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.

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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.

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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).

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