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:

1. Our foreign exchange reserves remain comfortable, with 11 months of import cover.
2. 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.
3. 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.
4. 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:

1. Scope to improve liquidity across all tenors and securities in the central government securities market.
2. OTC derivatives markets remain concentrated in few products; efficient interest rate hedging options need wider availability.
3. Indian banks need to evolve as global market-makers by dealing directly with end-users rather than just offshore makers.
4. Usage of the FX Retail platform remains limited; banks should prioritize this for retail users.
5. 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:

1. First principle is to prioritise robustness over optimality during uncertain times.
2. Second is the Brainard principle of attenuation, which essentially talks about gradualism in policymaking.
3. 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.

Space X IPO

The video argues that the upcoming SpaceX IPO is an "engineered" wealth transfer designed to benefit Elon Musk and early investors at the expense of ordinary retirement savers,. The key highlights of this alleged scheme include:

Unprecedented Valuation

• SpaceX is seeking a $1.75 trillion valuation, which is more than the value of Walmart.
• While SpaceX is a "real company" with impressive engineering, its revenue multiple is over 50 times its projected earnings,. For comparison, Facebook went public at roughly 10 times its projected revenue; experts describe the SpaceX multiple as "completely unprecedented" and "batshit",.

The Twitter and xAI Connection

• The video claims the IPO provides a way to "bail out" investors who helped Musk buy Twitter.
• Musk merged Twitter (X) into xAI, and then had SpaceX buy xAI using stock rather than cash. This maneuver allowed investors like Andreessen Horowitz, a Saudi prince, and Jack Dorsey to trade their devalued Twitter stakes for SpaceX shares, which they can now cash out through the IPO,,.

The "Fast Entry" Index Fund Loophole

• The core of the "scheme" hinges on index funds, which are passive investment vehicles that must follow specific rules,.
• Standard rules usually require a "seasoning" period of up to a year before a new stock can enter major indexes like the Nasdaq-100,. However, Nasdaq recently changed its rules to allow a "fast entry" for large companies in just 15 trading days.
• This rule change triggers mandatory buying by every index fund tracking the Nasdaq-100, creating a "wall of money" that drives the stock price up regardless of whether the valuation is sensible,,.

Market Engineering and the "Bag-Holder" Scenario

The video outlines a four-step plan to maximize the stock price for early exit:

1. Artificial Scarcity: Offering less than 5% of shares to the public (compared to the usual 15-20%) to limit supply.
2. Retail Targeting: Allocating 30% of shares to ordinary "retail" investors—triple the standard amount—which the video suggests is a sign that professional investors won't buy at the asking price,.
3. Turbocharged Demand: Using the Nasdaq "fast entry" rule to force index funds to buy shares 15 days after the IPO,.
4. The Exit: Allowing early investors to cash out while the price is artificially high due to forced index fund buying,.

Regulatory and Systemic Concerns

• Conflict of Interest: Nasdaq is both a for-profit exchange and an index provider. It allegedly changed its rules to compete with the New York Stock Exchange for the prestigious SpaceX listing,.
• Lack of Oversight: These index rule changes are self-regulated and do not require approval from the Securities and Exchange Commission (SEC),.
• Wider Implications: The video warns this may become a trend; the S&P 500 is considering similar changes to its seasoning rules to accommodate other large, currently unprofitable AI companies like OpenAI and Anthropic,.

Newspaper Summary 090626

 

Asset reconstruction companies seek review of law governing them

HELP SOUGHT. Request FinMin to set up working group to review their existing position and expand role

K Ram Kumar Mumbai

Asset reconstruction companies (ARCs) have sought a review of the statute governing them as well as their functioning in the backdrop of financial entities such as private credit (alternative investment funds) and mutual funds emerging as meaningful players in the debt market in the last two decades.

The Association of ARCs in India has requested the Finance Ministry to set up a working group on ARCs to review their existing position and expand their role. Banks and financial institutions clean up their balance sheets through the sale of stressed assets to ARCs.

When the SARFAESI Act 2002 was enacted, the financial sector was dominated by banks and FIs. This statute empowers banks and FIs to recover dues from defaulting borrowers without court intervention.

But with private credit (AIFs) and mutual funds also becoming a force to reckon with in the debt market, ARCs want suitable amendments to the SARFAESI Act so that the former gets an exit route in case their investors seek payback. ARCs can provide the exit by buying debt from private credit and MFs. The court process that is currently available to the aforementioned entities can take years to conclude.

“By next year, the SARFAESI Act will complete 25 years. The market dynamics have changed considerably in these years. To remain relevant and appropriate, this Act, which defines the framework of functioning of ARCs, among others, needs a comprehensive review, to remain as an integral and effective enabling legal framework in resolutions,” said Hari Hara Mishra, CEO, Association of ARCs in India.

ADVISORY GROUP

He emphasised that debt aggregation is the first step towards a resolution, and a comprehensive resolution should cover stressed assets with entities such as private credit and mutual funds also. The last time a review of ARCs functioning was done was about 15 years ago. Then the Department of Financial Services formed a key advisory group representing all stakeholders such as banks, regulators, rating agencies, industry bodies and law firms.

ARCs now want a similar body to be formed and a comprehensive review to be done.

As of March-end 2026, the book value of assets acquired by 27 ARCs stood at ₹16,19,124 crore, with the security receipts (SRs) issued by them to entities such as banks, ARCs (own investment in SRs issued by them), financial institutional investors and qualified institutional buyers stood at ₹3,20,887 crore, per RBI data. Outstanding SRs stood at ₹1,53,323 crore.

FUNDS RETREAT (Physically-backed gold ETFs record outflows)

Exits from gold ETFs were the highest last week for this year

4TH WEEK IN A ROW. Net investments down 17% from May 23; US, Chinese investors lead the trend

Subramani Ra Mancombu Chennai

Investments in physically-based gold exchange-traded funds (ETFs) were negative last week, making net inflows negative for the fourth week in a row, according to data from the World Gold Council (WGC). This represented the highest exit by investors from ETFs so far this year.

The development follows gold losing most of its gains for the year. For the year-to-date period, net investments dropped by 17 per cent for the week ending June 5, falling to $15.28 billion from $18.46 billion in the week ending May 23.

INDIANS ENCASH $61 M

The US, Canada, and China led the outflows from ETFs last week, with gross investments at $1.05 billion and outflows reaching $2.71 billion. Investors in North America exited to the tune of $1.36 billion, while Asia saw exits of $0.53 billion and other countries $0.007 billion. The exit pace accelerated as gold prices dropped below $4,400 an ounce.

Rajkumar Subramanian, Head of Product & Family Office at PL Wealth, attributed the sharp drop in gold prices to a blowout US jobs report. He noted this signals that interest rates may remain higher for longer, which strengthens the dollar and pulls capital away from precious metals.

In the US, investors encashed $1.27 billion, while Canadian investors withdrew $102 million and Chinese stakeholders exited to the tune of $513 million. While specific weekly data for India was unavailable, the WGC data showed that Indian investors encashed $61 million in May.

KOREA, JAPAN POSITIVE

Despite the recent trend, Chinese and Indian investors have maintained positive net investments year-to-date. As of June 5, Chinese holdings stood at $7.29 billion and Indian holdings at $3.48 billion. In contrast, US investor exits for the year have totaled $3.81 billion.

Among other Asian nations, Korea ($851 million), Japan ($1.26 billion), and Hong Kong ($930.6 million) have all maintained positive inflows. Globally, SPDR Gold Shares saw an outflow of $7.09 billion, while iShares Gold Trust experienced exits of $2.28 billion.

TONNAGE HOLDINGS

Gold ETFs have faced consistent outflows since the Iran war began. After hitting a record high of $5,608 an ounce on January 29, gold has entered a downward trend, shedding more than 22 per cent of its value. On Monday, gold was quoted at $4,325.90 an ounce.

In terms of tonnage, ETFs currently hold 4,106.3 tonnes, down from 4,120.9 tonnes as of May 23, but still higher than the 3,559.2 tonnes held a year ago. The decline is driven by inflation fears, rising interest rates and bond yields, soaring crude oil prices, and overall pessimism regarding global economic growth. This follows a continuous rally from 2024 through early 2025 that was built on hopes of US Fed rate cuts and various geopolitical crises.

Divestment mop-up in 2 months of FY27 tops FY25 collection

Shishir Sinha New Delhi

The government’s mop-up under ‘Miscellaneous Capital Receipts’ (MCR) crossed more than 23 per cent of the Budget Estimate in just a little over two months of FY27, driven primarily by robust disinvestment earnings. Significantly, disinvestment earnings in just two months exceeded the mop up of full FY25 and nearly 72 per cent of full FY26.

The Budget pegged MCR at ₹80,000 crore. According to the Budget document, these include receipts on account of management of equity investments and public assets through various mechanisms. Put simply, MCR primarily includes disinvestment (sale of minority share holdings and strategic disinvestment) and asset monetisation.

Data from DIPAM show that the government off-loaded parts of its stake in three Central Public Sector Enterprises (CPSEs) — Central Bank of India, Coal India and NHPC — and mobilised ₹12,165 crore. At the same time, revenue from asset monetisation (InvIT) was over ₹6,300 crore. These two taken together gave over ₹18,000 crore to the central exchequer or 23.16 per cent of full-year estimates under the MCR. This is critical as receipts from taxes are expected to be lower, while the revenue expenditure (such as subsidy on food and fertilizer) is expected to shoot up mainly on account of the West Asia war.

The first sign of stress on central finances was when the fiscal deficit in value terms surged nearly 94 per cent in April compared to the corresponding month of the last fiscal. As a percentage of the Budget Estimate (BE), the fiscal deficit was over 21 per cent as compared to 11 per cent.

Asked about raising the MCR to ₹80,000 crore in FY27 BE from FY26 Revised Estimate (RE) of ₹33,817 crore and whether such a higher estimate means monetisation of equities or monetisation of assets, Economic Affairs Secretary Anuradha Thakur said: “It will be more of assets monetisation as a strong pipeline was announced”.

GOVT SHAREHOLDING

Budget documents do not use the word ‘disinvestment,’ but it is still an important part of the MCR. There are 68 CPSEs listed on stock exchanges. The value of government shareholding in these companies is over ₹23.66 lakh crore. Apart from these, 16 public financial institutions (banks and insurance companies) are also listed, and the value of government shareholding in these institutions is over ₹15 lakh crore.

This offers substantial scope for minority stake sales. With several CPSEs and public financial institutions yet to meet the 25 per cent minimum public shareholding requirement, more Offer for Sale (OFS) issues are likely in this fiscal and the next.

Miscellaneous capital receipts over the years

(in ₹ crore)

Year	Dividend	Disinvestment	Asset Monetisation	Total
2021-22	59,294	13,534	-	72,828
2022-23	59,533	35,294	-	94,827
2023-24	64,030	16,507	-	80,537
2024-25	74,129	10,163	-	84,292
2025-26	78,438	16,886	28,420	1,23,744
2026-27 (April-till date)	1,877	12,166	6,367	20,410

Source: DIPAM

bl interview

‘Our immediate endeavour is to increase CASA ratio from around 30% to 32%’

Canara Bank’s new MD and CEO Brajesh Kumar Singh is betting on a younger customer base, digital banking and low-cost deposits to improve profitability, saying the lender will focus on strengthening efficiency metrics rather than chasing balance-sheet growth alone.

Edited excerpts:

What will be your key focus areas? The bank is doing well in terms of business growth, but there is room to improve efficiency parameters. Our CASA ratio is around 30 per cent, while some peers are at 40 per cent. Similarly, our net interest margin can improve. My first priority is on the resources side, raising low-cost deposits and improving CASA, which will strengthen overall efficiency.

Do you have a CASA target in mind? Our immediate endeavour is to increase CASA from around 30 per cent to 32 per cent. Over the medium term, we would like to take it to about 35 per cent. The idea is to reduce dependence on bulk deposits and build a more stable retail deposit franchise.

How do you plan to attract younger customers? The younger generation wants banking services delivered differently. They are comfortable doing everything digitally and rarely visit branches. I want Canara Bank to become the preferred bank for this generation. We need to make banking seamless, convenient and relevant to their needs.

How much is Canara Bank investing in technology and digital capabilities? Technology is already one of our largest areas of expenditure. We spend around 10 per cent of our total annual expenditure on technology, making it the second-largest cost head after employee expenses. That investment will continue to increase. We have built more than a hundred digital journeys across mobile and internet banking.

Household savings are moving towards investments through platforms such as Zerodha and Groww, while fintechs and NBFCs are expanding aggressively in areas like MSME lending. Do you see this as a challenge for traditional banks? The bigger change is not fintechs entering the market; it is the changing preference of customers. Younger consumers are increasingly shifting from saving to investing, and their risk appetite is much higher than previous generations. Fintech platforms have made investing far easier and more accessible through seamless account opening, research tools and integrated banking and demat services.

I do not see fintechs as competitors. In many areas, they are collaborators. Several fintechs support banks in digital onboarding, land records verification, legal searches and customer acquisition. We also work with them in lending and other digital journeys.

Even in MSME lending, there is enough room for different players. Some fintechs focus on unsecured loans, while banks continue to play a significant role in secured lending and larger-ticket financing. We also lend to some of these institutions and, in certain cases, acquire loan portfolios from them. The opportunity is large enough for both banks and fintechs to grow together.

Rajesh Exports has been in the spotlight following SEBI’s interim order. Canara Bank has exposure to the company. How do you view the recovery prospects? The residual exposure of Canara Bank to Rajesh Exports is meagre compared to the total credit facilities extended. The exposure is fully provided for and is recoverable. The residual exposure is not expected to have any significant impact on the bank’s balance sheet or financial position.

Aishwarya Kumar Bengaluru

Rupee records biggest single day fall in a month, closes at 95.71/$

Our Bureau Mumbai

The rupee on Monday almost ceded all the gains it made in the last trading session, recording its biggest single day fall in a month in the process.

The Indian currency was weighed down by high crude oil prices amid the continuing West Asia conflict, the dollar gaining strength, and expectations of the US Fed tightening monetary policy in the coming months.

The rupee closed at 95.71 per US dollar, down 0.81 per cent, against the previous close of 94.94. It had received a "booster shot" last Friday when the RBI announced crucial measures to attract foreign capital through Foreign Currency Non-Resident (Bank) deposits, overseas borrowings, government securities, and equity investments.

These measures had initially buoyed the rupee, which posted its biggest single-day gain since April 2, perking up 84 paise to close at 94.94/dollar against the previous close of 95.89.

Amit Pabari, MD, CR Forex Advisors, observed that the RBI’s measures should not be viewed only through the lens of current market conditions. “By taking these measures now, the central bank has laid the groundwork for attracting foreign capital when global risk appetite improves,” he stated.

RBI exercises patience

Amidst global uncertainty, this is the right option

The Reserve Bank of India’s Monetary Policy Committee (MPC) has chosen caution over activism. In its June policy review, the MPC unanimously kept the repo rate unchanged at 5.25 per cent and retained its neutral stance with the SDF rate at 5 per cent, and the MSF and bank rate at 5.5 per cent. This decision came even as the committee lowered its FY27 GDP growth forecast to 6.6 per cent from 6.9 per cent and raised its inflation projection to 5.1 per cent from 4.6 per cent. Nonetheless, the move reflects a sober assessment of the extraordinary uncertainties currently confronting the economy.

The central bank is acutely aware that current inflationary pressures are largely imported and supply-driven. Crude oil prices remain approximately 30 per cent above pre-conflict levels as the West Asia crisis threatens energy supplies and key shipping routes. Simultaneously, global economic conditions are becoming less supportive, with rising uncertainty generating greater risk aversion among households and businesses. Investment decisions are being postponed, discretionary consumption is softening, and foreign portfolio investors continue to withdraw money from emerging markets. A slowing global economy could further weaken India’s exports and moderate remittance growth, while financial market spill-overs tighten domestic liquidity and increase volatility. The RBI thus finds itself in a situation where supply shocks threaten growth as much as inflation.

SENSIBLE APPROACH

Against this backdrop, the decision to preserve policy flexibility appears sensible. There are several reasons why the RBI is holding on to its monetary “dry powder”:

• Tolerance Band: Inflation, while rising, remains within the RBI’s tolerance band. While wholesale price inflation has surged, suggesting upstream cost pressures, the pass-through to consumer prices has remained limited so far, not indicating a generalized inflation spiral.
• Currency Management: The RBI has actively used the foreign exchange market to contain excessive currency volatility. While the rupee has depreciated due to higher oil prices and capital outflows, the adjustment has been relatively orderly. Judicious intervention and new measures to boost capital inflows have allowed the exchange rate to reflect economic fundamentals while limiting disorderly market conditions.
• Avoiding Premature Action: A premature rate hike could do more harm than good, as monetary tightening cannot produce more oil, reopen shipping routes, or lower global fertilizer prices. Instead, it would likely suppress domestic investment and consumption at a time when external demand is already weakening. Conversely, an immediate rate cut would risk sending the wrong signal amidst rising inflation expectations and pressure on the rupee.

The RBI is choosing patience, waiting for greater clarity on several crucial variables: the possible de-escalation of the West Asia conflict, the status of the south-west monsoon regarding food prices, the resilience of remittance inflows, and the stabilization of global commodity markets.

This approach is not one of complacency. The MPC’s revised forecasts show that policymakers recognize the inflationary risks ahead. If current pressures intensify and broader inflation begins to emerge, the RBI has made it clear that it stands ready to administer the "necessary bitter medicine". For now, however, prudence demands restraint.

---

The writer is a Professor at Madras School of Economics Saumitra Bhaduri

Monetary implications of RBI’s surplus transfer

The ultimate impact of surplus transfer is expansion of primary money, which will become the base for further monetary growth

C Rangarajan & RK Pattnaik

During fiscal 2025-26, the RBI transferred to the Central government a surplus of ₹2,86,588.46 crore (0.83 per cent of GDP) on top of a surplus transfer of ₹2,68,590.07 crore (0.90 per cent of GDP) in 2024-25 and ₹2,10,873.99 crore (0.99 per cent of GDP) in 2023-24. Thus, during the past three years, there has been substantial surplus transfer to the Central government. While the issues relating to these transfers have been discussed in various fora, the monetary implications have not been fully addressed, and this article highlights them.

The surplus transfer from RBI to the Central government is mandated under Section 47 of the RBI Act 1934. As per the mandate, the net income (total income minus total expenditure) after adjusting for the transfer of funds is required to be transferred to the government. Total income comprises interest income and other income from both domestic and foreign sources, while expenditure consists mainly of employee costs, printing charges, agency charges, and risk provisions.

RBI’s gross income (₹4,27,684.15 crore) increased by 26.42 per cent over the previous year, while expenditure (₹1,41,091.69 crore) before risk provisions increased by 27.60 per cent. The net income, before risk provision and transfer to statutory funds, amounted to ₹3,95,972.10 crore in 2025-26. Consequently, the RBI’s balance sheet increased by 20.61 per cent to ₹91,97,121.08 crore as of March 31, 2026. Income from foreign sources was higher, accounting for 76.53 per cent, mainly due to gains from the sale or redemption of foreign securities.

The revised Economic Capital Framework (ECF) provides flexibility to maintain the Contingent Risk Buffer (CRB) between 4.5 per cent and 7.5 per cent of the balance sheet. In 2025-26, the RBI transferred ₹1,09,379.64 crore towards the CRB, bringing it to 6.5 per cent of the balance sheet, which is considered reasonable.

MONETARY IMPACT

It is important to understand the monetary implication of these transfers as they bear upon monetary policy. Monetary and liquidity management is inherently related to movement in reserve money (RM), the base money through which money creation takes place. RM represents the central bank's liabilities (primarily currency and bank reserves) and its sources (assets including credit to government, or net domestic assets [NDA], and net foreign currency assets or NFA).

When NDA increases due to net RBI credit to the government, or when the RBI purchases foreign currency, primary money is instilled into the system. As long as the RBI surplus has not been transferred, it is recorded as reserves in the non-monetary liability (NML) of the RBI. Once transferred, there is a movement from NML to government deposits. While this results in no net increase in the RBI balance sheet, the implications change once the government spends the money.

NON-TAX REVENUE

When the RBI’s surplus is transferred, it is recorded as non-tax revenue under dividend and profits. The ₹2,86,588.46 crore surplus from 2025-26 will be accounted for as revenue in 2026-27, constituting 43.01 per cent of total non-tax revenue. Budget estimates for dividend and profits have increased significantly, showing a high dependency of the government on RBI’s surplus transfer.

Once the government spends this surplus, cash flows in the system increase, resulting in higher rupee liquidity in the banking system. This leads to an increase in bank reserves with the RBI, an increase in RM, and subsequent monetary expansion. Effectively, this is an injection of durable liquidity. The ultimate impact is the expansion of primary money, which becomes the base for further monetary growth.

CONCLUSIONS

The emerging conclusions are twofold:

• (a) There are monetary implications in terms of increased reserve money, serving as a base for further expansion.
• (b) There are fiscal implications, as the increase in non-tax revenue allows space for government spending.

Technically, this is not the monetisation of a fiscal deficit, but implicitly, it tantamounts to it. Given the size of the transfers, their monetary and liquidity implications cannot be ignored. As the RBI Governor noted on June 6, 2026, the drawdown of government cash balances following the surplus transfer will aid banking system liquidity in the near term.

---

C Rangarajan is former Governor of the RBI and former Chairman of the Prime Minister’s Economic Advisory Council. RK Pattnaik is a former central banker and currently teaches at the Gokhale Institute of Politics and Economics. Views are personal.

Bengaluru vs Hyderabad: A tale of two cities competing, collaborating

KV Kurmanath Hyderabad

Bengaluru vs Hyderabad has been a hot topic of discussion for over decades. We often see animated discussions on social media, with supporters taking sides to defend their city’s supremacy.

Though Bengaluru is far ahead in IT exports, start-up ecosystem, VC funding and social infrastructure, Hyderabad is emerging as an alternative with strong infrastructure and better traffic conditions.

NEW OPPORTUNITIES

Industry experts discussed this topic at T-Hub, the country’s biggest start-up incubator, and felt that the comparison and imaginary fight should be put to rest. They feel the cities should compete with global hubs and seize new opportunities rather than see each other as competitors.

“The rivalry between the two tech hubs plays out loudly online, often driven more by emotion than evidence,” said Prashanth Prakash, Chairman of UnboxingBLR. UnboxingBLR recently released A Tale of Two Cities, providing data on various IT hubs in the country and their standing across several indicators.

ONE UPMANSHIP

“What amazes me is the local entrepreneurship," Prakash added. "A lot of entrepreneurship in Bengaluru is from outside... But I see that in Hyderabad, there is a lot of local talent that is ready to build for India and the future”.

BVR Mohan Reddy, former Chairman of Nasscom and Founder-Executive Chairman of Cyient, felt that the ‘Hyderabad versus Bengaluru’ narrative was unnecessary. “This question of Hyderabad and Bengaluru is not of recent origin," he noted. "My question has been — why are you worried about Bengaluru? What this nation requires is 20 Bengalurus. And Hyderabad is in the making”.

Reddy emphasized that rather than competing with each other, they should compete with the world. He advocated for a collaborative approach to grow together. Pullela Gopichand, Chief National Coach for the Indian Badminton team, added that it was also time for tier-II and -III cities to grow.

Is AI riding a bubble?

CP CHANDRASHEKHAR, JAYATI GHOSH

US financial markets are agog with excitement. A few firms are breaking initial public offering (IPO) records, conveying the impression of a transformation of the role of stock markets in American capitalism. The trend began with SpaceX, the mega-corporation created by converting the social media platform Twitter, renamed X, into the artificial intelligence player xAI, and then merging it with the satellite operator and telecommunication giant.

The merged rocket, telecommunication and artificial intelligence entity, majority owned and controlled by Elon Musk, has gone public with an IPO aimed at mobilising as much as $75 billion of capital. The share sale at inflated prices is expected to value the company at around $1.75 trillion. This has been followed by similar announcements of large equity issues from other leaders in the AI stable — Anthropic, Open AI and Google — which too are now valued at levels marking highs that surprise, given the rather short life history of most of these firms.

PRINCIPAL DRIVERS

Two factors appear to be the principal drivers of this equity sale and valuation surge. The first is that, unlike the dotcom boom of the 1990s, ensuring a presence in the AI space requires large material investments, particularly in high-end chips and power-hungry data centres. Huge investments in such infrastructure, driven by competition for dominance, has led to an almost insatiable appetite for financial resources.

Secondly, the still unsubstantiated expectations of an AI-driven transformation of modern economies and ample liquidity in markets are triggering a demand for the instruments financing that investment. Firms have been able to mobilise unusually large sums of capital to finance the huge investments they are making in the competitive battle to win leadership in this new frontier area.

SPACEX IPO SCALE

The $75 billion that SpaceX is estimated to be mobilising through its IPO compares with a previous global maximum for capital mobilisation through IPOs of $25.6 billion notched up by Saudi Aramco. The maximum for capital mobilised through equity issued in an IPO in US markets alone is a lower $21.77 billion extracted by Chinese e-commerce venture Alibaba.

While the figure for the sums to be mobilised by the four AI-related firms choosing to go public this year is still uncertain, informed estimates place the total at around $200 billion. That exceeds by a wide margin the total sum mobilised by much larger numbers of firms in the US market in each year during the last decade.

The highest so far, counting only firms with market capitalisation exceeding $50 million, was in 2021, when 397 firms together mobilised capital totalling $142.4 billion. That makes for an average value of around $360 million, which pales when compared with the $75 billion sought to be mopped up by SpaceX. This appetite for capital encourages a conscious effort to hype up AI to attract those resources. The market capitalisation increases that follow from hype-led investments further intensify the valuation spike, in a self-fuelling spiral.

MARKET TRANSFORMATION

A corollary of the dramatic increase in capital mobilised through IPOs by each of these firms appears to be a sharp decline in the number of firms mobilising capital from the market. The number of firms resorting to IPOs during the first five months of 2026 was 63, which together mobilised just $28.8 million. Indications are that this number would shrink hugely in the months to follow as investors seem focused on getting a slice of AI equity at whatever cost, leading to the huge valuations of these firms.

In sum, accompanying the hype on the dramatic transformation of economic and social activity that AI is projected to bring about is a transformation of the role of financial markets in the functioning of US capitalism. For much of capitalist history in the US, while the stock market was a visible and important presence, its role was not one of helping mobilise the capital needed for large corporate investments.

CORPORATE CONTROL

In practice, retained profits and debt were the principal source of investment finance for US corporates. Equity markets served more as a market for corporate control and shareholder influence, as a fall in stock prices triggered by poor management could encourage hostile takeovers. That seems to be changing.

The recent boom in the IPO market signals that a few leading firms, having exhausted the potential for financing based on retained profits and debt, are turning to public equity. This does not signal a democratisation of corporate ownership. The manufactured hype surrounding AI tends to raise demand and push up share prices to levels where even large issue volumes are based on the sale of a relatively small proportion of share capital.

In SpaceX’s case, for example, the $75-billion mop up is to be realised through a stake sale of less than 5 per cent of equity. That allows promoters and early private market investors to benefit from both high stock values and significant stake ownership, even majority control. The boom is associated with extreme concentration of equity ownership and increased centralisation of corporate control.

SPECULATIVE BUBBLE?

Advocates justify these trends on the grounds that large-scale ‘real’ investments are expected to yield revenues and profits that warrant them. That ignores the possibility that the investments are driven by a competitive push to win market dominance, which generates excess capacity.

In fact, the evidence is that those valuations are based on impossible assumptions. If SpaceX does realise its targeted $1.75 trillion valuation, it would be priced at more than 90 times its annual revenue (as against 20 times in the case of an actually profitable Nvidia). Numbers quoted by Goldman Sachs, the lead investment banker for SpaceX, indicate that the valuation implicit in the price being set for its equity sale can be justified only by a 100 per cent increase in its revenues (from $3.2 billion to $322 billion) by 2030.

That and other numbers from the AI space suggest that the SpaceX-led financial investment fever is reflective of a speculative bubble rather than the promise of AI.

Newspaper Summary - 080626

 

The conservation kitty just shrank 36%

EARTH SHIELD. As governments falter, the recent Global Environment Facility meet in Samarkand rested its hope on private funding

By Joydeep Gupta

The Global Environment Facility (GEF) will have at least $3.9 billion till 2030 to spend on projects to conserve biodiversity in countries and across borders, combat climate change, and deal with desertification, mercury poisoning and persistent organic pollutants. This is almost 36 per cent less than the $5.3 billion that the GEF had for the four years ending in 2026 — a reflection of the reduced financing from developed countries to safeguard the earth. The US has not paid for the coming four years, while India is paying $20 million, the same as it did four years ago.

On the eve of the GEF assembly, held once every four years, its council approved a $13.49 million grant to help conserve biodiversity in three states of India — Uttarakhand, Nagaland and Tripura. The World Bank is lending $30 million for the project. During the meet in Samarkand, Uzbekistan, from May 30 to June 6, the GEF approved 24 projects in 22 countries and promised to spend $232.5 million for them. GEF interim CEO Claude Gascon acknowledged that the money available was nowhere near enough, stating the world "can’t afford fragmented responses to integrated crises".

Private Funding Needs Because government funding is falling short, there was near universal acceptance at the summit of the need to leverage private sector funding. Gascon discussed the goal of every dollar paid by GEF leveraging 18 dollars from the private sector, using examples like rhino and lemur species bonds recently launched in Africa. Other officials spoke of moving beyond the "comfort zone" of co-financing from the World Bank to using GEF grants as guarantors for commercial bank loans.

Less Money, More Red Tape Developing country representatives raised concerns about funding approvals taking too long and processes being too complicated. In response, a package was adopted to make the GEF faster and more accountable. Of the 2026-30 funds, 35 per cent is earmarked for least developed countries and small island developing states. Additionally, 20 per cent of funds ($100 million) has been dedicated to indigenous peoples and local communities to bypass government red tape.

New Project in India (CONSERVE) The new India-based project, called CONSERVE, will focus on community-managed forests, wetlands, and high-altitude meadows in Uttarakhand, Nagaland, and Tripura. Run by the National Biodiversity Authority, it aims to ultimately raise $75.6 million and engage over 25,000 people, at least half of them women. Communities will co-author governance rules, and revenue-sharing agreements will channel financial flows directly back to community institutions. The project also aims to build a management information system (MIS) to create a national biodiversity map for use in planning development projects.

Indian toy start-ups attract global investors as exports, manufacturing capacity and international demand grow rapidly

The serious business of playthings: From fun and sporty to educational, toys produced by Indian startups are increasingly in demand globally

By Sanjana B

The Digital-Tactile Shift Toys are increasingly competing for attention with electronic screens, leading Bengaluru-based start-up PlayShifu to focus on transforming passive screen time into active learning for cognitive development. Co-founder Dinesh Advani explains that their proprietary, patented technology combines physical, tactile play with digital interactivity. While online channels represent 45 per cent of their sales, nearly 80 per cent of PlayShifu’s revenue comes from international markets, with products exported to over 35 countries.

Global Sourcing Trends As global brands diversify their sourcing away from China, the Indian toy industry has become a major beneficiary. Major international names like Hasbro, Mattel, Spin Master, and IKEA are now on the client lists of Indian manufacturers. Mihir Joshi, Managing Director of GVFL, notes that stronger domestic manufacturing capabilities offer a meaningful opportunity for Indian companies to expand both locally and globally as trusted partners.

Investment Magnet The sector has become a significant draw for investors. Bala Srinivasa, Managing Director of Arkam Ventures, points out that India currently exports only $150–200 million worth of toys to a global market exceeding $130 billion, suggesting massive room for expansion. According to Tracxn, the toy industry attracted $92.6 million in funding between 2019 and 2026, peaking in 2024 with $32.9 million across 14 rounds. So far in the current year, $11.6 million has been invested.

Scaling Domestic Demand and Manufacturing

• Legend of Toys: This D2C toymaker manufactures miniature remote control cars, drones, and action figures. Its 16,500 sq ft factory in Bengaluru produces over 45,000 remote control cars per month. Co-founder Afshaan Siddiqui reports that the company grew its annual recurring revenue (ARR) to ₹30 crore in just 18 months and is targeting an exit ARR of over ₹80 crore. The company is also beginning exports to the US this month.
• Bidso India: Founded in 2022, this firm manufactures outdoor and ride-on toys under a franchise-owned, company-operated (FOCO) structure. It holds licenses for globally recognized characters including Peppa Pig, Harry Potter, Transformers, and NASA. Bidso reported ₹60 crore in revenue for FY26 and plans to expand its manufacturing footprint to 5.5 lakh sq ft by FY28.

Policy Support and Challenges Startup founders credit government initiatives for boosting the sector, specifically citing ‘Make in India’ incentives, mandatory BIS quality control clearance, and the hike in basic customs duty on imported toys from 20 per cent to 70 per cent. While rationalized duties on electronic components have helped, local supply remains a bottleneck. Additionally, the industry remains vulnerable to fluctuating plastic and metal prices and global trade disruptions. Despite these hurdles, toy exports surged over 200 per cent between FY15 and FY23, turning India into a net exporter.

Professional forecasters see FY27 GDP growth at 6.5%

WEAK OUTLOOK. It is slightly lower than RBI’s estimate; inflation projected at 4.9%

Our Bureau, Mumbai

India’s economic growth is expected to moderate to 6.5 per cent in 2026-27, while headline retail inflation is projected at 4.9 per cent, according to the Reserve Bank of India’s (RBI) latest Survey of Professional Forecasters (SPF). These estimates reflect a slightly weaker growth outlook but a more benign inflation trajectory than the RBI’s own official forecasts of 6.6 per cent GDP growth and 5.1 per cent inflation for FY27.

Rate Hike Indication

The SPF suggests limited scope for further monetary easing, indicating that interest rates will likely rise from here. Forecasters expect the repo rate to end FY27 at 5.75 per cent, which implies two 25-basis-point hikes from the current 5.25 per cent—specifically a hike to 5.50 per cent in Q3 and another to 5.75 per cent in Q4.

Future Projections and Divergences

For FY28, the panel projected a recovery in GDP growth to 6.9 per cent and inflation easing to 4.5 per cent. The 100th round of this bi-monthly survey, conducted in May with 40 panellists, assigned the highest probability for GDP growth to the 6.5–6.9 per cent range for both FY27 and FY28.

Addressing the difference between SPF and RBI estimates, Manoranjan Sharma, Chief Economist at Infomerics Ratings, noted that such differences are matters of perception, often stemming from variations in methodologies and samples. He highlighted the West Asia situation as the "elephant in the room," stating that calculations could come under strain if the conflict persists for six to eight months.

Crude Prices and Inflation Assumptions

Garima Kapoor of Elara Securities noted that both RBI and SPF forecasts are directionally similar, with gaps reflecting different assumptions regarding the war, the rupee, and oil prices. Sachchidanand Shukla of Larsen & Toubro added that divergences often arise from private forecasters taking "aggressive assumptions" on factors like El Niño.

In a June 5 statement, RBI Governor Sanjay Malhotra maintained that underlying inflation pressures remain benign, though headline inflation may firm up toward the 6 per cent upper tolerance level in Q3 FY27 before supply shocks wane in Q4.

Current Account Deficit

The SPF sees the current account deficit widening to 2.1 per cent of GDP in FY27 (up from an earlier estimate of 1.5 per cent), before it is expected to moderate to 1.2 per cent in FY28.

---

MACRO SNAPSHOT

• Panel sees two hikes of 25 basis points in FY27.
• RBI projected a slightly higher 6.6 per cent GDP growth outlook.
• Repo rate expected to rise from 5.25 to 5.75%.
• The current account deficit is seen widening to 2.1 per cent in FY27.
• Inflation is expected to ease to 4.5 per cent in FY28 projections.

India, Indonesia eye deeper ties in defence, semicon

New Delhi: External Affairs Minister S Jaishankar hosted his Indonesian counterpart Sugiono for wide-ranging talks on Sunday, exploring ways to deepen cooperation in areas of defence, maritime trade, investments, pharmaceuticals, semiconductors and food security. Sugiono is currently on a three-day visit to New Delhi. In a post on ‘X’, Jaishankar said the India-Indonesia Comprehensive Strategic Partnership has witnessed strong growth in recent years.

Global airlines slash profit forecast for 2026 over Iran war fuel shock

The global airline industry nearly halved its 2026 profit forecast on Sunday, citing conflict in West Asia that has driven up fuel costs, disrupted key air corridors and exposed the fragility of a sector operating on thin margins.

The International Air Transport Association (IATA), which represents more than 370 airlines accounting for about 85 per cent of global air traffic, said in its annual report that it now expects the industry to post a combined net profit of $23 billion in 2026. This is well below a previous projection of about $41 billion and down from $45 billion in 2025. The downgrade underscores the vulnerability of airlines to geopolitical shocks and fuel volatility, even as passenger demand remains resilient and revenues are projected to rise above $1.1 trillion.

Key Factors for the Downgrade

IATA Director General Willie Walsh, speaking at the group’s annual meeting in Rio de Janeiro, cited two primary reasons for the reduced forecast:

• Surging Fuel Costs: Significant increases in jet fuel prices that exceeded industry expectations.
• Regional Disruption: Continued disruption to airlines operating in the Gulf region.

Industry Outlook

Walsh expects some smaller airlines to face bankruptcy or acquisition by larger carriers as higher fuel costs take a toll. Notably, Spirit Airlines, a US low-cost carrier, shut down last month, becoming the first airline casualty attributed to the Iran war.

To protect margins, airlines are expected to cut unprofitable routes. Consequently, Walsh noted that fares are unlikely to fall soon. "In an environment where demand remains pretty robust, but capacity comes down, that will likely lead to a situation where fares will remain elevated," he explained.

IATA expects the global airline fuel bill to surge to approximately $350 billion this year, up from roughly $252 billion in 2025. Fuel is now expected to account for nearly a third of the industry's total operating costs.

---

Reuters, Rio de Janeiro

‘Fiscal health index’ rewards prudence alone

FISCAL HEALTH. Quality of spending matters. Developed States that historically have high social spending are unfairly ranked lower on the fiscal health charts

By Christopher Sujoy Thomas, Niranjana VH, and Sumalatha BS

The NITI Aayog has published two editions of its Fiscal Health Index (FHI), using audited Comptroller and Auditor General (CAG) data for the financial years 2022-23 and 2023-24. This index benchmarks the fiscal performance of India's 18 major general category states.

State Performance Trends

A comparative analysis of the two editions reveals significant shifts in state rankings:

• Odisha: Maintained its "achiever" position, increasing its score from 67.8 to 73.1.
• Goa and Haryana: Both showed improvement, with Haryana moving from the "aspirational" to the "performer" tier.
• Jharkhand: Its score dropped from 55.2 to 44.3, resulting in a downgrade from "achiever" to "front runner".
• Karnataka and Telangana: Both were downgraded to the "performer" tier.
• Tamil Nadu: Faced a major drop, moving from "performer" to the "aspirational" tier.
• Kerala: Remained in the bottom "aspirational" category.

The ‘Southern Fiscal Paradox’

The index reveals a broadening paradox where states with traditionally high social spending appear disadvantaged, while fiscally restrained states receive higher rankings. This raises questions about whether the FHI truly measures fiscal health or merely rewards fiscal restraint—penalizing states for spending and borrowing.

The GSDP Denominator Trap

A core issue is the use of Gross State Domestic Product (GSDP) as a denominator for sub-indicators like capital outlay, fiscal deficit, and outstanding liabilities. This structurally benefits mineral-rich states like Odisha, where rapid GSDP growth automatically improves ratios even if absolute fiscal performance is unchanged. Conversely, states with slow GSDP growth are penalized even if they increase essential capital expenditure.

Revenue Mobilization Discrepancies

The measurement of revenue mobilization merges tax revenue with geographical non-tax revenues, such as mining royalties in Odisha or PSU dividends in Chhattisgarh. Since states cannot "manufacture" mineral deposits, these rankings often reflect geological advantages rather than superior tax administration or fiscal effort.

Human Development vs. Fiscal Health

A striking structural outcome of the index is the inverse relationship between fiscal health and human development. Kerala and Tamil Nadu, undisputed leaders in literacy and life expectancy, occupy the bottom of the FHI, while states with lower human development outcomes, like Odisha and Jharkhand, occupy the top positions. Highly developed states carry the "fiscal legacy" of decades of social investment and often receive lower Central devolution despite contributing more to the national GDP.

Conclusion and Recommendations

While the FHI’s methodological consistency is a strength, the authors argue it requires modification. Instead of celebrating fiscal restraint in states with poor human development outcomes, these states should be encouraged to spend more on social development. The FHI should be linked to socio-economic development rather than relying solely on fiscal indicators.

Cooling inflation with forex inflows

Amid the brewing external and internal troubles, the weakening currency is acting as a catalyst for inflation

By Devendra Kumar Pant and Megha Arora

The backdrop for the June 2026 monetary policy was the uncertain global economy, high energy prices, sharply depreciating currency and the threat of El Niño. The collective impact of these factors on the Indian economy is higher inflation and lower growth.

The RBI, on expected lines, has maintained a status quo on the policy rate and retained the neutral stance. While energy prices have risen sharply, the pass-through to consumers for mass consumption items such as petrol and diesel started only from mid-May, before being revised upwards four times. To minimise the losses to oil marketing companies, the pump prices of petroleum products may be revised in the future as well. In the June monetary policy, the growth estimate for FY27 has been revised downward to 6.6 per cent from 6.9 per cent, and the inflation forecast revised upward to 5.1 per cent from 4.6 per cent.

RBI Governor Sanjay Malhotra has acknowledged that the risks of higher inflation have amplified; however, the banking regulator will wait for greater clarity before acting on rates. Future rate actions would be data dependent.

The Rupee and Forex Reserves

Currently, one of the major headwinds for the Indian economy is the weakening of the rupee vis-à-vis the dollar. The dollar-rupee depreciated 3.1 per cent since the last policy (April 8) and 6 per cent since the beginning of the year. The weaker currency is acting as a catalyst for inflation. The key reasons for this include the continuous outflows from foreign portfolio investors (FPIs). India’s forex reserves at end-May declined to $682.32 billion, which is $14.8 billion lower than on April 3. Consequently, the June monetary policy focused on improving capital flows into the economy.

G-Sec Limit

In a coordinated move, the government has tweaked the tax policy for FPIs. To attract more investment into the government security market, the list of securities under the fully accessible route (FAR) now includes G-Sec of 15-, 30- and 40-year tenor and sovereign green bonds. Restrictions on short-term investment and concentration-wise limits on FPIs have been removed; they now fall under an overall investment limit of 6 per cent of the outstanding stock of G-Sec and 2 per cent of State government securities.

As of June 5, the unutilised general limit was ₹5.59 lakh crore ($58.57 billion). These tax policy changes are intended to attract more investment in government securities to support the currency.

Additional Measures

The RBI announced further measures to augment forex reserves:

• An increase in the investment limits for non-resident Indians (NRIs) and overseas citizens of India (OCIs) in traded assets.
• A US dollar-rupee swap provided to public sector undertakings (PSUs) until end-September.
• Full hedging for authorised dealer banks to raise 3-5 year FCNR(B) deposits, with costs borne by the RBI.
• Restoring the timeline for realisation of export proceeds to nine months.

Outlook on Inflation and Rates

The forex inflow due to the tax relief for FPIs will depend on India's risk perception and comparative dollarised returns. Since withholding tax was a major reason for India’s non-inclusion in global bond indices, these measures are expected to support capital inflows.

While inflation in 3QFY27 (5.9 per cent) may be close to the RBI's 6 per cent upper tolerance level, it is expected to decline to 5.4 per cent in 4QFY27. The wording of the policy statement suggests a possible increase in the policy rate in the future.

The authors' base case is a hold on policy rates in the next monetary policy (August), driven by the expected decline in inflation in 4QFY27. However, if the monsoon rainfall deviation exceeds 10 per cent, or if the war continues longer and oil prices remain high, the RBI may take policy action even before the next scheduled meeting.

LINE & LENGTH. The dilemmas of Modi govt

The 12-year-old Modi government is looking jaded. Will voter boredom lead to a change in government in the next elections?

By TCA Srinivasa Raghavan

There comes a time in the life of governments, especially long-running ones, when after a great run they suddenly appear helpless, incompetent, and bumbling. They appear to be "on the skids," sliding down in an uncontrollable way. This problem must now be seriously confronted in respect of the 12-year-old Modi government.

External Pressures and Shocks Troubles for the government began last summer when Donald Trump, irritated that India gave him no credit for ending a three-day war with Pakistan, turned on India by increasing tariffs to "ridiculous levels". This caught the government completely unawares. This was followed by the American-Israeli war with Iran, which caused a sharp drop in oil and gas supplies from the Middle East.

Furthermore, since January, there has been a sustained withdrawal of foreign investment in the stock market amounting to about $25 billion. The rupee has depreciated by over 10 per cent against the dollar over a year, forcing the government into a "climb down" by fiddling with rules determining rates of return on foreign investment to stabilize volatility.

Economic and Domestic Headwinds Domestically, the monsoon looks like it won’t be normal due to an building El Niño. There are also critical shortages of fertilizer and fuel, leading to a strong possibility of a sharp increase in inflation. While these global issues are influenced by external actors like Trump, the length of time this government has been in power is becoming a factor.

The Challenge of Anti-Incumbency The central question is whether the country is reaching a stage where people prefer "anyone other than you". While the Modi government may not be at that point yet, massive anti-incumbency takes time to marinate. Newcomers like AAP and TVK could cause upsets if the electorate becomes fed up. Historical precedents show that even leaders of immense stature, like Indira Gandhi and Rajiv Gandhi, can fall from "hero to zero" when they annoy enough people. In 1967, the Congress lost over two-thirds of state legislatures, and in 2011, it dropped to just 44 seats in Parliament.

Political Mathematics The BJP currently has a solid base of about 220–230 seats, but in this Parliament, it holds only 240 seats and is in a small coalition. If it drops another 25 seats—which is not inconceivable—it will require a much larger coalition.

Voter Boredom The mood of the voters may shift to "let’s give someone else a chance". After 12 years, the government is looking jaded, reminiscent of a Cabinet Minister in 2013 who remarked that they were tired and it was time to "watch the river flow by". The combination of Trump tariffs, the Iran war, energy disruptions, and a bleak monsoon all point toward economic pain that could lead voters to seek alternatives.

A pragmatic monetary policy

By K Srinivasa Rao

While the market had well anticipated the repo rate and policy stance remaining unchanged in the monetary policy, the RBI's business intelligence script will play a key role in guiding sectors to develop strategies to withstand geopolitical risks in trying times and sustain the growth trajectory.

The data-driven economic outlook projected in the monetary policy can be a critical input in shaping domestic and international market sentiment, even as rising energy prices, a subnormal south-west monsoon, and the El Niño effect could weigh on economic activity. Besides the regular flow of credit, banks can take cues and explore opportunities such as ECLGS 5.0 and the enhanced scope of CGTMSE to reach out to stressed sectors. It provides clear direction to regulated entities to augment foreign capital by exploring newly opened gateways to strengthen foreign exchange reserves.

In the given uncertain state, the design and monetary policy architecture is a pragmatic, stimulating tool for stakeholders to better manage heightening geopolitical risks. Overall credit growth was 15.4 per cent in FY26, up from 12.1 per cent in FY25, and broad-based bank credit growth stood at 16.2 per cent as of May 15, 2026, up from 9.8 per cent a year ago, providing comfort to stakeholders.

To shore up forex reserves, now at $682.3 billion, the RBI rolled out a package of measures to attract new forex inflows and reiterated that it will ensure an orderly, market-driven movement of the INR and keep a close watch on it. Despite heightened uncertainty and disruptions to trade routes and supply chains due to lingering conflict in West Asia, the economy is well-poised to grow, though slightly below the earlier estimate.

The shades of collateral risks can be better perceived from its future outlook on growth-inflation dynamics. Against the backdrop of 7.6 per cent GDP growth in FY26, the RBI has now revised its projection downward to 6.6 per cent, and average inflation could inch up to 5.1 per cent in FY27. Notwithstanding external sector risks, the RBI is confident it can contain inflation well within its glide path.

Amid steady system liquidity since the last monetary policy and RBI's continued assurance of adequate liquidity in the banking system to meet productive needs, the weighted average call rate (WACR) has fluctuated within the corridor of 5 per cent (SDF) to 5.5 per cent (MSF).

---

The writer is Adjunct Professor, Institute of Insurance and Risk Management (IIRM), Hyderabad. Views expressed are personal.