”. The government initially notified the inflation target of 4 per cent with a tolerance band of +/- 2 per cent for the period 2016 to 2021. Following the review in March 2021, the target was retained for the subsequent five-year period from 2021 to 2026. In the second statutory review, through the Gazette notification dated March 25, 2026, the framework has been renewed again, for a five-year period through March 2031.

Responsibility of monetary policy decisions is vested with the Monetary Policy Committee (MPC), which was specifically given the task of deciding the policy repo rate required to achieve the inflation target. The decisions of the MPC were to be taken by a majority of votes, with Governor having the casting vote in case of a tie - a provision that, notably, has not needed to be invoked ever during the past decade.

Clear communication and transparency are recognised as defining features of an effective inflation-targeting regime. India’s IT framework reflects this emphasis: the RBI publishes the resolution adopted by the MPC following each meeting; releases the minutes of the individual members of the MPC on the 14th day thereafter; Governor’s statement and press briefings are used effectively as the modes of policy communication; and the RBI publishes Monetary Policy Report (MPR) once every six months.

Indian experience with IT is rather recent as inflation targeting has a history spanning more than three decades at the global level. First adopted by New Zealand in the early 1990s, it has since become the benchmark monetary policy framework across advanced economies (AEs) and emerging market and developing economies (EMDEs). Today, 48 countries operate under an inflation-targeting framework. No inflation targeting country has ever abandoned it after adoption.

International evidence broadly associates inflation targeting with three outcomes: measurably lower and more stable inflation; improved credibility of monetary policy with better-anchored expectations; and reduced fiscal dominance with strengthened coordination between monetary and fiscal policies.

A broadly similar pattern has unfolded in India. The average headline CPI inflation has declined from 8.1 per cent in the pre-IT decade (2006-16) to 4.6 per cent in the IT period (2016-26). More importantly, the inflation variability has reduced significantly. Meanwhile, growth has been sustained and has become more stable. India’s experience does not support the concern that inflation targeting comes at the cost of growth; average annual GDP growth actually edged up marginally from 6.8 per cent pre-IT to 7.0 per cent in the IT decade (excluding COVID-affected years).

2. Five-year reviews of the IT Framework

The first statutory review was conducted in March 2021, where the government retained the existing target. For the second review, the RBI adopted a more consultative approach, publishing a Discussion Paper on August 21, 2025, which sought comments on four central features of the framework:

Question 1: Headline or Core Inflation as the Policy Target? The case for retaining headline CPI rests on the fact that food and fuel (excluded from core) are not merely transient supply-side disturbances in India and can lead to second-round effects. Furthermore, the average citizen understands prices in totality. Over 90 per cent of respondents favoured retaining headline CPI inflation as the target. Internationally, 47 out of 48 IT countries target headline inflation.

Question 2: Is the 4 per cent inflation target still optimal? Responses indicated strong support for retaining the 4 per cent target. This target was originally established as the rate at which macroeconomic conditions are optimized with a zero-output gap. While AEs cluster around a 2 per cent target, EMDEs generally range between 2.5 and 4 per cent; India’s 4 per cent target remains suitable for its stage of development.

Question 3: Should the tolerance band be retained, narrowed, or redesigned? Two-thirds of respondents favoured retaining the existing ±2 per cent band. India’s experience demonstrated its usefulness during the pandemic and the Russia-Ukraine war, where inflation temporarily exceeded 6 per cent without requiring the abandonment of the framework. Cross-country evidence suggests targets with bands are successful in providing flexibility while maintaining credibility.

Question 4: Point target with tolerance band, or pure range targeting? Of 56 respondents, 52 favoured retaining the existing point target with a tolerance band. Pure range targeting can be ambiguous, as the midpoint is often interpreted as the de-facto target anyway, and a transition might be seen as a weakening of commitment. Globally, the trend has been away from range targeting toward point targets with bands.

3. Going forward

The renewal of the framework through March 2031 occurs amid considerable global uncertainty. Preserving the core architecture—the headline CPI inflation target of 4 per cent and the ±2 per cent tolerance band—is a policy choice that strengthens the framework when it is most needed.

A future review in 2031 will depend on the evolution of inflation and growth outcomes. If the economy continues to see robust growth and stable inflation, refinements to the inflation level or band could be considered, but the current global challenges warrant the predictability and flexibility inherent in the existing system.

To conclude, the existing framework has all the inherent features required to nudge the economy toward improved outcomes. Calibrated refinements, backed by structural changes, will ensure its continued relevance in the years ahead.

The following is the full text of the speech, “Prosperous States for a Prosperous India,” delivered by Dr. Poonam Gupta, Deputy Governor of the Reserve Bank of India, at the Columbia Indian Economy Summit 2026 at Columbia University on April 11, 2026:

Prosperous States for a Prosperous India

Dr. Poonam Gupta

It is my pleasure to be here at the Columbia Indian Economy Summit, 2026. I would like to thank Prof. Arvind Panagariya for his kind invitation to me to speak on issues related to India’s growth trajectory, both at the national and at the states’ level.

My talk is in three parts. I will first present select salient features of the trajectory of economic growth of India over the past four decades, and what it bodes for the years to come. Then, I will present key characteristics of the states’ respective growth trajectories. Finally, I will draw some inferences and implications from these observations for our quest to attain the status of a much more prosperous economy by 2047.

1. Salient features of the trajectory of economic growth of India over the past four decades

India’s economic growth has consistently accelerated since the early 1980s. Average real gross domestic product (GDP) growth has increased from 5.7 per cent in the 1980s to 7.7 per cent in the most recent four-year period.

The acceleration is even more pronounced in per capita income. From about US$ 274 in 1981, per capita income has risen nearly tenfold to around US$ 2700 in 2024. As per the forecasts in the October 2025 World Economic Outlook of the IMF, per capita income is projected to increase to US$ 4346 in 2030. A steady moderation in population growth since around 2014 has further amplified these gains in per capita terms.

India has attained a virtuous cycle of accelerated growth and macroeconomic stability. This stability is reflected in sustainable outcomes across inflation, the current account balance, fiscal position, and financial sector health. Notably:

Inflation has declined at a faster rate than in most economies.
The current account deficit has remained within a moderate range of 0.5-2.2 per cent of GDP since 1990.
The banking sector has undergone a structural turnaround and is now significantly stronger and better capitalized.
On the fiscal front, India is on a path of consolidation with a distinct shift towards capital expenditure to strengthen growth potential.

These outcomes are attributed to robust policy frameworks, including Flexible Inflation Targeting (FIT), the Goods and Services Tax (GST), and the Fiscal Responsibility and Budget Management (FRBM) framework.

2. Salient features of the trajectory of economic growth across states

India’s growth story consists of broad-based prosperity, with every state recording a significant increase in per capita gross state domestic product (GSDP) over the past two decades. Average per capita incomes across states have surged nearly fivefold in current US dollar terms during this period.

While richer states have generally experienced greater prosperity, the extent of divergence has weakened considerably in recent years. The growth gap between richer and poorer states has narrowed, driven by the better performance of relatively lower-income states such as Odisha, Assam, and Uttar Pradesh.

Beyond income, several welfare indicators are converging even more decisively:

Consumption Expenditure: States with historically lower consumption levels are now recording faster consumption growth.
Health and Education: Indicators such as women's literacy, infant survival rates, and nutrition (children not underweight) have trended toward greater parity across states.
Basic Services: Access to electricity, safe drinking water, and improved sanitation has strengthened considerably nationwide.
Financial Inclusion: The percentage of women with a bank account jumped from 14 per cent in 2005-06 to approximately 80 per cent in 2019-21.

If past rates of growth are maintained, many states will approach "rich" status by 2047. India’s per capita income is projected to grow by 4 times in US dollar terms by 2046-47, with substantial contributions from below-median states.

3. Inferences and implications for our quest to attain the status of a much more prosperous economy by 2047

Reaching a higher level of prosperity by 2047 will require state-specific growth strategies.

For above-median states: The focus should be on innovation, scale, planned urbanization, and attracting global talent.
For below-median states: Priorities include unlocking agricultural productivity, building skills, and integrating into national and international labor markets for labor-intensive activities.

Accelerating growth requires acknowledging the distinct roles of the center and the states. While macro policies like monetary and trade policy are set at the national level, states control critical levers such as the ease of doing business, land and labor conditions, and the delivery of education and health services.

Conclusion

Prosperity is both India’s ambition and its destiny. The central question is no longer whether India will prosper, but how quickly and equitably that prosperity will be shared. Lagging states are catching up, and the distribution of wellbeing is becoming more equal.

Realizing this potential requires moving toward state-specific growth strategies anchored in local strengths and structural realities. This calls for holistic assessments and richer dialogues to fully leverage existing strengths and build new comparative advantages.

Famous quotes

Thursday, June 11, 2026

Newspaper Summary 120626

Rafale deal unlikely during PM Modi’s visit to France

MAKE IN INDIA

SHIFT FROM THE PAST

‘DIFFERENT DEAL’

Ahmedabad crash probe ‘not fair’, says pilot association

TECHNICAL EVIDENCE

TECHNICAL FINDINGS

China wins $2.9 b Kenya airport deal

FTA effect: Price drop on British luxury cars in India

FUEL DIFFERENTIAL

EVS LEFT OUT

India requires more than 200 satellites in 3 years: ISRO chief

SECTORAL REFORMS

MAJOR MILESTONES

Opendoor India layoffs reignite debate over AI, future of offshore work

LARGE TALENT POOL

Third Wave Coffee aims to achieve breakeven this fiscal, plans to open 100 new cafés

GROWTH PLANS

CURRENT PRESENCE

Monsoon momentum shifts East; rain may revive over West Coast during June 22-23

NEXT PHASE

ISOLATED HEAVY RAIN

Policy uniformity, public trust vital for ethanol blending success

STATE TAX ALIGNMENT

EFFICIENCY AND VEHICLE DESIGN

CAPACITY AND DEMAND

External Finance Premia: Market Integration versus Bank Fragmentation

Study Context and Scope

External Finance Premium Analysis

Geographic Integration and Independence

Transmission of Monetary Policy

Determinants of the Market-Based Premium

Strategic and Policy Implications

Geographic Fragmentation and Country Effects

Monetary Policy Transmission

The Role of Lenders and Sovereign Ties

Substitutability and Comparative Costs

Homogeneous Transmission in Market Finance

Heterogeneous Transmission in Bank Finance

Channels of Transmission to the EFP

Implications for Policy and Research

1. Surprising Integration of Market Finance

2. Persistent Fragmentation of Bank Finance

3. The "Nature of Finance" vs. Firm Characteristics

4. Comparative Costs and Substitutability

Policy and Research Implications

Policy Implications

Research Implications

Newspaper Summary 110626

Meta and Reliance Industries partner to develop 168 MW, AI-enabled data centre in Gujarat

SCALE INFRA

Equity MF inflows slump 40% in May over April

RISING CONFIDENCE

NET INFLOWS

Despite near-term global uncertainties, long-term investment case for India remains intact, says KKR

Zepto’s marketplace pivot may hold key to profitability

New Revenue Streams

Capital Efficiency

Banks kick off rate hikes for NRI dollar deposits

RATES RISE

India’s outward FDI falls 49% in May: RBI

Breakdown of Overseas Commitments:

Planet sizzles as May becomes 2nd warmest on record globally

HEAT EXTREMES

Monsoon stalls, rain belt shifts to South, East India

MANGALURU IN FOCUS

RAIN FOR KONKAN-GOA

‘India has 102 GW floating solar power potential’

Planet sizzles as May becomes 2nd warmest on record globally

HEAT EXTREMES

How India can protect its digital ecosystem

THE INDIAN VALUATION CLIFF

THE PHYSICIST’S LENS

THE NEW ATMOSPHERE

Monday, June 08, 2026

Reserve Bank of India Bulletin May 2026

Indian Financial Markets – Resilience and Resurgence