Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Why Indian conglomerates are chasing fast fashion

2. The IMF has a grim outlook for the world

Why Indian conglomerates are chasing fast fashion

Trent, the Tata Group’s retail arm, published its full-year results last week. By March 31, 2026, it was running 963 Zudio stores across India. Zudio, if you haven’t been, sells T-shirts for ₹399, jeans for under ₹600 with 47 new cities entered in the last quarter alone and 80% of new stores in Tier II and Tier III cities.

Tata is not alone here. Reliance launched Yousta, where all products are priced below ₹999 and most below ₹499. ABFRL, the Aditya Birla fashion arm, launched OWND! in September 2025, starting at ₹399, targeting Gen Z, with 10,000 styles, and in April 2026 hired a new CEO for it, Marco Agnolin, who previously ran Bershka and Diesel.

So three of India’s largest conglomerates, companies whose combined reach spans oil refineries, steel mills, telecom networks and cement plants, are in an active competition over the cheapest part of the wardrobe.

The obvious answer is that young Indians want affordable clothes and the market is large. True, but that explains why the segment exists, not why the Tatas and the Ambanis are the ones winning it. There are plenty of younger, nimbler, more fashion-native companies that spotted the same demand.

But fewer than 10% of the 700-plus D2C fashion brands operating in India have grown beyond ₹50 crore in revenue. Most of them have not scaled. And the reason behind this might have nothing to do with fashion or taste.

Why cheap fashion is harder to run than expensive fashion

Fashion is structurally different from most consumer goods in one way that matters enormously at low price points.

A shampoo company has a product. The formulation changes once a decade. You forecast demand, manufacture, ship. If you over-produce, you discount. Nothing expires.

This whole equation gets exponentially hard for a fashion retailer . Each permutation and combination of size, colour, design, and trend is a new distinct item that can succeed or fail on its own terms.

A store like Zudio might carry thousands of distinct items at any point. Every single one carries its own demand risk. A style can miss. A colour can arrive out of season. The size ratio can be wrong, too many smalls, not enough mediums. And unlike shampoo, a fashion item has an expiry date that has nothing to do with chemistry. Last quarter’s trending cargo pant is this quarter’s markdown problem.

At ₹2,999 per piece, you can survive your own mistakes. Mark something down 30% and the store recovers something. The margin provides a buffer. At ₹499, that buffer does not exist. A slow-moving ₹499 item cannot be meaningfully discounted. It is effectively a write-off. So the only way value fashion works is if you are right, which style, which colour, which size, which city, how many units, most of the time, and you turn inventory fast enough to catch errors before they compound across a thousand stores.

Trent’s own FY26 results statement says their “disciplines around inventory provisioning“ was the business’s operational drivers. The company also announced a ₹2,500 crore rights issue, part of which is earmarked specifically for expanding and automating supply chain and warehousing.

The supply chain India built was built for someone else

India is one of the world’s largest garment producers. The clusters in Tiruppur, Surat, Ludhiana and Bengaluru supply H&M, Gap and Marks & Spencer. The industry is enormous, mature and efficient. It is also almost entirely calibrated for the wrong customer.

India’s garment manufacturing base was built around western fashion buyers: bulk orders, four-to-six month planning horizons, standardised international sizing, Free On Board export contracts. That supply chain runs on lead times of 75 to 90 days from order to finished goods, fabric procurement, sample approval, bulk production, finishing, quality checks, documentation. The system is efficient for a customer who plans seasons far in advance and orders in large volumes.

But domestic fast fashion— the kind Zudio, Yousta, and OWND want to operate— needs the exact opposite.

Reliance’s FY25 annual report says its apparel business runs a design-to-shelf cycle of 30 days. To go from a sketch to a Yousta store shelf in 30 days, you cannot wait for fabric to be ordered after a design is confirmed. For that Relaince needs raw materials pre-positioned at vendors before the production decision is made, and manufacturers who can run small batches and pivot to a new style within days.

A garment factory running on 90-day export cycles has its entire operation organised around that rhythm: fabric procurement schedules, workforce planning, production line sequencing, quality check processes. Restructuring for 30-day domestic cycles means changing all of that, different raw material buffers, different production sequencing, different everything. A factory makes that investment only when a retailer can guarantee enough consistent purchase orders to recover the cost of retooling.

That operating model, 30 days, small batches, Indian sizing, high style rotation, is not what Indian garment factories are used to doing. Which means that when Zudio or Yousta want to restock a trending item in week three, they are calling a factory that was built for a completely different customer, and asking it to work differently that fits their model. And the factory would only comply if they would get enough volumes and business from them.

Volume as the only moat that matters

Trent with 963 stores and ₹20,000 crore in annual revenue can make that promise. Reliance Retail, with 19,340 stores and 349 million registered customers, can make that promise. A brand doing ₹50 crore in annual revenue cannot.

This is the moat that the category conversation consistently misses. The competitive advantage in value fashion at scale is purchase order volume required to get a manufacturer to change how it works, and then sustain that relationship at the speed the business model needs.

The private label structure of these businesses ties this together. Zudio, Yousta and OWND! are all entirely private label, every item designed, sourced and sold by the retailer, with no external brand names. At sub-₹500 pricing, there is simply no margin to pay a third party for their name. So the retailer absorbs every function, designer, buyer, production manager, quality controller, that traditional fashion distributes across a supply chain.

That means the business is not just the retail store, but ownership of the complete supply chain. Which is why Reliance describes its fashion operations as “yarn-to-wardrobe”, vertically integrated from fabric sourcing through design, production and distribution.

When ABFRL needed someone to run OWND!, it did not hire from Indian retail or Indian fashion. It hired Marco Agnolin, the man who previously ran Bershka, Inditex’s youth fast fashion format with 854 stores across 68 markets, and before that Diesel. He is someone who has spent his career operating this machine at scale across dozens of countries.

The business that looks like fashion but works like industry

Tata, Reliance and Birla are not in value fashion because they have better taste than smaller competitors. They are in it because value fashion at national scale is an industrial supply chain problem, and industrial supply chain problems are precisely what these companies can solve with their scale and their deep pockets.

A Bain & Company study found that fewer than 10% of the 700-plus D2C fashion brands operating in India have scaled beyond ₹50 crore in revenue. Most fashion-native brands hit a wall, not because their product was wrong, but because they could not build the supply chain infrastructure that national scale requires.

Which is exactly why the people who built India’s steel plants, oil refineries, and telecom networks are the ones running it.

The IMF has a grim outlook for the world

Every April, the IMF releases its World Economic Outlook (WEO), which is basically an official report card on the global economy. The headline report is usually split up into 3 or 4 chapters, and the first chapter simply provides economic growth forecasts.

This year’s edition does the same for sure, but there is one major difference compared to past reports. You see, most of the report is about war, whose incidence has risen pretty sharply compared to 4 decades ago.

The WEO is not really a document known for dramatic language. But when the IMF bases most of its flagship publication on the impact of armed conflict, there couldn’t be a bigger sign of how tense the times are currently. Between an oil crisis of magnitudes not seen in at least 5 decades, and geopolitical tensions that underscore that crisis — and other things beyond that — the world has its hands full.

Two of the three chapters in this year’s WEO are entirely about the military turn in global politics. Chapter 2 studies what rearming costs an economy, and Chapter 3 studies what actual war costs. Together, they form something like an escalating argument — spending, fighting, recovering — with each stage more economically damaging and harder to reverse than the one before.

The findings in the first chapter will be obvious to anyone with even the smallest hint of the state of the world today, so we won’t spend time going into those. Let’s dive into what chapters 2 and 3 of the WEO say.

The price of rearming

Start with where most countries currently are: spending more on defence without yet fighting a war.

The numbers are striking. Over the past five years, roughly half of all countries worldwide have raised their military budgets. As of 2024, nearly 40% of countries were spending more than 2% of GDP on defence — up from 27% in 2018. In June 2025, NATO members committed to raising defence and security spending to 5% of GDP by 2035, more than double the previous target. Arms sales by the world’s largest 100 defence firms have, in real terms, doubled over two decades.

The intuitive assumption is that defence investments are as stimulative as any other. Governments spend money, factories hum, workers get hired, and there’s economic growth. This is partly true, but the picture is messier. That’s because, well, defence spending doesn’t work like other forms of government expenditure.

When a government builds a road or hires more teachers, the spending diffuses broadly through various stakeholders: like construction workers, local businesses, households, etc. But defence spending is too concentrated in a narrow set of industries to do that: think aerospace, specialised materials, and transport equipment.

So, a military buildup functions less like a general demand stimulus and more like a targeted shock to a specific set of sectors. Workers and capital have to shift toward defence industries from wherever they currently sit, and that reallocation is slow, expensive, and often disruptive to the sectors losing resources.

The short-term effect might still be positive, though. The IMF finds that in peacetime, defence booms raise GDP by ~3% more than it would otherwise have been, while inflation rises briefly and then fades. Over longer horizons, if the spending is directed toward R&D, genuine productivity gains can follow; the internet, GPS, and much of modern semiconductor technology trace their origins to military R&D.

But there are two substantial forces working against this.

Import leakage

The first is the import leakage problem. Most countries don’t make most of what they buy. Nearly 80% of the military equipment purchased by European Union member countries is imported. The United States alone accounts for nearly half of all revenue among the world’s top 100 arms firms.

So when, say, Poland buys fighter jets from the US or artillery systems from South Korea — which it has been doing at an extraordinary pace — the demand stimulus flows primarily to foreign producers. Poland bears the full fiscal cost of the purchase; the economic benefit lands elsewhere.

Fiscal burden

The second is what happens to the government’s finances. A typical boom widens the fiscal deficit by about 2.6% of GDP and raises public debt by roughly 7% within three years. About two-thirds of defence buildups are financed by borrowing. When higher public debt tightens financial conditions — as it often does — firms outside the defence sector find credit more expensive, and private investment gets crowded out.

The IMF’s firm-level data shows this directly: during booms associated with rising public debt, firms become measurably more financially constrained and pull back on investment. The defence sector gains, but much of the rest of the economy loses.

When the financing comes from cutting other spending rather than borrowing, the tradeoff is even starker. Health, education, and social protection fall by about 1% of GDP within three years. In wartime booms, social spending falls in real terms regardless of how the military expansion is financed. And public debt jumps by about 14% of GDP, nearly double the peacetime cost.

What actual conflict does

If rearming is expensive, war makes no economic sense. That’s what the IMF’s third chapter devotes itself to. And the answer goes beyond the destruction of physical and human capital, or what the reallocation of the productive capacity that survives towards military uses does.

For one, private investment collapses almost immediately in conflict-site economies. Even if a factory is standing and functional, its owner stops expanding it because they can’t be sure their assets, their workforce, or the government itself will exist in the same form next year. Uncertainty is one of the most powerful forces in wartime economics, and crucially, it operates independently of physical destruction. You don’t need your city to be bombed for investment to stop. The expectation of instability is enough.

Then, the fiscal situation deteriorates. Military outlays surge, but at the same time, the government’s ability to collect taxes weakens as economic activity contracts, administrative capacity erodes, and more of the economy moves into informality. Total government consumption can look stable on paper, but what that usually means is that defence is quietly crowding out everything else.

The external sector breaks down in an asymmetric way. Exports fall harder than imports. War damages the domestic production base, disrupts trade routes, and causes importing countries to shift their sourcing away, sometimes permanently. Foreign investment pulls back sharply, too. The government is left with a shrinking set of external financing options: diaspora remittances, foreign aid, and very little else.

All of this eventually hits the currency, as foreign exchange reserves drain down. Governments with flexible exchange rates see their currencies depreciate, while those with fixed rates face pressure to devalue. Either way, depreciation feeds back into inflation, which is already running hot from the supply disruption. Governments usually respond by imposing capital controls, restricting how much money can leave the country.

For the average conflict-site economy, the IMF estimates that output falls ~3% immediately at the start of a conflict, and reaches cumulative losses of around 7% over five years. These losses are larger and more persistent than those from banking crises, currency crises, sovereign debt defaults, or major natural disasters.

The losses don’t stop when the fighting does, either. Output deficits persist even a decade after conflict begins. Capital stock is about 4% lower five years in. And, of course, the harms go beyond macroeconomic scars. Individual health data from 41 countries shows lasting damage to cognitive ability, physical health, and mental wellbeing in people who lived through war.

Countries not involved in the fighting are not immune either. Neighbouring economies and major trading partners of conflict-site countries see output fall by around 1% in the first two years, as trade routes disrupt and regional uncertainty suppresses investment. These effects eventually fade, but they fall on countries that had no say in starting the fight.

Recovery is harder, and highly conditional

Once a war ends, the natural assumption is that rebuilding begins. Investment floods back, reconstruction creates a boom, and within a decade or so the country recovers. But as per the IMF’s data, that’s almost too fantastical a story.

To begin with, peace itself frequently doesn’t hold. In about 40% of post-WWII postconflict episodes, countries relapsed into conflict within five years of the fighting ending. In those cases, the economy didn’t even have a base to rebuild on because the conflict resumed before any new foundation could be laid.

When peace does hold, recovery takes place, but modestly. Output begins to rise, reaching about 3.9% above end-of-conflict levels five years later. The problem is that this starts from a substantially lower base. A country that lost 7% of output during the conflict and then recovers 4% of that loss is still far below where it would have been without a war.

Most of the recovery that does exist is almost entirely driven by labour. After all, workers come back from displacement, soldiers return to civilian life, and refugees trickle home, so labour supply recovers relatively quickly. But capital barely comes back, and neither does productivity. Investors remain cautious about committing money to a country where peace feels uncertain.

So, firms do something rational but economically limiting: they substitute toward labour and away from capital. Hiring workers is cheaper and more reversible than building factories. The result is an economy with more people working but no more efficient — the same tools, the same infrastructure, just more hands. This is why post-conflict recoveries can look statistically reasonable while feeling hollow on the ground.

But some countries have broken this pattern, and the IMF looks closely at how.

Rwanda is the extreme case. The 1994 genocide caused GDP to fall 42%, while inflation also reached 42%. Within a decade, though, growth had recovered to 6–9% annually and inflation was back at 2%. The recovery was built on several things happening at once: donor-financed imports that immediately suppressed inflation by relieving shortages, comprehensive debt restructuring, a rebuilt national revenue authority, radical anti-corruption reform, and so on. Bosnia, Cambodia, and Côte d’Ivoire show similar patterns at different scales.

Conclusion

The IMF is not in the business of predicting which wars come next. But it is in the business of reading macroeconomic signals — and the signal embedded in this edition of the WEO is unusually direct. The world is producing more conflict, not less. The number of active wars is at its highest since 1945. And the economic costs are being distributed globally, even to countries that aren’t fighting.

The countries most exposed to conflict are also, almost by definition, the least equipped to implement the policies that make recovery possible. The conflict trap the IMF documents — where fragile peace collapses back into war before any stabilisation can take hold — is not a failure of knowledge. The policy toolkit is reasonably well understood. It is a failure of institutional capacity, political will, and the near-impossibility of making good long-run decisions in the middle of a crisis.

That gap, between what works and what countries can actually deliver, is what makes war so economically catastrophic. And so hard to come back from.

Tidbits

1. Hindustan Zinc posts record profit, announces 550% dividend
   Hindustan Zinc reported a 67.6% YoY jump in Q4 profit to ₹5,033 crore and 49% revenue growth, driven by higher metal prices and strong production. The company also announced a ₹11 per share interim dividend (550%), marking a record performance across key metrics.
   Source: ET Now

2. India–New Zealand FTA to be signed, aims to boost trade
   India and New Zealand will sign a Free Trade Agreement on April 27, aiming to double trade to $5 billion in five years. The deal will offer tariff-free access for Indian goods and open opportunities across sectors like textiles, pharma, and services.
   Source: Economic Times

3. Bharti in talks to sell majority stake in insurance business
   Bharti Group is in talks to sell up to 85% stake in its life insurance unit to Prudential Plc for about ₹7,000–8,000 crore. The deal would mark Bharti’s exit from life insurance, while helping Prudential expand in India’s growing market.
   Source: Economic Times

- This edition of the newsletter was written by Aakanksha and Manie.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #9

Hi folks, hope you’ve had a great week…

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a day ago · 6 likes · 2 comments · Zerodha

How can Indian IT flip the AI script ft. Ameya P

The age of AI agents has, so far, been a thorn on Indian IT’s side, at least as far as valuations are concerned. Its business model is getting stale each passing day - that’s understood. There might be a possibility that Indian IT might just adapt to the new paradigm. But what does adaptation for Indian IT look like? What are the forms of inertia they will have to overcome to successfully change themselves? And even if they do adapt, will they be able to defend their new business?

To unpack all this, we spoke to Ameya P, a veteran in the global IT industry, and a prolific technology investor well-known for his investing takes on X. It’s an incredibly nuanced conversation from an expert who understands the nitty-gritties of what each AI development brings forth for this industry.

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

You (and maybe your portfolio too) are probably tired of hearing this, but the age of AI agents has been a thorn on Indian IT’s side. Its business model is getting stale each passing day. But what we often don’t understand is what this means for the day-to-day nitty-gritties of the industry.

Now, there is a possibility that Indian IT might just adapt to the new paradigm. We’ve briefly covered some semblance of this possibility in past Daily Brief stories. And usually, we can’t say for sure what such a possibility even entails. After all, what does adaptation for Indian IT look like? What are the forms of inertia they will have to overcome to successfully change themselves? And even if they do adapt, will they be able to defend their business from the new threats that AI will inevitably give birth to?

To answer these questions, we had a nuanced conversation with Ameya Pimpalgaonkar, a storied professional with two decades of experience in the global IT industry, working across giants like IBM, Accenture and Infosys. He has donned many hats, from software developer to co-founder and CTO. He’s also a prolific technology investor in both public and private markets, and is very well-known on X for his investing takes. We’ve quoted his work in the past in our coverage of Indian IT on The Daily Brief. I highly recommend reading his newsletter.

Personally, I learnt a lot. Most mainstream conversations about Indian IT are either a black-box, or are too one-size-fits all. Ameya’s answers cut through both of those problems succinctly. The idea was not to stick to a highly doomer or highly optimistic narrative, but weave a story that pinpoints the opportunities, the threats, and understanding the depth of how much AI can commoditize any possible future moat.

Some choice quotes that I think are worth highlighting:

On why the business model shift, while real, is still slow:

“First, the contractual challenges. All service level agreements are still tied to response time, not to a business outcome. If you go to Jira, or any ticketing tool like ServiceNow, you would clearly see the service catalog — the SLAs as per the category of an incident — and the SLA translates into how many hours that incident should be resolved in. When that time elapses, you get the escalation emails automatically. But inherently, this is still tied to response time. It is not tied to the quality of the fix being delivered.

There is no connection to the business outcome defined yet. And what this means is you have to renegotiate a contract that is already a legal document — an already time-tested relationship with the customer. How would you even define a business outcome? That’s the biggest challenge right now.”

And it's slow because, to begin with, defining the new scope of work itself is a challenge:

“In my 20 years of career, what I’ve seen is that whatever scope of work you do in the first year — or even the first six months — with a customer engagement, it always balloons four to five times compared to the initial SOW. So what you end up delivering is, I think, four to five times more than what was defined in the SOW.

Since most enterprise customers can’t define what success and closure looks like in the early phases of SOW definition — that’s what I mean by client readiness. So the transition is definitely real, but it’ll happen deal by deal. It won’t happen as a wave.”

On how data annotation is emerging as a new (if boring) revenue stream for Indian IT, and why it’s well-poised to take advantage of it:

“Any data that’s anonymized and pseudonymized is perfectly suited to be transformed. This is where data labeling richness comes in. A surgeon looks at an X-ray and says, okay, there’s a nodule in the chest — that line by the surgeon is an annotation labeling that data. If you just pass that X-ray to an AI, the AI will say this is this, this is that — but it’s missing the surgeon’s label, the surgeon’s context for interpreting what it means. That data labeling, in my view, is going to be one of the quickest revenue streams opening up for many of these companies.

What it means in practice is: you take models with pre-trained weights, bring in domain experts from legal, geography, STEM, and so on, and have them engage. You must have experienced this — whenever you use ChatGPT and ask a strategic question, sometimes it generates two outputs and asks which one you prefer.

That’s exactly ChatGPT doing reinforcement learning to identify your preferences. Now think about doing that at an LLM level, at an enterprise level. India has the workforce and the muscle to do this. It’s not glamorous, but it’s real revenue.”

On why organizational structure matters more than ever in AI, and why smaller, agile firms might be better poised to win in AI:

“And if you look beyond the top 4, 5, 6 IT companies to smaller companies that have always run leaner structures, they’re much better positioned to take advantage of this.

One reason is they don’t have the overhead. There’s no risk of firing large numbers of people and creating chaos in the market. Instead, they can just increase the productivity of existing employees — and I know for a fact that’s happening. For smaller companies, it’s much easier to adopt AI tools.

These companies are starting to convert their product features into markdown files. Every product backlog, every PI planning exercise — the output is a markdown file today, which feeds directly into whatever coding copilot you’re using. And once you have everything defined in a markdown file, building a feature becomes so much easier.”

On accountability in the age of agents, and where you'll need a human still (with a very interesting personal tale):

“Sales cycles are not technology-driven. They’re driven by intangibles — delivery quality, what happens after delivery. And in the age of AI, the importance of audit trail is something we can’t even begin to describe. I was in a call yesterday with a company where they discussed an incident — they had an army of agents, and three of them didn’t agree with what the rest concluded. The system just froze.

The product had no way to determine a resolution. Who has the final say? Who says “okay, this is it”? Even the orchestrator agent couldn’t come out of that state. And it froze even though the product had a built-in rule — if agents disagree, do this, do that. Agents were self-aware, and it still happened.

We’re still discovering new aspects of working with these tools. You need a human coming in to handle the dirty work. But do you have that human if you’ve already let people go?”

You can listen to the full conversation on YouTube, Spotify, or Apple Podcasts.

And if you like reading more than listening, here’s the transcript of the podcast, shared earlier on Subtext by Zerodha.

Subtext by Zerodha

Ameya P on how Indian IT can flip the AI script

Hi folks, Pranav here…

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4 days ago · 8 likes · Zerodha

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Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. SBI fights the Supreme Court on what a telecom loan means

2. India's impending solar squeeze

SBI fights the Supreme Court on what a telecom loan means

In 2018, Aircel filed for bankruptcy, and two years later, its resolution plan was approved. It is now April 2026, and the banks that lent it ₹13,000+ crore are still waiting to see any of it back. One of those banks was SBI, who led the consortium.

Last month, SBI went to the Supreme Court asking it to reconsider a judgment delivered in February. In essence, the court told the banks that the collateral they thought backed their telecom loans was never really theirs to claim. And that collateral is spectrum — the radio frequency bands over which mobile data signals are transmitted. In other words, the very foundation of any telecom network.

This sounds like a narrow legal dispute over a single failed telco. But dig deeper, and it’s a question that reshapes how banks in India lend to any business built on a government-granted right. That would encompass telecom, mining, airports, highways, ports, oil and gas — almost every large piece of infrastructure.

To discuss what happened, let’s set some context.

Aircel was a mid-sized mobile operator that competed with Airtel, Idea, and the rest through the 2010s. Like every telecom company, its single most valuable asset wasn’t its towers or its fibre, but its spectrum.

The government sells time-limited rights to use the spectrum through auctions. Aircel paid ~₹6,000 crore across auctions between 2010 and 2016 to acquire these rights for twenty years each. That was the collateral behind the loans that SBI and its fellow lenders gave them in 2014.

When Aircel eventually ran out of money and the Department of Telecommunications (DoT) came asking for ~₹10,000 crore in unpaid licence fees, it filed for voluntary bankruptcy. It entered what’s called the Corporate Insolvency Resolution Process, or CIRP. It is a structured last-chance sale governed by India’s main bankruptcy law, the Insolvency and Bankruptcy Code (IBC). In a CIRP, an independent professional takes over the company, existing management is pushed out, and prospective buyers submit plans to acquire the business and pay creditors back — often a fraction of what they’re owed.

In June 2020, the National Company Law Tribunal (NCLT) approved a plan submitted by UV Asset Reconstruction Company (UVARC). Against the total financial debt of roughly ~₹59,000 crore, UVARC agreed to pay just ₹19,600 crore — a haircut of nearly two-thirds for lenders. Critically, the entire plan assumed that spectrum rights could be transferred to the new owner and eventually monetised.

Six years later, in February 2026, the Supreme Court said they couldn’t be.

The February ruling did two things at once. First, it said spectrum should never have been part of the bankruptcy estate in the first place. Second, it said the money Aircel owed the DoT didn’t belong in the IBC’s ordinary queue of debts either. Both findings were bad news for the Aircel resolution plan, and both have now been challenged. They’re two separate fights, each worth understanding on its own.

What did banks actually lend against?

Let’s start with the spectrum tussle.

The court’s reasoning on spectrum rested on something almost philosophical. Spectrum, it said, is a scarce natural resource. The Union government holds it as a “public trustee“ for the people of India under Article 39(b) of the Constitution, which directs the state to ensure natural resources serve the common good.

Telecom companies don’t own spectrum. They only hold a “conditional, revocable privilege“ to use it. And because spectrum is public property, it cannot be pulled into an IBC proceeding as though it were a regular corporate asset, no matter what a company’s balance sheet happens to say.

SBI’s review petition argues this confuses two different things: who owns a natural resource, and who owns the right to use it.

Yes, the spectrum belongs to the Union. But the rights Aircel bought at those auctions are distinct. The company carried them on its books as an intangible asset. It paid for them through hard-fought bidding, and it also used them to raise debt from banks.

A useful analogy is leasehold property. When the government leases you land for 99 years, you don’t own the land. But nobody disputes that your leasehold is valuable, that you can buy or sell or mortgage it. Banks lend against leasehold property every day.

The stronger evidence on SBI’s side is that the government itself already treats these rights as transferable. India has a formal spectrum trading framework that lets operators sell the right to use spectrum to another operator, subject to DoT approval.

For instance, through this channel, in 2016, Airtel had acquired spectrum from Aircel itself. In the ordinary course of business, the state treats spectrum rights as bankable, tradeable, commercial property. But the February ruling draws a hard line around bankruptcy. Once a company declares it, the same right becomes a sovereign permission that cannot be transferred through the IBC at all.

Where does the government stand in the queue?

Now, let’s come to the second fight around the queue of debts.

The IBC organises creditors into two broad categories. “Financial creditors“ are banks and bondholders who lend money. “Operational creditors“ are the ordinary counterparties of a business who haven’t yet been paid — like employees, suppliers, and vendors. Under the IBC’s order of priority, financial creditors sit ahead of operational creditors when the money from a resolution is distributed. That hierarchy is what gives bank lending its comfort. A secured loan in India is priced on the assumption that, if the borrower fails, the bank is near the front of the queue.

Now, the February ruling held that the money Aircel owed to DoT wasn’t operational debt at all. These weren’t payments for goods or services in an ordinary commercial relationship, but arose from the sovereign grant of a privilege. Basically, the court declared that the DoT’s dues don’t fit the IBC’s existing categories. This also possibly meant that the DoT’s claim had to be settled before the IBC’s waterfall even began.

In telecom bankruptcies, DoT is typically the single largest creditor in the room. The court itself noted that failed telcos collectively owe the government around ~₹39,000 crore. If every rupee of that has to be paid first, before banks touch anything, most telecom resolutions stop making arithmetic sense for the long line that’s waiting for their turn.

SBI’s counter here is procedural rather than philosophical. DoT actively participated in the Aircel CIRP process for six years. It filed its claim and voted at meetings of the Committee of Creditors. It never once objected to being classified as an operational creditor. It played the game by the IBC’s rules, all the way through. So, SBI argues, changing those rules now means tearing up a resolution that has already been approved by creditors, sanctioned by the tribunal, and waited on by lenders for six years.

The court went even further with its judgement. It found the timing of Aircel’s filing of voluntary bankruptcy suspicious. It only came after the DoT came asking for money. So, it directed that documents from bankrupt firms like Aircel, Reliance Communications (RCOM), and so on be placed on record, so it could examine whether these IBC filings were honest resolution attempts, or strategic manoeuvres to escape government dues altogether.

That’s a judicial eyebrow raised at the entire telecom sector, suggesting the IBC has been used less as a rescue mechanism and more as a shield.

Underneath both fights sits a deeper problem the IBC was never built for. The law assumes a company’s assets can be transferred relatively freely to a new owner, and that creditors stand outside the business. But in sectors built on government-granted rights, neither assumption holds, since the regulator is also the creditor. The most valuable asset, therefore, is also a permission the regulator can withhold.

What happens if the ruling stands

So, if the court wins, how do the dominoes fall?

The first casualty is the resolutions themselves. Aircel’s UVARC plan and RCOM’s ₹23,000 crore plan were both built on the assumption that spectrum was part of the estate, but it no longer is. UVARC and the RCOM resolution applicants have to decide whether their bids still make economic sense without the spectrum assets. Some of these resolutions may simply collapse, sending the companies into liquidation with nothing but scrap-value assets left to distribute.

The second is the cost of lending to any sector built on government-granted rights. Think mining leases, airport concessions, highway BOT contracts, port concessions, oil and gas exploration blocks, power purchase agreements. If those rights can’t be reliably claimed in insolvency, banks will demand higher interest rates, stricter conditions, or substantially more cash collateral up front. And infrastructure is already a sector that relies extremely heavily on banking channels for capital.

Third: there’s a tension inside the government itself that this ruling brings into the open. DoT wants its dues, but the Finance Ministry wants public sector banks to remain solvent — the same banks that lent most of Aircel and RCOM’s money. The broader state wants 5G rollouts, rural connectivity, private telecom investment, and a functioning infrastructure financing market. These goals are now actively pulling against each other.

The review petition isn’t really about SBI, Aircel, or RCOM. It’s about what a promise means when the state is the one making it. When the government auctions spectrum, licences a mine, or awards a highway concession, what exactly has it handed over? Is it a right, with economic substance, that the company can own, borrow against, and trade? Or is it a permission, revocable in spirit if not in letter, that vanishes the moment the business holding it runs into trouble?

Banks priced twenty years of loans on one answer, while the court has offered another. On that front, while this review looks routine, its implications across the board — from property rights, to how infrastructure loans are priced, to the government’s role — couldn’t have higher stakes.

India’s impending solar squeeze

From this June, any solar project that wants to stay on the right side of India’s energy policy must use cells made in India. Not assembled in India from imported parts — that’s already required — but actually fabricated here.

The problem is that India doesn’t yet have enough of them.

As of mid-2025, India had roughly 27-29 GW of domestic solar cell manufacturing capacity in theory. But what manufacturers can actually produce and ship reliably was estimated at somewhere between 11-13 GW. India needs to be installing solar at ~29 GW per year between now and 2030 to reach its stated target of 280 GW, and we have currently installed ~143.6 GW. Last year, it added 23.83 GW, a record pace, yet still short of what the next five years demand.

This latest mandate is the latest chapter in a much longer story. For fifteen years, India has been wrestling with the same fundamental dilemma. On one hand, we want our own solar industrial base that is not dependent on imports. But on the other hand, import restrictions could make solar projects more unaffordable. In fact, many industry stakeholders are worried that the new rules could create a shortage of solar cells and derail solar projects.

The country has answered this question in different ways at different points in time for different sectors. Today, we’ll be looking at India’s local sourcing rules for solar, and the matrix of who advocates for it (and who doesn’t), and why.

The architecture of protection

India’s policy for localizing solar supply chains has evolved for over 15 years. And understanding that is key to making sense of the situation today.

In 2010, we launched the Jawaharlal Nehru National Solar Mission (JNNSM), with an aim to become a global leader in solar power capacity. Under the mission, a domestic content requirement (DCR) was introduced. The idea was that if India was about to build a lot of solar capacity, it should use that demand to anchor a domestic manufacturing base also. Certain projects would be required to use Indian-made cells and modules.

However, the WTO disagreed with our local content rules. In 2013, the US filed a formal complaint arguing that India’s DCR measures discriminated against imported cells and modules. By the time the Appellate Body ruled, India had lost cleanly. The broad, mission-wide content requirement was found inconsistent with India’s obligations to free trade.

But rather than abandoning localisation, India redesigned it. The DCR was narrowed and tied to government-backed schemes, including public-sector enterprise tenders, an agricultural solar scheme, and a grid-connected rooftop programme. This was more acceptable rather than a more blanket requirement applied across the entire private market.

The most architecturally significant instrument, though, is the Approved List of Models and Manufacturers (ALMM), launched in 2019. This is a government registry of domestic solar products that project developers must source from in order to comply with the rules. It consists of two lists: List-I covers solar modules, and List-II covers the solar cells that modules are made up of. List-I has been operational since 2021, while List-II takes effect this June.

And in a sign that the government’s ambition runs considerably further, an ALMM List-III is in the works. It goes even more granular into the solar supply chain, covering ingots and wafers, and is scheduled for June 2028.

Now, most of these were non-tariff barriers. After all, tariffs weren’t exactly a WTO-compliant measure. However, in 2022, India imposed a basic customs duty (BCD) of 40% on imported solar modules and 25% on imported cells. The push towards indigenisation couldn’t be more explicit.

Voting with wallets

But each time India tightened its local sourcing rules, the industry (or a part of it, at least) found efficient ways to express its displeasure.

After the original DCR baskets were introduced under JNNSM, project developers reported that domestic cell prices jumped 15-16% after bids had already been awarded, making the committed project economics unviable. Some threatened not to sign power purchase agreements at all. By 2017, DCR tenders had all but disappeared from the market. Developers simply preferred to build projects without the constraint, even if that meant working around the policy entirely.

The introduction of the customs duty in 2022 forced developers to hoard modules before the policy kicked into effect. In the first quarter of that year alone, developers imported approximately 9.7 GW of solar modules — a 210% jump from the same quarter a year earlier. Once the duty took effect, module costs rose by ~40%.

Meanwhile, those who couldn’t stockpile looked for other exits. Some of them may not have been legitimate — for instance, in 2024, several solar companies were investigated for ₹1,900 crore in customs duty evasion. Additionally, under the law, power project developers could use a preferential 5% import duty scheme for their projects, which would have been much lower than the BCD. However, the government anticipated that escape route and quietly revoked the clause.

In September 2022, a ministerial review meeting was convened with solar industry executives. The minutes are unusually candid. Industry participants said the combined impact of ALMM enforcement and BCD had slowed installations, and a domestic supply-demand mismatch was creating bottlenecks. Moreover, they also alleged that some manufacturers were exploiting their newfound protection through price manipulation.

The government’s response was revealing. In March 2023, the ministry postponed the ALMM from coming into effect for an entire financial year. It was an admission that domestic supply had not kept pace with policy ambition, and that forcing compliance in those conditions would have caused real damage to the installation pipeline.

However, on the other side of the argument lay the manufacturers, who opposed the project developers. After all, the ALMM list acted as protection for domestic manufacturers, ensuring steady demand for their products from project developers. With imports priced out or gated, domestic products commanded higher margins.

A study covering India’s auction experience from 2014 to 2017 found that DCR had raised the cost of solar power by ~6% per unit generated. Indian panels were ~14% more expensive than international alternatives during that period. Crucially, the same study found limited evidence that Indian manufacturers had broken into export markets in a significant way. So while the protection existed, it wasn’t all that effective for local project developers.

In late 2024, CRISIL estimated that domestically manufactured cells were still 1.5 to 2 times more expensive than Chinese alternatives, even after accounting for the hefty customs duty. If the June cell mandate takes full effect without relief, CRISIL calculates that project capital costs could rise by ₹5-10 million per megawatt, with tariffs going up by ₹0.40-0.50 per unit. For developers who locked in bids before this policy was announced, that’s a structural problem with no easy fix.

Protected, but not yet competitive

The case for absorbing these costs rests on a familiar industrial-policy argument: short-term pain in exchange for long-term supply-chain sovereignty. If local-sourcing rules force capital into Indian manufacturing, and if Indian manufacturers eventually achieve the scale to compete on price, the higher costs now are really investments in future resilience.

Now, India’s module manufacturing capacity genuinely did scale under protection — from roughly 11 GW in 2019 to somewhere between 60 and 120 GW by mid-2025, depending on which estimate you use and what it is measuring. Module imports as a share of India’s consumption fell from ~45% to around 25% between 2020 and 2024. That is real, measurable industrial development.

But those gains are concentrated almost entirely in module assembly, where you take solar cells and assemble them into panels. They’re not a technically demanding step in the solar value chain. Moving further upstream requires progressively more capital, more sophisticated technology, and considerably more patience.

India’s export performance tells this story more honestly than the headline capacity numbers do. Solar equipment exports have picked up, mostly in modules, and mostly to the United States, which made up a whopping 97% of India’s solar exports. But the US isn’t buying Indian because Indian products are higher quality. Washington has erected its own barriers against Chinese solar equipment through anti-dumping duties. In that case, India is mostly a beneficiary of American geopolitical anxiety rather than global competitiveness.

And, as we’ve covered before, China’s grip on the upstream remains overwhelming. Three-quarters of India’s solar imports by value still come from China. Even as late as 2024, CRISIL estimated that cell imports as a share of India’s total consumption were still running around 80%, nearly all from China.

This is the bind the June 2026 cell mandate is trying to break. But whether that logic holds depends on how much effective cell capacity actually exists when the mandate kicks in. It’s has already established that effective operational output can be far below headline capacity. And developers have flagged the limited domestic availability of high-tech TOPCon cells, which provide more efficient generation that large-scale utility projects increasingly require.

The further upstream you go, from cells to ingots, the story gets thinner. India’s first commercial ingot-wafer facility — a 2 GW plant — only came online in FY25. The government has already announced ALMM List-III for ingots and wafers. But it’s quite likely that the same supply-demand tension the country is navigating right now for cells will almost certainly replay two years from now for one step further up the chain.

Conclusion

India is not going to abandon its solar industrial policy. The direction has been set — localise further, move upstream, and reduce dependence on China.

But the prime complaint of industry stakeholders is that they’re never left with enough of a buffer to adjust to the policy changes. The June cell mandate arrives at a moment when the gap between what the policy demands and what Indian manufacturing can reliably supply is still uncomfortably wide.

Meanwhile, India is simultaneously trying to accelerate solar installations faster than it has ever managed before. A supply squeeze that slows commissioning even by a year directly undermines our highly-ambitious clean-energy targets. Building the wall and building the road at the same time is hard, and India has to figure out how to do both.

- This edition of the newsletter was written by Kashish and Manie.

Tidbits

1. The Reliance group’s Jio Financial Services and Munich-based insurance major Allianz group have signed a binding agreement to establish a 50:50 joint venture spanning general and health insurance, formalising a partnership first announced in July 2025.
   Source: Business Standard

2. The Indian government has authorized blending ethanol and synthetic hydrocarbons with Aviation Turbine Fuel (ATF) to boost Sustainable Aviation Fuel (SAF) production and reduce reliance on oil imports amidst Middle East conflict-related disruptions. This move broadens the definition of jet fuel to include biofuels, aiming for 1% SAF blending for international flights by 2027.
   Source: LiveMint

3. India is set to import a record 2.5 million metric tons of urea in a single tender, at nearly double the price paid two months ago, as ‌the Iran conflict disrupts global supplies. The record purchases, covering about a quarter of India’s annual imports, are set to tighten global supply and push prices higher, which have already surged due to the war in the ​Middle East.
   Source: Reuters

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #8

Hi folks, hope you’ve had a great week…

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9 days ago · 9 likes · Zerodha

How can Indian IT flip the AI script ft. Ameya P

The age of AI agents has, so far, been a thorn on Indian IT’s side, at least as far as valuations are concerned. Its business model is getting stale each passing day - that’s understood. There might be a possibility that Indian IT might just adapt to the new paradigm. But what does adaptation for Indian IT look like? What are the forms of inertia they will have to overcome to successfully change themselves? And even if they do adapt, will they be able to defend their new business?

To unpack all this, we spoke to Ameya P, a veteran in the global IT industry, and a prolific technology investor well-known for his investing takes on X. It’s an incredibly nuanced conversation from an expert who understands the nitty-gritties of what each AI development brings forth for this industry.

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. India’s Railway blues turn color

2. How drones are changing the economics of modern warfare

India’s Railway blues turn color

At Markets, we’ve been looking at the many moving parts behind India’s rail infrastructure, from electrification to Kavach. Today, we’re looking at the most visible part of a train that a passenger can see, feel and board: the iconic blue-bodied, mild-steel coach.

For over six decades, India’s passenger trains ran on the same basic idea: a powerful locomotive up front, pulling a long string of passive coaches behind it. As of March 2018, 49,033 conventional coaches were still in service. Since 1955, the Integral Coach Factory (ICF) in Chennai and its sister factories have built over 75,000 coaches of all types. For most of that history, the dominant design was the conventional ICF coach.

Source

In January 2018, though, the ICF flagged off its last one. What replaced them, and why, is a story that goes beyond a simple paint upgrade.

Let’s dive in.

Like a rolling stock

The original ICF coach was designed in the 1950s with technology from a Swiss company. It was made of mild steel, which made it heavy and prone to rusting quicker. These coaches had a maximum permissible speed of 110 kmph. And like all conventional trains, they were locomotive-hauled: one engine at the front did all the pulling.

Source

Beyond speed, though, coaches also have to primarily account for safety.

See, in the old ICF coaches, the connection between any two coaches had two separate parts. The first mechanism (called a screw coupling) held coaches together when the locomotive pulled them forward. The second mechanism, called side buffers, absorbed the shock impact when coaches pushed into each other, like during braking.

However, since these were two separate systems with gaps between them, coaches actually had room to move too loosely against each other. Which also meant that if the train stopped suddenly, say, in a collision, coaches could disconnect, slam into each other, and climb on top of one another. This is what kept happening through a series of bad derailments in 2015-16, and it forced Indian Railways to act.

What German technology changed

Now, in 1998, the Rail Coach Factory in Kapurthala received a technology transfer from a German company called Linke-Hofmann-Busch (LHB). The coaches built using this design are known as LHB coaches. Manufacturing at Kapurthala began in 2001. LHB coaches first appeared on premium services like Rajdhani and Shatabdi, before gradually spreading across the network.

The LHB coaches are made of stainless steel instead of mild steel. They’re lighter, stronger, and don’t rust as easily. They last longer too: an LHB coach is designed to stay in service for 35 years versus 25 for ICF coaches. They use disc brakes instead of the older tread brakes, which means shorter stopping distances. And they also sound quieter.

But the most important change was, of course, in how the coaches are joined together. Instead of the old system where pulling and pushing forces went through different mechanisms with slack in between, LHB coaches use a single, heavy-duty coupler at the centre of each coach that handles both. It locks tight, and it’s designed so that in a crash, the coaches stay in line instead of climbing over each other.

This made a noticeable difference in reality. For instance, in 2014, the Dibrugarh Rajdhani derailed at high speed, but there was no loss of life. A CAG audit of the accident explicitly noted that none of the LHB coaches flipped over and there was no loss of life. After the derailment spree of 2016-17, Indian Railways pushed hard to replace the older coaches with LHB stock.

This upgrade did not come cheap, though. According to parliamentary replies, each LHB coach cost ₹75 lakh-₹1 crore more than the ICF equivalent. But the longer lifespan partially offset that premium. By 2024, the Ministry said about 23,000 conventional coaches had been replaced by LHB since 2015.

LHB solved the crash safety problem and raised the speed ceiling to 160 kmph. But the trains were still being pulled by a single locomotive. The next shift might just change the very idea of how the train moves.

Why Vande Bharat accelerates differently

In most conventional trains, one locomotive does all the work. For an intercity service, that’s a single engine pulling 16 to 24 coaches that have no power of their own. All the pulling force has to travel through the entire chain. Getting the train up to speed takes time.

Vande Bharat works differently, though. Half of its coaches have their own motors. A standard 16-coach Vande Bharat has 8 motor coaches, with traction motors tucked under the floor. There is no need for a separate locomotive. Driver cabs sit at both ends, so the train never needs to be turned around at a terminal, either. Since the power is spread across the train instead of sitting in one engine, it accelerates much faster.

The government says Vande Bharat can cut journey times by up to 45% compared to conventional trains. The time savings come mostly from acceleration: a Vande Bharat gets up to cruising speed much faster than a locomotive-hauled train, and brakes more efficiently too. In a 2022 trial, a Vande Bharat went from standstill to 100 kmph in 52 seconds. The braking system also feeds energy back to the grid, saving up to 30% of electrical energy.

Now, Vande Bharat is not a bullet train. The Indian Railways calls it “semi-high-speed.” Its design speed is 180 kmph, with a maximum operating speed of 160 kmph. But even that 160 is rarely achieved. India’s rail tracks were largely built for slower trains. Upgrading them to handle higher speeds requires replacing rails, strengthening the track bed, upgrading signalling, and fixing curves and gradients.

It is a modern trainset designed to deliver meaningful time savings on India’s existing track network. The first prototype, Train 18, was built in under 20 months with about 80% content sourced from Indian supply chains. As of April 2026, 79 Vande Bharat services are operational.

The sleeper variant was launched in January 2026 on the Guwahati-Howrah route, India’s first long-distance Vande Bharat. It carries 823 berths across 16 coaches. A 24-coach version is in design, and 260 sleeper trainsets are planned.

The builders

Who has been building all of these coaches?

For decades, the answer was government entities. ICF Chennai, Rail Coach Factory (RCF) Kapurthala, and Modern Coach Factory (MCF) Rae Bareli were the three pillars. They still are. In the last fiscal year, ICF produced 3,007 coaches, RCF produced a record 2,383, and MCF hit a record 2,025. That’s over 7,000 coaches in a single year. ICF, where the Vande Bharat was born, is among the world’s largest rail coach manufacturers.

But the ecosystem has broadened beyond them. For instance, a consortium consisting of Bharat Heavy Electricals (BHEL) and Titagarh Rail Systems won the contract for 80 Vande Bharat Sleeper trains worth over ₹23,000 crore, with 35 years of maintenance included. Titagarh, once a wagon maker, has built a Vande Bharat production line at Uttarpara in West Bengal. Meanwhile, BHEL, a government-owned capital goods firm, is now making the power electronics that drive these trains.

Then there is Medha Servo Drives, a Hyderabad-based private company that built the propulsion system for the original Vande Bharat prototype. It won a ₹2,211 crore contract from Indian Railways for the electrical systems of 44 Vande Bharat trainsets, with a requirement of at least 75% local content.

The Indian Railways still sets the standards and creates the demand for these items. But the making of trains, and especially the high-value electronics and long-term maintenance, is now spread across government companies, listed firms, and private specialists. The biggest contracts include not just manufacturing, but decades of maintenance afterwards.

The Union Budget’s rolling-stock capital outlay for FY 2026-27 is ₹65,496 crore. That number is a signal to every steelmaker, electronics firm, wheel plant, and brake supplier in the country.

The road ahead

India also exports coaches. The ICF has shipped over 875 coaches to countries including Thailand, Bangladesh, Mozambique, and Sri Lanka. In 2022, officials said India aimed to export Vande Bharat trains to Europe, South America, and East Asia. But as of April 2026, no confirmed overseas sale exists in public record.

The domestic constraint is just as telling. As of 2025, only about 21.8% of India’s tracks (23,010 km) support speeds of 130 kmph and above. Vande Bharat’s maximum operating speed of 160 kmph is achieved on just one 174-km stretch between Tughlakabad and Agra. Most services run at 130 kmph or below. The trains can do more, but the tracks can’t — yet.

The three eras of India’s passenger coaches tell a story that goes beyond trains. The old coach was a passive steel box pulled by a locomotive. The LHB coach was redesigned so that crashes wouldn’t kill. The Vande Bharat is a train that powers itself. Each shift followed the same pattern: bring in the technology, learn to make it, then make it better.

India’s coaches have come a long way from the blue boxes of the 1960s. The manufacturing base is real, the technology is increasingly homegrown, and the private sector is now part of the story. But the tracks that these trains run on still can’t match what the trains themselves can do.

How drones are changing the economics of modern warfare

Iran’s entire defence budget is $10 billion (₹84,000 crore). The United States’ defence budget is $850 billion (₹71 lakh crore).

Yet, in the war currently being fought in the Gulf, Iran has the better economics. A ₹29 lakh drone with a moped engine is draining the world’s most expensive air defence system faster than any factory can replenish it. The side spending more is at least being held to a standstill, if not losing.

Cheap drones have broken the economics of modern warfare. Every dollar spent making them is forcing the other side to spend a hundred shooting them down, and nobody can manufacture the expensive thing fast enough to keep up. This is the central fact of the modern wars being fought today. And it might have something important to say about the ₹2 lakh crore India just approved for defence procurement.

What a ₹29 lakh drone is doing to the world’s most expensive military

Since late February, Iran has been firing a weapon called the Shahed-136 at US military bases, Saudi oil infrastructure, and Israeli cities. It is not impressive by any conventional measure. It has a small piston engine, the kind you’d find on a moped. Its body is moulded from cheap composite material. It navigates on basic GPS and flies low and slow, at roughly the speed of a car on a highway. Each Shahed costs about $35,000 (₹29 lakh), less than a mid-range SUV.

General Hossein Salami, who commanded the Islamic Revolutionary Guard Corps until Israeli strikes killed him last June, was known for boasting about Iran’s weapons manufacturing capabilities. In one speech, he told his audience that Iran had gotten so good at building weapons that it was now about as complicated as making bicycles. At $35,000 a unit, the Shahed-136 suggests he was not far off.

Now consider what stops it. The Patriot missile system is one of the most sophisticated weapons ever built. A single Patriot battery, the radar, launchers, control systems, costs over $1 billion (₹8,400 crore) to set up. Each interceptor it fires costs $4 million (₹34 crore) — around 114 times that of the Shahed. It costs them that much more to destroy an Iranian missile.

You might think the US is rich enough to absorb that. But here is the thing, Lockheed Martin produced roughly 600 Patriot interceptors in all of 2025. And this was considered a strong production year for them.

But in the first week of the Iran conflict, the UAE alone reported being targeted by over 689 drones. Gulf states burned through months of interceptor stockpiles in days.

Iran’s strategy is now to drain stockpiles that take years to manufacture, faster than they can be replaced.

Ukraine understood this three years ago

What Iran is doing to the Gulf is not new. Ukraine lived through this problem and found an even cheaper solution.

Russia has been firing Shahed-type drones at Ukrainian cities every night for years. Ukraine could not keep shooting them down with million-dollar missiles, that would have bankrupted them.

So Ukraine built their own cheap drones. The most common weapon on the Ukrainian front line today is something called a first-person-view (or FPV) drone. It’s a $400 (₹34,000) racing quadcopter strapped with a small explosive, steered by a soldier through video goggles directly into an incoming target. Ukraine produced ~800,000 drones in 2023, two million in 2024, and is targeting five million this year.

Russia, watching this, announced targets of 1,000 Geran-2 attack drones per day in 2026.

Drones have changed modern warfare, soldiers on both sides report never seeing enemy troops on the front line. They only ever encounter drones.

And your drone economics decide how long you can stand in the war.

Why America didn’t see this coming

It is interesting to see how the world’s most powerful military, the USA, is only now catching up to this reality.

You see, after World War-II, the US spent eight decades and trillions of dollars on the idea that if your weapons are sophisticated enough, one of yours beats many of theirs. The F-35 can evade radar, the Patriot can intercept ballistic missiles, and the aircraft carrier can project force anywhere on earth. And for most of the 20th century, this worked.

Through this approach, the US built a massive military-industrial complex, consisting of companies like Lockheed Martin, Raytheon and Northrop Grumman. It was optimised around making extraordinarily sophisticated weapons, slowly and expensively, for a military willing to pay whatever it cost.

What Ukraine and Iran have exposed is a specific weakness in that logic. When your adversary fires ₹29 lakh drones faster than you can produce ₹34 crore interceptors, technological superiority only does so much. Then, production speed becomes the decisive advantage.

And America’s procurement system was built for a different kind of war. The US government’s own auditor, the Government Accountability Office, found in June 2025 that the Pentagon takes an average of 12 years to deliver the first version of a weapon system. The problem ran so deep that Secretary of Defence Pete Hegseth stood at the National War College in November 2025 and declared that, “the defence acquisition system, as you knew it, is dead,” announcing the most sweeping procurement overhaul in decades. A system that takes 12 years to field a weapon was never going to produce 1,000 of anything per day. Production speed, it turned out, was the one advantage money could not simply buy.

In December 2025, the US military deployed a new weapon for the first time in combat. It is called LUCAS, the Low-Cost Uncrewed Combat Attack System, and it was reverse-engineered from Iran’s Shahed-136, sped through the Pentagon’s acquisition process in just 18 months.

The LUCAS programme is the US acknowledging that the current version of modern warfare is won not just on sophistication but also on economics.

But the problem is that building cheap drones at scale requires a manufacturing ecosystem the US does not have. Motors, batteries, sensors, electronic speed controllers, the components inside any cheap drone, come overwhelmingly from Chinese manufacturers. Even the US, with all the money and urgency of a shooting war, is discovering it cannot simply wish this industrial base into existence.

For India, that presents an acute geopolitical problem.

India’s trap

In Operation Sindoor, India used precision Israeli drones to attack Pakistani air defence systems. These drones cost close to $1 million (₹8.4 crore) each.

Pakistan, meanwhile. used Turkish Bayraktars and Chinese CH-4s. These are cheaper, mass-produced, backed by their allies Turkey and China — a significant cost advantage over the drones India acquired. Operation Sindoor may not have lasted for too long for this to matter. But when a war gets stretched over years, the math gets hefty.

India does have a cheap drone — the Nagastra-1 — which costs about $500 (₹42,000). IdeaForge, founded by IIT Bombay engineers, holds ~50% of our domestic UAV market. A ₹10,000 crore drone PLI is also being proposed for the coming budget.

But inside every cheap Indian drone right now is a core dependency. The camera and sensor payload, which allows a drone to see its target, track it, and navigate to hit it, accounts for 60 to 70% of total drone cost. India does not manufacture it at scale, relying primarily on imports from China.

China controls the global drone production ecosystem not through any military strategy but because it spent twenty years building the world’s best commercial drone industry. DJI, which holds 70% of the global commercial drone market and was banned by the US Army in 2017, is just the most visible face of an ecosystem that now underpins every military on earth.

It goes without saying that in a conflict with China (or even Pakistan with Chinese support), India loses a connection to the Chinese component supply chain immediately.

Ukraine, for instance, runs its entire drone industry on Chinese components to this day, three years into the war. The supply has not stopped, but only because China has chosen not to stop it. For India, though, that’s a geopolitical risk we probably can’t afford for long. We will have to build the capability ourselves.

In March, India’s Defense Acquisition Council approved a ₹2 lakh crore ($25 billion) package, our largest defence procurement ever. It’s a broad push to upgrade what modern warfare is validating — more S-400 batteries, sixty new remotely piloted strike aircraft.

But will this package be enough to make us self-sufficient on time? After all, China already has a massive cost advantage through its inescapable supply chain, and that advantage only compounds itself.

Tidbits

1. Russian oil sales to India expected to stay near record levels at over 2 million barrels per day in April-May following US sanctions waiver renewal, with March imports hitting record 2.25 million bpd (50% of India’s total), Indian refiners paying $7-9 premium to Brent for deliveries.
   Source: Reuters

2. Tata Elxsi reported Q4 profit of Rs 2.20 billion, up 27.8% year-on-year, ending five-quarter decline streak, driven by transportation segment’s 7% constant currency growth and media unit’s 2.3% rise, with overall revenue at Rs 9.94 billion, declaring Rs 75 dividend per share.
   Source: Reuters

3. JPMorgan expects China’s property market turnaround to drive mainland stocks above emerging market peers, citing Hong Kong real estate recovery spillover to tier-one cities, wealth effect from equity rebound, and housing affordability at 2016 levels, with March showing slowest home price decline in a year.
   Source: Bloomberg

- This edition of the newsletter was written by Vignesh and Aakanksha.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #8

Hi folks, hope you’ve had a great week…

Read more

8 days ago · 9 likes · Zerodha

How can Indian IT flip the AI script ft. Ameya P

The age of AI agents has, so far, been a thorn on Indian IT’s side, at least as far as valuations are concerned. Its business model is getting stale each passing day - that’s understood. There might be a possibility that Indian IT might just adapt to the new paradigm. But what does adaptation for Indian IT look like? What are the forms of inertia they will have to overcome to successfully change themselves? And even if they do adapt, will they be able to defend their new business? To unpack all this, we spoke to Ameya P, a veteran in the global IT industry, and a prolific technology investor well-known for his investing takes on X. It’s an incredibly nuanced conversation from an expert who understands the nitty-gritties of what each AI development brings forth for this industry

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. What really broke India’s banks in the 2010s

2. India’s economy might have a productivity problem

What really broke India’s banks in the 2010s

Between FY11 and FY18, gross non-performing assets — loans that borrowers had stopped repaying — at India’s public sector banks (PSBs) went from 2.4% to 14.6% of total advances. At private banks, they barely moved over the same period, from 2.5% to 4.7%. The standard – albeit a lazy – understanding of this gap has been that PSBs were worse at lending. Worse governance, weaker underwriting and softer monitoring caused this. The numbers just confirm what everyone already suspected.

A recent CSEP working paper by Rakesh Mohan and Divya Srinivasan pushes back on that reading. Their argument is that the crisis wasn’t primarily about bad lending. It was the predictable outcome of a policy architecture that made PSBs the only available channel for financing India’s infrastructure build-out, and then pushed enormous volumes of credit through that channel into sectors that were structurally fragile. When those sectors broke down, the losses came back to the banks. When the banks needed rescuing, the government paid the bill.

The crisis was baked into the design before anyone wrote a bad loan. That’s an interesting take, and here’s how we understand it.

A critical piece, missing

India has built a respectable architecture for long-term project finance after independence. Development Finance Institutions (DFIs) like ICICI in 1955, IDBI in 1964, then PFC, REC, and IRFC through the 1980s were set up specifically to lend for 20 and 30-year projects.

Now, commercial banks couldn’t do this because they fund themselves with short-term deposits like savings accounts or FDs. Lending 25 years against that builds up a serious maturity mismatch. Basically you are getting (borrowing) money for a short time, but giving (lending) for super long periods.

DFIs sidestepped this by raising money differently. They didn’t compete with banks for retail deposits. Instead, they issued long-dated government-guaranteed bonds, received concessional funding lines from the RBI and multilateral lenders like the World Bank. They also developed specialised expertise in evaluating project lending risk, which a general-purpose commercial bank doesn’t naturally build.

However, the 1991 reforms dismantled this model. Concessional funding was now withdrawn and DFIs were asked to raise money from markets at commercial rates and they were pushed to convert into banks. By the early 2000s, ICICI and IDBI themselves had become commercial banks.

So if DFIs didn’t exist anymore, what was supposed to fill in the gap of long term funding? The expectation was the bond market, but it barely did. In 2008, corporate bonds were just 4% of India’s bond market, compared to 62% in Korea. Even today, the corporate bond market is only 16% of GDP, and roughly 95% of issuances are rated A or above, which structurally makes it impossible for risky infra projects to ever get funding.

Moreso, the pension and insurance investors who buy long-duration infrastructure debt elsewhere in the world remain thin in India, partly because only 12% of the workforce has any retirement coverage. With DFIs gone and bond markets shallow, banks were the only source of infrastructure debt in town.

How PSBs got drafted into the PPP bet

The 1996 India Infrastructure Report projected that infrastructure investment needs would rise massively over the coming decade. The government didn’t have that kind of money. Tax revenues were limited, fiscal deficits were a standing concern, and competing demands from defence, subsidies, social programmes were enormous. Something had to give.

The government’s fix for its infrastructure gap was Public-Private Partnerships (PPPs). The pitch was simple: let private companies build and operate infrastructure, bringing in their own capital and their own efficiency. The government’s fiscal burden, meanwhile, would ease. The Tenth and Eleventh Five-Year Plans set escalating PPP targets.

Private infrastructure investment exploded from Rs 1.3 lac crore cumulative over 2000-2006 to Rs 9.5 lac crore over 2007-2014 — a seven-fold surge.

Now, PPP projects are typically financed 70:30 debt-to-equity. The 30% equity is genuinely private money. The 70% debt had to come from somewhere. With DFIs gone and the bond market absent, that somewhere was commercial banks and overwhelmingly, PSBs.

The RBI, meanwhile, made this only easier. There are limits on how much exposure a bank can have to a borrower or a group. But for infrastructure, the RBI relaxed those exposure limits, giving more headroom. From December 2007, banks could even invest in infrastructure bonds with no credit rating. PPP debt was reclassified as secured in 2013. None of these was individually dramatic, but together they amounted to systematically clearing the path for concentrated infrastructure credit.

As a result, bank credit to infrastructure went from ₹1.4 lakh crore in 2007 to ₹7.3 lakh crore in 2013. Infrastructure’s share of non-food credit rose from 3.6% to 15%. Of that, 70% went to power and roads alone.

The standard narrative blames the 2003-2008 credit boom. However, while infrastructure credit grew very fast in 2001-2008, that was only on a tiny base. Between 2008-2013 the growth rate was still high at 29%, but on a base that was already seven times larger. Most of the lending that later turned bad was written after 2008, not during the pre-crisis boom. This means it wasn’t a hangover from easy-money exuberance but actually a direct response to deliberate post-crisis policy.

Both public and private banks started at ~8% exposure to the construction sector around 2010. By 2015, PSBs had climbed to 11% while private banks stayed flat. PSBs carried the policy burden because PSBs are how public policy travels through India’s banking system.

Why the “bad lending” story doesn’t survive the evidence

The simplest version of the NPA story — “PSBs lent carelessly to weaker borrowers” — runs into a wall when you look at the actual lending decisions. The authors looked at borrowing companies’ financial data, and compared firms where PSBs were the lead bankers against firms where private banks were the leads. The result cuts directly against the standard narrative.

Before loans were made, firms that borrowed from PSBs had healthier debt-to-equity ratios than firms borrowing from private banks. PSBs weren’t picking worse borrowers. After lending, though, the picture reverses — PSB-backed firms’ leverage climbed faster, and their net profit margins (which had been higher pre-lending) collapsed.

What happened in between?

Two things, partially overlapping. First, once PSBs were committed, they struggled to exit.

You see, infrastructure loans aren’t standalone transactions like a home loan. Typically, they’re arrangements where a consortium of multiple banks lends together and disburses in tranches as the project hits construction milestones. Once you’ve put money in for the first tranche and the project is half-built, walking away from the second tranche means writing off what you’ve already lent and potentially triggering the collapse of the whole project. You’ve locked yourself into the project.

Once PSBs committed, they kept lending even as borrowers deteriorated. That looks like poor monitoring — and in some cases it was — but in many cases it was rational behaviour, given sunk costs.

Secondly, the sectors these loans went into broke down in ways that would have sunk even financially sound borrowers.

Take, for instance, the power sector. India went from a state of under capacity to overcapacity, all on the back of wildly optimistic estimates of demand. Coal supply also got disrupted as over 200 coal block allocations were cancelled, and the shortages caused lost generation of electricity. During the period, 34 stressed coal plants were identified and 56% of that capacity had no Power Purchase Agreement at all — meaning no guaranteed buyer for the electricity produced.

Behind the whole sector sit discoms, the state distribution companies that buy power from generators. DisComs have been structurally broken for decades, for reasons we’ve covered in past stories.

When your buyer can’t pay you reliably, your debt becomes hard to service regardless of how well-run your plant is.

Meanwhile, roads had their own problems. Land acquisition delays affect 80-90% of projects and consume 15-20% of project duration.The road sector’s NPA ratio went from 1.9% in FY13 to 20.3% by September 2017.

This isn’t a uniquely Indian dysfunction. Between 2010 and 2014, nine of ten toll road PPPs around Spain’s capital, Madrid, defaulted after traffic forecasts proved 40-50% too optimistic. Road PPP failures are a recognised international pattern.

The fiscal boomerang

The original pitch for PPPs rested on two claims. The first was efficiency brought in by private companies. The second was the fiscal relief that public finances would receive because of private capital entering in. The efficiency case has mixed but defensible evidence in some sectors. The fiscal case, in the debt-heavy Indian model, turned out to be largely an accounting illusion.

How so? Like we said before, in a PPP project, the 30% equity is the only genuinely new private money entering the system. The 70% debt came from commercial banks, disproportionately PSBs. When that debt went bad, the losses landed on their balance sheets. When those balance sheets got so bad that they couldn’t lend any further, the government had to step in and recapitalise.

Between FY09 and FY22, PSBs received over ₹4 lakh crore in capital infusions — ₹ 1.5 lakh crore from the budget over 2010-2022, and ₹2.8 lakh crore through recapitalisation bonds between 2017-2022.

Now, let’s trace the full circle. The government couldn’t afford to build infrastructure directly, so it created PPPs to bring in private capital. The PPP debt was funded by public sector banks. When projects failed, losses landed on PSB balance sheets. When PSBs needed rescuing, the government paid. In the debt portion of PPP financing, it was essentially funded by Indian savings. What PPPs actually did in this design was reroute public money through banks rather than fund infrastructure directly. The genuinely private contribution was the equity.

What’s changed, and what hasn’t

India is now rebuilding the DFI model it dismantled three decades ago. NIIF was set up in 2015 and NaBFID in 2021. The corporate bond market has grown from 12% of GDP in FY12 to 16% in FY24, but remains dominated by highly-rated corporates that aren’t the ones building greenfield infrastructure. Pension and insurance participation still hasn’t scaled meaningfully.

But, the next generation of infrastructure investment is already in motion through the National Infrastructure Pipeline, and when it hits scale, the financing question will present itself again: are there now institutions that can absorb long-duration project risk, or will the path of least resistance once again run through PSB balance sheets?

The pattern has a way of repeating itself. The microfinance cycle that played out after RBI’s March 2022 interest rate deregulation rhymed with this one — a policy change removed a constraint, lenders expanded aggressively into the new space, stress built up, and cleanup is now underway. Different sector, same shape. Infrastructure lending produced a decade of NPAs. The next cycle, whenever it arrives, will be shaped by how the architecture has changed.

India’s economy might have a productivity problem

In the average Indian household, more people went to work last year than the year before. More earners, longer hours, more members of the family in the labour force. And yet, on average, each of those workers produced less per hour than they did in 2017. While household incomes went up, productivity went down.

A recent paper by Amit Basole and Arjun Jayadev, economists at the Azim Premji University, asks what it means when those two things happen at the same time, and why an economy can look, by almost every headline measure, like it’s doing well, while running a very different story underneath.

Their finding, documented across five datasets, is this: since 2018, India has been growing primarily by deploying more labour, but not by making labour more productive. The number of people working has risen. Household incomes have followed. But output per worker — the thing that actually determines whether an economy is getting more capable over time — has stagnated, and in recent years declined. The gap between those two trajectories is what the paper tries to explain.

We recommend reading this report along with the State of Working India report published by the same institution — we covered the latter as well very recently. The overall picture that gets formed from both is unusual and concerning.

A brief history

To understand how unusual the current period is, it helps to know what came before it.

Between 2003-2017, India’s labour productivity, or output per worker, grew at an average of 6.2% per year, for 15 consecutive years. It was a sustained expansion driven largely by capital-intensive manufacturing and skill-intensive services like IT, finance, and telecoms. Each worker was, on average, producing more, getting more efficient.

Now, these are sectors that certainly produce a great deal of value. But they absorb relatively fewer workers than labor-intensive manufacturing. So while productivity grew strongly, it was mostly concentrated in a section of India’s society.

This hot streak of productivity growth effectively came to an end in 2018. The pandemic made things worse, but it wasn’t the cause. In fact, the paper constructs a counterfactual: what would Indian labour productivity look like today if it had simply continued at its pre-2018 average? It would be 41% higher than it actually is right now. In many ways, 2018 is the turning point of this paper, and we’ll eventually come to how.

The cross-country picture makes this more alarming. Between 2012–2018, India was the top labour productivity performer among large economies globally. But in the 2018–2023 period, it was one of only three large economies where productivity actually declined. In contrast, peers like Vietnam, Indonesia, and Turkey all kept productivity growing through the same period.

Numbers without efficiency

Here’s the central puzzle: if workers are getting less productive, how is the economy still growing?

See, output growth is the sum of two things: productivity growth and employment growth. The same GDP expansion can, therefore, mean very different things. In one version, each worker produces more. In the other, the number of workers rises to compensate for stagnating output per person. And since 2018, India has only been running the second version.

The slowdown in worker productivity isn’t just confined to one corner of the economy. It shows up across manufacturing, services, and construction. Almost everywhere, employment has been growing faster than output.

What’s more, the authors find that India is an outlier in this regard.

How so? Usually, in large economies, the gross value added (GVA) per worker and gross value added per capita of population tend to move together. In most developing countries (like Vietnam), GVA per worker comfortably exceeds GVA per capita. Since the 1980s, India has mostly fit this pattern.

However, that changed from 2018 onwards, where growth in GVA per capita actually exceeded growth in GVA per worker. What that means is that our employed workers are producing little, pulling the per worker average down. Meanwhile, GVA per capita held up because a larger section of the population began working, while not necessarily being more productive.

This is reinforced further by what the authors find when they look at what’s actually driving rising household incomes since 2017. The dominant factor, across nearly the entire period, is an increase in the number of earners per household, and not higher pay per hour. In four of five sub-periods since 2017, earnings per person per hour contributed negatively to household income growth. Families are getting by not because anyone is earning more for each hour worked, but because more members are going out to work.

In essence, the lack of productivity is being offset by sheer size. But this kind of growth has a natural ceiling — what if we don’t have enough young people who can go to work? More importantly, it tells you nothing about whether the economy is becoming more efficient or more capable of sustaining higher wages over time.

One might expect this to be a story confined to the informal economy, with the formal modern sector humming along productively. The enterprise data doesn’t support that picture.

Large factories (those with more than 100 workers) had productivity growth of 5.5% per year between 2010 and 2015. In the 2015-to-2023 period, productivity in those same firms fell at 2.16% per year. Employment kept rising; output per worker fell. Even organised, profit-seeking manufacturing managed to hire more people while producing less per person.

The farms are filling up again

The second structurally alarming finding in the paper has to do with agriculture — specifically, how workers move in and out of it.

In any standard account of industrialization, agriculture is the sector workers should be leaving. The classic story of development is one in which subsistence farmers migrate to factories and cities, where they produce more per hour and earn higher wages. India was doing this, slowly, from the early 2000s. Both the absolute level of agricultural employment and its share of the total workforce had been declining for years.

Since 2018, though, that process has reversed. The share of the workforce employed in agriculture has risen. By 2023, in absolute terms, more people worked in Indian agriculture than in 2011. Among all large emerging economies, India is alone in this. Vietnam, Indonesia, Brazil, and Mexico all continued to reduce agricultural employment shares through the same period.

The paper calls this “structural retrogression“, where economic transformation seems to run backwards. The authors find that nearly 90% of the post-2017 collapse is explained by this adverse reallocation of labour, workers moving from higher-productivity sectors into lower-productivity ones. The economy didn’t mostly become less efficient within sectors — it allocated its labour worse across them.

Agriculture is a sector that absorbs anyone willing to show up, regardless of whether an additional worker adds meaningful output. When formal sector employment doesn’t generate enough jobs, surplus labour flows back to the default absorber. It’s not a choice, but rather what happens when there’s nowhere else to go.

The women entering the wrong jobs

The paper also looks into female employment. Female labour force participation in India has risen sharply since 2017 — by more than 17 percentage points for rural women over the period. This has been widely celebrated. More women working is, in most contexts, a straightforward marker of progress. But the story is far more complicated than that.

The new female employment is concentrated almost entirely in agriculture, own-account work, and unpaid family labour in household enterprises. That’s not the same as regular salaried work, not manufacturing, not modern services. The women entering the workforce have overwhelmingly entered it in the same low-productivity sectors where surplus male labour has also been congregating.

The authors believe that this looks more like a distress response than an opportunity response. When male earnings in a household stagnate or fall, additional members enter paid work to stabilise income. The household deploys more labour because it has to, not because better jobs have opened up. The rise in female LFPR, in this reading, is a symptom of the same underlying stress that’s been crowding workers back into agriculture, not a sign that it’s being resolved.

None of this makes the employment less real, or the income less useful. But the headline statistic doesn’t carry the developmental weight it’s usually assumed to carry.

The demographic dividend, and what it requires

What does all of this mean for India’s growth story?

We are entering the peak of its demographic dividend: the period when a large share of the population is of working age, dependency ratios are low, and the potential for productivity-driven growth is at its highest. Every conversation about India’s economic future rests on the assumption that this dividend will be captured — that the young workforce will find productive employment and gradually raise living standards.

The paper doesn’t say that can’t happen, but the findings paint a less likely picture of it taking place as smoothly. When high-productivity sectors can’t absorb labour fast enough and demand growth is weak, the demographic dividend becomes a demographic pressure. Large cohorts of young workers enter the labour market, find formal employment insufficient, and flow into surplus sectors that absorb them without making them more productive. That, of course, is the story of the SWI report we covered recently.

Converting that into something better will require sustained demand growth, coordinated investment, and conditions that make it worthwhile for employers to hire into higher-productivity roles. India’s macroeconomic fundamentals may still be strong. But the quality of growth underneath them has been deteriorating for nearly a decade.

Most developing economies face one of two challenges: productivity growing without enough jobs, or employment expanding into low-productivity work. India has now experienced both, in order, as successive phases of the same underlying problem. The formal sector was always too narrow to absorb the labour supply. When it was expanding fast, the result was jobless growth. When it slowed, surplus labour had nowhere to go but backwards.

The headline numbers will keep appearing. The question the paper raises is what exactly they’re measuring, and for whom.

Tidbits:

1. Major telcos have made incremental plan tweaks, perhaps before a major tariff hike. Bharti Airtel raised its Rs 859 plan to Rs 899 with OTT bundling, Vodafone Idea increased 5G entry price to Rs 349 in some circles, and Reliance Jio cut its Rs 195 plan validity to 30 days from 90, with analysts expecting 10-15% tariff hikes this year.
   Source: ET

2. The RBI partially rolled back forex restrictions imposed April 1, withdrawing ban on rupee-linked non-deliverable forwards and allowing cancellation/rollover of related-party contracts, while maintaining $100 million cap on open positions, after rupee recovered 2% from record lows.
   Source: Bloomberg

3. Apple announced that Tim Cook will transition to executive chairman on September 1, 2026, handing the CEO role to John Ternus, currently the company’s SVP of Hardware Engineering. Ternus joined Apple in 2001 and has overseen the engineering behind every major hardware product line. This ends Cook’s 15-year run that saw Apple become the first-ever trillion-dollar company by market cap.
   Source: The Guardian

- This edition of the newsletter was written by Kashish and Manie.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #8

Hi folks, hope you’ve had a great week…

Read more

8 days ago · 9 likes · Zerodha

Has the microfinance credit cycle turned?

Has the microfinance credit cycle turned? That’s the question we set out to answer by digging through 144 concalls across 18 companies over eight quarters. Instead of looking at management commentary in isolation, we track how the narrative evolved over time—from peak optimism to a full-blown credit shock, and now signs of recovery. The idea is to connect the dots and understand what really drove the cycle, and more importantly, what the industry looks like on the other side.

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. May the thinnest (margins) win?

2. How do stronger patents impact Indian exporters?

May the thinnest (margins) win?

At Markets, we’ve spoken about the ticking time bomb of the semaglutide patent expiring plenty of times in the past year. Now that the bomb has gone off, so has the potentiality of a war. A price war.

A few weeks ago, Novo Nordisk cut the price of its blockbuster drugs in India by up to 48%. Ozempic, which had been selling for between ₹8,800 and ₹11,175 a month, suddenly costs a fraction of that. Some versions of the same molecule are now available in India for ₹1,290 a month — a 90 percent price collapse, in a matter of weeks.

Novo Nordisk didn’t decide to be generous, though. They were forced to. Its key Indian patent on semaglutide — the molecule behind Ozempic and Wegovy — expired on March 20th. And Indian pharma firms, who had been counting down to this date for years, flooded the market days. Dr. Reddy’s launched on Day 1, followed by Mankind, Zydus, Natco, and Glenmark.

India has followed this playbook for varieties of medicines, from cancer drugs to antibiotics — wait for a patent to expire, make the molecule cheaper, sell it to the world. It’s how we became the pharmacy of the world. Today, India supplies ~40% of US generic drug volume.

So does this mean India has disrupted the GLP-1 market? Have we successfully made the world’s hottest drug — which singlehandedly minted billions for its makers — a cheap generic?

Well, that story is a little more complicated than just saying “yes, we did.”

Why this molecule is genuinely hard to copy

Let’s start with why semaglutide has always been hard to copy.

The GLP-1 hormone that semaglutide mimics is something your body already makes naturally. Every time you finish a meal, your gut releases a burst of GLP-1 — a tiny molecular signal that tells your brain you’re full and your pancreas to release insulin. Scientists identified it in the 1980s and immediately saw the therapeutic potential. The problem was brutal and simple: natural GLP-1 breaks down in your bloodstream in about two minutes. A drug that vanishes in two minutes is not a drug.

Novo Nordisk’s chemists solved this with two modifications to the natural molecule.

First, they swapped one amino acid in the chain for a synthetic variant that the body’s enzymes struggle to break apart, reinforcing the molecule’s most vulnerable point. Secondly, they attached a long fatty acid tail to a specific location. It causes the molecule to latch onto a protein called albumin that floats abundantly in human blood. Albumin is large, stable, and the body’s filtering systems leave it alone. Semaglutide, hitching a ride on albumin, survives for roughly a week.

Those two modifications turned a hormone that lasts two minutes into a drug worth $40 billion a year. They also turned what might have been a straightforward generic target into something with nearly 600 atoms that all have to be in exactly the right place.

After all, if you change one amino acid, the molecule might not bind to its receptor at all. If you alter the fatty acid tail, the albumin camouflage breaks and the drug disappears in hours. Even the slightest of errors in three-dimensional geometry — something that might look fine in a basic chemical analysis — and you end up with something that looks like semaglutide on paper but behaves completely differently in a human body. In contrast, aspirin just has 21 atoms, which makes it far easier to copy.

Making a generic version of semaglutide is something else entirely. Even if you theoretically copied the design, how would you ensure that every unit of that design is manufactured perfectly?

The process for making semaglutide is called solid-phase peptide synthesis. You build the molecule’s amino acid chain one unit at a time, coupling each new unit to the growing chain through a sequence of chemical reactions. Each reaction requires specific toxic solvents at every step — these solvents have no easy substitutes. The waste generated in making one kilogram of semaglutide API weighs up to 14,000 kg. A standard small-molecule generic, in contrast, generates about 300 kilograms per kilogram of drug.

Each coupling step has a small failure rate. Even at 99 percent efficiency per step across 31 steps (and that’s a tall ask), only about 73 percent of the chains you’re building come out correctly in theory. That’s an incredulously high accuracy benchmark to meet. Additionally, in practice, state-of-the-art synthesis achieves around 57% purity. That implies that nearly half of what you make is impure in some way, and has to be separated out through rounds of expensive purification.

Plus, the infrastructure for all of this — the synthesis reactors, the high-pressure purification systems, the sterile fill-finish lines — is not what India’s generics industry was built on.

Peptide, riptide

Despite all that complexity, Indian companies did build the capability.

Dr. Reddy’s spent years developing peptide synthesis capacity from scratch — API manufacturing, sterile formulation, and a proprietary injectable pen device, all in-house at its Vizag facility. It launched its own offering, Obeda, on Day 1. Zydus became a manufacturing partner for Lupin and Torrent. Mankind launched with its reach into smaller cities and towns. No one wanted to miss the first day of the impending gold rush.

But then came Canada. Canada is one of the first major Western markets where semaglutide patents had already lapsed/ When Dr. Reddy’s filed to sell its generic there, Health Canada asked both Dr. Reddy’s and Sandoz to provide additional data before their applications could proceed. They couldn’t, and now their launch is pushed down the line.

Now, this isn’t business as usual. It doesn’t happen with standard generics. For a small-molecule drug, proving bioequivalence — that your version delivers the same drug at the same rate into the bloodstream — is a well-worn regulatory path.

But peptide drugs like semaglutide are different. Health Canada describes these as “complex synthetic products” with “possible differences that could impact safety and efficacy” — meaning regulators need to scrutinise not just whether the molecule is present, but whether subtle differences in how it was made, its impurity profile, or its three-dimensional structure could make it behave differently in patients. Indian and Canadian approvals clearly have different regulatory bars.

Moving targets

India, Canada, Brazil, China, Turkey — these are the markets where semaglutide is going generic in 2026. Together, they represent a huge share of the world’s population, and an enormous burden of diabetes and obesity. And these markets are indeed already subject to deflation in the price of the drug. real. In February, Novo Nordisk warned analysts its revenues could fall by 5-13% this year because of these expirations.

But here is what Novo Nordisk’s revenue actually looks like. India’s GLP-1 market was worth ~$110 million in 2024. Novo Nordisk’s global GLP-1 revenues last year were over $40 billion — almost entirely from the US and Europe, where patients or their insurers pay $700 to $1,000 a month and have no cheaper option. The Indian market is roughly 0.3 percent of global GLP-1 revenues.

The US patent doesn’t expire until 2032, lending Novo Nordisk 6 more years of exclusivity in the market that drives the vast majority of their semaglutide revenues.

What’s more, while Indian companies were spending years building the capability to manufacture semaglutide, something was already happening in the market they were building toward.

See, American pharma firm Eli Lilly makes Mounjaro, which is based on a molecule called tirzepatide. It does what semaglutide does, but while semaglutide targets one hormone receptor, tirzepatide targets two simultaneously.

In a head-to-head trial in late 2024, tirzepatide beat semaglutide on weight loss outcomes. By October 2025, five months before the Indian semaglutide patent even expired, Mounjaro had already overtaken Wegovy as India’s top-selling GLP-1 by value. Lilly has approximately a decade of patent protection on tirzepatide remaining.

In essence, while generics approach the bottom, the innovators seem to have moved to the next floor.

And the pipeline keeps moving. Novo Nordisk is advancing a next-generation molecule that combines semaglutide with a second hormone and produces substantially greater weight loss in early trials. Both Novo and Lilly have oral GLP-1 pills — daily tablets instead of weekly injections — in late-stage development. If oral versions achieve comparable efficacy to injectables, the competitive picture changes again. Each new drug carries its own decade of patent protection.

Conclusion

On March 20th, 135 million Indians with diabetes were now able to now access a drug that, perhaps, most couldn’t afford at branded prices. One study published last month estimated that semaglutide could theoretically be manufactured for as little as $28 per patient per year as competition scales up. In comparison, in the US, patients still pay an annual cost of over $10,000 (~₹9.3 lakh).

But the framing of India “breaking the GLP-1 monopoly“ is a little more complicated. There are still question marks over how big the addressable market for generics really is. Indian pharma firms are struggling to get over Canada’s rules. The US and European markets don’t open until 2032. And the drug at the centre of all this had already lost its crown in India’s own market before the patent war was even over.

How this race to the bottom unfolds is really anyone’s guess.

How do stronger patents impact Indian exporters?

In 2002, India overhauled its patent system. The Patents (Amendment) Act extended protection from 14 to 20 years, introduced product patents across most technological fields, and brought India’s framework broadly in line with its commitments to the World Trade Organization.

For firms that had spent years navigating an uncertain intellectual property (IP) landscape, the reform made the rules legible. It provided safeguards for industrial R&D efforts undertaken by companies, while also attracting foreign firms to set up shop here.

But not every firm experienced that resolution the same way. A 2025 paper by researchers at IIFT’s Centre for WTO Studies — Qayoom Khachoo, Ridwan Ah Sheikh, and Pritam Banerjee — uses the 2002 Act to ask a specific question: did stronger patent protection actually help Indian manufacturers export more? It looks at the impact of intellectual property rights as an underrated factor in Indian manufacturing.

The hypothesis

Often, a reform in intellectual property isn’t really a uniform shock. It doesn’t land the same way on every firm.

For a company that had been investing in R&D through the 1990s, paying royalties to access foreign technology, and building internal technical capacity — a stronger patent regime changes a lot. It makes the returns on that investment more secure. It makes the firm a more credible partner for multinationals thinking about who to share technology with.

For a company that had made none of those investments, and competed primarily on cost, sourced domestically, and had no particular stake in the IP landscape, the same reform changes relatively little. The environment improved, but they had no accumulated capability to leverage the improvement.

This asymmetry is the core of the paper’s hypothesis. The authors argue that the firms most likely to benefit from the 2002 Act were those that had already demonstrated a commitment to technology before it passed. Prior investment was the largest determinant of subsequent gain.

To test this, they use CMIE’s PROWESS database, spanning roughly 2,500 unique Indian manufacturing firms from 1996 to 2007. They split these firms into two groups based on spending on R&D and technology licensing in the years before the reform which happened in 2002. Firms spending above the industry median during 1996–2001 are classified as high-tech. Everyone below is low-tech.

The 2002 Act, then, acts as a natural experiment: it applied to all firms simultaneously, on a fixed date, with no gradual phase-in. Both groups were on similar export trajectories before 2002. Much of the divergence that opens up afterward can plausibly be attributed to the Act itself.

The main finding

So, to answer the original question: yes, stronger patents did help Indian exports. High-tech firms exported ~17% more than low-tech firms in the years following the reform, once standard firm-level controls are included.

Additionally, the reform also increased the gap between how much each type of firm spent on technology adoption. After 2002, high-tech firms saw a more-than-threefold increase in technology adoption expenditure, but low-tech firms didn’t enjoy a similar growth.

Two mechanisms are at play here. One of them is obvious: stronger patents protect a firm’s innovations from being copied abroad, making it safer to sell in foreign markets. But that only partly explains the findings. The more important channel the paper is identifying is how foreign partners behave toward Indian firms.

When IP enforcement is weak, international supply chain partners (like MNCs or specialised input suppliers) are cautious about how much proprietary knowledge they share. Licensing a process, co-producing a component, or entering a joint venture: all involve transferring knowledge the foreign partner doesn’t want to lose. If they can’t trust the legal environment to protect that transfer, they’ll do it on terms that limit how much the Indian firm actually learns.

When enforcement becomes more credible, foreign firms become more willing to bring Indian manufacturers into their supply chains as genuine partners. They’ll share sophisticated inputs and license technology on reasonable terms. This is why the paper frames the export gain as much more than just an uptick in the export shipments. This is integration into the global value chain for a product. They got pulled into more complex production relationships that otherwise, they probably wouldn’t have benefited from.

In fact, high-tech firms didn’t only export more after the reform — their raw material and total imports rose by ~18% as well. What this implies is that domestic high-tech firms are now pulling in specialised inputs that foreign suppliers had previously been reluctant to share.

The nuances

A few caveats complicate the story.

The first involves what happened to imports across the full sample. While high-tech firms imported significantly more, total imports and capital goods imports actually fell across all firms after the reform.

Why did that happen? Well, when patent protections strengthen, foreign technology suppliers also gain bargaining power. They can charge higher licensing fees and restrict who they deal with. For a firm without existing technical credibility, importing advanced machinery became more expensive and harder to arrange. Many shifted toward domestic alternatives, or waited for technology to come through FDI and joint ventures.

These arrangements became more common precisely because stronger IP made multinationals more comfortable investing in India directly. The reform made technology flow more selectively, not more freely.

The second complication is about the low-tech firms. Of the 2,500 firms in the dataset, 62% are classified as low-tech. This is the majority of India’s organised manufacturing sector, the firms that employ the most people. For them, the 2002 reform only modestly helped exports. Their sourcing behaviour was also largely unchanged. The significant export gains that the paper documents are almost entirely a story about what happened to the high-tech minority.

The reform didn’t create technological capacity where none existed — it amplified capacity that was already there. A firm that had spent the 1990s investing in R&D and learning how global supply chains work was ready, in 2002, to run with a stronger IP environment. A firm that had done none of that had no equivalent foothold. Stronger patents gave it more secure ownership of very little.

What this also means is that bigger companies disproportionately benefited from the 2002 reform. After all, they have the advantage of economies of scale, which positions them to absorb high costs better.

The third caveat is tariffs. Higher import tariffs appear consistently across every specification, associated with worse trade performance on both the export and import side. A firm needs access to imported inputs to actually use what a stronger patent regime enables. For the majority of firms operating in protected sectors with limited global connectivity, that access was constrained. In that sense, the paper says, IP reform and trade openness go hand-in-hand.

What this tells us

India is currently running an extremely ambitious innovation policy push. Production-linked incentive schemes are channeling capital into electronics, pharmaceuticals, and semiconductors. The Anusandhan National Research Foundation has been allocated ₹50,000 crore over 2023–2028. The argument underlying all of it is that building a stronger environment for innovation will help Indian manufacturers climb the value chain.

The 2002 Act is the clearest historical evidence we have on whether that holds. And it does hold — but with a catch. What determined whether a firm actually benefited wasn’t the reform alone. It was whether the firm had already done the slower work of building technical capacity before the reform arrived.

If most of our organised manufacturing sits outside the technology-intensive tier when the next wave of reform lands, the same pattern will repeat: real gains, concentrated only where capability already existed. These firms, which are often really small, will need more targeted R&D incentives.

Tidbits

1. Fintech unicorn Razorpay prepares confidential IPO filing within weeks, targeting $600-700 million raise at $5-6 billion valuation, down from $7.5 billion peak, as FY25 revenue jumped 65% to Rs 3,783 crore but net loss hit Rs 1,209 crore.
   Source: ETReuters

2. Multiple states including Andhra Pradesh (Rs 4,600 crore), Maharashtra (Rs 4,000 crore), Rajasthan (Rs 4,000 crore), Telangana (Rs 3,000 crore), and Punjab (Rs 1,300 crore) will borrow through State Government Securities auction on April 21 via RBI’s E-Kuber platform.
   Source: ET

3. Gold demand during this year’s Akshaya Tritiya stayed muted as prices — up 63% from last year’s festival to ₹1,54,609 per 10 grams — kept jewellery buyers on the sidelines, with volume down even as total spend rose. Demand was lower than normal across most of the country, with the exception of a few southern states.
   Source: Reuters

- This edition of the newsletter was written by Aakanksha and Manie.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #8

Hi folks, hope you’ve had a great week…

Read more

8 days ago · 9 likes · Zerodha

Has the microfinance credit cycle turned?

Has the microfinance credit cycle turned? That’s the question we set out to answer by digging through 144 concalls across 18 companies over eight quarters. Instead of looking at management commentary in isolation, we track how the narrative evolved over time—from peak optimism to a full-blown credit shock, and now signs of recovery. The idea is to connect the dots and understand what really drove the cycle, and more importantly, what the industry looks like on the other side.

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Will India grow old before it grows rich?

2. An armor for the Indian Railways

Will India grow old before it grows rich?

In India, the unemployment rate for illiterates is 3%. For graduates aged 15 to 24, it’s 40%.

It seems that the more educated you are in this country, the more likely you are to be jobless. That doesn’t mean education is worthless. But, perhaps, education creates aspirations that the economy struggles to absorb, while someone more illiterate takes whatever survival work is available. A graduate holds out for something better. And that “something better,” for millions, may never arrive.

This isn’t a new problem. The State of Working India 2026 report traces four decades of labour data to show that graduate unemployment for the youngest cohort has been stuck between 35-40% since 1983. Through liberalisation, through the IT boom, through Make in India, through a startup revolution, nothing moved it.

The report follows the lifecycle of a young Indian from classroom to job search, eventually to the labour market, and asks a set of simple questions. The observations, across all three stages, are sobering.

Of course, employment outcomes are a function of many things from nutrition, upbringing, geography, social networks to household wealth and much more. But the report zeroes in on education and skilling — after all, that is the lever the state and market have most directly tried to pull over the last four decades. And the central finding is that the lever might not be working as effectively.

What does that mean for India’s much-celebrated demographic dividend? India has 36.7 crore people between the ages of 15 and 29. This is the largest youth population on the planet, accounting for a third of the country’s working-age population. But the ratio of working-age people to dependents is expected to peak by 2030 and then begin a permanent decline, as the youth share falls and the elderly population grows.

If we exclude those currently in education, we have roughly 26.3 crore young Indians who need to be productively absorbed into the economy. The clock is ticking. And at every stage of the pipeline — education, job search, and employment — something is breaking down.

The ₹1.2 lakh gamble

Since liberalisation, India has built one of the largest higher education systems in the world. The number of institutions exploded 42 times, with 80% of that expansion driven by private providers. College density improved from 29 per lakh youth in 2010 to 45 per lakh by 2021. Enrollment also surged among 15-19 year old men from 49% in 1983 to 73% in 2023. For women, the jump was even sharper from 38% to 68%. India’s tertiary enrollment rate of 28% is now on par with countries at similar income levels.

This is, by any measure, an extraordinary expansion. But the report reveals that quantity came at the expense of quality, and quality came at the expense of equity.

Start with quality. The All India Council for Technical Education (AICTE) recommends 15 to 20 students per teacher. But private colleges currently average 28, while public institutions average 47. This is clearly a system operating at 2-3 times beyond its designed capacity. The link between sitting in a classroom and actually learning something has weakened to the point where, as per the India Skills Report 2026, only ~43% of graduates are considered job-ready by employers.

Then, there’s equity. Between 2007-2017, enrollment from the poorest quartile of households doubled — from 8% to about 15%. That sounds like progress, but look at what those families are enrolling in. Youth from richer households are far more likely to be in the professional degrees like engineering and medicine, that lead to stable salaried careers. Poorer households are overwhelmingly funnelled into low-cost humanities and commerce programmes with far weaker employment outcomes. And the gap has only widened over time.

After all, the median cost of an engineering degree — ₹1.23 lakh a year — exceeds the entire annual per-capita expenditure of India’s poorest households. For them, a professional degree is an impossibility. It could be flattering to see more poor families entering higher education. But they’re being sorted into degree tracks that offer the least return.

And increasingly, young men are noticing this and choosing to drop out from their degree. Between 2017 and late 2024, male tertiary enrollment actually fell from 38% to 34%. When asked why, 72% cited the need to support household income. In 2017, that ratio was 58%. This is a reversal of a decades-long trend. The economics of a Tier-3 private degree simply no longer makes mathematical sense for them.

The queue

So what happens after education?

Between 2004-05 and 2023, ~50 lakh graduates were added to the labour market each year. Of those, about 28 lakh found employment of any kind, and a fraction of that number entered salaried work. Track a cohort of young male graduates from when they first report being unemployed: half find some form of work within a year but only about 7% secure permanent salaried employment, and a mere 3.7% land white-collar roles. The rest settle for informal, temporary, or gig-based work.

Earlier, we covered how India’s job market operates as two parallel worlds. One world is a tiny formal sector that employs less than 7% of workers, and the other is vast informal economy where the rest cycle between self-employment, daily wages, and joblessness. Very little connects the two paradigms. The SWI report adds a critical youth-specific dimension to that picture, identifying two strategies young people adopt to try and cross the bridge over to the formal sector.

The first is “queuing“ — which refers to sitting out of the labour force entirely to prepare for government exams. It’s no secret that a government posting, with its job stability, benefits, and social prestige that no private sector job can match, is one of the highest aspirations in India. But it’s also a lottery. Government hiring has been declining for decades, and the success rate for most competitive exams is miniscule. Yet millions of young Indians, mostly from wealthier households, park themselves in this queue for years, accumulating no work experience or earnings.

The second strategy is the “fallback“ — taking whatever informal work is available immediately. This is the reality for those who can’t afford to wait. However, fallback work unfortunately tends to become permanent. There’s a “scarring effect“ at work here — years spent in low-productivity informal work erode skills and connections, making it harder to transition into formal employment later.

Migration offers a partial release valve, and it’s becoming a defining feature of how India’s youth labour market actually functions. Younger, poorer states like Bihar and UP have the youth bulge but not enough jobs, while older, richer states like Maharashtra, Delhi and Haryana have the jobs but an ageing workforce. So young people move.

The question, then, that becomes difficult to answer is whether this is solving the regional mismatch or deepening it. If Bihar’s most educated young people leave for Bangalore and Delhi, they may find better individual outcomes. But Bihar itself is drained of exactly the human capital it would need to build its own economy. The sending state stays trapped in a low-skill, low-investment equilibrium, perpetually exporting its young rather than employing them.

The missing middle

Finally, what happens to the young people who do enter the labour market?

The headline trend is that India’s youth are leaving agriculture at a pace far faster than older generations. Among young men, the share in agriculture halved between 1983-2023 — from ~57% to 27%. Among young women, it fell from 75% to 49%. This is, in principle, exactly what structural transformation should look like.

The problem is where they’re going. The textbook model that worked in China, South Korea, and much of East Asia says that manufacturing should absorb workers leaving the farm. In India, that hasn’t happened at the scale needed. Young men exiting agriculture are landing in construction, retail trade, and transport — the same low-productivity sectors that employ older, less-educated workers. The report calls this the “missing middle“.

For women, though, the story is very different. Education does sort young women into higher-productivity work. Graduate women are breaking into IT, business support services, healthcare, and advanced textile manufacturing at rates that far outpace older female cohorts. The gender gap in graduate earnings has also narrowed significantly — young graduate women now earn nearly as much as their male counterparts. This is one of the genuinely positive shifts the report documents.

But even this comes with caveats. The overall female labour force participation rate remains stuck at ~35%, and the report notes a nearly four-fold increase in women entering “own-account” self-employment since 2017 — a category that, as we’ve covered before, often reflects distress rather than entrepreneurship.

A few other shifts are worth noting. Caste-based occupational segregation is weakening: the share of SC/ST workers in the leather and footwear industry — a traditionally caste-linked occupation — fell from 40% in 1983 to 24% in 2023. Younger cohorts are choosing their futures based on aspiration rather than inherited identity. Whether the sectors they’re moving into offer meaningfully better wages and conditions is a different question, one the report acknowledges but doesn’t fully resolve.

What’s the verdict?

The report’s subtitle — “Pathways from Learning to Earning“ — captures the Indian aspiration. But, much like Indian roads, those pathways have plenty of large, glaring potholes, and more often than not, they won’t get you to your destination. The education system produces credentials without capabilities. The job search process is a choice between waiting or compromising. And the labour market absorbs young people without advancing them.

India has four years until the demographic window begins to close. What happens between now and 2030 will determine whether 36.7 crore young people become the engine of the world’s next great economic transformation or whether we grow old before we grow rich.

An armor for the Indian Railways

The Indian Railways runs thousands of passenger, freight, and express trains — most of which operate a shared, tightly coordinated network. For most of this network’s history, what kept those trains apart was signals along the track and the locomotive pilot’s instinct.

This meant that, to a large degree, rail safety was left to manual judgement. The single biggest safety risk on this network has been something called SPAD: Signal Passed At Danger. That’s when a driver misses or misjudges a red signal, and the train enters a section it shouldn’t be in.

Training helps, but it can’t eliminate the problem. As speeds on key corridors have risen toward 130–160 km/h and more trains have been packed onto the same routes, there’s less room for a driver to recover from a mistake. By the 2010s, Europe, Japan, and China had all moved to automated train protection — systems built on a simple idea: if the driver fails, the machine steps in.

Indian Railways decided to build its machine layer, called Kavach (Hindi for “protection”). Officially, Kavach is an aid to the driver, not a replacement. In practice, it continuously monitors the train’s speed and position, and if the driver doesn’t respond to a danger in time, it applies the brakes. It’s now been commissioned on more than 2,200 route kilometres.

Today, we’ll be diving into what it does, how it works, what it means for the safety of the Indian railways, and why it’s difficult to scale. Let’s dive in.

How Kavach is put together

Every train on a Kavach-fitted route runs inside a safety boundary. The system knows where the train is, what signal is ahead, what the speed limit should be, how fast the train is going, and how long it would take to stop. From those inputs, it builds what engineers call a “brake curve“, which maps the speed at which the train needs to be at every point ahead. If the driver goes above that curve, Kavach applies the brakes automatically.

The railways describe this as Safety Integrity Level 4, or SIL-4. It is the highest functional-safety rating used internationally for this class of system. It means the protective function has been designed and tested to fail at an extraordinarily low rate — the kind regulators usually express in scientific notation. Accidents don’t become impossible; the system built to prevent them has been designed to the strictest reliability standard available.

This system operates through four layers of hardware and software, most of which you can’t see.

The tags

The simplest layer is a set of radio-frequency identification (or RFID) tags fixed to the sleepers between the rails. These have no power of their own — they only wake up when a reader on the underside of a locomotive passes over them. Each tag tells the train exactly where it is and what kind of track feature it has reached. They’re spaced no more than a kilometre apart and installed in pairs for redundancy.

There are three kinds of tags. A “signal foot tag“ sits at the base of a signal, so Kavach knows the moment a train reaches it. A “turnout tag“ sits where tracks branch — at this point, a switch sends a train either onto the main line or off onto a loop. The tag tells Kavach which of the two the train has actually entered. If it’s the main line, speed is capped at 60 km/h, while the loop line is capped at 30.

Between two tags, the onboard computer estimates the train’s position from how far its wheels have rotated. At each tag, it corrects any drift.

The radio

The second layer is a radio network. The locomotive carries two radio modems — if one fails, the other takes over immediately. Information flows continuously between the train, the nearest station, and any other trains on the same stretch. A typical 40-metre tower covers ~4.5 kilometres on each side, and extra towers go up where stations are farther apart, or terrain gets in the way.

If the radio connection drops past the allowed timeout, Kavach blanks its display, asks the driver to acknowledge, and applies the brakes if no response comes.

The computers

The third layer is the computing logic.

One computer is set on the trackside, and one is on the train. The stationary computer reads the existing signalling system — what colour the signal is showing, which way the points are set, what route the interlocking has cleared. (Interlocking is the station’s route-locking logic: it prevents two conflicting routes being set at the same time.) Kavach doesn’t decide what’s safe; the signalling system does. Kavach turns that decision into a constantly updated safety envelope inside the cab.

Onboard, the train’s computer combines inputs from RFID readers, radio modems, speed sensors, and a satellite-timed clock. That’s what lets it know, at any moment, where the train is, how fast it’s going, and how much safe track it has left.

The brakes

The fourth layer is the brake unit. Kavach can apply a normal brake, a full-service brake, or an emergency brake. If the driver goes past the safe limit and doesn’t correct, the system takes over the brakes.

What Kavach looks like in operation

The first clear public demonstration of Kavach was in March 2022, between the Gullaguda and Chitgidda stations in Telangana. Two locomotives were deliberately driven towards each other on the same track. Kavach applied the brakes on both, and the locomotives stopped 380 metres apart. The same trial also prevented a locomotive from crossing a red signal, and cut a train’s speed automatically from 60 to 30 km/h as it entered a loop line.

In normal running, Kavach operates in a few modes. Full supervision is the default when all data is available — Kavach manages how far and how fast the train can go. Limited supervision kicks in when some data is missing; it imposes tighter speed limits. Shunting mode is for low-speed yard movements, where Kavach defines the area the train can move in, and brakes if it goes beyond it.

And if things go further wrong, like the radio is down for too long, or multiple tags are missed, Kavach enters Staff Responsible mode, where it steps back and the driver takes full responsibility under tighter operating rules.

There’s also a distress system. If a train starts sliding backwards on a slope by more than five metres, Kavach detects the movement and applies the brakes. The driver can broadcast a distress alert by pressing an SOS button in the cab; the station master can do the same from his panel.

The system also generates alerts on its own. For example, if a train stops unexpectedly on the open line between two stations when it has been cleared to proceed, Kavach asks the driver to respond within 15 seconds. No response means it broadcasts an SOS and applies the brakes.

Why Kavach looks the way it does

Kavach isn’t the first train-protection system in the world. Europe has their Train Control System, which aims to replace trackside signals and automate things entirely. The US has Positive Train Control. Indian Railways looked at both and built its own, partly because of cost, and partly because neither was designed for a network running this many different kinds of trains on the same track.

Three design decisions follow from that.

The first is cost. The railways’ current planning benchmark is about ₹50 lakh per route kilometre for trackside and station equipment, and about ₹80 lakh per locomotive for onboard fitment. The Railway Minister cited roughly ₹2 crore per km for the European Train Control System during the 2022 trial. Kavach’s cost structure is designed to make it affordable for a 68,000-km network, not just a few showcase corridors.

The second decision is that Kavach sits on top of the existing signalling rather than replacing it. The manual trackside signals still operate. If Kavach fails on a section, trains continue to run under the existing rules — without the extra machine layer, but operationally intact. On a network as dense as India’s, a system that doesn’t take down the route when it misbehaves is a more practical choice than one that does.

The third is interoperability. A train fitted with one company’s hardware has to work with another company’s trackside equipment. Version 4.0 of Kavach includes what RDSO calls a standard braking algorithm — a shared formula for how any Kavach-fitted train calculates its braking. Three Indian companies — Medha, Kernex, and HBL — are the approved manufacturers.

The scaling problem

Kavach works. The harder question is how fast it can spread across a 68,000 km network.

The system can’t just be bolted onto a track. Every kilometre needs fibre-optic cables for communication between stations, radio towers for train-to-ground contact, RFID tags on the sleepers, station equipment, signalling upgrades, and trained loco pilots who know how to operate with it. That’s why the recent approvals in March and April went mostly into the backbone — cables, towers, station upgrades — rather than Kavach hardware itself. The system can’t run faster than the infrastructure underneath it.

That bottleneck is partly what made the response to rail accidents so slow. In June 2023, a signalling error in Odisha sent the Coromandel Express onto the wrong track. It hit a stationary freight train, and 296 people died. Kavach was not on the route. At the time, the system had only been deployed on a tiny fraction of the network. Six months later, that number had gone up by just 10 km.

After the accident, the railways had to move faster. The Delhi–Mumbai and Delhi–Howrah corridors were made the priority, and by July 2024, an updated version — Kavach 4.0 — had been approved for deployment. Prayagraj–Kanpur (190 km) and Vadodara–Nagda (224.51 km) were added in the last month alone. More than 55,000 railway personnel have been trained, including around 47,500 loco pilots.

The vendor pipeline is moving too. Kernex Microsystems disclosed a ₹91 crore order for 112 locomotive sets from Banaras Locomotive Works. HBL Engineering got an ₹84 crore order from Patiala Locomotive Works. Quadrant Future Tek got a ₹20 crore order from Patiala as well.

But partial coverage creates its own risk. A train protection system works best when it covers a route end to end. Right now, a train can move from a Kavach section into one where Kavach doesn’t exist, but the locomotive pilot also has to switch between two ways of operating on the same trip. That increases the potential for error.

What comes next

A few things are already in the pipeline.

The ministry has talked about a centralised AI-based monitoring platform for real-time monitoring of Kavach installations. Kavach 5.0, a next-generation version designed for suburban sections where the priority is not just collision avoidance but running more trains safely at closer intervals, has been announced but not fully specified. And RDSO has a provisional draft specification for an elephant intrusion detection system using optical-fibre sensing to pick up animal movement near tracks.

None of that changes the core fact that the program still falls painfully short. The basic Kavach system is still not as omnipresent as it should be. For India, which has had its fair share of rail accidents, getting this done is of paramount importance.

Tidbits

1. TSMC posted a 58% jump in net profit for the January–March quarter, powered by relentless AI-driven demand for its most advanced chips. TSMC flagged the ongoing US-Iran conflict as a potential risk to operations, given Taiwan’s dependence on Middle Eastern energy imports.
Source: Business Standard

2. Bharat PetroResources, BPCL’s upstream subsidiary, will invest $2.8 billion in an oil and gas exploration project in Brazil, marking one of India’s larger overseas upstream bets in recent years. The move is part of BPCL’s broader push to diversify its acreage internationally as domestic E&P opportunities remain limited.
Source: Business Standard

3. India’s CAFE 3 norms — which set stricter fleet-wide fuel efficiency targets for automakers — has reached a final draft after industry and government agreed on the framework. CAFE 3 is expected to push carmakers to accelerate the shift toward hybrids and EVs to meet tighter efficiency requirements across their model lineups.
Do check our recent story on the CAFE 3 norms.
Source: The Hindu BusinessLine

- This edition of the newsletter was written by Kashish and Vignesh.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #8

Hi folks, hope you’ve had a great week…

Read more

8 days ago · 9 likes · Zerodha

Has the microfinance credit cycle turned?

Has the microfinance credit cycle turned? That’s the question we set out to answer by digging through 144 concalls across 18 companies over eight quarters. Instead of looking at management commentary in isolation, we track how the narrative evolved over time—from peak optimism to a full-blown credit shock, and now signs of recovery. The idea is to connect the dots and understand what really drove the cycle, and more importantly, what the industry looks like on the other side.

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The idea is simple: we pick the most interesting, sometimes spicy, comments from business leaders and fund managers and break down what’s really going on behind them.

We’ve been tweaking the format a bit, and this is a new version I’ll be trying over the next couple of weeks. If you like it, let me know in the comments. If you don’t… go easy on me.

This builds on a newsletter we run called , where we track what company managements say in their earnings calls. But instead of looking at those comments in isolation, this format zooms out. We track one theme across companies and over time to see how the story evolves. The goal is to connect the dots and understand the deeper shifts shaping an industry.

For today’s episode, I wanted to answer one question: has the microfinance credit cycle turned? To get there, I went through 144 concalls from 18 Indian companies over 8 quarters. Here’s what we found.

This was originally published on 12th April, 2026 under .

The Microfinance Credit Cycle

From “not expecting any known risks” to “the issues are clearly behind the industry” — eighteen companies, eight quarters, and a credit cycle that rewrote the rules of Indian microfinance, told entirely through the words of the people who lived it.

The Goldilocks Trap

In March 2024, the Indian microfinance industry was in a celebratory mood. Asset quality had recovered from the pandemic. Growth was strong. Guidance was ambitious. The sector had disbursed record volumes and the worst of COVID-era stress was firmly in the rearview.

Satin Creditcare’s HP Singh called FY24 a “momentous chapter” in the company’s 33-year journey. Muthoot Microfin’s CEO saw a clear path to 4.5% ROA. CreditAccess Grameen, the country’s largest pure-play microfinance NBFC, set its sights on numbers that would have seemed outlandish just two years earlier.

“Assuming a stable operating environment, we look forward to achieving loan portfolio growth of 23% to 24% in FY25. We are anticipating credit cost of 2.2% to 2.4%... Overall, we aim to achieve ROA of 5.4% to 5.5% and ROE of 23.0% to 23.5% in FY25.”

— Udaya Kumar Hebbar, Managing Director, CreditAccess Grameen | Q4 FY24

Bandhan Bank, which had spent three painful years cleaning up pandemic-era stress in its microfinance book — the “Emerging Entrepreneurs Business” in Bandhan parlance — declared the legacy behind them. Its SMA-0 pool had halved. Slippages were trending down. The technical write-off of the old book was done.

SMA-0 pool is the set of loan accounts that are overdue by up to 30 days, indicating the earliest stage of repayment stress.

Slippages are loans that move from standard (performing) to NPA status during a period.

“So I think as Rajeev said, we believe that decisively, we are out of the pandemic problem. In fact, all the parameters, as you see, you can clearly see that practically the slippages has come down significantly. Recovery rates have improved. DPD pool has dried down.”

— Ratan Kesh, Executive Director and COO, Bandhan Bank | Q4 FY24

When analysts asked CreditAccess’s managing director what risks he saw on the horizon, his response carried the confidence of a man who had navigated COVID, demonetization, and the Andhra Pradesh crisis — and come out the other side each time.

“We are not expecting any known risks actually. Known risk if you see the last 10 years or 15 years, the risks which have come to this industry are unknown. Whether it is COVID or demonetization, the second COVID, all are unknown. The industry has not lost because of any known risks.”

— Udaya Kumar Hebbar, Managing Director, CreditAccess Grameen | Q4 FY24

It was a reasonable statement grounded in history. Every previous microfinance crisis — Andhra Pradesh in 2010, demonetization in 2016, COVID in 2020 — had been triggered by an external shock that no one could have modelled for. The sector’s risk management frameworks were built around this assumption: the threats come from outside, and when they pass, business returns to normal.

Not everyone agreed. A few voices struck a different note that quarter. Kotak Mahindra Bank’s new CEO Ashok Vaswani looked at the same data and saw a warning sign rather than an all-clear.

“If you look at what is happening in the industry and look at loss rates and stuff like that post the COVID provisions, it has really been a Goldilocks period for the last 2-3 years at least since COVID. Now, all of us know that credits go through cycles. At this point in the cycle, to go out and get aggressive on credit, I don’t think it is a smart thing to do.”

— Ashok Vaswani, MD & CEO, Kotak Mahindra Bank | Q4 FY24

HDFC Bank was quietly building buffers while the sun was shining — creating what it called “countercyclical provisions,” essentially setting money aside during good times for the bad times it expected would eventually come.

“We have, as a part of prudent risk management, created a countercyclical provision, which is a provision in good times.”

— Sashidhar Jagdishan, MD & CEO, HDFC Bank | Q4 FY24

IndusInd Bank, one of the largest MFI lenders through its subsidiary BFIL, was even more specific about where it saw cracks. Its CEO Sumant Kathpalia said the bank had spotted stress building in Punjab eleven months before the rest of the industry acknowledged it.

“We saw Punjab coming 11 months ago. We saw the waves of Punjab coming and even some parts of Odisha and Bihar also coming and some parts of UP also. We started exiting those portfolios at that point.”

— Sumant Kathpalia, MD & CEO, IndusInd Bank | Q4 FY24

Whether the early detection translated into early protection would become one of the more revealing questions of the cycle.

• • •

Something Breaks

The first tremors arrived in Q1 FY25 — the April-June quarter of 2024. A brutal heatwave across northern India made fieldwork difficult for loan officers accustomed to collecting repayments door-to-door. General elections in April and May disrupted collection schedules — in several states, political activists ran “Karj Mukti Andolans,” loan forgiveness campaigns that encouraged borrowers to stop repaying.

“Majority of that activity has stopped. It was almost linked with the election activity that was going on during that period in Q1. So now we don’t have too much of activism.”

— Sadaf Sayeed, CEO, Muthoot Microfin | Q1 FY25

These were plausible, temporary explanations. Heat waves pass. Elections end. But underneath the seasonal noise, something structural was breaking. At IDFC First Bank, the JLG collection efficiency — the percentage of current-bucket borrowers who pay on time — slipped from 99.7% to 99.2%. Half a percentage point sounds trivial. In microfinance, where the entire model depends on near-perfect repayment discipline, it was a red alert.

“Normally, pre the floods, our credit loss in the JLG book used to be around 1.6%. Now our estimate of credit cost for this year on the joint liability group, because we are 60% concentrated in Tamil Nadu, it is expected around 5% or a little short of it.”

— V. Vaidyanathan, MD & CEO, IDFC First Bank | Q1 FY25

A brief detour is useful here to understand what was actually going wrong. Microfinance in India works primarily through the Joint Liability Group model — small groups of borrowers, typically 5-10 women, who collectively guarantee each other’s loans. The model’s genius is that it replaces traditional collateral with social pressure: if one borrower defaults, the group faces consequences. It works remarkably well in normal times, keeping credit costs at 1.5-2.5% despite lending to some of the most economically vulnerable households in the country.

But the model has a critical weakness. It doesn’t control how many groups — or how many lenders — a single borrower joins. And since 2022, something had quietly shifted. Credit bureau data showed that borrowers were taking on loans from more and more institutions simultaneously. Ticket sizes were creeping up. Total indebtedness per borrower was rising fast.

Fusion Finance, a mid-sized NBFC-MFI, laid this out in stark numbers.

“I would like to draw your attention to Slide #8 on our customer leverage. As you can see, our outstanding per customer is mostly below INR 40,000. But 33% of these customers have outstanding greater than 1 lakh across micro finance loans. This increased from 23% in March to 32% March ’24.”

— Devesh Sachdev, MD & CEO, Fusion Finance | Q1 FY25

In twelve months, the share of borrowers carrying more than Rs 1 lakh in microfinance debt had jumped by 10 percentage points. And these were just the loans visible on credit bureaus. Equitas SFB’s veteran founder P.N. Vasudevan — who had been in microfinance for nearly two decades — identified another layer that was harder to track.

“What is not really understood or clear is also there’s some kind of a parallel lending happening to the same set of borrowers by so called app loan companies.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q3 FY25

Spandana Sphoorty’s data quantified the damage from overleveraging: borrowers with five or more lenders were just 12% of the company’s AUM but contributed 21% of its arrear bucket. The more lenders a borrower had, the more likely they were to default — and the industry had spent two years adding lenders to each borrower’s profile.

The most important observation of Q1 came from Vasudevan, who named what nobody else was willing to say clearly: for the first time in living memory, this crisis wasn’t caused by something that happened to microfinance. It was caused by microfinance itself.

“For a change, the crisis or it’s not the word crisis, but at least a stress levels in microfinance for a change is not induced by an external one. This is the first time, I think, in the last 15 years that I know or 17 years that I have been in this business that I’m saying that it’s not an external event trigger, but it’s something inherently coming up from the sector itself.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q1 FY25

Not everyone agreed with this framing. Spandana’s MD Shalabh Saxena pushed back on the idea that overleveraging was systemic.

“I personally do not believe there is a systemic over-leverage issue across the industry. I firmly believe that. There could be a few pockets, a few institutions here and there.”

— Shalabh Saxena, MD & CEO, Spandana Sphoorty | Q1 FY25

Within two quarters, the data would prove him wrong.

• • •

The Guardrails

In July 2024, MFIN — the Microfinance Institutions Network, which functions as the sector’s self-regulatory organization — rolled out what became known as the Guardrails. These were a set of industry-wide lending norms, agreed upon by members representing roughly 87% of the microfinance market, aimed at curbing the overleveraging that was now clearly driving the stress.

The key rules: no borrower should have loans from more than four microfinance lenders. Total unsecured indebtedness, including microfinance, should not exceed Rs 2 lakh. Lenders were required to check bureau data before every disbursement, not just at onboarding.

The guardrails were a significant step, but they were forward-looking — they could prevent new overleveraged loans from being created, but they couldn’t fix the existing book. Borrowers who already had five or six lenders would continue to struggle. The stress already embedded in portfolios would need to be absorbed through provisions, write-offs, and time.

The impact on new business was immediate. At Muthoot Microfin, about 11% of loan applications that would previously have been approved were now being rejected under the new rules. Satin Creditcare reported that at the time the guardrails kicked in, just 1% of their existing clients exceeded the four-lender cap — a sign that some companies had been more disciplined than others.

Fusion stopped disbursements entirely in 104 of its branches. CreditAccess tightened credit filters. Spandana paused new member acquisition in 230 branches and stopped sourcing new-to-credit customers altogether. The industry was simultaneously trying to fix the new pipeline while absorbing damage from the old one.

The CreditAccess team tried to quantify the timeline.

“We however, expect the delinquency trend to stabilise in the coming quarter and credit cost within the guided range of 2.2% to 2.4% for the year.”

— Udaya Kumar Hebbar, Managing Director, CreditAccess Grameen | Q1 FY25

That guidance would not survive the next ninety days.

• • •

Into the Storm

By September 2024, the scale of the problem was undeniable. What had started as “stress in some pockets” was now a full-blown industry credit cycle. The heat waves and elections were months behind, but collection efficiencies were still deteriorating. Equitas’s Vasudevan captured the moment of realization.

“The industry and us included were quite caught by surprise when the collection efficiency dipped further in Q2 for no apparent external reasons. In our case, it dropped from 98.9% of Q1 down to 98.2% in Q2. And when this happened across geographies, it was clear that an important reason for the stress was as much internal as external.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q3 FY25

CreditAccess Grameen, which six months earlier had guided for 23-24% portfolio growth and 5.4% ROA, rewrote its entire outlook.

“In light of the current industry landscape and short-term challenges encountered, we have revised our estimate for FY25 annual performance guidance. We anticipate loan portfolio growth of 8-12%, NIM of 12.8-13.0%, credit cost of 4.5-5.0%, ROA of 3.0-3.5%, and ROE of 12.0-14.0%.”

— Udaya Kumar Hebbar, Managing Director, CreditAccess Grameen | Q2 FY25

Growth guidance halved. ROA guidance cut by nearly 40%. Credit cost guidance doubled. And CreditAccess was among the better-positioned players — it had been conservative relative to its peers, with a diversified geographic footprint and a long track record. For the more concentrated and leveraged players, the numbers were far worse.

Fusion Finance reported a quarterly credit cost of Rs 693 crore — a number large enough to trigger covenant breaches with lenders. This is worth pausing on: Fusion’s borrowing costs and credit lines depended on maintaining certain financial ratios. When its losses blew through those thresholds, its own access to capital came under threat. The stress wasn’t just flowing from MFI borrowers to MFI companies — it was threatening to flow from MFI companies to their lenders, creating a potential second-order shock.

“I would like to mention that post the review of our auditors, our actual credit cost for Q2 FY25 has been determined at Rs. 693 crore. The elevated provisioning has been due to us proactively taking accelerated provisions... Looking at our portfolio performance and challenges faced by the sector, our auditor wants to bring to the attention that there are covenant breaches that will require waivers.”

— Devesh Sachdev, MD & CEO, Fusion Finance | Q2 FY25

IDFC First Bank’s V. Vaidyanathan, who had spent the previous quarter framing the Tamil Nadu floods as a one-off episode, acknowledged the broader reality and took an aggressive provisioning stance.

“Now, what we have done this quarter is because microfinance is an issue and we cannot wish it away because the microfinance portfolio is disturbing in many parts of India. So, what we have done is that in SMA-1 and SMA-2, we have taken provisions and therefore... almost 99% of SMA-1 plus SMA-2 has been provided for by the Bank, fully.”

— V. Vaidyanathan, MD & CEO, IDFC First Bank | Q2 FY25

Ujjivan Small Finance Bank, one of the larger microfinance-focused SFBs with a significant presence in southern states, saw its PAR — the portfolio at risk, measuring any loan that’s even one day overdue — climb sharply.

“On asset quality, as mentioned earlier, we are observing stress in the microfinance segment, due to which our PAR has increased to 5.1% in September 24 vs 4.2% in June 24. PAR 0 for our group loan portfolio has increased to 5.5% in September 24 versus 4.1% in June 24.”

— Sanjeev Nautiyal, MD & CEO, Ujjivan SFB | Q2 FY25

IndusInd Bank’s CEO Sumant Kathpalia — who had claimed to spot the trouble eleven months early — was now projecting confidence that the worst would be over within weeks.

“In my opinion, if everything goes well, within two months we should start seeing the flow rates coming down in this business... I am very bullish on the microfinance segment, and I think you will see the stability coming in very soon.”

— Sumant Kathpalia, MD & CEO, IndusInd Bank | Q2 FY25

That timeline would prove wildly optimistic. Kathpalia himself would not see it through — within months, he would exit the bank amid a governance crisis triggered in the bank’s derivative portfolio.

Vasudevan, characteristically more measured, offered the hardest truth of the quarter.

“This is the first time I’m seeing where an extended period of nearly 9, 10 months, we have been seeing high slippages and it’s by all of us and in many markets. So it’s very difficult to tell you within what time frame we expect it to come back to normalcy.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q1 FY25

• • •

The Darkest Quarter — and the Turn

Q3 FY25 — October through December 2024 — was when the stress peaked for most companies. Bandhan saw microfinance slippages of Rs 1,196 crore in a single quarter. Its collection efficiency outside West Bengal dropped to 96.3%. Satin Creditcare’s PAR-1 rose to 6.8%. RBL Bank described conditions on the ground as being “in a flux.”

But this quarter also contained the single most important inflection point of the entire cycle: December 2024.

For months, the data had been uniformly grim. Then, almost simultaneously, company after company reported the same thing — the first material improvement in the current bucket, the pool of borrowers who are not yet overdue. When this pool stops deteriorating, it means fewer borrowers are falling into trouble for the first time. It doesn’t fix the existing NPAs, but it signals that the pipeline of future stress is narrowing.

CreditAccess’s MD, who had initially expected the peak in September, acknowledged the delay but confirmed the reversal.

“Our initial assessment of the current delinquency cycle being transitory in nature has come true as we see the new delinquency addition rate slowing down across various geographies in mid-November 2024... The new delinquency trend reversal was materially visible across various markets beginning mid-November, getting further stronger in December and January.”

— Udaya Kumar Hebbar, Managing Director, CreditAccess Grameen | Q3 FY25

RBL Bank saw the same inflection.

“In the JLG segment, the situation on the ground has been in a flux for most of the past months, but December has seen the first material uptick in collection efficiency and the recoveries of old NPAs.”

— R. Subramaniakumar, MD & CEO, RBL Bank | Q3 FY25

Fusion’s Devesh Sachdev, whose company had been among the hardest hit, was watching a different metric — the new loans disbursed under tighter guardrails since August.

“Even I can tell you one more data, that the new sourcing which we are doing, which we changed in the middle of August. And now when I look it’s a five-month MOB, though it is too early, it’s just a 5 months MOB, but I believe the numbers are infant or early delinquency is clearly showing trends which we have seen in year 2022, ’23.”

— Devesh Sachdev, MD & CEO, Fusion Finance | Q3 FY25

This was quietly one of the most significant data points of the cycle. Loans written under the new guardrails weren’t just marginally better — they were performing like pre-crisis vintage. The guardrails were working.

But Bandhan’s new MD Partha Pratim Sengupta — who had replaced Ratan Kesh in yet another leadership change during the crisis — offered a note of caution that tempered the optimism. The SMA-0 book was improving, but the backlog of loans already deeper in arrears still needed to work through the system.

“So, maybe the level of slippage could not be 1,196 in EEB book, what we have witnessed in Q3, but it will be substantial... But slippages, we are seeing the trend, but at the same time as you are witnessing, you see that our SMA-0 book is improving... But the trend is reversing.”

— Partha Pratim Sengupta, MD & CEO, Bandhan Bank | Q3 FY25

The green shoots were real. But the cleanup was far from over.

• • •

The Reckoning

Q4 FY25 — January through March 2025 — became the quarter of reckoning. The turn in collection efficiencies was confirmed, but the damage from the preceding three quarters had to be absorbed. Companies took massive write-offs to clear the decks. The numbers were staggering.

Equitas SFB revealed the full toll. Its microfinance credit cost went from 2.3% in FY24 to 11.37% in FY25 — a nearly fivefold increase that wiped away Rs 630 crore of profit and dragged the bank’s overall ROA down to 0.32%.

“Last year turned out to be a tough year. We had credit cost in Microfinance portfolio moving up from 2.3% in FY ’24 to 11.37% in FY ’25, wiping away about INR 630 crores of profit of the bank.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q4 FY25

“In response to these headwinds, the bank slowed down its fresh disbursements in Microfinance, leading to a drop in the MFI advances from INR 6,265 crores in March ’24 to just around INR 4,500 crores in March ’25.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q4 FY25

Spandana Sphoorty posted a net loss of Rs 1,035 crore for the full year. CreditAccess wrote off Rs 1,124 crore, including Rs 479 crore in accelerated write-offs of non-paying 180+ DPD accounts. Muthoot Microfin saw its GNPA climb to 4.84% — but its CEO called this the peak.

“So our GNP levels are at 4.84%, which is at an elevated number. But this is the peak of these GNPAs. We feel that in coming quarters, these numbers will only come down because we are seeing better collection efficiency.”

— Sadaf Sayeed, CEO, Muthoot Microfin | Q4 FY25

RBL Bank took perhaps the most aggressive provisioning step of the entire cycle — writing its JLG net NPA to zero in a single quarter.

“In the JLG business, we normally take 25% provisioning each quarter on NPAs, but we have now taken 100% provisioning on the NPA as at March 31, 2025. This means we have a nil net NPA in the JLG business. We have also taken 75% provisioning amounting to INR 283 crores on SMA-0, 1 and 2.”

— R. Subramaniakumar, MD & CEO, RBL Bank | Q4 FY25

And then there was IndusInd Bank. In an industry already reeling from credit stress, IndusInd disclosed something that went beyond a credit cycle — it was a governance failure. An internal review found that microfinance loans at its subsidiary BFIL had been misclassified, concealing Rs 1,885 crore in under-provisioning and unrecognized NPAs.

“The review has also identified the misclassification of certain microfinance loans has resulted in under-provisioning and non-recognition of NPAs aggregating to Rs 1,885 Crores. The Bank has addressed the underlying cause and is in the process of taking actions for staff accountability.”

— Sunil Mehta, Chairman, IndusInd Bank | Q4 FY25

The disclosure triggered a leadership overhaul. Rajiv Anand replaced Kathpalia as MD & CEO. The microfinance subsidiary’s governance framework was restructured for “greater transparency.” It was a stark reminder that credit cycles don’t just stress balance sheets — they expose operational weaknesses that good times had papered over.

Meanwhile, the industry’s aggregate footprint was shrinking. This is a number that didn’t get much attention in individual earnings calls but told a dramatic story at the sector level.

“The overall loan outstanding at the sector, which was about INR 4.4 lakh crores in March ’24, came down to about INR 3.75 lakhs in March ’25 and further down to INR 3.5 lakh crores in June ’25.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q2 FY26

From Rs 4.4 lakh crore to Rs 3.5 lakh crore in fifteen months — the entire Indian microfinance industry shrank by 20%. That’s roughly Rs 90,000 crore of credit that was withdrawn from some of the poorest households in the country. The human cost of an industry correcting its own excesses.

IDFC First Bank’s Vaidyanathan, whose bank had taken provision hits early and heavily, offered a framing that captured what this quarter was — not the start of a new problem, but the crest of a wave.

“You think of this 2025 as a year that this has happened because of microfinance. You think of it that 2026, we will stage a smart recovery. And FY 27, FY 28, FY 29, we should be back winning ways.”

— V. Vaidyanathan, MD & CEO, IDFC First Bank | Q4 FY25

• • •

The Proof

The first sign that the recovery was real — not just hoped for — came from CreditAccess Grameen’s Q1 FY26 results. The company that had slashed guidance a year earlier now reported its highest-ever first-quarter disbursement.

“Our Q1 FY’26 performance has created a new benchmark, achieving the highest ever 1st Quarter disbursement in our history. This is a testament to our resilience and agility that define us given that we are coming off the back of a challenging credit cycle.”

— Ganesh Narayanan, CEO and MD Designate, CreditAccess Grameen | Q1 FY26

Note the leadership change here too — Ganesh Narayanan had taken over from founding MD Udaya Kumar Hebbar, whose guidance had shaped the company through both the confidence of Q4 FY24 and the crisis that followed. CreditAccess wasn’t alone. Bandhan had moved from Ghosh to Kesh to Sengupta in the span of two years. Spandana’s MD Shalabh Saxena — who had pushed back on the overleveraging thesis — had exited, replaced by Ashish Damani as interim CEO. Fusion brought in Sanjay Garyali. The cycle had churned leadership across the sector.

But the data was now more important than the names on the door. The deleveraging that the MFIN guardrails had set in motion was showing up in every company’s investor presentation with striking consistency. The overleveraged borrower pool that had caused the crisis was being systematically drained.

“GLP of borrowers with greater than 3 pre-lenders stood at 11.1% in June 2025 versus 25.3% in August 2024. GLP of borrowers with greater than 2 lakh unsecured indebtedness stood at 9.5% as of June 2025 compared to 19.1% in August 2024.”

— Ganesh Narayanan, CEO and MD Designate, CreditAccess Grameen | Q1 FY26

Muthoot Microfin saw the same pattern from the industry-level data.

“If you look at the overall industry, the leverage customers were around 20%. They have come down to around 8%, which is more than 4 loans.”

— Sadaf Sayeed, CEO, Muthoot Microfin | Q1 FY26

And the proof that the guardrails were producing a fundamentally better book — not just a smaller one — came from Equitas.

“We had implemented the MFIN Guardrail 2.0 from Jan ’25. Out of the portfolio created between Jan to June of ’25, the X-bucket efficiency is about 99.6%, which is more or less what we used to have before this whole crisis started sometime in the first quarter of last year.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q1 FY26

New loans, written under new rules, were performing at pre-crisis levels. Spandana’s data was even more definitive — its FY26 disbursements were tracking at 99.9% collection efficiency. The problem had been in the origination standards, the guardrails had fixed the origination standards, and the new book was proving it.

Fusion Finance, which less than a year earlier had reported covenant breaches and a Rs 693 crore quarterly credit cost, showed a steady trajectory of decline.

“Credit costs have steadily declined QoQ from Rs. 571 Cr in Q3 FY25 to Rs. 253 Cr in Q4 FY25 and further to Rs. 178 Cr in Q1 of FY26. GNPA improved from 7.92% in Q4 FY25 to 5.43% in this quarter.”

— Devesh Sachdev, Managing Director, Fusion Finance | Q1 FY26

Muthoot Microfin, which had posted a loss-making FY25, reported a small but symbolically significant quarterly profit — Rs 6.2 crore. Modest. But the direction mattered more than the magnitude.

“Though it’s a very modest profit, more importantly, it indicates a firm ushering of a turnaround within the operation and the financial performance of the company.”

— Sadaf Sayeed, CEO, Muthoot Microfin | Q1 FY26

• • •

The Industry Exhales

In April 2025, Guardrail 2.0 kicked in — tightening the lender cap from four to three, and further restricting indebtedness limits. Some companies, like Spandana, had already implemented stricter rules from January. The immediate effect was another spike in rejection rates and a temporary pause in the recovery of collection sentiment. Utkarsh Small Finance Bank’s CEO noted the disruption.

“From 1st of April 2025, they changed it to 3 lender caps. Because of that, we saw some more slippages or little elevated credit cost during this quarter. And you must have seen that is more or less industry phenomena.”

— Govind Singh, MD & CEO, Utkarsh SFB | Q1 FY26

But by Q2 FY26, the adjustment was absorbed. And the tone in earnings calls shifted from cautious optimism to something closer to relief. IDFC First’s Vaidyanathan, who had spent five quarters absorbing microfinance losses, said what many were feeling.

“Looking ahead, our own sense is that this microfinance issue is behind us. It’s really taken a lot out of us in the last 5 or 6 quarters. Many of you may have almost begun to lose confidence in us.”

— V. Vaidyanathan, MD & CEO, IDFC First Bank | Q2 FY26

By Q3 FY26 — December 2025 — the normalization was broad-based. Collection efficiencies across the sector had returned to 99.4-99.7%, close to or at pre-crisis levels. Monthly PAR accretion — the rate at which new loans fall overdue — had collapsed. CreditAccess reported the number at 18 basis points in December, down from 47 bps in September.

Fusion Finance returned to profitability — a PAT of Rs 14 crore. Its new CEO described it as an inflection point.

“Q3 represents an important inflection point for Fusion. The business has now entered a phase of controlled stabilization and disciplined execution. I’m pleased to share that we have returned to profitability this quarter.”

— Sanjay Garyali, MD & CEO, Fusion Finance | Q3 FY26

Lenders who had pulled back from the sector during the crisis were returning. Fusion noted that “several banks have freshly opened up” and institutions that were in “wait-and-watch mode” had started actively re-engaging. The wholesale funding squeeze — the second-order effect of the credit cycle — was easing.

RBL Bank’s JLG disbursals had crossed Rs 700 crore monthly, with early bucket collection efficiency at 99.5%.

“The disbursal in the JLG segment is at a run rate of INR 700 crores per month versus INR 550 crores in the previous quarter. The good news is that the early bucket collection efficiency is 99.5%. This is as good as one has got in this segment for a long time.”

— Jaideep Iyer, Head of Strategy, RBL Bank | Q3 FY26

Bandhan declared the de-growth phase in its microfinance book over. Muthoot was back to normalized disbursements of Rs 850 crore a month. Ujjivan SFB reported bucket-X collection efficiency of 99.7% in December — its highest in the current fiscal — with 10 out of 10 states at 99.6% or above.

Satin Creditcare’s HP Singh, who a year earlier had been deploying 1,100 dedicated collection staff to manage overdue buckets, offered a simple verdict.

“The headwinds are practically over. You can see green shoots now coming in. I think overall it bodes well for the industry as well as for us.”

— Dr. HP Singh, CMD, Satin Creditcare | Q3 FY26

And Equitas’s Vasudevan, who had been the first to diagnose this crisis as self-inflicted, delivered the closing line for the cycle.

“As we sign off, I can only reiterate that I think the issues of microfinance is clearly behind not just us but the industry. And going forward, let’s hope for better times for all of us.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q3 FY26

While the MFI players had been fighting for survival, the large diversified banks had watched from a very different vantage point. HDFC Bank’s microfinance exposure was less than 1% of its total book. SBI’s chairman noted their MFI portfolio of Rs 10,000-11,000 crore “does not really add up to anything.” By Q3 FY26, HDFC Bank’s deputy MD was using language that felt like it belonged to a different industry entirely.

“The banking industry right now to borrow a term is going through a Cinderella phase where you’ve got very strong balance sheets... We have the lowest accretion of gross NPAs and net NPAs are at decadal lows.”

— Kaizad Bharucha, Deputy MD, HDFC Bank | Q3 FY26

A Cinderella phase for large banks. A near-death experience for several MFIs. The same economic cycle, experienced at entirely different altitudes depending on how much microfinance a company carried on its books.

• • •

What Changed

The industry that emerged from this cycle was not the one that entered it. The changes were structural, deliberate, and in some cases, permanent.

Every major player shrank its microfinance portfolio as a share of total assets. Equitas took its MFI mix from 20% to 8.5% and intended to stabilize at 10%. IDFC First expected its microfinance book to bottom at Rs 7,500 crore — half its peak. Bandhan’s non-microfinance book now accounted for 63% of advances, up from 45% two years earlier. RBL shrank its JLG book by 23% and targeted keeping it at 6-7% of advances, down from 9%. The consensus: microfinance at 7-10% of the balance sheet, not 20%+.

Companies were also insuring against the next cycle. CGFMU — the Credit Guarantee Fund for Micro Units — had existed before the crisis but was lightly used. Now it was becoming standard.

“The intent is to take that to 100% and thereby eliminating the tail risk on the microfinance business. So, if you are able to do that and manage the proportionality of the business somewhere between 7% - 8% of the asset side, I do believe that we can build a more predictable and profitable microfinance business going forward.”

— Rajiv Anand, MD & CEO, IndusInd Bank | Q3 FY26

RBL reached 80%+ CGFMU coverage on its standard JLG book. IDFC First had been insuring since January 2024 — one of the earliest movers.

Kotak Mahindra went further than portfolio caps and insurance. It did something more fundamental — it replaced the joint liability group model itself.

“What we have done is that we have replaced the joint liability group model with individual underwriting risk-based models. And therefore, the way we are dispersing and where we are not dispersing has a lot to do with what the model says are the propensity for repayment.”

— Ashok Vaswani, MD & CEO, Kotak Mahindra Bank | Q1 FY26

It was a quiet admission that the JLG model — the foundational innovation of microfinance — had weakened. Social pressure among group members was no longer enough to ensure repayment in an environment where borrowers had loans from five different institutions. Individual credit assessment, powered by bureau data and machine learning, was being layered on top of or replacing the group guarantee.

And the baseline expectations for the business had permanently shifted. The “old normal” of 1.5-2% credit costs was gone. Vasudevan was explicit about what the “new normal” looked like.

“Post corona, we thought around 3% is a normal credit cost for microfinance. Now post this 2024 overleveraging crisis, probably anywhere between 3% to 4% could be a normal credit cost for microfinance.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q1 FY26

Three to four percent, not two. The industry had recovered, but to a worse steady state than before. The premium for lending to this segment had been repriced — not by a regulator, but by experience.

Vasudevan also offered the most honest structural assessment of the sector — one that explained why every company was simultaneously declaring the crisis over while also reducing its exposure to the business that had built them.

“And in spite of that, we have been seeing a series of crisis in the Microfinance sector time and again for various reasons. The reasons change, but the repetitiveness of the crisis doesn’t change.”

— P.N. Vasudevan, MD & CEO, Equitas SFB | Q4 FY25

The industry had survived. The cycle had turned. But the companies that came out the other side were building for a different future — one where microfinance remained in the portfolio but never again dominated it. Smaller books, government guarantees, individual underwriting, tighter guardrails, higher steady-state credit costs. The cycle didn’t just create losses. It created a new architecture.

• • •

What to Watch

• The “new normal” credit cost. Most companies guide for BAU credit costs of 2.5-3.5% going forward, up from the pre-crisis expectation of 1.5-2%. Whether this holds through FY27 will confirm the repricing is real and not just post-crisis caution.

• Karnataka. The last major geography to stabilize. Several companies still flag it as lagging behind the rest of the country. CreditAccess expects Karnataka’s PAR accretion to normalize by end of Q1 FY27.

• CGFMU as industry standard. IndusInd targeting 100%, RBL at 80%+, IDFC First already covered. If credit guarantee becomes universal, the tail risk profile of microfinance changes permanently — but it also adds ~1% to the cost of lending, which has to be passed on somewhere.

• Guardrail 2.0’s growth ceiling. The 3-lender cap is structurally limiting the addressable borrower pool. Several managements now expect industry growth to settle at 10-15% — a far cry from the 25%+ that was standard before the crisis. Whether this is a temporary adjustment or a permanent reset will shape the sector’s economics.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. The cost of Building Your Dreams, Part I

2. How India’s Defence Exports Took Off

The cost of Building Your Dreams, Part I

Every morning, the Markets team sits to discuss the news cycle. One global company is almost a constant in each of these meetings: BYD. If you search them on Google now, you’re bound to come across a variety of wild headlines, all happening simultaneously.

Their Shenzhen factory caught a blazing fire. They’re in the middle of a huge controversy in Brazil for their working conditions. They just built the world’s fastest road-legal car. They’re ferociously expanding globally. Most importantly, they’re at the center of a bloody price war in their home market, China. That’s certainly a very colorful set of headlines for arguably the world’s most important automaker today.

But what’s even more bewildering is that 2 decades ago, BYD was nowhere close to being a competitive carmaker, much less being the center of all news media. If anything, Chinese consumers looked at their cars with skepticism. How did a company that often struggled to survive, eventually became the poster child for China’s industrial success?

We rarely do stories on individual companies. However, BYD’s story is as much the story of China’s economy as it is that of entrepreneurship. And understanding their history could help us inform how they got here.

We’ll be writing this story in two parts, owing to how extensive it is. This part starts from three decades ago.

A gamble on the future

In the 1990s, when China had just liberalized, mobile phones had become all the rage, which created demand for rechargeable batteries. Many entrepreneurs saw an opportunity to use China’s cheap labor to make those batteries by hand. So, they set up their own companies in Shenzhen, which was being promoted as the country’s premier business hub.

A chemistry expert named Wang Chuanfu also jumped at this opportunity, and in 1995, he set up his own firm in Shenzhen. His team would reverse-engineer batteries made by leading Japanese firms like Sony and Sanyo, and then re-assemble them using the BYD name. The approach of growing business by copying global products first was all too common in China then.

By 2003, BYD had become one of the largest rechargeable battery manufacturers in the world. Revenue had grown for nine consecutive years. The company had just listed on the Hong Kong Stock Exchange.

But then, Chuanfu did something that confused almost everyone. He bought a car company without really disclosing in the prospectus that the IPO funds raised would be used for this.

Qinchuan Automobile was a struggling state-linked manufacturer that made a very small car that nobody really wanted. It came with a small factory and a set of production licenses. BYD acquired a 77% stake in it, effectively making its entry into a brutal, capital-intensive industry that it had no expertise in.

You see, most cars back then ran on oil, where the engine, not the battery, was the focal point of every car. You had no charging points that would make EV adoption possible, either. The electrification of cars was still a very far-fetched story.

What’s more, China’s auto industry was dominated by state-owned enterprises, who often formed joint ventures with foreign automakers like Ford. And in the middle of that entered a company with no conventional supply chain relationships and no car-making capability.

Almost delusionally, though, BYD envisioned that battery technology would transform how cars are made — even when very few people in the world were seriously commercialising EVs. The belief came from Chuanfu’s expertise in battery chemistry.

Additionally, China faced three problems at the time. One, it was almost wholly dependent on imports for its oil needs. Secondly, its cities were choking on exhaust from cars and factories. And lastly, while China did have an auto industry, it wasn’t as competitive as, say, Japan, or the US. EVs seemed to offer a way out on all three fronts: energy security, environment, and industrial excellence.

That, perhaps, is why in 2001, China prioritized EVs in their State High-Tech Development Plan, under which R&D spend would be directed into certain unproven sectors.

Made in China

But BYD’s road would hardly be easy. It had to learn how to make a standard, petrol-driven car first, that too entirely from scratch.

In 2004, their first full year in the automotive industry, BYD built a new prototype. It was a completely independent design, separate from the inherited Qinchuan model. Expectations seemed to be pretty high for the battery-maker’s entry into cars.

But car dealerships did not seem to like the model. It simply wasn’t good enough in design or execution. So Wang Chuanfu himself personally smashed the prototype. The investment in the model had been quite substantial, and now all of it was sunk. But releasing it would have been worse than releasing nothing at all.

A year later, BYD launched their first commercial internal combustion vehicle, the F3.

The F3 was not a masterwork of original design. Many noticed that it suspiciously resembled the Toyota Corolla, which was one of the most popular cars in the world at the time. That wasn’t by accident, though. The F3 followed the same reverse-engineering, labor-intensive playbook as BYD’s battery business.

But it was affordable, reliable enough, and arrived when China’s middle class was booming. In the next year, the F3 sold over 30,000 units, becoming a runaway success. Within three years, it became China’s top-selling sedan, beating both the Volkswagen Jetta and the Toyota Corolla. Between 2005-2008, automobiles would grow from being just 5% of BYD’s total revenues to 32%, and then over half by 2009 itself.

All the cars BYD would release in that decade would follow a similar pattern. They would resemble popular models of firms like Mercedes-Benz or Toyota, and they were made by employing masses of cheap labor at the assembly line. In fact, because they were perceived to just be copycat products, car service shops would actually offer consumers to swap out the BYD logo with the logo of the original car (like Toyota).

But, however crude, BYD’s approach helped them maintain serious cost discipline and help them scale any product quickly. What they saved through this was funneled into what BYD had always aimed to do: make EVs. By 2008, BYD’s battery work had begun to be tied with its auto business as they launched their first plug-in hybrid (or PHEV), the F3DM. This car used both internal combustion as well as battery technology.

Wonderful company, fair price, great subsidies

It was also in 2008 that BYD’s success caught the eye of Warren Buffett.

Charlie Munger, the vice-chairman of Berkshire Hathaway, had been paying close attention to BYD. He was particularly enamored by Chuanfu’s tenacity to be just as technical as he was good at manufacturing at scale.

The timing looked awkward. BYD’s 2008 profits had fallen to RMB 1.02 billion (around ₹650 crore back then), down from RMB 1.61 billion the year before, as competition in the conventional car market intensified. The company was spending heavily to develop EV capabilities, and the returns were not yet visible.

But Berkshire didn’t fully see BYD as a standard internal combustion carmaker. It was sold on BYD’s battery vision. BYD’s convincing methods were, perhaps, quite unusual: in front of Berkshire executives, Wang Chuanfu drank his own battery fluid to prove that his technology was safe to use in cars.

So, Berkshire made what Munger would call his most important investment at Berkshire, staking $270 million for 10% equity in BYD. A high-status international shareholder like Buffett would instantly lend BYD reputational collateral. The Berkshire name changed the way local governments, banks, and suppliers thought about the company. And it gave BYD more runway to spend on R&D related to EVs.

But the biggest tailwind in BYD sails would come just a year later.

In 2009, Beijing launched the “Ten Cities, Thousand Vehicles“ programme. Basically, across China’s largest cities, the program provided subsidies for EV adoption in fleets of public buses and taxis. This program would be monitored by the local governments of those cities or provinces. And in China, local governments play a massive role in pushing economic growth — they’re given growth targets to chase by the centre. So, they’re often involved in providing funding to firms.

This was China’s first large-scale industrial policy dedicated solely to electric vehicles. And while this wasn’t a consumer subsidy, it was still a huge sign of the support that EVs would eventually receive.

Fleeting moments of success

The “Ten Cities” policy was one of the fundamental causes of BYD’s first taste of success in commercial EVs.

See, BYD’s path to EV credibility ran through bus depots and taxi ranks, not showrooms. In that vein, it launched two products: the e6 electric saloon designed for the taxi market, and the K9 electric bus designed for city transit. Both of them were pure EVs, not hybrids.

By the end of 2011, BYD reported around 300 e6 taxis operating in Shenzhen alone. The K9 had begun operations in Shenzhen and Changsha simultaneously, with 200 units being bought in 2011. That same year, at a sporting event in Shenzhen, BYD supplied 200 K9s and 250 e6 taxis to ferry athletes around the city.

BYD also received plenty of local government support during this period. Shenzhen alone had provided RMB 864 million (around ₹530 crore back then) in automotive R&D grants in 2008, with Changsha and Huizhou adding further tranches. The local governments were effectively functioning as buyers of BYD’s buses and co-investors.

BYD’s progress soon spilled over to the consumer market. In 2013, BYD released the Qin, another plug-in hybrid EV. And it topped China’s new electric vehicle (or NEV) sales. By 2015, sales of new energy vehicles, which included battery vehicles and PHEVs, had surged 208% year on year to 58,000 units, and BYD was claiming the top position in global NEV sales.

Around the same time, the industrial policy tailwinds had begun even stronger. In 2012, China released the NEV Development Plan, which targeted cumulative sales of 5 million pure-play and hybrid EVs by 2020. And from 2015 onwards, the central government launched a new subsidy policy targeted at leading EV players in China, meant to be phased out gradually. This bolstered China’s global market share in EVs to over 50% by 2015.

When the tap runs dry

But, this dream run would come to an existential standstill in a few years due to a shift in policy priorities.

See, China’s NEV subsidy regime had created an unintended effect. The combination of generous central payments and weak verification had produced an ecosystem of fraud. When the Ministry of Finance audited major NEV producers, inspectors found worrying patterns. Vehicles were registered to claim subsidies but never actually sold, and companies optimised for eligibility criteria rather than for product quality. Beijing was spending on cars that, in many cases, existed only on paper.

So, in 2019, the subsidy regime itself was suddenly overhauled not just in scale, but in design. Beyond subsidies being cut, technical thresholds like minimum battery energy density, battery range, and maximum energy consumption rose sharply, primarily to ensure higher product quality. Additionally, China also started to allow the entry of foreign competitors like Tesla, which would force domestic players to be on their toes.

All of this hurt BYD significantly. The new technical thresholds favored pure-play EVs over plug-in hybrids. Compared to competitors, BYD’s portfolio and R&D expenditure were much more geared towards the latter than the former. PHEVs were more complex and costlier to produce — which made them especially dependent on subsidies to remain competitive. In fact, in 2019, BYD’s own pure EVs grew in sales while plug-in hybrid sales fell.

Much of its profits in those years were made up by government subsidies. For instance, in 2018, BYD made a net profit of RMB 2.78 billion (~₹2,800 crore), of which 83% was government grants. The companies that had survived China’s EV decade purely on subsidy capture did not make it through this transition.

Between 2017-2019, BYD’s profits tumbled consecutively, and the decline was mainly attributable to subsidy cuts, a slowing auto market, and its product mix. It was, in Wang Chuanfu’s words, BYD’s “darkest hour”.

But, as they say, the night is only darkest before dawn. And BYD’s biggest breakthroughs were yet to come. That, we’ll cover in Part II.

How India’s Defence Exports Took Off

Earlier this month, India’s defence exports had hit a record ₹38,424 crore in FY26, up 62.66 percent from the previous year. A few days later, ahead of Q4 FY26 results, brokerage previews said listed defence names had a strong order books and a healthy pipeline.

That is a striking place for India to be. Ten years ago, defence was not really a private-market story in the way it is now. India still had a large defence establishment, of course, but the domestic industrial ecosystem was narrow, state-heavy, and deeply dependent on imports in many important categories.

Even now, it would be wrong to pretend the dependence has vanished. MP-IDSA noted last year, drawing on SIPRI data, that India was still the world’s largest arms importer in 2019 to 2023, with ~9.8% of global imports. The shift, while real, is still not complete.

Still, something important has changed. Data shows defence production has risen from ₹46,429 crore in 2014-15 to ₹1.50 lakh crore in 2024-25. In FY25 alone, the Ministry of Defence signed 193 contracts worth ₹2.09 lakh crore, of which ₹1.69 lakh crore went to domestic industry.

How did a country that spent years worrying about basic defence shortages reach a point where exports keep hitting records and private companies are part of the market conversation?

To answer that, you have to go back to a less flattering starting point.

The weakness underneath

In July 2017, a CAG report on the Army and ordnance factories laid out how thin India’s ammunition reserves really were. At the time, 55% of ammunition types were below the Minimum Acceptable Risk Level (MARL), and 40% were at a critical level with less than ten days of stocks. The same reporting said the Army was meant to plan around forty days of war reserve in case at any point the country gets into an armed conflict. This is called the War Wastage reserve.

You see, ammunition is not like a tank or a radar. It is a consumable. If a war turns intense, shells, rockets, tank rounds and propellants are burned through very quickly. That is why militaries keep reserve benchmarks in the first place. MARL is the floor, while the wastage reserve is the cushion. If you are below both, you end up sitting empty handed as enemies come knocking.

A shortage like that does not appear overnight, though. It happened because of the supply chain underneath which had been weak for a long time.

For most of independent India’s history, there was only one domestic source of ammunition: the Ordnance Factory Board (or OFB), a large state-run network of factories inherited from the British era. The OFB had a monopoly, and private firms were effectively shut out of ammunition production.

The CAG found repeated shortfalls across a large share of the ammunition types the OFB was supposed to supply. In some cases, the system had even lowered its own targets and still failed to meet them. The auditor had been raising alarms since 2015, but very little had changed.

The second source of ammunition was imports, mainly from Russia. But that came with its own trap. India’s deals with Russia were supposed to include technology transfer so that we could learn to make the ammunition at home. But the deals seemed to have only marginally improved production capability. The technology transfer did not hand over the deepest design know-how, or critical sub-systems.

This was the defense and ammunition procurement model India had built for itself over decades: a weak domestic monopoly, an unreliable external supplier, and a forty-day reserve requirement it was meeting for barely half its weapons.

Geopolitical arithmetic

However, things changed with Russia’s invasion of Ukraine in 2022.

Ukraine’s pre-war stockpiles, built partly on Soviet-era reserves, were depleted much faster than expected. NATO countries began drawing down their own inventories to resupply Kiev.

By late 2023, the chair of the NATO Military Committee said that “the bottom of the barrel is now visible.” The US, which had been producing ~14,000 155mm artillery shells a month before the war, suddenly had to think in multiples of that. Europe discovered that years of lower defence spending had also eroded its manufacturing base.

The lesson was simple. Modern war consumes ammunition at a pace that peacetime systems are rarely built for. A country can have good weapons, capable soldiers and sound strategy. But if it runs out of shells, all of that starts to matter less.

For India, this was uncomfortable in a very specific way. Its defence planning has long assumed the possibility of a two-front conflict with China on one end and Pakistan on the other. That is the kind of scenario that demands deep ammunition reserves. By the Army’s own auditor’s account, India did not have them. In some of its most important categories, stocks would not have lasted even ten days.

The state changes the system

In October 2021, even before the Ukraine war, the government broke up the Ordnance Factory Board into seven separate corporate entities. The ammunition business went into a new company, Munitions India Limited, or MIL. The logic was that a corporate structure would create more accountability than an old bureaucracy had. MIL would now have a balance sheet, a management team, and performance targets it could not quietly revise.

But the more important shift was outside the old state system. The private sector was finally brought in properly.

That mattered because ammunition is not an industry companies enter lightly. It needs capital, land, compliance, safety systems, specialist chemistry, and confidence that demand will continue for years. No private company will spend hundreds of crores building a plant if it has no idea whether the Army will place another order next year.

So the government changed the economics. It began issuing longer-term supply contracts to private firms. They could now build capacity knowing demand would not vanish after one procurement cycle.

By the end of 2024, the government said the Indian Army’s ammunition procurement by Indian industry for a ten-year requirement was in progress to establish at least one indigenous source for all types of ammunition, and that 154 out of 175 ammunition variants had already been indigenised. The arms and ammunition sector was also being opened up further for private industry, with easier licensing and capacity-expansion rules.

The Indian Army’s ammunition budget is around ₹ 20,000 crore a year. Until a few years ago, 35%-40% of that was still being spent on imports. By 2024, that share had fallen below 10%. Over a three-year period, the Army placed ammunition supply orders worth nearly ₹ 26,000 crore on domestic manufacturers.

Capacity changed the economics

Once a country builds serious ammunition capacity for security reasons, a new question appears. What happens to that capacity in peacetime? A plant built to improve wartime resilience does not stop needing orders when there is no war. The lines still need to run, workers still need to be retained, and fixed costs still need to be absorbed.

That excess capacity can now find a useful avenue in exports. That is how the US has long handled parts of its own defence industrial base. Export demand helps sustain capacity between moments of crisis. India seems to have arrived at the same logic, but from the other direction. It seems that we built capacity not because we wanted to be export-ready, but out of fear.

MIL, now operating at greater scale, began receiving large export orders for artillery shells. Indian-made ammunition started reaching European buyers. As per Reuters, Indian-made shells were reaching Ukraine through European intermediaries, including Italian and Czech companies. India did not sell directly to Ukraine, and said it was monitoring the matter, but it also did not officially announce a move to shut the trade down.

Estonia’s defence minister also spoke publicly about Indian companies setting up ammunition manufacturing lines in his country. Indian firms building shell capacity inside a NATO member state was likely not even a plausible conversation before the breakup of the OFB.

That is a much bigger shift than a headline export number might suggest. It means India is not just buying less from abroad in some categories. It is starting to matter as a supplier in a market that has become tight, urgent and global.

Why markets care now

The export record from earlier this month is one reason defence is back in focus ahead of Q4 FY26 results. The bigger point is that the sector now has the things markets care about in this stage of a story. It has large order books, a visible procurement pipeline, and a state that is still directing serious capital toward domestic suppliers.

For instance, in February 2025, Solar Industries disclosed a ₹6,084 crore Ministry of Defence order for Pinaka rockets. By its most recent earnings call, the company said its defence order book had reached about ₹18,000 crore and that quarterly defence revenue had crossed ₹700 crore. On its FY25 results call, it had guided for ~₹3,000 crore of defence revenue in FY26.

Bharat Forge works on the weapons-platform side of the same rearmament cycle. In March 2025, the Ministry of Defence signed contracts worth about ₹6,900 crore for the Advanced Towed Artillery Gun System, or ATAGS, and its towing vehicles, with Bharat Forge as one of the key suppliers. A few months later, the company also figured in the ₹2,770 crore contract for more than 4.25 lakh close-quarter battle carbines for the Army and Navy. This shift in India’s defence sector is also driving ammunition indigenisation, there is demand for the guns, vehicles and infantry systems that sit around it.

The industrial story is broader than the listed one. A meaningful share of India’s ammunition capacity still sits with public-sector and unlisted players, which means the market offers a window into the theme, but not the whole picture.

So what is next?

None of this means the story should be romanticised. India still imports a lot of defence equipment. Procurement in defence remains state-led and can be lumpy. Export flows can be politically sensitive. And strong order books do not automatically translate into clean execution.

But the broad change is hard to miss. A decade ago, ammunition was mostly a readiness problem and an institutional embarrassment for India. Today, it is also an industrial category. It has policy support, private capacity, export relevance, and listed companies with enough exposure for markets to care. The next phase will depend on whether India can move beyond licensed production and import substitution into deeper design control, stronger technology ownership, and repeatable export capability.

Tidbits

1. Wipro announces Rs 15,000 crore share buyback offer at 19% premium.
   IT services giant Wipro announced a significant Rs 15,000 crore share buyback at Rs 250 per share, a 19% premium over the last closing price. This marks the company’s first buyback in over three years, involving up to 60 crore shares, representing 5.7% of its paid-up capital. Promoters have indicated their intention to participate in the tender route buyback.
   Source: Economic Times

2. India’s Wholesale inflation rose to a 38-month high of 3.88 percent in March, up from 2.13 percent in the previous month, driven by a surge in crude and energy prices as well as firmer manufactured products, government data released on April 15 shows.
   Source: Moneycontrol

3. India’s agriculture sector may face a challenging year ahead amid concerns over weak monsoon, possible El Nino conditions, and fertilizer supply risks linked to the West Asia conflict, according to a report by ICRA.
   Source: HinduBusinessLine

- This edition of the newsletter was written by Manie and Aakanksha.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #7

Hi folks, hope you’ve had a great week…

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16 days ago · 11 likes · 1 comment · Zerodha

Deepak Shenoy on what’s happening with the rupee

Over the past few weeks, the rupee has been moving in ways that aren’t easy to explain. While higher oil prices and rising dollar demand tell part of the story, there’s a more technical layer beneath it. We spoke to Deepak Shenoy to break it down—especially the role of the offshore NDF market. It’s a conversation about arbitrage, RBI intervention, and why the rupee has been so erratic lately. More importantly, it raises a bigger question: are these fixes solving anything at all?

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Delhi shifts gears on its electric gamble

2. What’s happening in India’s loan bazaar?

Delhi shifts gears on its electric gamble

Delhi has a vehicle problem.

As of March 2026, India’s capital city has 87.6 lakh registered vehicles. As per a report by CSE, of all the pollution Delhi generates locally (as opposed to what blows in from surrounding regions), those vehicles account for over half.

Why that matters is because while Delhi can’t control crop-burning in Punjab or dust storms from Rajasthan, it can control what comes out of tailpipes on its own roads. Arguably, transport is the biggest lever the local government can actually pull to control pollution.

So, partly to respond to this problem, Delhi just announced a new draft EV policy.

If it passes through, it would be one of the most aggressive urban EV transitions attempted anywhere in India. Not because the subsidies are extraordinary, but because the policy is the equivalent of someone putting their foot down. Simply, it sets hard deadlines after which you simply cannot register a new petrol or diesel vehicle in key categories.

To understand how we got here, we need to go back a few years first.

From incentives to mandates

This isn’t Delhi’s first EV policy — that was notified nearly 6 years ago.

Its goal was ambitious: EVs should make up 25% of all new vehicle registrations by 2024, and Delhi would become the EV capital of India. The approach was built on providing sweeteners for adoption, like subsidies to buyers, road tax waivers, scrappage incentives, and so on. It included a State EV Fund, which would be financed through pollution cesses and additional road taxes on petrol and diesel vehicles.

Since then, Delhi has 4.7 lakh registered EVs — about 5.4% of its total vehicle stock. EVs accounted for about 12.7% of new vehicle registrations in FY 2025–26. That’s a 29% jump in absolute numbers from the previous year, and well above the national average of around 8%. The city also consumes more electricity at public charging stations than any other state, and roughly a quarter of national public charging consumption.

Clearly, the policy was not a complete failure. But progress was much slower than envisioned.

After all, petrol and petrol-ethanol vehicles still held ~73% of new registrations in FY26. In the overall stock, ~95% of Delhi’s vehicles are non-EV.

The ticking clock

Where does the 2026 policy differ from the original? Well, mainly, the policy doesn’t just involve handing out carrots — it also involves sticks. In other words, it’s making a switch to EVs more mandatory.

The policy rolls out deadlines segment by segment, starting with the groups that put the most kilometres on the road every day.

The first wall comes for delivery and aggregator fleets. Delivery and ride-hailing vehicles (like Zomato scooters or Uber cabs) clock far more kilometres per day than a personal car or scooter. A delivery rider might do 80–100 km a day, while a personal commuter might do 15. Even a small fleet, in emissions terms, punches above its weight.

So, the policy basically bars any standard petrol or diesel vehicles to be inducted into existing fleets — be it two-wheelers, light commercial vehicles, or N1 goods carriers. A small exception was made for the BS-VI category of two-wheelers.

Then, the policy moves to three-wheelers. Starting 2027, three-wheeler registration in Delhi becomes effectively EV-only. This deadline directly impacts Delhi’s auto-rickshaw drivers. The CNG auto, which itself was once the clean alternative to the diesel three-wheeler, will have to begin its exit from new registrations. Existing CNG autos, though, don’t have to come off the road overnight.

And then, the policy targets everyday commute.

Starting April 2028, only electric two-wheelers can be newly registered in Delhi. Two-wheelers form the largest chunk of Delhi’s total vehicle stock at 67%. They are the default mode of transport for millions of middle-class commuters, students, and small business owners. Banning new petrol two-wheeler registrations is, in scale terms, the boldest bet the policy makes.

To be clear, none of these deadlines force people to scrap their existing vehicles. If, for instance, you already own a petrol scooty, you keep it. But if you’re buying new after these dates, electric is your only option.

Money on the table

The draft doesn’t just set deadlines, though. It tries to shape how and when people switch, who switches first, and what they switch out of.

For instance, take how the purchase subsidies are designed. For electric two-wheelers priced under ₹2.25 lakh, the incentive falls sharply over three years — ₹10,000 per kWh (capped at ₹30,000) in Year 1, dropping to ₹6,600 in Year 2 and ₹3,300 in Year 3. The path is deliberately structured in a way to not be gradual, but more sudden. The message to consumers is to switch early, or pay a dearer price later.

A similar logic repeats across segments. Electric three-wheelers, for instance, get ₹50,000 in Year 1, tapering to ₹30,000 by Year 3. Goods carriers see the highest support, up to ₹1 lakh in the first year. The draft even targets school buses. Vehicles that run the most kilometres clearly get steeper slopes.

Then comes the second layer: scrappage, which also provides a sweetener, but with some tight strings attached.

If you scrap a BS-IV or older vehicle at an authorized facility, you get an additional incentive — ₹10,000 for two-wheelers, ₹25,000 for three-wheelers, ₹50,000 for goods vehicles, and so on. But the benefit is heavily conditioned with three criteria:

1. You will compulsorily need a Certificate of Deposit from the scrapper, without which you won’t receive any incentive.

2. You must buy the new EV within six months of that

3. The payment only goes to the registered owner via direct benefit transfer.

Put together, the financial design does three things at once: it pulls demand forward through tapering subsidies, targets high-impact segments where emissions reductions are largest, and uses scrappage to make holding on to older vehicles economically irrational.

Beyond subsidies, the draft proposes a 100% exemption on road tax and registration fees for all electric vehicles registered during the policy period — but with an important limit for cars. Electric cars priced up to ₹30 lakh (ex-showroom) get the full waiver until March 31, 2030. Above that, you pay full tax. In effect, this ensures that the subsidy primarily goes to middle-class buyers, and not the luxury segment.

There’s also a notable addition for strong hybrids — vehicles that combine a petrol engine with an electric motor and can run short distances on battery alone. The draft proposes a 50% reduction in road tax and registration fees for strong hybrid cars priced under ₹30 lakh.

Plugging into the grid

Now, this elaborate carrot-and-stick approach will only work if people can actually charge their EVs. The fear that you’ll run out of battery with no charger in sight is still a major barrier to EV adoption in India. The draft is cognizant of this and does try to tackle it.

One of the most notable requirements in the policy is that every OEM operating in Delhi must ensure at least one public EV charging station per dealer. There’s a minimum of three charging points for two and three-wheelers and two charging points for four-wheelers. Dealerships are already spread across the city and are natural places for people to stop and charge. This puts the onus on OEMs and dealers to be part of the solution, not just sellers of vehicles.

Beyond dealerships, the draft requires that all new civil infrastructure projects under the Delhi-NCR government must be EV-charging-ready, with adequate electrical capacity to enable charger installation. Land-owning agencies must periodically identify land parcels for charging and swapping deployment. The 2020 policy had already required that 20% of parking capacity in new buildings be EV-ready; the 2026 draft expands this to government infrastructure across the board.

On the coordination side, the draft assigns Delhi Transco Limited (DTL) as the nodal agency for the entire public charging and swapping network. It is tasked with assessing current and future EV charging load and coordinating power procurement with the power discoms.

But hardware and coordination are only part of the puzzle. The grid itself needs to be ready. If hundreds of thousands of EVs plug in every evening after work, that’s a spike in demand right when the grid is already under pressure.

To address that, the Ministry of Power’s 2024 EV charging guidelines encourage charging during solar hours. After all, charging at 2 PM, when solar generation is flooding the grid, should cost less than charging at 8 PM when everyone’s running their ACs. The Centre’s amendments to the Electricity (Rights of Consumers) Rules introduced Time-of-Day tariffs: electricity during solar hours should be 10–20% cheaper, while peak-hour rates should be 10–20% higher. Delhi’s regulator, DERC, has already engaged with ToD structures.

For apartment dwellers, though, the picture is more complicated. Delhi’s 2020 policy pushed for DISCOM-facilitated installation of private charging points, and the Switch Delhi portal runs a single-window process for charger installation. But installing a home charger can mean upgrading your household’s sanctioned electrical load, coordinating with a DISCOM-approved vendor, and maybe even setting up a separate meter. Each step adds time, cost, and uncertainty.

On top of that, in apartment complexes, parking and wiring are usually shared, and decisions on shared infrastructure are often controlled by RWAs. Who pays for the wiring upgrade? Where does the charger go? Can others use it, and what happens if the RWA refuses permission? These are conflicts that the policy is yet to address.

What it all comes down to

As of March 2026, Delhi has over 3,100 charging stations and 893 battery swapping stations. A 2022 charging action plan had targeted 18,000 charging points by 2024 — by their own admission, they’re quite far behind.

Delhi’s draft EV Policy 2.0 is, at its core, a bet that a mixture of reward and punishment can do what incentives alone couldn’t. That could be a highly welcome approach. But its success will depend on a lot more than just a shift in framework. What also matters is whether chargers show up where people actually park, whether the grid can handle the load, and whether supply keeps pace with the demand the mandates will create.

If Delhi pulls it off, it could become the template for other Indian cities — and it is already one of the leading adopters of EVs in India. If it doesn’t, the lesson is just as clear: mandates without matching infrastructure are just deadlines that get pushed.

What’s happening in India’s loan bazaar?

Two rating agencies — CRISIL and CareEdge — released reports this week about India’s “securitisation market“. Those reports are filled with terms that, if you saw them in a headline, would probably make you scroll right past. Pass-Through Certificates. Direct Assignments. Asset-backed securitisation. Mortgage-backed securitisation. Priority Sector Lending Certificates.

We came across a similarly cryptic CRISIL headline last year at the same time — about ARCs and Security Receipts — and spent a whole piece decoding it. This time, we want to do the same thing. We’ll start from the very basics of what securitisation actually is, what all these acronyms mean, why they exist, and then get into what these reports are actually telling us about the health of Indian lending.

What does it mean to “securitise” a loan?

Here’s a simple way to think about what it means to securitize a loan.

Say an NBFC — let’s call it QuickLend — has given out 10,000 vehicle loans, each worth about ₹5 lakh. That’s ₹500 crore of loans sitting on its books, each of which will be repaid through monthly EMIs over the next five years. QuickLend has an asset — the right to receive those future EMIs — but it doesn’t have cash today. And it needs cash today, because it wants to lend more.

So, QuickLend does something clever. It takes those 10,000 loans, bundles them into a pool, and sells that pool to investors. Now, the total EMIs that will flow in over five years add up to more than ₹500 crore, because borrowers are paying interest on top of principal.

But investors aren’t going to pay the full future value upfront. They’re taking on the risk of some borrowers potentially defaulting, plus the money comes in over years rather than immediately. So they pay QuickLend a discounted upfront amount — say ₹480 crore — and in return, they get the right to collect those EMIs over the next five years.

The gap between what they pay now and what they collect over time is their return. QuickLend gets its cash, the investors get a stream of repayments that should earn them a decent yield, and everybody’s happy.

That’s securitisation. You’re taking a pool of loans and turning it into something that can be bought and sold. You’re making it into a security, hence the name.

In India, there are two ways securitization works.

The PTC route

The first route is a Pass-Through Certificate (PTC). Here, QuickLend transfers its ₹5,000 crore vehicle loan pool to a separate trust called a Special Purpose Entity (SPE). This SPE is legally ring-fenced from QuickLend’s business, and it issues securities in the form of PTCs to investors.

But, not all investors want the same deal. Some want safety above all else, and are okay with lower returns as long as they get paid. Others are willing to take more risk if the reward is higher.

So the trust doesn’t issue one single security, but does so in tranches. Think of a tranche like a building with floors. The top floor — the senior tranche — gets paid first from the EMI collections that flow in every month. As long as the pool performs even moderately well, these investors get their money. The ground floor — the junior or equity tranche — gets paid last after everyone above has been taken care of. But it also earns the highest return. If defaults arise, the losses eat into the ground floor first.

On top of this, the trust holds a cash buffer — a fixed deposit that acts as a cushion. And the loan pool is deliberately made larger than the securities issued against it. Remember QuickLend’s ₹500 crore vehicle loan pool? The trust might issue only ₹450 crore worth of PTCs against it. That extra ₹50 crore of loans is called overcollateralisation — it means that even if a bunch of borrowers stop paying, the remaining pool is still large enough to cover what investors are owed.

All of these protections together — the tranching, the cash buffer, the overcollateralisation — are collectively called “credit enhancements.”

The DA route

The second, simpler route is a Direct Assignment (DA).

QuickLend sells the loan pool directly to a buyer — almost always a bank — with no credit enhancements. The bank takes the loans onto its own books and bears the full credit risk. The RBI actually prohibits credit enhancements in DAs. They’re cheaper and faster to execute, which is why they’ve historically been popular. But because there’s no structural protection, only RBI-regulated entities (like banks) can be buyers.

In both cases, the original lender keeps collecting the EMIs and earns a “servicing fee”, while the borrower usually doesn’t even know the loan has changed hands.

In FY26, PTCs accounted for roughly 60% of all securitisation transactions — an all-time high — and DAs made up the remaining 40%. We’ll come back to why PTCs are gaining ground.

What if the loan is bad?

Everything we just described applies to borrowers who are paying their EMIs on time. Securitisation is a funding tool for good loans. But what happens when loans go bad and the loan becomes a non-performing asset (NPA)?

That’s a different market entirely — and one we covered in detail last year. When loans go bad, banks sell them to Asset Reconstruction Companies (ARCs), which issue Security Receipts (SRs). They represent the bank’s ongoing stake in whatever the ARC manages to recover. Unlike securitisation, where investors are buying a stream of healthy EMIs, SRs are a bet on whether a troubled borrower’s assets can be liquidated for anything at all.

So think of it this way: securitisation (PTCs and DAs) is for good loans being sold for funding. Security Receipts are for bad loans being sold for recovery. Same principle — loans being transferred from one entity to another — but entirely different risk profiles and buyers.

What India deliberately banned — and why

If some of this sounded familiar, it’s probably because you saw a movie called The Big Short.

The movie was about one of the causes of the 2008 global financial crisis. American banks made terrible mortgage loans to people who couldn’t afford them, packaged those loans into securities, and then did something truly reckless: they re-securitised those securities. They took pools of mortgage-backed securities, which were already a pool of loans, and bundled those into new instruments called Collateralised Debt Obligations (CDOs).

That’s not all. They created CDOs of CDOs, and then added more layers of securitization that we won’t go into the details of here.

Now, the RBI looked at that catastrophe and drew a hard line, banning re-securitisation as well as synthetic securitisation. Only simple, pass-through securitisation of actual performing loans is allowed. The originator must hold the loans for a minimum period before selling them (3-6 months depending on tenure), and must retain at least 5-10% of the pool, ensuring they have skin in the game.

The result is a market that deals in straightforward, granular retail loans — vehicle EMIs, gold loan repayments, microfinance instalments — rather than the multi-layered, opaque structures that added fuel to the fire that was the global financial system.

What the FY26 data tells us

Now that we have the vocabulary, let’s get into what CRISIL and CareEdge are saying.

India’s securitisation market hit an all-time high of approximately ₹2.55 lakh crore in FY26. For context, this market was ₹1.13 lakh crore just four years ago in FY22 — it’s more than doubled.

But the headline number matters less than what’s underneath it. Three shifts stand out.

First, NBFCs have taken over the market. NBFC-originated deals accounted for 97% of all securitisation in FY26, up from 74% the year before. Bank originations collapsed from 26% to just 3%. This was overwhelmingly driven by one institution — HDFC Bank — which had aggressively securitised loans in FY25 to manage its post-merger balance sheet. That’s when it had absorbed huge amounts of advances, but little to no deposits from HDFC, causing the credit-deposit ratio to spike. So HDFC started to securitize its book, to release some funds, and once its credit-deposit ratio normalised, it pulled back almost entirely, and no other bank filled the gap.

For NBFCs, securitisation is how they fund themselves. Unlike banks, they can’t (mostly) take cheap deposits. They borrow from banks and capital markets at 1-3 year tenures, but lend at 5-7 years (or longer for housing). Securitisation solves this mismatch by converting future loan repayments into upfront cash. When the RBI raised risk weights on bank lending to NBFCs in November 2023, making bank credit more expensive, securitisation became even more critical.

Second, gold loan securitisation came out of nowhere. In FY25, gold-loan-backed deals were barely a blip. But in FY26, they surged to 15% of the market, becoming the second-largest asset class behind vehicle loans. Gold loan disbursements had been rising sharply, up 94% year-on-year in Q3 FY26 alone, driven by rising gold prices and tighter unsecured lending norms.

For investors, gold loan pools are close to ideal. The collateral is liquid, easily valued, and physically held by the lender. Loan tenures are typically under 12 months. If a borrower defaults, the lender auctions the gold — recovery is near-certain. These pools don’t even need PTCs; most gold loan securitisation happens through the simpler DA route, because the collateral itself is protection enough.

Third, microfinance (MFI) investors demanded structural armour. MFI loans held steady at ~12% of the market. But how they were securitised changed dramatically. The share of MFI deals going through the PTC route jumped from 30% to 69% in a single year.

That’s because the sector had just come off its worst asset quality cycle in years. Gross NPAs roughly doubled across the industry in FY25. Investors who’d been comfortable buying MFI pools through simple DAs got burned. They didn’t ever stop buying either, but they now demand the credit enhancements that PTCs provide. Investors want to stay, but on different terms.

Why banks are buying all of this

If NBFCs are selling these loan pools, who’s buying them? Well, that’s mostly banks, and not entirely voluntarily.

See, the RBI requires all commercial banks to lend 40% of their credit to “priority sectors“, like agriculture, MSMEs, housing etc.. Miss the target, and you must park the shortfall in a fund at NABARD earning returns that are below market lending rates. The problem is that priority sector borrowers are exactly the customers NBFCs reach well and banks don’t. So banks buy securitised pools of these loans from NBFCs, getting both a performing asset and meeting the priority sector criteria.

But there’s another way to do that: Priority Sector Lending Certificates (PSLCs). If Bank A has excess agricultural lending and Bank B is short, Bank B buys a PSLC from Bank A. There is no transfer of assets or loans. Bank B just gets the PSL “tag” for that year.

But, you might ask, why would a bank buy a securitised pool when it could just buy a PSLC? Well, a PSLC is a pure expense — you pay a fee and get nothing but compliance. A securitised pool, meanwhile, also gives you a decent yield along with compliance. For a bank with surplus liquidity, it’s an obviously better deal.

What does this market tell us about Indian lending?

Securitisation data is, in a sense, a health monitor for India’s credit plumbing. When volumes rise sharply, it can mean NBFCs are being squeezed on other funding channels. When investors shift from DAs to PTCs, it means they’re nervous about asset quality. When gold loan pools surge, it tells you something about how households are borrowing. When bank originations collapse because one institution pulls back, it tells you the market is still dangerously concentrated.

The FY26 numbers tell us that India’s securitisation market is maturing. The originator base broadened from 175 to over 190 entities, with the top 20’s share falling from 71% to 65%. The market is learning to price risk more intelligently, demanding structural protection where asset quality is uncertain and staying simpler where collateral is strong. NBFCs have permanently absorbed securitisation into their business-as-usual operations.

India has built a ₹2.55 lakh crore loan bazaar with strong guardrails and few glaring systemic risks. The question now is whether it can build the depth and liquidity to match the ambition.

Tidbits

1. India’s unemployment hit a five-month high of 5.1% in March as per PLFS. Urban areas experienced a notable increase in joblessness, contributing to the rise in the overall unemployment figure. Women continue to face greater unemployment challenges than men, while the youth demographic also showed a troubling uptick in joblessness.
   Source: Economic Times

2. The 2026 summers are set to beat the heat record of 2024. The India Meteorological Department (IMD) has issued official heatwave warnings for isolated pockets in central and eastern India starting mid-April 2026.
   Source: Business Today

3. Ohio-based defense manufacturer GE Aerospace and India’s state-owned Hindustan Aeronautics Limited have reached an agreement on technical matters for co-production of F414 engines, the two companies said in a joint statement issued earlier this week. The deal has been in the works for about three years and brings the partners closer to production.
   Source: Business Standard

- This edition of the newsletter was written by Vignesh and Kashish.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #7

Hi folks, hope you’ve had a great week…

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16 days ago · 11 likes · 1 comment · Zerodha

Deepak Shenoy on what’s happening with the rupee

Over the past few weeks, the rupee has been moving in ways that aren’t easy to explain. While higher oil prices and rising dollar demand tell part of the story, there’s a more technical layer beneath it. We spoke to Deepak Shenoy to break it down—especially the role of the offshore NDF market. It’s a conversation about arbitrage, RBI intervention, and why the rupee has been so erratic lately. More importantly, it raises a bigger question: are these fixes solving anything at all?

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

That’s when we reached out to Phillip Capital, who walked us through everything. This article is based on that conversation. It was originally published on .

Subtext by Zerodha

GIFT City, Explained: What We’ve Learned Running a Fund There

Hi, I’m Kashish. GIFT City keeps coming up in conversations among colleagues, in the news, on investor forums but most of the coverage stays at the policy level. I wanted to understand how it actually works from the perspective of someone running money through it. Specifically, the wealth management side with details about onboarding, fund structures, t…

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12 days ago · Zerodha and Ankush Datar

You can also listen to it on Spotify or Apple Podcast.

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We, through our presence in GIFT City, namely, Phillip Ventures IFSC Pvt. Ltd , run the Phillip India Billion Opportunities Fund, an open ended CAT-III AIF for onboarding NRI and foreign national clients for investments into India and our firm also runs a Global PMS managing outbound investments as well.. Here’s what we’ve learned, stripped of the jargon.

Why does GIFT City even exist?

The short version: India didn’t have its own offshore financial jurisdiction. For decades, if large foreign capital wanted to enter India — or if Indians wanted to invest globally — the investments had to be made through Mauritius, Singapore, Luxembourg, or Dubai. Those jurisdictions offered something India’s domestic system simply couldn’t — a single-window, low-friction way to move capital.

If a foreign investor wanted to invest directly into India, they’d have to apply for a PAN card, register as an FPI, open local bank accounts, and start filing Indian tax returns. For an NRI, it meant getting an OCI card, opening NRE/NRO accounts and setting up a PIS account. This is a maze of paperwork across multiple regulators. Most foreign capital looked at that and routed through Mauritius or Singapore instead, where the fund structures were simpler, onboarding was faster, and the regulatory interface was a single entity rather than a patchwork of coordinating with multiple regulators and authorities.

GIFT City wanted to solve that. It was originally the brainchild of Mr. Modi during his time as Chief Minister of Gujarat. When he became Prime Minister, it took real shape. The idea was straightforward — why should India’s financial gateway sit in someone else’s country?

Think of GIFT City as India’s answer to the DIFC in Dubai or the financial centres of Singapore and Mauritius. It sits physically between Ahmedabad and Gandhinagar, but legally, it operates as a Special Economic Zone with its own regulator — the IFSCA (International Financial Services Centres Authority). Though technically on Indian soil, it functions as an offshore jurisdiction.

The real problem it solves

Forget the grand narrative for a moment. The single biggest thing GIFT City does is eliminate friction.

Let us give you a concrete example from our own business. At Phillip Capital, over 30% of our PMS assets under management comes from NRI clients. To onboard an NRI through the traditional domestic route, the process takes 30 to 45 days . As we shared earlier, the client needs a PAN card, an OCI card, a savings bank account, a PIS account, a trading account, a demat account, and finally a PMS account. That’s 50 to 60 signatures across forms. If someone signs in blue ink one time and black the next, the bank rejects it. It’s a grind.

Through our GIFT City fund? Onboarding takes two to three days. No PAN card needed. No OCI card needed. No PIS account. Minimal documentation. For second and third-generation NRIs who may not even hold an OCI card, this is a game-changer.

Now scale that logic to a foreign national, say, someone sitting in London or New York who’s bullish on India. Before the inception of GIFT City, they would need to register as an FPI, get a PAN card, open local bank accounts, and start filing Indian tax returns when choosing a route to invest. Most of them look at that and say: why bother? In contrast, through a GIFT City fund structure, all of that goes away. The fund handles the operational complexity. The investor just invests.

Adding to that, in India, you need to deal with multiple regulators & authorities. In GIFT City, there’s one unified regulator: IFSCA. For operators like us, that alone simplifies life furthermore.

What’s encouraging is that IFSCA has been proactive. They’ve been allowing innovation for new products, new regulations, and studying global best practices. They’re stringent — they don’t want GIFT City to earn a bad reputation — but they’re also pragmatic and forward-looking. The traction from global banks, family offices, and domestic fund houses setting up shop there is the proof of things going well. After recent geopolitical events in the Middle East, we even saw a rush of NRIs wanting to open a bank account in GIFT City as a safer alternative.

One more operational advantage worth mentioning is cost. Setting up a fund in, say, Singapore or Mauritius means paying legal counsel in dollars. Skilled manpower is expensive and harder to access. But, GIFT City, being in India, brings all of those costs down significantly while still operating under the highest international standards.

Money going out: The outbound story

For Indian residents wanting global exposure, GIFT City has opened doors for investors to invest globally through regulated fund management entities in India, which was not possible earlier due to there being no platform for the fund managers to set up shop.

Before GIFT City, your options were limited. You could invest in a domestic mutual fund that ran an international fund-of-fund — say, a Nasdaq ETF or a Hang Seng fund. That worked until the RBI’s aggregate industry limits were breached, after which many fund houses stopped accepting fresh inflows into international schemes. Or, if you had serious money — $100,000 or $200,000 — you could open an account in Singapore or the US directly. For smaller amounts there were limited avenues.

GIFT City changes that.

Through our platform, for example, we now offer access to US-listed equities. Even with $5,000 or $10,000, you can start building a global portfolio. Previously you would have to open an account with a broker who would be having a third party arrangement with an external broker to give you access to the global markets. LRS limits still apply though — you’re capped at $250,000 per person per year for remittances — but those limits are generous enough for most individual investors.

And since your investments in GIFT City are denominated in dollars, you automatically get a currency hedge. The Indian rupee has historically depreciated against the dollar by roughly 3-4% annually on average — and over the last 15 months, the depreciation has been steeper. That tailwind adds up over time.

Beyond individual stock access, the fund management ecosystem is growing as well

Let us explain. Say, an Indian AMC sets up a fund in GIFT City, and that fund — the “feeder” — pools investor money and channels it into a larger global fund or directly into overseas securities. As an investor, your experience feels familiar, since you’re investing in a fund run by a brand you recognize, in a regulated setup. But behind the scenes, your money is being deployed globally through GIFT City’s infrastructure. It’s essentially the same idea as the Nasdaq or S&P fund-of-funds that domestic AMCs used to run, except it’s domiciled in GIFT City instead of onshore India.

And that distinction matters, because unlike domestic fund-of-funds, these aren’t subject to the same RBI industry-wide caps that forced so many international schemes to stop accepting fresh money. And as the ecosystem matures, investors should expect thematic exposure too, not just broad S&P 500 or Nasdaq funds, with narrower slices like AI, cloud computing, or medical devices that don’t have listed equivalents in India.

Money coming in: The inbound story

Local AMCs have been especially active because they already have NRI client bases and are now offering these clients a far smoother onboarding and investment experience through GIFT City structures. As we explained in the start of the article, there are multiple operational benefits for a foreign national or NRI to choose the GIFT city route to invest.

The vehicles being used are primarily AIFs — Category I, II, and III. We specifically run a Category 3 III open ended AIF. Global family offices are also increasingly setting up in GIFT City, drawn by the presence of global banks, the regulatory clarity, and — frankly — by how well India’s growth story is selling internationally right now, especially with recent valuation corrections making the market more attractive.

A practical advantage for inbound investors currently is reporting. When an NRI invests through our domestic PMS, we report returns in rupee terms. But the client remitted dollars. If the rupee depreciates between the time they invested and the time they exit, their dollar-denominated return is lower than what our INR reporting shows. This creates confusion.

Through our GIFT City fund, the NAV is published in dollar terms, post-tax, post-expenses. What you see is what you actually earned. No mental currency gymnastics.

The Tax Reality

This is the single biggest misconception we encounter, and we partly blame WhatsApp University for it. GIFT City is not tax-free.

If you’re an Indian resident investing through a GIFT City fund into global securities, you still owe capital gains tax in India. You must report your income and pay up, same as any other investment. What is different though, is that there’s no GST on management fees and other charges levied within GIFT City. That’s some savings for investors, but it’s not “zero tax.”

For NRIs, the advantage is more tangible. When an NRI invests directly in Indian stocks, TDS gets deducted by the bank, and they must file Indian tax returns at year-end. Through a GIFT City fund, the fund itself handles Indian taxation at the fund level. The NRI investor doesn’t need to file returns in India, but file in their country of residence.

If that country is the UAE, where there’s no capital gains tax, they effectively pay only the Indian tax at the fund level and nothing more. If they’re based in any other country, where for example the short-term capital gain tax is 25%, and the Indian tax already paid at the fund level is 20%, they only owe the 5% differential in that country as India has DTAA with several countries. This is just a broad example of how it works and clients should consult with their tax advisors for a more granular understanding.

So, Should You, a Retail Investor, Care?

Yes, but with a caveat.

We always tell our clients: it’s not India or global. It’s India and global. Over the last 15-18 months, global markets have significantly outperformed Indian markets. That’s a reminder of why diversification matters.

GIFT City gives you a regulated, accessible vehicle to get that global exposure. You can open a bank account there, hold assets in dollar terms, and invest in a growing range of funds and direct equity options. For retail investors, the mutual fund feeder route through GIFT City is probably the most practical starting point, especially since many domestic international fund schemes remain closed to new inflows.

But don’t go overboard. A small, consistent allocation to global assets is the right approach. The temptation to shift everything offshore when global markets are running is a mistake. Think of it as diversification, not a switch.

The proof of concept is established, the volumes are growing across products, and the regulator has earned credibility. There have been talks of some companies even setting up their IPOs through GIFT City. For anyone — NRI, foreign national, or Indian resident — looking to move capital in or out of India through a regulated, low-friction, cost-efficient structure, it’s the most compelling option available today.

Nishit Shah is Principal Officer & Vice President PMS at Phillip Capital India Pvt. Ltd. and has been with the firm for over 10 years. Ankush Datar is part of Nishit’s team, working in the PMS team and assisting in fund management, for over 7 years at Phillip Capital.

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. India leaps to split the atom

2. The imbalances that make up world trade

India leaps to split the atom

Everything in the universe is made of atoms. An atom has a core called a nucleus, built from smaller particles: protons and neutrons. In most elements, the nucleus holds together just fine. But in very heavy elements like uranium, it’s so packed that it’s barely stable. Fire a neutron at it and the nucleus can split apart. This is nuclear fission.

When a uranium atom splits, two things happen. It releases a huge amount of energy as heat, millions of times more, atom for atom, than burning coal. And the splitting nucleus flings out two or three spare neutrons, which fly off and hit other uranium atoms, splitting them too, releasing more energy and more neutrons.

This is a chain reaction. If it keeps going on its own, without outside help, the reactor has achieved what physicists call criticality.

On Sunday 9th April, inside a reactor hall on the coast of Tamil Nadu, the Prototype Fast Breeder Reactor (PFBR) went critical.

This is a big deal. The fast breeder is the hardest type of nuclear reactor to build and operate. The United States spent decades on the technology and gave up. France built the most ambitious one ever attempted and abandoned it. The UK, Germany, Japan, Italy: all walked away after sinking billions. Only Russia has kept one running for any sustained period.

India has now become the second country to bring a commercial-scale fast breeder to criticality, and once the PFBR is fully operational, it will be only the second in the world to generate electricity from one.

Understanding why India pursued this technology when everyone else quit requires going back to the 1950s, to a physicist who looked at a geological map and saw a problem that would shape the country’s energy policy for seven decades.

Uranium and its isotopes

But before that, let’s briefly dive into how nuclear reactors work.

Most nuclear reactors run on uranium. You put uranium fuel in a reactor, the chain reaction produces enormous heat, the heat boils water into steam, the steam spins a turbine, and the turbine generates electricity. Conceptually, it’s not that different from a coal plant — except a kilogram of uranium contains roughly two million times more energy than a kilogram of coal.

But not all uranium is equal. It comes in two forms, called isotopes. Think of them as siblings: same element, slightly different weight. Uranium-235 has 235 particles in its nucleus, uranium-238 has 238.

That small difference changes everything. Uranium-235 is unstable enough that a neutron can split it easily, releasing energy and more neutrons to keep the chain going. It’s what reactors need. But it makes up less than 1% of natural uranium. The other 99% percent is uranium-238, which is far more stable. It doesn’t split when you hit it with a neutron, rendering it fairly useless for a conventional reactor.

India holds about 3% of the world’s known uranium reserves. If it had copied the nuclear playbook of the US or France, it would have built reactors it couldn’t fuel without importing uranium forever. Which is essentially the situation today: India imports over 70 percent of its uranium, mostly from Kazakhstan and Russia.

But India has something else. The monazite sands along the coasts of Kerala and Odisha are rich in thorium. India holds ~25 percent of the world’s known thorium reserves — enough, by some estimates, to generate 500 GW of electricity for four hundred years.

However, thorium doesn’t work like uranium-235. You can’t put it in a reactor and split it. When you fire a neutron at thorium, it absorbs the neutron, and then, over a few weeks of radioactive transformations, it turns into a completely different element: uranium-233. And uranium-233 does split, making it excellent reactor fuel.

But you need a working reactor to perform this conversion in the first place. You can’t start with thorium. You have to work your way there. At least, that’s what Homi Bhabha did.

The Three Stage Nuclear Programme

Homi Bhabha, the physicist who founded India’s atomic energy programme, saw this in the 1950s. He designed a three-stage nuclear programme, a relay race where each generation of reactors produces the starting material for the next.

In the first stage, natural uranium is burned in conventional reactors. While the reactor runs, some uranium-238 in the fuel absorbs stray neutrons and slowly transforms into plutonium, a man-made element that, like uranium-235, can be split to produce energy. India has been running stage 1 reactors for decades.

The second stage uses that plutonium in a fast breeder reactor, which is the core of our story. This reactor does something no conventional reactor can — it produces more fuel than it consumes. And it can convert thorium into uranium-233.

Then, in the final stage, thorium reactors running on uranium-233 are built. India is less dependent on uranium imports as a result. It’s running on fuel made from its own beaches.

However, each stage feeds the next. Not a single one of them can be skipped. And we are now at Stage 2.

Science non-fiction

A reactor that produces more fuel than it burns sounds almost out of science fiction. The magic trick is in what happens to the spare neutrons.

See, when a uranium atom splits, it releases two or three neutrons. Only one is needed to split the next atom and keep the chain reaction going, while the rest are surplus. In a conventional reactor, those surplus neutrons go to waste.

However, a fast breeder puts them to work. The reactor core is surrounded by a “blanket” of uranium-238. Surplus neutrons fly into this blanket, get absorbed by uranium-238 atoms, and convert them into plutonium fuel. If designed well, the blanket creates more new fuel than the core burns. Load thorium into the blanket instead, and the surplus neutrons convert it into uranium-233.

But this trick only works with fast neutrons, the high-energy kind that come straight out of a fission reaction. And this is where the engineering nightmare begins.

In conventional reactors, the coolant is water. Water carries heat away from the core, but it also slows neutrons down. Think of it this way: when a neutron hits a water molecule, it’s like a billiard ball hitting another ball of similar weight, transferring energy. In a conventional reactor, this is useful, because slow neutrons are actually better at splitting uranium-235.

But in a breeder, slow neutrons can’t convert uranium-238 or thorium into new fuel efficiently. The breeding ratio collapses. You need the neutrons fast. So you need a coolant that carries heat without slowing them down.

The answer to that conundrum is liquid sodium. When a neutron hits a sodium atom, it’s like a billiard ball hitting a bowling ball. The neutron bounces off without losing much speed. Sodium also transfers heat brilliantly and operates at low pressure. The PFBR circulates 1,750 tonnes of it.

But sodium is not an easy element to handle. It is one of the most reactive elements on Earth. It reacts and starts exploding when it comes to contact with water or even air. Now imagine 1,750 tonnes of it circulating inside a reactor that also needs water to generate steam. The sodium and water are separated by thin metal walls in the steam generators. If a wall cracks, they meet.

To buffer this, breeders add an intermediate sodium loop: radioactive sodium from the core transfers heat to a second circuit of clean sodium, which then heats the steam generators. It’s a safety layer, but it also means more plumbing, more welds, and more places for sodium to leak into the air and catch fire.

This is the reason most fast breeder reactors ever built were abandoned.

Failures all across the world

Take, for instance, France’s Superphénix, the world’s first commercial-scale breeder. It went critical in 1986, but was fully abandoned in 1998. In that span, it spent more than half the time being shut down.

Japan’s Monju, meanwhile, reached criticality in 1994, but shut down 14 months later after a sodium leak caused a fire. It didn’t restart for fifteen years, and when it did, it shut down again after 3 months when refueling equipment collapsed into the reactor vessel. In the 2 decades of its existence, it was only truly operational for 250 days, while costing ~$12 billion.

Germany’s Kalkar breeder was never commissioned. The site is now an amusement park. Russia’s BN-600, the world’s longest-running breeder, kept going, but only because its operators tolerated conditions that would have shut reactors elsewhere, suffering 27 sodium leaks and 14 sodium fires between 1980 and 1997 alone.

Nuclear physicist Thomas Cochran summarised the record: fast reactor programmes had failed in the US, France, the UK, Germany, Japan, Italy, the Soviet Union, the US Navy, and the Soviet Navy. Globally, an estimated $100 billion had been spent.

What next?

The Indian PFBR’s own history fits the pattern of delays, if not outright disaster. Construction began in 2004, with a completion target of 2010. That was missed and pushed to 2013-14. Yet again, the new target was missed. From then on, the Department of Atomic Energy announced “next year” every year. Costs more than doubled from the original ₹3,500 crore budget to nearly ₹8,200 crore.

The final stretch raised questions. In March 2024, Prime Minister Modi visited Kalpakkam and announced that fuel loading had begun. But the Atomic Energy Regulatory Board hadn’t yet given clearance — that only came four months later. Full fuel loading started in October 2025. Criticality came on April 6, 2026, 22 years after construction began.

Criticality means the chain reaction sustains itself. It does not mean the reactor is generating electricity. The PFBR must still complete low-power experiments, secure further AERB approvals, connect to the grid, and demonstrate sustained commercial operation. This is the stretch where Superphénix and Monju fell apart.

Today, nuclear power is 3% of India’s electricity. The PFBR adds 0.5 GW, which is about the same as one large coal plant. The target is 100 GW by 2047, a twelve-fold increase.

More breeders are planned at Kalpakkam, but construction hasn’t started. The SHANTI Act, passed in December 2025, opened nuclear to private companies for the first time. But current policy discussions have focused on conventional and imported reactor designs, rather than fast breeders. The breeder programme remains under the Department of Atomic Energy, running on its own timeline.

Meanwhile, China is approaching the thorium problem from a different direction entirely. In 2025, it built the world’s first experimental thorium molten-salt reactor, using molten fluoride salts instead of sodium. If that approach works at scale, China could reach the thorium endgame faster and without the sodium risk that has wrecked breeder programmes worldwide.

There’s no way to tell whether Homi Bhabha’s bet would ever pan out. But for a dream that was riddled by failures even in the richest of countries, India’s achievement is certainly a worthwhile inflection point for nuclear energy.

The imbalances that make up world trade

Global imbalances had been healing, slowly but steadily, for most of the decade after the 2008 financial crisis. Then they started widening again.

Some countries consistently spend more than they earn. Others consistently earn more than they spend. The gaps that result — surpluses and deficits flowing across borders in the form of capital, goods, and services — are as old as modern trade. The position of various countries maintaining surpluses or running deficits has always changed.

In and of itself, a surplus or deficit isn’t bad. But what’s unusual about the present moment is the scale and the persistence. The US now runs a current account deficit worth ~4% of its GDP. The US, China, Germany, and Japan together account for about two-thirds of all global imbalances. And these positions have become stickier over time: the average duration of a surplus or deficit spell has roughly doubled since the 1980s.

Against this backdrop, the IMF published a policy paper recently. It attempts to dive into the core of what drives global imbalances and what kinds of policies can actually resolve them.

A useful way to think about it

To understand what drives imbalances, economists typically start with a simple accounting identity: a country’s current account balance equals its national saving minus its domestic investment. We won’t get into the math of it, but we’ll try and explain what it means intuitively.

Say a country imports more than exports goods. How does it finance those net imports? It could either borrow from abroad, attract foreign investment, or sell assets. In effect, capital inflows, or investments, increase relative to savings.

Similarly, if you have an export surplus, what do you do with the money you have? You’re more likely to save it, lend it to others, or invest elsewhere. Your own economy might not be able to absorb all of it — meaning that savings is relatively higher than investment.

Through this lens, Japan’s persistent export surplus reflects high corporate savings with subdued domestic investment in comparison. Meanwhile, the US runs the world’s largest trade deficit, reflecting household dissaving and strong investment demand.

Essentially, the current account and capital account are mirror images of each other. And trade in goods and services is the biggest driver of current account balances.

If a country imports more than it exports, the difference ideally has to be financed by capital coming in from abroad — and vice versa. Causation can therefore run in both directions. American dissaving widens the US deficit, but so does a surge of foreign capital seeking dollar assets. The US runs a persistent deficit partly because the rest of the world wants to hold dollars.

The IMF’s saving-investment frame is useful because it shows how domestic investment policies shape the world economy. But it’s not the only lens. At the end of the day, this equation is an accounting identity, and doesn’t always have to reflect the primary cause of massive trade imbalances — those can exist for other reasons, too.

Why this matters

The problem with large imbalances is what happens when they unwind.

An orderly unwinding is manageable: saving and investment gradually shift, relative prices adjust, and the global economy absorbs the change without drama. A disorderly unwinding is something else entirely. That looks like abrupt capital flow reversals, sharp asset price corrections, and deep recessions.

The 2008 financial crisis is the clearest example: imbalances that had built up alongside financial vulnerabilities unravelled violently, with no coordinated policy response until the damage was already done.

Countries running large deficits are particularly exposed. They depend on continuous capital inflows to finance the gap between what they earn and what they spend. When global financial conditions tighten — or investors reassess their pockets — they can face a sudden stop: rising borrowing costs, exchange rate volatility, and a sharp compression in domestic demand.

Surplus countries may look safer from the outside but create their own distortions. The excess savings they channel abroad push down global interest rates, which can encourage excessive risk-taking and leverage in recipient economies.

And crucially, surplus countries face little market-driven pressure to adjust. After all, they’re net lenders to the world. But markets will eventually discipline a country that borrows too much. This structural asymmetry was flagged all the way back in 1943 by economist John Maynard Keynes.

There is also a political economy dimension. Even when trade increases aggregate incomes, the gains are diffuse and the losses are concentrated — specific regions, specific industries, specific workers. That concentration fuels protectionist sentiment, which produces tariff escalation, which tends to reduce output without correcting the underlying imbalance. This is a trap that the current moment seems particularly prone to walking into.

Not all imbalances are cause for alarm, though. A developing economy running a deficit to finance productive investment may be behaving rationally. The concern is specifically about imbalances driven by policy distortions, that persist beyond what fundamentals justify, and that accumulate alongside financial vulnerabilities.

What’s driving the current widening

The recent widening reflects a striking pattern: the US and China, the two largest contributors to global imbalances, are moving in opposite directions.

In the US, the post-pandemic period has produced a near-perfect storm of current-account-widening forces. Household saving rates have fallen sharply. Fiscal deficits have expanded significantly. Business investment has surged, partly on the back of AI-driven spending. Each of these, through the saving-investment lens, pushes the deficit wider. All the while, they’ve still been running a wide trade deficit.

On the flip side, you have China, the world’s largest exporter. It generates more than it consumes. Its industrial policy has tilted the economy further toward exports, channeling government support to export-oriented sectors while reducing transfers to households. The excess flows abroad to investments — in fact, China is one of the biggest holders of US treasuries.

Additionally, the collapse of the real estate sector has crushed domestic demand. Households, uncertain about the future, have responded by saving more. The excess flowing abroad as a current account surplus.

Demographics compound all of this. Ageing populations in Germany, Japan, and China structurally raise saving rates. After all, as workers approach retirement, they accumulate wealth, and the pension systems in these economies don’t fully cover the gap. This isn’t a cyclical force that reverses when conditions improve — it’s structural, and it runs in the same direction as the cyclical forces currently widening imbalances.

The IMF estimates that forces of this kind — fiscal, cyclical, structural — explain roughly half of the post-pandemic widening in the US and China’s current account balances. The other half is harder to attribute cleanly to any single cause. But the broader point stands: the drivers of the current widening are overwhelmingly domestic.

Which raises the natural question — if that’s what’s producing the imbalances, what can policy actually do to correct them?

What policy can and cannot do

On that note, the IMF paper explores three policy levers most commonly proposed — tariffs, sector-level industrial policy, and economy-wide interventions. Each has distinct effects on the current account, and the results are often counterintuitive.

Tariffs

Start with tariffs. The intuition behind using them to fix a trade deficit seems straightforward: tax imports, buy fewer of them, and the deficit shrinks. In practice, though, permanent tariffs are broadly neutral on the current account.

The mechanism runs through the exchange rate. When a country imposes tariffs, demand for imports falls. But this also reduces the supply of the country’s currency in foreign exchange markets, causing it to appreciate. That appreciation makes exports more expensive and imports cheaper, offsetting the original effect. Hence, the current account ends up roughly where it started.

Retaliation compounds the problem. For instance, around 73% of US tariffs on China are met with retaliatory measures within 12 months; around 61% of EU tariffs on the US face the same response. When tariffs are reciprocated, they stop behaving like country-specific interventions and start behaving like global shocks — dampening the already-limited current account effect while reducing output on both sides.

Industrial policy

Sector-level industrial policy — which includes production subsidies and directed credit — has similarly ambiguous effects. The outcome depends on whether the policy raises or lowers aggregate productivity.

Effective industrial policy boosts incomes, which leads households to spend more and save less. With higher incomes, people import more, which worsens the current account of the implementing country. Misallocated policy, where support is directed to sectors without genuine competitive advantage, depresses productivity and raises precautionary saving. Weirdly, that would improve the current account.

The clearest path from policy to current account runs through what the IMF calls “macro industrial policy“. This refers to economy-wide interventions that aren’t just limited to subsidies and cheap credit, but also foreign exchange management and financial repression.

This is, in essence, China’s approach. The People’s Bank of China has for decades accumulated foreign exchange reserves on a large scale, preventing the renminbi from appreciating and sustaining the competitiveness of Chinese exports. Capital controls prevent Chinese households from moving savings abroad. A thin social safety net and restrictions on consumer borrowing suppress domestic consumption and force saving. State-controlled interest rates channel savings toward investment in priority sectors rather than household spending.

The combination works. China holds one of the largest net foreign asset positions globally — the accumulated result of two decades of this approach. But the consumption levels of Chinese households are lower than they would otherwise be.

The collective action problem

Given what actually drives imbalances, the solution has to be domestic and macroeconomic. The IMF modelled what two different paths forward might look like.

In the first, current trends continue and tariffs escalate: the US maintains large fiscal deficits, China doubles down on export-led growth, and all three major blocs raise tariffs by 20 percentage points. The result is a modest reduction in global output and almost no change in current account balances. Tariff escalation, even aggressive tariff escalation, barely moves the underlying imbalances.

In the second, the major economies reform simultaneously. The US moves toward fiscal consolidation and rolls back tariffs. China expands social spending, reduces industrial policy distortions, and allows the yuan to adjust. Europe boosts public and private investment and raises productivity.

The result is the opposite: current account imbalances narrow meaningfully — China’s surplus falls by over a percentage point of GDP, the US deficit improves — and global GDP rises in all three regions. Countries that move together do substantially better than countries that move unilaterally, because the reforms in one economy amplify the effects of reforms elsewhere.

The reason this is hard is structural. Market discipline eventually forces deficit countries to adjust — rising borrowing costs and, in the limit, a hard stop. Surplus countries face no equivalent pressure. There is no market mechanism that compels, say, Germany to spend more or China to consume more. The adjustment burden falls asymmetrically on the deficit side, which means surplus countries can always wait.

In fact, when Keynes understood this problem, he proposed an international clearing union as a solution. Such a union would have imposed costs on both persistent surplus and persistent deficit countries. The proposal, however, was rejected.

The gap between what works and what is politically achievable has rarely looked wider. The world’s major economies are, at the moment, moving in the opposite direction from the coordinated domestic reform that the evidence suggests is necessary — cutting deals on tariffs while leaving the underlying saving and investment dynamics largely untouched. How long that can continue before markets force a more disorderly resolution is, at this point, the more pressing question.

Tidbits

1. India’s auto retail sector closed FY26 at an all-time high of 2.97 crore units, growing 13.3% year-on-year. Five of six vehicle categories set new annual records. Two-wheelers reclaimed pre-COVID peaks with 2.14 crore units, passenger vehicles crossed 47 lakh for the first time, tractors breached 10 lakh units, and three-wheelers set a third consecutive record with EVs now accounting for over 60% of that segment.
   Source: Business Standard

2. AUM in index funds and ETFs has surged from ₹1.63 lakh crore in 2020 to over ₹15 lakh crore in January 2026, per NSE Indices. The number of passive fund folios has crossed 5 crore. January 2026 also marked the 63rd consecutive month of positive net inflows into passive schemes.
   Source: Business Today

3. Pakistan-brokered US-Iran talks collapsed after 21 hours in Islamabad, with JD Vance saying Iran refused to commit to giving up its nuclear programme. Trump responded by ordering the US Navy to blockade all ships entering or exiting Iranian ports, effective Monday morning. The ceasefire technically holds until April 22, but the blockade effectively puts the two sides back on a collision course. Source: CNBC

- This edition of the newsletter was written by Aakanksha and Manie

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #7

Hi folks, hope you’ve had a great week…

Read more

16 days ago · 11 likes · 1 comment · Zerodha

Understanding the oil market ft. Rory Johnston

A month-long closure of the Strait of Hormuz, a critical route for ~20% of global oil, has severely disrupted supply, triggering fuel shortages and panic across Asia, with India already facing an LPG crunch. While a ceasefire offers relief, the deeper issue is systemic dependence on a single chokepoint. To unpack this, we spoke with Rory Johnston, an oil market expert known for his typically bearish, adaptive view. Despite past shocks, he sees this disruption as fundamentally different and far more concerning.

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Over the past few weeks, the rupee has been moving around in ways that most people haven’t been able to fully explain. Some of it is straightforward — India imports a lot of oil, oil is now significantly more expensive, and that means we need a lot more dollars than we did before. But there has been another layer to the story, a more technical one, and that is what we wanted to dig into. So we got Deepak Shenoy on a call.

You can listen to the podcast on Spotify and Apple Podcasts.

The heart of the conversation was about something called the NDF market — non-deliverable forwards. It is essentially a market for betting on the rupee that operates entirely outside India, beyond the RBI’s direct reach. No rupees change hands, no dollars change hands — it is a cash-settled bet on where the rupee will land. Deepak called it the suited-booted equivalent of a dabba trade.

When the rupee came under pressure in recent weeks, this offshore market started showing higher dollar-rupee rates than the onshore market in India. Indian banks, seeing a gap between the two prices, started buying dollars cheaply in India and selling them at a higher price in the NDF market, pocketing the difference. The problem was that all this dollar-buying onshore wasn’t genuine import demand — it was pure arbitrage, and it was pushing the rupee down in the very market the RBI was trying to stabilise.

The RBI figured it out and capped each bank’s position at $100 million. Banks then tried to quietly transfer their positions to corporate importers to avoid taking losses on the unwind. The RBI caught on and shut that door too. What followed was a messy unwind that explains much of the rupee’s erratic movement over the past week.

The deeper point Deepak made is that none of this actually solves anything. Every time the RBI plugs one hole, the market finds another, because the incentives don’t disappear. His argument is that the real fix is to open the rupee up — more participants, fewer restrictions, genuine internationalisation. But that requires changes to law that are outside the RBI’s hands entirely.

This was a really good conversation. I hope you enjoy it.

Share

And, if you are one of the few who prefers to read this instead of watching or listening, here’s the transcript.

Subtext by Zerodha

Deepak Shenoy on what's happening with the rupee

Hi folks, Krishna here…

Listen now

14 days ago · 2 likes

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. The trade breaking the RBI’s rupee defence

2. India builds castles of glass

The trade breaking the RBI’s rupee defence

On March 27, 2026, the Indian rupee crossed ₹95 to the dollar for the first time in its history.

Consider what that number means. India imports nearly 90% of its oil. All of it is priced in dollars. When the rupee falls, every barrel we buy automatically gets more expensive, even if the dollar price of oil hasn’t moved. A rupee at ₹95 versus ₹85 a year ago means India would spend roughly 12% more rupees for the same amount of oil in a world where oil prices were stable. As you know, they weren’t. That sends up our fuel costs, transport costs, and eventually the costs of most things we buy. The rupee’s value isn’t an abstract financial number — it’s tied to our cost of living.

Oil, by the way, is just one thing we import.

The rupee fell through March for two reasons at once. The Iran war pushed Brent crude prices above $110 a barrel, widening our oil import bill significantly. Meanwhile, foreign investors were pulling money out of Indian markets, converting their rupees back to dollars and leaving — which meant a lot of the rupee was being sold at once. Both forces pushed in the same direction at the same time, and the rupee began losing ground fast.

But that’s perhaps something you already know. What made things even more complicated, though, was something happening inside India’s banking system: a trade that had grown to enormous scale, that was making the RBI’s attempts to defend the rupee significantly less effective than they should have been.

How the rupee is traded

The rupee trades in two completely separate markets. These operate under different rules, with different participants, in different time zones.

The first is India’s onshore forex market. This is the regulated market inside India where banks, companies, and foreign investors buy and sell rupees and dollars. Think: an Indian company that needs to pay a foreign supplier in dollars, a foreign fund bringing money into India to buy stocks, or an IT exporter converting dollar earnings back to rupees — they all come through this market. Only banks licensed by the RBI as “authorised dealers” can participate in the wholesale interbank layer of this market, where the actual exchange rate is discovered in real time. The RBI participates here too, buying or selling dollars to prevent the rupee from moving too fast in either direction.

But there’s also an offshore Non-Deliverable Forward market, or NDF. This exists because of India’s capital controls: rules that restrict who can hold rupees, and how money moves in and out of the country. Consider this: a foreign investor who has put money into Indian stocks has rupee exposure. If the rupee falls, their investment loses its dollar value. They naturally want to hedge against that. But doing so through India’s onshore market requires documentation, RBI compliance, and restrictions that make it all cumbersome.

So, over the years, banks in Singapore, London, and Hong Kong created a workaround: a contract that lets you bet on where the rupee will go, but doesn’t actually involve the rupee changing hands. Instead, this settles entirely in dollars. This is what makes “non-deliverable forwards”: they’re “non-deliverable” because no rupees are actually delivered. These are dollar bets on the rupee’s direction. They trade entirely outside India’s jurisdiction, beyond the RBI’s direct control. Today, the offshore NDF market in USD/INR sees trades of roughly $40–50 billion a day — larger than India’s onshore market.

Arbitrage

Ideally, the onshore rupee price and the offshore NDF price should roughly be the same. They’re both pricing the same currency, after all. But they’re not always identical. One market has the RBI’s thumb on it and the other doesn’t. In periods of stress, when global investors turn pessimistic about the rupee, the offshore NDF market often prices the dollar slightly higher than the onshore market does. In a sense, this is the price the free market actually places, compared to the partially managed onshore price.

This, however, opens the doors for a trade.

That gap — even if it’s a small one, of 40-50 paise — can be a money machine for anyone with access to both markets. If you contract to buy dollars at ₹93 in India, and lock in a forward to sell them at ₹93.50 in the NDF market offshore, the difference is yours to make. You’re no longer taking directional bets on the rupee. It doesn’t matter if the rupee eventually moves to ₹90 or ₹100. You’re just making money off the gaps that crop up between two markets that don’t talk to each other.

This sort of trade, that exploits the differences between two prices of the same thing, is called “arbitrage”. Indian banks, with operations both onshore and offshore, were perfectly placed to make these trades. They began running this trade at an enormous scale. According to estimates from market participants and analysts cited by MUFG Research, the total size of such positions across the banking system had grown to somewhere between $30 and $40 billion.

There’s a benefit to such trades: they patch unconnected markets together. But it created a problem for the RBI. Every time the RBI would intervene to smoothen the price of the rupee in the onshore market, selling dollars to defend the rupee, banks would absorb a portion of those dollars and make arbitrage trades outside. Instead of trading inside its wall garden, the RBI was trading against speculators across the world, by proxy.

It was, in effect, pumping water into a bucket with a hole.

What the RBI did

And so, on March 27, the RBI issued a directive to all authorised dealer banks: your net open position in the rupee — your unhedged exposure to movements in the USD/INR rate — cannot exceed $100 million at the end of each business day. Banks would have to comply with this by April 10.

Before this, banks could set their own limits with board approval, at up to 25% of their regulatory capital. For a large bank, that could mean an open position of anywhere between $500 million to $1 billion. The new rule was a hard cap, uniform across every bank regardless of size, and it was dramatically smaller than what the big players had been running.

To comply, banks had to unwind their arbitrage positions. This meant they had to carry out the trades in reverse: agreeing to sell dollars in the onshore Indian market, while simultaneously buying back their positions in the offshore NDF market.

This selling of dollars, onshore, was exactly what the RBI wanted. The more that dollars were sold in India, the more the rupee strengthened.

The backfire

Only, that wasn’t all that was happening. Every trade a bank made onshore was matched by a parallel trade abroad. And that other leg had an unintended effect.

As banks sold dollars in India, they rushed to close their positions outside. That sent things in the opposite direction abroad. With every bank rushing to close out their positions at the same time, the NDF price of the dollar spiked, even as the onshore price fell. Which meant that the gap between the two markets — normally a few paise wide — blew out to over a rupee on March 30.

A price gap of that size between two markets doesn’t stay open for long. As long as it exists, it’s a shining prize for anyone that can trade both markets: free money on tap.

Naturally, Indian companies — importers and conglomerates with treasury operations, with access to both markets — spotted it immediately. They could now run the same trades as the banks once did: buy dollars cheaply onshore, and contract to sell them at the higher NDF price offshore. With such a large gap in sight, and nobody else to step in, this was an unexpected pay-day.

According to data from the Clearing Corporation of India, their corporate clients’ trading volumes in the NDF market hit $3.75 billion on March 30 — roughly seven times that of a normal day.

The rush was biblical. And because all these companies were buying dollars in India to run it, they were adding to dollar demand in the onshore market, pushing the rupee down. That was the day the rupee hit ₹95.20 — its all-time low.

The RBI had failed to stop the pressure on the rupee. It just moved that pressure from banks to corporates.

The second move

To reach the off-shore markets, corporates had to go through banks. This was the pressure point the RBI went for next.

Late on April 1, the RBI banned banks from offering rupee NDF contracts to any clients — Indian residents or foreign. They could no longer offer new NDF contracts, nor could they rebook cancelled forward contracts. In one move, the RBI shut off the corporate arbitrage channel entirely. Companies that had been running the trade now couldn’t access the off-shore NDF market through their banks.

Only, this created a new problem for banks that hadn’t finished unwinding their own positions. Their exit route — using corporate arbitrage flows to reduce their own exposures — was now closed. The banks that had already moved on March 30 were through. The ones that had waited, however, were now stuck, having to exit positions in a market that knew how much pressure they were under, and would milk them for all they were worth.

Overall, though, the double intervention worked. The rupee staged its largest single-day gain since 2013 on April 4, recovering to around ₹93.10. We’re writing this on April 8, when it’s trading at around ₹92.60. That’s still weaker than where it began the year, but far from the record lows of ten days ago.

What this means

The RBI’s interventions mean that the rupee is steadier today. But its fundamental problems haven’t disappeared. The offshore NDF market was quoting those prices for a reason, and those haven’t gone anywhere. Oil prices remain elevated. Investors still look at India with a weary eye. The RBI’s regulatory force removed a specific category of speculative pressure. Its restrictions targeted what market participants can do. But that’s different from resolving the underlying trade and capital flow dynamics that created the pressure in the first place.

What the last two weeks showed is something worth sitting with: a central bank with over $650 billion in foreign exchange reserves, intervening actively in its own currency market, could not do enough to stop the rupee from hitting an all-time low. It took two rounds of regulatory restriction — limiting what banks could hold, then banning a product category entirely — to stabilise things.

It may have turned the tide for now, but the problems haven’t gone anywhere.

India builds castles of glass

Of all the things that the current crisis at the Strait of Hormuz could disrupt, somehow, to our surprise, glass was one of them.

In Firozabad, India’s glassmaking hub, gas-supply cuts linked to West Asia disruptions have forced producers to slash output by as much as half and raise prices by ~20%. Around 200 small and mid-sized factories in the town are at risk. Sectors that depend on glass packaging — like beverages, pharmaceuticals, and cosmetics — are feeling the squeeze, though the severity varies by region.

Of course, it got us thinking about how little we know about glass, especially how it’s made. The crisis is most acute in segments that rely on continuous furnaces and gas-dependent clusters.That matters because glass is not one industry: flat glass, containers, solar glass, bangles, fibres, and specialty glass each use different processes and face different constraints.

With that, let’s dive into how glass is made.

So, what is glass?

Glass is not a crystal. In a crystal — like diamond or table salt — atoms sit in a neat, repeating pattern. It is an amorphous solid: its molecules are frozen in a disordered state, like a liquid cooled so fast it never got the chance to organise. It’s solid, but at the atomic level it has the structure of a frozen liquid.

At the core, its recipe is simple, consisting of three items: silica sand (which is 70–75% by weight), soda ash (which lowers the melting point from 1,700°C to about 1,500°C), and limestone (which stabilises the glass so it doesn’t dissolve in water). This formula gives you soda-lime glass, which accounts for roughly 90% of all glass produced.

Change the recipe, and you change the glass. If you replace some soda with boron oxide, you get heat-resistant borosilicate glass, which is commonly used in food containers. If you add aluminium oxide instead, you get aluminosilicate, which is the foundation behind your phone’s screen protector.

How a sheet of glass is made

The dominant process for making flat glass is the float process.

Raw materials — such as sand, soda ash, limestone, and recycled glass (or cullet) — are blended and fed into a furnace at around 1,500°C. The molten glass is then poured onto a bath of liquid tin. Since glass is lighter than tin, the glass floats into a perfectly flat ribbon. It enters the tin bath at ~1,100°C and leaves as a solid sheet at ~600°C.

The ribbon then passes through a controlled-cooling oven called an annealing lehr. Finally, this glass gets cut. This entire process from furnace to cutting station is called a float line, and it runs non-stop for 10 to 15 years. These plants don’t shut down easily.

Container glass, meanwhile, works differently. Molten glass is cut into gobs, dropped into moulds, and blown into shape. Like float furnaces, container furnaces run continuously at extreme temperatures. But container plants tend to be more dependent on piped natural gas and can’t switch fuels easily. When gas is cut, they can’t just idle the furnace — letting it cool risks billions of rupees in restart costs and weeks of downtime. That’s why the current energy disruption hits container glass harder than other segments.

Fibre glass has an even more different route: molten glass drawn through hundreds of tiny platinum-alloy nozzles into continuous filaments. Same base material, very different manufacturing lines.

Molding into shape

Have you ever wondered why a window pane shatters into long, dangerous shards, but a car’s side window crumbles into smaller, blunt pieces. Similarly, while a windshield cracks into a spiderweb pattern, a phone screen survives drops onto concrete.

That’s where we dive into the various finished forms of glass once it’s processed.

Annealed glass is the default. This is your regular window pane or drinking glass. After forming, it’s slowly cooled to relieve internal stresses — which makes it easy to cut, drill, and work with. But when it breaks, it breaks into large knife-like shards. Cracks start with even tiny surface flaws like scratches or even tiny impurities. And once a crack starts, nothing stops it from worsening.

Tempered, or toughened glass is what you find in car side windows and shower doors. Here, a sheet of annealed glass is heated to over 600°C and then rapidly cooled. The outside cools and solidifies first; as the interior slowly contracts, it pulls the outer surfaces into compression. This compressed surface is much harder to crack. But when tempered glass does fail, all that stored tension releases at once — it detonates into hundreds of small, blunt-edged fragments instead of long shards.

Meanwhile, laminated glass is what goes into your windshield. Two layers of glass are bonded with a plastic layer sandwiched between them, using heat and pressure. When it breaks, fragments stick to the plastic instead of collapsing — hence why windshields form a spiderweb pattern before truly breaking.

There are other forms of glass that we won’t get too deep into. Chemically strengthened glass — the family that includes Corning’s Gorilla Glass — protects your phone screen. Borosilicate glass is what’s used in food containers and laboratory equipment.

India’s ingredients sourcing problem

Making glass requires a steady supply of a few key raw materials. India’s position on each of them is different, and understanding those differences tells you a lot about our industry’s constraints.

Silica sand is the backbone. India does have large sand deposits, but the glass industry doesn’t just need any sand. It needs high-purity silica with low iron content — even small amounts of iron create an unwanted greenish tint. Saint-Gobain, for instance, operates a sand purification plant in India to clean silica sand and strip out excess iron.

Environmental restrictions on sand mining add another layer of complexity — research on mining operations in Shankargarh, Uttar Pradesh has documented groundwater depletion and environmental damage from mining and washing processes.

Then, there’s soda ash. Globally, roughly 45% of all soda ash produced goes into glass, and India has domestic capacity, too. GHCL’s Gujarat facility, for instance, produces about 1.2 million tonnes a year, while Tata Chemicals’ Mithapur facility recently crossed 1 million tonnes.

Yet, India remains a net importer of soda ash. China, the US, and Turkey together account for about 81% of world production.

As far as limestone and dolomite are concerned, India produced ~450 million tonnes of limestone in 2023–24 and is broadly self-sufficient. The constraint here is less about availability and more about consistently obtaining low-iron grades of the materials.

Borates are the wildcard. Boron chemicals make borosilicate glass possible, and they come from geologically concentrated deposits, most of which we don’t have. India is among the world’s top importers of refined borates.

Lastly, there’s cullet, or recycled glass. Using cullet saves raw materials and cuts energy. For instance, one tonne of cullet saves ~1.2 tonnes of new inputs, and every 10% increase in cullet use reduces energy consumption by roughly 2.5%. But glass recycling in India remains underdeveloped. Cullet has to be clean, colour-sorted, and free of contamination, and the infrastructure to do that is not yet in place at scale.

Who makes India’s glass?

India’s glass industry isn’t one industry. It’s a collection of sub-sectors with different players, different economics, and different problems.

In flat glass, the major names are Saint-Gobain, Asahi India Glass, Gujarat Guardian and Gold Plus. These are capital-intensive operations — after all, new float lines cost hundreds of crores and expand in lumpy steps. Energy is an additional structural cost burden since furnaces run continuously at very high temperatures.

In container glass, the picture is more fragmented. AGI Greenpac is a leading player with over 2,000 tonnes of daily capacity across multiple plants. Hindustan National Glass (HNG), once a dominant force, went through an insolvency process. PGP Glass operates in the specialty segment.

Container glass is also the sub-sector most exposed to the current crisis. When GAIL reduced gas supply to Firozabad, producers had no easy fallback. What made things harder was that higher-emission fuels were banned in the city, because of its proximity to the Taj Mahal. As we’ve covered recently, India’s gas system is heavily exposed to the crisis in West Asia.

Solar glass has become an important sub-sector, sitting inside India’s larger push for domestic solar manufacturing. Borosil Renewables describes itself as India’s first and only solar glass manufacturer. The segment has already seen trade-policy protection: India imposed a five-year anti-dumping duty in May 2025 on imports from China and Vietnam.

What’s ahead

Glass melting is energy-intensive by nature, and India’s dependence on imported gas means every conflict or disruption in West Asia becomes a production crisis at home. But the sector is exploring electric melting, hybrid furnaces, and hydrogen combustion as alternatives.

In 2024, for instance, AIS signed a long-term agreement with INOX Air Products to supply green hydrogen to its Chittorgarh float-glass plant, which the company says could reduce carbon dioxide emissions by ~1,250 tonnes annually.

But these are still early moves. Hydrogen is being tested in glass furnaces, not yet used widely at full commercial scale, and electric melting remains economically challenging in many cases.

India’s glass consumption is rising with urbanisation, construction, automotive production, and the solar buildout. Whether the industry can keep pace depends on three things: dependable energy, consistent raw material quality, and scalable recycling. Right now, all three are works in progress — and Firozabad is a painful reminder of what happens when even one of them breaks down.

Tidbits

1. Iran War is China’s Global Payments Debut The conflict with Iran is accelerating China’s push to settle oil trades in yuan, bypassing dollar-dominated payment rails. It could mark the moment China’s alternative financial plumbing gets its first serious stress test at scale.
   Source: Bloomberg

2. TCS Posts Rare Annual Revenue Drop TCS reported its first annual revenue decline in recent memory, with macro headwinds and weak discretionary IT spending outweighing a decent quarterly beat. The result signals continued caution among global clients on large tech contracts.
   Source: Reuters

3. Jio-bp Has No Plans to Raise Fuel Prices Jio-bp’s CEO confirmed the company is holding fuel prices steady despite global crude volatility, likely a mix of competitive pressure and demand sensitivity. With margins already thin at retail pumps, any hike risks losing volume to state-run OMCs.
   Source: Reuters

- This edition of the newsletter was written by Krishna and Vignesh

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #7

Hi folks, hope you’ve had a great week…

Read more

15 days ago · 11 likes · 1 comment · Zerodha

Understanding the oil market ft. Rory Johnston

A month-long closure of the Strait of Hormuz, a critical route for ~20% of global oil, has severely disrupted supply, triggering fuel shortages and panic across Asia, with India already facing an LPG crunch. While a ceasefire offers relief, the deeper issue is systemic dependence on a single chokepoint. To unpack this, we spoke with Rory Johnston, an oil market expert known for his typically bearish, adaptive view. Despite past shocks, he sees this disruption as fundamentally different and far more concerning.

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Hi folks, Krishna here.

Since February 28th, a 34-kilometer stretch of water has upended the global oil market in a way that most people still haven’t fully absorbed. The Strait of Hormuz, which carries roughly 20% of the world’s oil supply, has been closed for over a month. Asian governments are in full panic mode. Flights are being cancelled and routes cut because jet fuel is running short. India, which was one of the first countries to feel the acute stoppage of supply, is already dealing with a serious LPG crunch — and LPG is not a premium product, it is a basic cooking fuel for hundreds of millions of households in this country.

Yes, there is a ceasefire now, and we are glad for it. But this conversation was never really about the war. It is about the system underneath — how the world built itself into a position where one 34km stretch of water could do all of this, and what that means going forward. That does not have an expiry date.

We wanted to understand what is actually happening here, so we got Rory Johnston on a call. It was very kind of him to reply to our tweet :)

You can listen to the podcast on Spotify and Apple Podcasts.

Rory runs Commodity Context and has spent years closely tracking the oil market. He describes himself as a natural bear — someone who usually believes the market will find a way to adapt, and has the reputation to back that up. The oil market has been through a lot over the past five years: the attacks on Saudi Aramco facilities in 2019, COVID, Russia’s invasion of Ukraine, the Houthis in the Red Sea. Each time, the market found a way through. Which is why it is significant that Rory is genuinely alarmed right now. He believes this is not a version of those previous shocks. It is something categorically different.

The numbers explain why. About 20 million barrels of oil a day flows through the Strait of Hormuz. Even after accounting for every available pipeline reroute — the Saudi East-West pipeline, Emirati and Iraqi alternatives — you are still left with a net shortfall of about 13 million barrels a day. And critically, this is not just lost exports with oil quietly accumulating in storage somewhere. Between Iraq, Kuwait, Saudi Arabia, the UAE and Qatar, production has been physically shut in. Those barrels were never produced. They do not exist. Over the first month of the crisis alone, the global system lost more than 200 million barrels of oil. April’s losses, Rory estimates, will be equivalent to the entirety of the IEA’s record coordinated strategic petroleum reserve release — the largest such release ever conducted — and that will happen in a single month.

So where are prices?

Brent crude was sitting at around $109 when we spoke. Rory thinks it should already be in the $125 to $135 range at minimum, and that if the strait stays closed, it could go to $200 or beyond. The question we wanted to ask — and which turns out to be the most interesting question in the whole conversation — is why the financial market hasn’t got there yet.

Part of the answer is structural. Before this crisis, the oil market was in oversupply. Inventories were building, prices were under downward pressure, and the base case assumption for most market participants was that this soft, bearish environment would persist. That prior is hard to shake. But the bigger factor, Rory says, is Trump. Every week of this war, someone from the White House has said the conflict is nearly over — just one or two more weeks. Markets believe it every time, and oil sells off. There is also a simpler, more human explanation: a rapidly rising oil price is bad for equities, and everyone in the market would rather it be over. As Rory put it, any opportunity to sell down crude and bid equities higher just feels better, so that’s where the money goes.

Meanwhile, the physical market is telling a completely different story. Refined products — jet fuel, gasoline, gas oil — are trading well above $200 to $250 a barrel at the Singapore market. Dated Brent, which is the price for physical crude for near-immediate delivery, is already above $120, even as the futures market — which prices oil for June delivery — sits at $109. That gap is what’s called backwardation, and it is worth understanding because it is one of the clearest signals of how bad things actually are. When the futures curve slopes downward like this, it doesn’t mean the market thinks prices are going to fall. It means the market is paying an enormous premium to get oil right now, today, because supply is so critically short in the present moment. The futures price is reflecting the hope of a resolution. The physical price is reflecting reality.

There is also what Rory described as an air pocket moving through the global supply chain, and this is perhaps the most useful image in the entire conversation for understanding the timing of what is happening. When the Strait closed, there were still ships at sea — tankers that had left the Gulf weeks earlier, laden with crude and petroleum products, still making their way to their destinations. Those ships have been arriving one by one. India felt the shortage first because of its proximity. Then East Africa. Then East Asia. Europe is next, and North America after that. But once that last tanker completes its journey and docks, as Rory put it, nothing will be behind it but air. That is the moment, he believes, when the financial market will have no more cover.

We also spoke about who is winning and losing in all of this. The Gulf states — whose oil revenues have essentially evaporated — are among the biggest losers. So are Asian importing nations, who are bearing the sharpest end of the supply shock. The single largest winner, by Rory’s reckoning, is Russia. The Trump administration had spent months successfully tightening sanctions on Russian oil, and had actually managed to reduce Indian imports of Russian crude from over two million barrels a day down to around one million. Almost all of that progress has now been undone. India has pivoted back to Russian crude, and the US Treasury has explicitly eased restrictions on Russian floating storage to help facilitate the flow. There is a grim irony to it — Ukraine has noticed, and has responded by dramatically intensifying attacks on Russian export infrastructure.

And then we spoke about what comes after, whenever this eventually ends. Rory doesn’t think the market snaps back cleanly. The production that has been shut in will take months to restart. The inventories that have been drawn down will take longer still to replenish. And beyond the immediate recovery, he thinks this crisis will accelerate two things in Asia simultaneously: a faster push toward energy diversification and renewables, and a structural overbuild of strategic reserves, as governments try to ensure they are never this exposed again.

This was one of the best conversations we’ve had. I hope you enjoy it.

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And, if you are one of the few who prefers to read this instead of watching or listening, here’s the transcript.

Subtext by Zerodha

Rory Johnston (oil expert) on what's happening in the oil markets

Hi folks, Krishna here…

Listen now

17 days ago · 2 likes

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Can the pharmacy of the world test its own medicine?

2. What is plastic, actually?

Can the pharmacy of the world test its own medicine?

On April 2 — the first anniversary of his infamous “Liberation Day” — Donald Trump signed an executive order slapping 100% tariffs on most patented drugs imported into the United States. Briefly, we wondered if this was yet another barb hurled at India’s economy. But then, as the Global Trade Research Initiative clarified, India is “largely shielded.” After all, most of our pharmaceutical industry doesn’t make patented drugs at all.

We manufacture generics. India sold over $10 billion of pharmaceuticals to the US last year, nearly all of which were copies of drugs that someone else invented.

For now, this fact might have helped us somewhat escape a geoeconomic threat. But it also points to a ceiling. The entire Indian pharmaceutical industry earned $55 billion last year. Merck, a single pharmaceutical innovator, made $58 billion in pharma sales around the same time. That’s the difference between manufacturing a drug and developing one.

One thing keeping us stuck manufacturing is a gap in clinical trials. For all its many advantages, India lacks the muscle for testing new medicines.

The birth of a medicine

Imagine a researcher who finds a molecule that might just cure a disease we never knew we had a chance against. So far, though, they’ve only seen how it works in animals. Now comes the last and most expensive leg. They need to know: Is it safe for people to use? At what dose? Are there side effects that only show up in one in a thousand people? Does it do anything that our existing medicines can’t?

This is when they start clinical trials.

They start small. The first phase is a small safety test — they test the molecule on a few dozen people, who they watch closely. If those people seem alright, they can now move to the second phase, where they check if the drug actually works, and what the right dose might be. If the medicine works, things escalate. In the third phase, you graduate to testing the molecule in hundreds, or even thousands, of patients — comparing them to people on existing treatments.

Even in the best of cases, this is a long journey, and one prone to failure at many points. When you consider all those failures, globally, bringing a single new drug to market can cost almost $3 billion. Almost 70% of that cost is incurred in clinical testing, not chemistry.

Worse, still, is the time this costs. When things are ideal, bringing a drug to market is still a multi-year marathon. But faulty procedures can inflate that timeline considerably. And in drug development — an industry where the competition can span the world — a delay can mean irrelevance.

India and clinical trials

By registration volumes alone, India is the world’s third-largest destination for clinical trials. There are nearly 95,000 trials on our books. 18,000 of these were registered in 2024 alone.

There’s a catch, though. Most of these are late-stage trials, run by multinational companies that have already gone through several phases, and are closing into a commercially viable drug. All they need, now, are bodies. India serves these companies as a service layer. We have a vast patient pool, and per person, costs can be half of what they are in the developed world.

This doesn’t, however, make us a quality drug testing nation.

Where we lag

For all our pharmaceutical successes, we’re struggling to become the sort of country where someone can develop a molecule, test it, and bring it to market. For the thousands of trials registered in India, between 2008 and 2022, only 220 first-in-human Phase I trials were conducted in India. China, in contrast, runs over a thousand every year.

Consider the case of PopVax, a fascinating new-age Indian mRNA start-up from Hyderabad. The company designs its molecules in India, and runs its factory here. For clinical trials, however, the company had to rush to Australia.

This isn’t because of costs. The lab work, itself, is fairly cheap in India. But it simply takes too much time to get through.

What do we lose, though? Can’t we simply piggy-back on other country’s data — using drugs that have already worked in America or Japan?

Not really. For one, there’s no guarantee that Indian bodies behave the same as Western or East Asian populations. We have at least eight major genetic variations that change how we respond to medicines. A dose that works in Philadelphia may not be the right dose in Patna.

More importantly, there are many diseases that Indians are uniquely exposed to. More than a quarter of the world’s tuberculosis cases, for instance, happen in India. We also have more than a third of the world’s oral cancer cases. If we want to fight such diseases, we’re the ones that will have to develop the medicine. No other country will step up to do it for us.

The issues we face

What is holding us behind?

If you’re trying to create a new drug in India, there is, on paper, a straightforward process in front of you. You file an application with the CDSCO. According to the law, it has to respond to your application within 30 working days if your drug has been developed domestically, and 90 for those already approved abroad. In theory, if the regulator doesn’t meet these timelines, you’re deemed to have approval.

But the thing is, the clock can reset with a communication: even if the regulator neither accepts nor rejects one’s application.

The thing is, before the CDSCO actually gives its approval, it often sends applications to a Subject Expert Committee. This wasn’t always the case; things used to be more liberal before. These institutions were created after 2013, when the Supreme Court hauled up the CDSCO for lapses in clinical trials. However, this created a new problem. According to PopVax founder Soham Sankaran, there’s often a single Subject Expert Committee for any area of medicine, and that can become a bottleneck. Instead of weeks, as the law prescribes, applications are routinely stuck for half a year at this stage.

That isn’t all. Once the CDSCO gives its green light, you then need to go to an ethics committee to get your protocols approved. This is extremely important; these trials are being conducted on real people, many of them in desperate situations. Sloppiness, here, can cause severe harm. But the process also adds a few extra months. Other countries, like the United Kingdom, get around this by letting the regulatory and ethics review run in parallel. We do not.

The result? If you apply to test a promising molecule in January, it is already September by the time your first patient walks through the door.

This creates a tax on any Indian innovator that wants to test their medicines here. It also keeps India from becoming a destination where foreign pharma companies can carry out their own trials. While India wants to become a global contract research powerhouse — the way China is — as a report from the Department of Pharmaceuticals noted, our glacial timelines make us “non-starter for foreign companies exploring India as a destination for clinical trials.”

A trade-off? Or dysfunction?

It’s fair to argue, of course, that you don’t want too liberal a policy when it comes to testing new medicines. New drugs can come with terrible risks, and we don’t want to take those lightly. What is a sacrifice of a few months, if we can be more careful in ensuring that nobody is hurt?

The problem, however, is that our clinical trials themselves are still not robust.

Ideally, there are two big checks on a clinical trial. One, the trial is supposed to be monitored while it’s underway. Two, when it ends, the results are supposed to become public. Neither works well in practice.

No regulator can actually monitor how every single clinical trial is being conducted. That job goes to ethics committees. These committees, which are put together by institutions like hospitals or medical colleges, are supposed to check things like patients properly consented to a trial, the necessary protocols were followed, problems were reported, and so on.

In practice, though, these checks are loose at best. Many committees are passive, relying on reports that the investigators give them instead of checking a site for themselves. Many members, in fact, aren’t even trained to do so. Studies suggest that when they do visit, the problems can be severe.

We run into a similar problem with reporting results. Every clinical trial is supposed to be registered on the Clinical Trials Registry of India, or CTRI, where it must eventually record whatever it finds. That’s how the world finds out about how things have panned out. If a drug doesn’t work, or worse still, if it puts patients’ lives at risk, that negative result needs to be public.

In practice, though, one in every eight trials aren’t registered with the CTRI. And of those that do, more than three of every four never report what they found.

In effect, for all the blockages in our clinical trials systems, once a trial is underway, we barely have a sense of what is happening.

India’s fixes

The government understands that clinical trials have become an issue. There are recent indications that we’re moving towards reform.

This January, the government made sweeping changes to the law around clinical trials. It removed the licensing requirements for making small quantities of a drug for examination, research, or analysis. It also cut down various timelines.

A month later, Finance Minister Nirmala Sitharaman announced the “Biopharma SHAKTI” scheme as part of her budget speech. The plan, here, is to allocate ₹10,000 crores over the next five years — with three big goals: creating more than a thousand accredited clinical trial sites across India, setting up new pharmaceutical research institutes, and creating a dedicated scientific review cadre at the regulator.

Will these eventually work? The answer, to our eyes, depends on whether we’re simply suffering from inadequate capacity, or whether there’s a structural problem — where the centralized gating mechanism we’ve put together will eventually be overwhelmed, no matter how many people we staff.

One way or another, the answer will be with us soon enough.

The cusp of a revolution

This is a critical moment. With AI proliferating, we are at the cusp of a revolution. New technologies are compressing drug design from years to months. India could ride that wave — we have both the computer science talent and the biologics expertise to make the most of this moment.

Only, if all those new molecules will have to wait for over a year to be tested, they’ll probably be tested elsewhere.

Other countries understood this before us. Consider China. Under its investigator-initiated trial framework, many first-in-human trials don’t need regulatory approval, early on. If there are two equally capable labs in India and China that are working on a similar drug, the Chinese lab is likely to have Phase II data ready by the time an Indian lab can even begin testing on actual patients. As a result, the number of trials they carry out is an entire order of magnitude higher than we do. It’s partly why they’re attracting billion-dollar contract research deals from global pharma companies.

We aren’t destined to be stuck here either. During COVID-19, trials would frequently be approved within a month in India as well. We let that progress go in the post-COVID years. But if we can get it back, there’s a multi-billion dollar opportunity waiting for us as well.

What is plastic, actually?

Since the Hormuz crisis began, we’ve been tracking what’s happening to oil. Crude at $120, LPG shortages, the IEA releasing 400 million barrels from strategic reserves. But one downstream effect that hasn’t gotten enough attention is what’s happening to plastics.

Polymer prices surged over 40% in a matter of weeks. Naphtha — the key raw material for most of the world’s plastic production — nearly doubled in price. Indian PVC prices jumped 78% in a single month.

In the US, analysts at CreditSights reported that spot markets for polyethylene “barely function” because price offers by sellers expire within hours as buyers scramble to lock supply at prices unthinkable just weeks ago. Asian factories that make plastic are shutting down and American ones are running at maximum capacity to fill the gap.

And in the midst of all this, we had to admit something: we don’t actually understand what plastic is. We used terms like polymer, naphtha, PVC, and polyethylene above, without actually knowing what each of them meant.

Every time plastic comes up in conversation, the explanation starts with crude oil. It’s a neat, linear supply chain story. But it’s a bit like explaining what a cake is by starting with the wheat farm. It tells you where the ingredients come from, but nothing about what a cake actually is.

So we went back to the beginning. And the beginning, it turns out, has nothing to do with oil.

Building blocks

Plastic is a type of polymer. But so is DNA. So is protein. So is the cellulose that gives a tree trunk its strength. The concept of a polymer is one of the most fundamental structural ideas in the universe — and it existed long before anyone drilled for crude oil.

So what is a polymer? The word itself tells you: poly means “many” + meros means “parts”. It is a very long molecule made by repeating a small unit — called a monomer — over and over, thousands of times. This process of linking monomers into a polymer is called polymerization. If the monomer is amino acids, protein is the polymer. A long chain of nucleotide monomers is what we call DNA. And a chain of ethylene or propylene is what would make plastic.

What makes polymers extraordinary is that the arrangement of these chains determines the material’s behaviour. Straight, tightly-packed chains usually result in a rigid, hard material. If the chains branch randomly, the material becomes soft and flexible. Cross-link the chains into a web, and the material becomes heat-resistant and tough. This is why some plastics are stretchy like a carry bag, rigid like a pipe, transparent like a water bottle, or brittle like thermocol.

That’s all plastic fundamentally is: long chains of small (very specific type of) molecules, whose arrangement determines their properties. Everything else — the oil, the refinery, the cracker — is a question of where we get those small molecules from.

Yet, those small molecules manifest themselves everywhere.

The carry bag, the milk pouch from this morning — that’s polyethylene (PE), the most produced plastic on earth. The food container you just microwaved lunch in uses heat-resistant polypropylene (PP). The pipes carrying water, window frames, wiring insulation in your building comes from PVC. You’re probably familiar with PET, used commonly in water bottles. Melt that and spin it into fibre, and it becomes polyester — your “plastic” bottle and your “polyester” shirt are, at a molecular level, the same thing. The disposable cup from the chai stall, the thermocol around your new TV — that’s polystyrene.

These five, along with polyurethane, account for roughly 75-80% of all plastic produced worldwide.

How we ended up using oil — and why that choice now haunts half the world

The first plastics were actually not made from oil at all.

Celluloid, invented in the 1860s, was derived from plant cellulose. Bakelite, the first fully synthetic plastic, was created in 1907 from chemicals that had nothing to do with petroleum refining.

But hydrocarbons turned out to be spectacularly convenient. Oil refineries were already producing naphtha as a byproduct of making petrol and diesel. We went into the details of it in our oil primer.

In fact, naphtha, when heated to extreme temperatures, could be “cracked” into small molecules like ethylene and propylene — which happen to be ideal monomers for polymerization. They were cheap raw materials with an abundant supply and simple chemistry. The economics were irresistible, and by the mid-20th century, virtually all plastic production had shifted to petroleum-based feedstocks.

The industrial heart of this process is the steam cracker — one of the most energy-intensive machines on earth. Here, naphtha is mixed with steam and blasted through reactors at 800-870°C for mere milliseconds, then quenched instantly to freeze the output. This thermal shock breaks apart the heavier hydrocarbon chains in naphtha into ethylene, propylene, and butadiene. A single world-scale naphtha cracker needs roughly 3.3 tonnes of naphtha to produce 1 tonne of ethylene.

Naphtha isn’t the only way to get ethylene, though. You can also crack ethane, which is a byproduct of natural gas. An ethane cracker is more efficient — a ton of ethylene only needs 1.3 tonnes of ethane. Over the last 15 years, the US shale revolution flooded America with cheap domestic natural gas, and with it, cheap ethane. American petrochemical firms rebuilt their entire infrastructure around this feedstock — extracted from American soil, with no tanker, no ocean, and no external chokepoint.

Asia and Europe, meanwhile, stayed on naphtha, which comes from crude oil. That, of course, mostly comes from the Middle East, where the Strait of Hormuz is located.

When Hormuz effectively closed, naphtha prices surged 74% in two weeks. The raw material costs more than polyethylene itself — you lose money on every tonne you produce. That’s why Asian crackers started going dark.

American ethane crackers, meanwhile, are having the time of their lives. Their feedstock cost sits stable, because US natural gas prices haven’t spiked. They’re running at near-maximum capacity and shipping to Asia to fill the void left by shuttered Asian production.

Oil doesn’t have to necessarily define plastic. It’s just the most economically efficient source of the monomers plastic needs. If we found a cheaper way to get ethylene, the resulting plastic would be chemically identical.

Pellet economics

Every plastic product in the world begins as a small, translucent pellet about 2-5mm in diameter, called a nurdle. That’s the start of the plastics value chain. A PE nurdle looks nearly identical to a PP or PVC nurdle. But they’re entirely different materials, destined for entirely different products once melted and shaped.

Converters — which are the companies that turn pellets into products — buy these nurdles and process them. Before a pellet becomes a product, it’s almost always blended with additives to make it suitable for certain use cases. For example, plasticizers make rigid PVC flexible enough for medical tubing.

A handful of giant, vertically integrated companies operate the refinery-cracker-polymer complexes that produce these pellets. Reliance’s Jamnagar, for instance, is both the world’s largest refinery and one of its largest cracker sites — crude oil enters one end, plastic pellets exit the other. Add IOCL, GAIL, OPaL, and Haldia Petrochemicals, and you’ve covered the bulk of India’s upstream polymer capacity. Reliance alone controls roughly 50% of India’s capacity.

But, at the bottom end of the value chain, the conversion industry couldn’t be more different. It is massively fragmented — India alone has 30,000-50,000+ plastic processing units, and 85-90% of them are MSMEs. A plastic injection molding setup can start at ₹10-20 lakh. The barrier to entry is low, but these small converters are entirely dependent on a handful of upstream giants for their raw material. When polymer prices spike, they get squeezed.

The demand side, meanwhile, is enormous and growing. Packaging consumes over 30% of all plastic produced. Construction takes roughly 20%, driven by government infrastructure pushes. Automotive accounts for about 15%.

India consumes just 11-15 kg of plastic per person per year. The US, in contrast, is at 139 kg, and the global average is 28 kg. With 1.4 billion people, even modest per capita increases mean enormous volume growth. The growth story and the plastics waste story, as it turns out, are often the same story.

The material that refuses to die

Ironically, the same molecular property that makes plastic so useful — the strong backbone that resists heat, chemicals, water, bacteria, UV radiation, and virtually every form of natural degradation — is exactly what makes it nearly indestructible as waste.

Only 9% of all plastic ever produced has been recycled, while 71% has accumulated in landfills or the natural environment. And more than half of all plastic ever made was produced in just the last two decades. We are early in this accumulation curve.

The problem isn’t technical but economic. The price of new (virgin) plastic is a function of crude oil. When oil is cheap, producing new plastic is cheaper than recycling it. In Europe, recycled PET trades at roughly €1,800 per tonne, versus €1,000 for virgin PET. Without mandates or carbon pricing, no rational manufacturer would choose recycled plastic. The entire recycling industry’s commercial viability is hostage to oil prices.

That creates a strange paradox: the Hormuz crisis, by making virgin plastic expensive, may have provided a huge silver lining for the recycling business. Something similar could be said for clean energy.

Even when recycling does happen, it’s not really a cycle — it’s a downward staircase as far as quality is concerned. See, polymer chains degrade with each pass through the melt, and its mechanical properties weaken. A PET bottle gets recycled into carpet fibre or fleece, which then cannot be recycled further. This is less recycling, more downcycling.

India’s recycling story, though, is more interesting than most. We claim a plastic recycling rate of roughly 60% — dramatically higher than the US at 5-6%.

This isn’t because of government infrastructure or civic awareness, though. Between 1.5 and 4 million people — ragpickers, kabadiwalas, small-scale aggregators and recyclers — make their livelihood from plastic waste. Ragpickers collect recyclables from streets, bins, and dumpsites, earning ₹100-500 a day. Kabadiwalas go door-to-door, buying materials by weight. Aggregators sort, clean, and bale. Small recyclers convert the material into pellets that re-enter the supply chain.

Where this leaves us

Only 4-6% of all crude oil produced globally ends up as plastic. But that small slice has created one of the most useful, most ubiquitous, and most environmentally persistent material families in human history.

The Hormuz crisis has exposed the full chain — from a barrel of crude passing through a narrow strait, to a naphtha cracker, to a polymer pellet, to a converter who moulds it into a bottle cap, to a sachet in a kirana store that no one knows how to recycle. Understanding what plastic actually is, is the first step to understanding why it’s so hard to replace.

Tidbits

1. Indian manufacturers are facing a 20-30% jump in raw material costs even after the ceasefire. The dollar has risen over 12% this year, electronics components priced in USD have gotten sharply more expensive, and working capital cycles are stretching. Industry executives expect 5-8% consumer price hikes across categories by Q2.

   Source: Business Today

2. Assam, Kerala, and Puducherry voted today in single-phase assembly elections across 296 seats. Turnout was strong: Assam at 84.4%, Puducherry at 86.9%, and Kerala at 75% by 5 PM. Results for all five states (including Tamil Nadu and West Bengal, which vote later this month) will be declared in May.
   Source: BBC

3. SEBI has given a one-time breather to listed companies struggling to meet minimum public shareholding norms. The regulator won’t initiate penal action against companies with compliance deadlines between April 1 and September 30, 2026, effectively a six-month enforcement holiday driven by the market crash from the West Asia conflict.

   Source: Economic Times

- This edition of the newsletter was written by Pranav and Kashish

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #6

Hi folks, hope you’ve had a great week…

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23 days ago · 18 likes · Zerodha

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We’ve started a WhatsApp channel for The Daily Brief where we’ll share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops, so you can read or watch it right away. Here’s the link.

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Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

Hi folks! Before we start, we want to tell you about a new project we’ve started: Subtext by Zerodha.

Our work at The Daily Brief, or elsewhere at Markets, doesn’t often involve talking to experts and scholars that we think people should know about, and even refer to in our stories. Subtext is our way of literally engaging with the rest of the world. It will house conversations and narratives with incredibly knowledgeable guests: think entrepreneurs, policymakers, academics and industry experts.

Our first episode is out, and it’s with Manoj Kewalramani, a China Studies Research Fellow at the Takshashila Institution. It’s a scintillating, mythbusting chat with someone who doesn’t just read about China extensively, but has actually lived there and speaks the language.

You can watch this episode on YouTube, or listen to it on Spotify or Apple Podcasts, or read the transcript on Substack.

In today’s edition of The Daily Brief:

1. The world’s energy transition meets a historical crisis

2. The opaque curtains of India’s gold pricing

The world’s energy transition meets a historical crisis

What happens when an unstoppable force meets an immovable object? In this case, we’re referring to the world’s energy transition clashing with the crisis at the Strait of Hormuz. We leave you to decide which is which.

Faith Birol, the head of the International Energy Agency (IEA), calls this crisis the largest supply disruption in the history of the global oil market. For many of the world’s developing and poor nations, which are almost wholly dependent on crude oil imports, energy diversification has never been more important.

The good news is that the shift away from fossil fuels, and towards renewables and nuclear, has been undeniably consistent. And perhaps, with the price of crude oil increasing, there’s an expectation that the transition will only accelerate further.

However, progress has not been uniform across countries. And the Hormuz crisis is interacting with the world’s current energy mix in complex ways. Right now, clean energy does not have a clean story. The crisis has simultaneously accelerated the shift away from fossil fuels and caused a few setbacks for it — in different places, for different reasons, often at the same time.

That’s what our story is about.

Back to square coal

For many countries, the energy transition has depended on a crucial intermediate step: liquefied natural gas (LNG).

The theory was sensible enough. For power, coal was the primary source, and full renewable grids would take decades to build. LNG was meant to serve as a bridge in between. While a non-renewable energy source, it’s much cleaner than burning coal, and would help reduce emissions while solar and wind infrastructure were being built.

Japan, for instance, had committed to this more fully than almost anyone. After the Fukushima nuclear disaster in 2011, it shut its nuclear reactors and rebuilt its power system around imported LNG. Taiwan and South Korea followed similar paths. All three entered 2026 deeply reliant on a few LNG suppliers, especially Qatar.

However, the crisis disrupted Qatar’s supply of LNG and raised its prices. Now, this bridging strategy makes far less sense.

The immediate response across Asia was a reversion to coal. Japan lifted operating restrictions on older coal plants for up to a year, while South Korea removed its 80% cap on coal-fired generation. Meanwhile, Indonesia — the world’s largest coal exporter — is actually prioritising domestic supply, redirecting coal toward its own power plants rather than exporting it.

Europe is in a different kind of trap. In their chase of achieving a renewable-heavy grid, some European nations have fully phased out coal. They doubled down on LNG, and diversified their sources after Russia’s invasion of Ukraine in 2022, importing from Qatar and the US. However, Europe entered 2026 with abnormally low gas stockpiles.

Now, you might wonder, this is just temporary. If (and that’s a big if) this crisis ends, countries could just switch back to LNG, right?

Well, it’s not that easy. Coal plants are not designed for flexible operation — they are built for steady, continuous baseload generation, not to be switched on and off in response to a geopolitical crisis. Repeatedly ramping them up and down causes thermal stress, reduces efficiency, and drives up costs in ways that compound quietly. More problematically, new coal capacity locks in asset lifespans of 30 to 40 years. Emergency choices made now could make a long-term impact on the carbon profiles of these economies in the future.

India’s relationship with LNG was always more fraught. As we’ve covered before, imported LNG was never cheap or reliable enough to compete with domestic coal and renewables in the Indian power sector. As a result, our transition has been more of a direct jump from coal to renewables. This is partly why India is accelerating coal gasification, where domestic coal is converted into a gaseous form that is easier and cleaner to burn than real coal.

Suns and winds of change

Now that we’ve addressed the middle layer of the energy transition, what about the final phase: clean energy itself? The crisis has produced a strong price signal for clean energy alternatives. And in many markets, those alternatives are now mature enough to respond.

Electric vehicles

Let’s start with EVs.

In India, electric car registrations jumped 50% year-on-year in March. Some part of the jump in recent EV bookings is attributed to this crisis making petrol cars relatively more expensive. And industry analysts expect that this is just the beginning.

A report by Ember documented that Vietnam had already hit a 38% EV sales share, Uruguay 27%, and Indonesia 15% — all ahead of both the United States and Japan, before the crisis had even begun. China leads the pack, crossing 50% EV sales share for the first time last year.

Now, many of these countries provide consumers with tax credits and subsidies for EV adoption. But, even in countries that lack them, EV adoption has taken off in reaction to the crisis. Ironically, no country illustrates this better than one of the central actors in this crisis — the US.

See, the Trump administration ended the federal EV tax credit last year, making new EVs far more expensive for the average American. As petrol crossed $4 a gallon, consumers pivoted to the second-hand market, as used EV sales surged 12% from last year.

Solar energy

Now, let’s move on to solar, which has already been enjoying strong tailwinds. As per Ember, even prior to the crisis, solar power generation has basically been doubling every three years.

The biggest appeal of solar comes from the fact that it’s a “terminal product“. What that means is, unlike a gas-fired power station that requires you to pay for fuel every day it operates, a solar panel generates electricity for years at zero ongoing fuel cost. There’s no cost for the sun.

Across Europe, a boom in balcony and plug-in panels saved the continent ~€100 million in March alone this year, just by displacing demand for imported gas. Only recently, a developer in Vietnam recently asked the government to cancel a planned LNG terminal and build a solar and battery project in its place instead.

Perhaps, the solar story hasn’t been more powerful anywhere else than in developing nations that adopted it out of economic desperation.

Pakistan, for instance, imported roughly 41 GW of solar panels from China since 2023 — nearly equal to its entire pre-existing power generation capacity combined. Sri Lanka, meanwhile, was just recently burnt by a foreign exchange crisis driven by fuel import costs. As a result, they’ve been rushing forward solar and battery projects to manage the current energy hardship. Lebanon, where grid power has been rationed, has seen rooftop solar spread across their country.

Solar is not fully insulated from the crisis, though. There are two big bottlenecks, one of which has directly been created by the Hormuz crisis.

See, solar panels use a lot of aluminium, which is energy-intensive to smelt. And smelters in the Gulf, where power is cheap and abundant, make up ~9% of global aluminium production. Now, they have curtailed output because of the same gas shortages hitting everyone else. Aluminium prices were already rising before this, but now, they have hit four-year highs. The crisis is briefly making solar a little more expensive to build at exactly the moment it should be most attractive to buy.

The second catch has more to do with how solar itself is being adopted. In countries like Lebanon and Pakistan (which we covered earlier), solar panels are mostly being adopted by their richer citizens. Often, it has no connection to the national grid, which has basically collapsed. The large, relatively lower-income sections of their societies, which are still reliant on the grid, are still facing the brunt of the Hormuz crisis.

Going nuclear

Meanwhile, nuclear might be having a huge dramatic political moment. The crisis has driven countries which had sworn to never take up nuclear again to announce new nuclear plants altogether.

Taiwan, for instance, promised a “nuclear-free homeland“ in 2016, decommissioning its last nuclear plant last year. But now, in a complete reversal, they might be restarting two shuttered reactors. Meanwhile, Japan is also turning back on some of its reactors.

Across Asia, nuclear is being reframed from a politically toxic legacy technology to the only firm baseload power source that doesn’t depend on imported fuel or sunny skies.

The China question

Of course, when we talk about clean energy sources like EVs and solar, it’s hard not to wonder about China’s role.

After all, China produces most of the world’s solar panels, dominates EV battery manufacturing, and also controls rare earths that feed both technologies. The supply chains of the clean energy transition run almost entirely through Chinese factories. A country scaling up solar and EVs is, in effect, trading dependence on Gulf crude for dependence on Chinese manufacturing.

With EVs, the danger is more obvious, as countries are likely to import not just EVs from China, but also batteries and the lithium that powers them. However, with solar, some argue this is not the same vulnerability. When you buy a solar panel, you buy the means of production. The leverage China has over your energy supply should end the moment the panel creates power.

However, that’s not the only geopolitical leverage China has. In this crisis, it might also be one of the most energy-secure nations in the world today.

As per the IEA, the oil displaced by China’s EV fleet last year was roughly equal to what the country imported from Saudi Arabia. Its power grid is mostly powered by coal and renewables, insulating it strongly from global oil price shocks. On top of that, less than 20% of China’s oil imports are from any one source. It also has 1.2 billion barrels of crude in onshore storage as of January — roughly 108 days of import cover.

Coal, though, remains the ballast stone of China’s own energy security, accounting for over half of its electricity generation. China is simultaneously the world’s biggest clean energy manufacturer and its largest coal consumer. Those two facts coexist without contradiction, but they mean different things for different kinds of dependence.

History never ends

Prior to today, the last big oil shock was in 1974, when OPEC hiked oil prices. Up until that point, our entire mass-production economy — cars, suburbs, plastics, synthetic fertilisers — had been built on the assumption of cheap oil.

Economic historian Carlota Perez studied this crisis, and realized that when oil became expensive, the search for the next cheap input intensified. She found it in the rapidly falling cost of microelectronics, which, in turn, gave birth to the age of information technology. This was a new industrial revolution that came partly as a response to expensive energy.

History doesn’t rhyme, but does it repeat itself? Will the oil crisis of today accelerate the clean energy revolution? Will it fasten the advent of what people call “peak oil”?

There’s certainly a huge impetus. Countries are enforcing work-from-home policies, ordering AC temperatures be raised, introducing four-day workweeks, and even closing schools. Perhaps, the feeling couldn’t be more succinctly put than when Lee Jae Myung, the president of South Korea, said this:

“Right now, there is chaos worldwide due to energy issues. Frankly, the situation is so serious that I cannot sleep. South Korea must swiftly transition to renewable energy.”

The transition itself was always complicated before the Strait of Hormuz blockade. Now, that has made things even messier. Yet, it has made the call to action far louder than it has ever been, and that itself could be the biggest catalyst the new energy shift needs.

The opaque curtains of India’s gold pricing

On April 1, the Directorate General of Foreign Trade restricted all imports of gold, silver, and platinum jewellery into India, effective immediately. The next day, a second notification restricted precious metal alloys, certain forms of unwrought gold and silver, and several other categories under Chapter 71 of the tariff code. Also effective immediately.

The language was unusually aggressive — no transitional relief, no grace period, existing contracts, irrevocable letters of credit, advance payments, goods already shipped, all overridden. The government does not talk like this unless it believes something is urgently, structurally wrong.

India produces almost no gold of its own. Every year, the country imports roughly 800 tonnes. For India this fiscal year, gold was the single largest item on the import bill after crude oil. In October 2025 alone, gold imports hit a record $14.72 billion, enough to push the monthly trade deficit to an all-time high of $41.7 billion.

And between the import price and the gold you buy, there sits a small, closed group of intermediaries operating through a system so opaque that different buyers routinely pay different prices for the same gold on the same day.

This is the story of how that system works, who benefits from it, why the government keeps trying to fix it, and why it keeps failing.

A brief history

For most of independent India’s existence, importing gold was simply illegal. The Gold Control Act of 1968, introduced by Finance Minister Morarji Desai, prohibited citizens from owning gold in bar or coin form. Goldsmiths couldn’t hold more than 100 grams. Licensed dealers were capped at 2 kilograms. The reasoning was that India’s huge appetite for gold was draining foreign exchange reserves at a time when the country could barely afford to import essential goods.

Although it killed the official gold market entirely, a massive underground market replaced it. Gold was smuggled in from West Asia on dhows, landing at secluded spots along the western coast. The men who ran this trade became Bombay’s first organised crime bosses. Haji Mastan was the master of the Arabian Sea routes. Dawood Ibrahim got his start as a “landing agent,” receiving shipments on the docks.

By 1990, the broader economy was in crisis. India was on the verge of defaulting on external obligations. The government pledged 40 tonnes of gold to the Bank of England to secure emergency loans. The Gold Control Act was repealed. Liberalisation followed, and gold imports were legalised, at a specific duty of ₹300 per 10 grams, roughly 1%. Smuggling became uneconomical overnight.

But gold couldn’t be entirely decontrolled either. Unlike oil or machinery, gold doesn’t fuel production and the foreign exchange used to buy it is gone. You cannot simply place an order with an overseas supplier, even if you have an Import-Export Code. Ideally, you’ll need certain regulated entities at the centre of India’s gold trade.

And that’s what the RBI did.

Sixteen doors

In 1997, the RBI designated the first batch of seven banks as nominated agencies for gold import. They would directly buy gold from international suppliers and sell it to jewellers at a markup.

Then, in 1998, the RBI issued a circular that expanded the ways nominated banks could import gold. It added several new options, including something called “consignment“.

Under consignment, an overseas supplier — typically a global bullion bank like HSBC, JP Morgan, or a Swiss refinery — ships gold to India through a nominated bank. But ownership does not transfer. The gold sits in a vault in India, still belonging to the foreign supplier. The nominated bank is not a buyer as much as it’s a custodian or middleman.

The gold stays in this state, physically in India but legally owned by a foreign entity, until an actual end-buyer — like a bullion dealer or a jeweller — shows up. At that point, the nominated bank facilitates the sale. The price gets fixed only then, at the moment of sale, not when the gold was imported.

The nominated bank, in return, gets a fee on each transaction. It doesn’t need to deploy capital, or take price risk, or fund the inventory, or even bear the storage cost. Almost all gold imported into India comes through consignment because for the banks it is risk-free income.

But obviously, that means that these banks have negligible say in how gold is priced.

As per a paper from IIM Ahmedabad, the consignment model has made nominated banks “overly reliant on suppliers setting prices for them“. Most banks have “not advanced up the value chain by holding gold in their books“, even though the RBI has explicitly permitted them to do so since July 2014. The banks found a comfort zone where “a simple markup is added” to run their bullion desks, and they’ve stayed there ever since.

As of July 2025, there are exactly 16 nominated banks, including State Bank of India, HDFC Bank, ICICI Bank, and so on. On top of these banks, there are also 43 refineries certified by the Bureau of Indian Standards that can import unrefined gold for processing, and a few government agencies. But the banks are the primary channel through which gold passes into India.

The phone call market

Okay, but is there a problem here? Well, yes.

You see, when a bullion dealer wants to buy gold, they call their contact at a nominated bank. The bank checks with its overseas supplier, and a price is quoted. That price depends on the size of the order, the dealer’s relationship with the bank, the timing, how much gold the supplier currently has parked in Indian vaults, and the dealer’s negotiating power.

Every transaction in this system happens privately, bilaterally, over the counter. There is no exchange where bids and offers are visible, no centralised order book. This means there is no transparent, publicly available price at which gold changes hands in India.

A large dealer in, say, Zaveri Bazaar, who moves hundreds of kilograms every month, who has dealt with the same bank for twenty years, gets a different quote from what a regional dealer in Varanasi or Coimbatore gets through an intermediary. The nominated banks have been offering different prices to different customers.

This is why gold prices in India vary from city to city. Each city has its own bullion association that sets a daily gold rate every morning, and local jewellers price off that rate.

But these visible city-level differences are just the surface. Underneath them lies a supply chain where the spread between what the foreign supplier charges and what you eventually pay passes through multiple links. And each link adds a markup that is set in private, making the price a lot higher than what would have existed with a central exchange.

The exchange that nobody uses

Now, India has indeed built such an exchange.

The India International Bullion Exchange (IIBX) was launched by the Prime Minister in July 2022 at GIFT City. Instead of opaque consignment channels, “qualified jewellers” could import gold through exchange-traded contracts. That would mean prices that would be visible on an order book.

From launch through March 2025, IIBX traded a cumulative 101.4 tonnes. It projects 120 tonnes for FY26. India imports 800 tonnes a year, and IIBX handles roughly 15%. The other 85% still flows through consignment.

The problem is incentives. For the foreign supplier, consignment gives guaranteed market access without price competition. For the bank, it’s risk-free income. For large dealers, OTC means preferential pricing that smaller players can’t access. Transparency is not in anyone’s commercial interest, except the small jeweller at the end of the chain, who has no say.

China faced the same problem. Before 2002, its gold market was opaque. The People’s Bank of China established the Shanghai Gold Exchange and mandated that all gold flow through it. Today, the SGE is the world’s largest physical gold exchange with over two million individual investor accounts. It runs a twice-daily benchmark auction in RMB. When Chinese demand surges, the “Shanghai premium” spikes and traders worldwide respond. China has a voice in global gold pricing.

India built the exchange but didn’t mandate its use.

Finding arbitrage

Meanwhile, India’s gold imports often clashed with India’s political economy.

Between 2012 and 2013, gold imports surged so dramatically that they became a threat to macroeconomic stability. The current account deficit was ballooning, the rupee was falling. The government hiked import duty from 2% to 10%. Predictably, smuggling came roaring back — seizures in the first quarter of 2013-14 were 365% higher than the 365 days before.

Alongside the duty hike, the RBI tried the 80:20 scheme, where, for every lot of gold imported, at least 20% had to be made available exclusively for jewellery exporters. Only after proving that could the bank release the remaining 80% for domestic sale. The idea was to ensure gold imports generated some export revenue, and therefore foreign exchange.

In practice, though, it created enormous confusion, was vulnerable to round-tripping (gold exported on paper to justify more imports), and was withdrawn in November 2014, less than two years after it was introduced.

Then, in the July 2024 Union Budget, the government slashed import duty from 15% to 6%. If high duties cause smuggling, lower duties would bring imports back into official channels. It worked, in the sense that official imports surged. But it worked too well, inflating the import bill massively.

Meanwhile, traders kept finding loopholes. Some discovered they could import gold jewellery through Thailand at zero ASEAN duty. Others found they could import gold disguised as “platinum alloy” from the UAE at lower duty rates. This week’s two DGFT notifications are aimed at plugging these. They will work for a while. Until someone finds the next one.

Where this leaves us

Now, this week’s restrictions will close some of these loophole routes, but the core of the situation doesn’t lie there.

India’s gold market is worth over $69 billion a year. The RBI holds a record 880 tonnes in its reserves. Nearly 10 million Indians hold gold through ETFs. Tens of millions more buy it physically, every year, for weddings and festivals and as savings.

And all of this runs on a price set in London, imported by 16 banks that don’t actually buy the gold, sold through private calls to a few hundred dealers who each get a different quote. The fundamental problem is that India’s gold market is quite opaque, and has less reason to be less so.

Tidbits

[1] SEBI extends IPO approval validity amid market volatility

SEBI has extended the validity of IPO and rights issue approvals till September 30, 2026, giving companies more time to launch offerings. The move comes amid West Asia tensions, market volatility, and weak investor participation, with no penalties for delayed compliance during this period.
Source: ET Now

[2] RBI pegs FY27 growth at 6.9%, inflation at 4.6%

The RBI has projected FY27 GDP growth at 6.9% and inflation at 4.6%, while keeping the repo rate unchanged at 5.25%. Growth remains steady but slightly lower than last year, with risks from geopolitical tensions and energy prices. Inflation is expected to stay within the target range.
Source: Mint

[3] Adani seeks dismissal of US SEC fraud case

Gautam Adani has asked a US court to dismiss the SEC’s fraud case, arguing it falls outside US jurisdiction and shows no wrongdoing. The case relates to a 2021 bond issue by Adani Green, with the group denying allegations and saying investors suffered no losses.
Source: ThePrint

- This edition of the newsletter was written by Manie and Aakanksha

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #6

Hi folks, hope you’ve had a great week…

Read more

22 days ago · 18 likes · Zerodha

We’re now on WhatsApp!

We’ve started a WhatsApp channel for The Daily Brief where we’ll share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops, so you can read or watch it right away. Here’s the link.

See you there!

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. What’s the point of a Whoop?

2. The unglamorous reforms that actually work

What’s the point of a Whoop?

Last week, Whoop raised $575 million, at a 10 billion dollar valuation.

We generally don’t like talking about valuations here. But we’ll make an exception, because it’s something we’re personally interested in. One of our writers, Krishna, has been using an Apple Watch for about a year, works out regularly, and has been reading about health wearables for a while. For months, he has been on the fence about getting a Whoop. Not that he doubts that it tracks things; he just keeps asking himself if there’s a point to having all that data.

That, it turns out, is perhaps the most fundamental question you can ask about this industry right now. More, perhaps, than we realised at first.

Here’s what Krishna found, digging through this rabbithole.

The band that started it all

Our story starts with Fitbit.

Fitbit launched their first device in 2009. This was a small clip you could wear on your waistband. It would count the steps you took, and tracked your sleep.

It was a hit. There were pedometers before this, but nobody had done like this before — not well anyway. Revenue grew from about $5 million, in 2010, to $745 million by 2014. By the time they went public in June 2015, they held over a quarter of the entire global wearables market, shipping 21 million devices that year. For a company that essentially made a glorified pedometer, that was a remarkable position.

Then, two things hit them simultaneously.

One, Apple launched the Watch. Here was a device that did everything Fitbit did, but also handled your calls, messages and payments. And it kept getting better with every software update. Xiaomi entered from the other direction, with the Mi Band, doing the same basic fitness tracking for under $15. Fitbit was crushed in the middle. According to IDC’s Worldwide Wearable Device Tracker, by 2017, Xiaomi and Apple had entirely supplanted Fitbit from the top of the market. Fitbit’s SEC filing for FY2017 shows its revenue falling from $2.17 billion to $1.61 billion in a single year. The units it sold, too, dropped from 22.3 million to 15.3 million.

But the intense competition was only part of the story. There was also a deeper failure.

Over those years, Fitbit had accumulated health data from tens of millions of people. By 2016, with the Charge 2, they could even measure heart rate variability: the millisecond variation between heartbeats that tells you how much your body has really recovered from stressful activity. But they never built the layer that turned any of that data into something personalised and meaningful. They showed you a nightly number. They could tell you how many hours you slept, for instance, but not what it meant for your body, specifically, or what to do about it.

As a Harvard Business School analysis put it, Fitbit never built an ecosystem around itself, and once cheaper devices could do the same counting, there was no reason for anyone to stay. All that data simply sat there for years, unused. Google bought the company in 2021 for $2.1 billion — less than a quarter of its peak — and has been winding it down ever since.

The Fitbit saga left one question open: did any of this actually matter, or was it just collecting vanity metrics? That is the question Apple Watch answered first.

The Swiss knife on your wrist

The Apple Watch is a fitness wearable, but it isn’t just that. It is the Swiss knife of wearable technology — calls, messages, payments, navigation, and fitness tracking, all in one device. You couldn’t beat it if all you offered was fitness tracking.

But what Apple Watch did for this story is bigger than the competition. In September 2018, they launched the Series 4. This came with something that had never existed in a consumer product before: FDA clearance for ECG recording and atrial fibrillation detection. Atrial fibrillation is a heart rhythm disorder which significantly raises stroke risk. A large number of people carry it without any symptoms at all. The Apple Heart Study, run with Stanford Medicine and published in the New England Journal of Medicine, enrolled over 400,000 participants and proved that a device on your wrist could detect it before you felt anything.

That settled the question: a consumer wearable could do something genuinely medical. The ambition of preventive health monitoring was no longer theoretical.

But the Apple Watch was still a generalist device. Health was one feature, among dozens. This opened the room for specialists. If a company could offer specialised health intelligence as the whole product, it could open a new niche. This is what Whoop and Oura brought to the picture.

The subscription body

Whoop was founded in 2012, in Boston, by Will Ahmed — a Harvard squash captain obsessed with one question: why do equally trained athletes recover at such different rates? He spent years with the medical literature, and finally landed on heart rate variability as the answer. You couldn’t get this from a single reading; you needed to study patterns over months — your personal baseline, what normal looks like for your body specifically, and how your body behaves when something is starting to shift, often days before you actually feel it.

This became the basis for his first commercial product, launched in 2016 at $500. But in 2018, Whoop made a decision that changed the business: they stopped selling the device. Instead, they gave it away for free, with a $30-a-month membership. The device, after all, was just a sensor. What made it valuable was their health intelligence, which only gained value as you spent time with the band. Within six months, the platform learns your baseline. After a year, it knows exactly how your body responds to poor sleep or overtraining. Walk away, and you lose all of that. According to disclosures, Whoop has now accumulated over 24 billion hours of physiological data from its members.

Oura worked on the same logic, but built into a ring. The Finnish company was founded in 2013, and launched via Kickstarter in 2015. It got an early credibility boost when Stanford Research Institute independently validated its sleep tracking accuracy — without any tie-up with Oura. Then, during COVID, the NBA used Oura rings in their bubble to monitor player health. A UCSF study showed the ring could detect infection before symptoms appeared. That was when it went beyond a sleep tracker. Today, Oura has sold 5.5 million rings, and has raised $900 million at an $11 billion valuation.

Amazon entered this market in 2020 with the Halo band. It came in with unlimited capital, global distribution, and Alexa built in. It shut the project down in 2023. After all, building a sensor isn’t hard; building models trained for years on millions of people’s physiological data is.

That accumulated data also started attracting a very different kind of attention.

When wellness meets medicine

These devices are legally classified as wellness products, not medical devices. That isn’t a trivial difference; under US law, a product that encourages healthy behaviour but steps clear of clinical claims can largely avoid FDA oversight. The moment you claim your device can diagnose or prevent a disease, however, you become a regulated medical device. That obliges you to run clinical trials, seek premarket approval, and wade through years of process.

And so, the entire industry has been trying to get as close to that line as possible without crossing it.

This came to a head in a clash between Whoop and the FDA, last year. In April 2025, Whoop received FDA clearance for its ECG feature. But in July 2025, the FDA sent Whoop a warning letter. Its may have approved Whoop’s ECG tracker, but its blood pressure monitor still made it a medical device that lacked FDA clearance. It went so far as to call the product both “adulterated” and “misbranded.” Whoop’s founder Will Ahmed went on CNBC and publicly refused to remove it — arguing it was a wellness feature, not a medical device. The standoff lasted until January 2026, when the FDA updated its own guidelines, effectively moving the line in Whoop’s direction.

Whatever this regulatory back-and-forth might indicate, the company sure draws a lot of medical investors.

Whoop’s recent round includes Abbott Laboratories — the company that makes the FreeStyle Libre, the continuous glucose monitor prescribed to diabetics worldwide — and Mayo Clinic, one of the most respected hospital systems in the world. Dexcom, which makes the other dominant glucose monitor, participated in Oura’s 2024 fundraise, and announced a product integration through which both devices share data. These are not fitness investors. They are medical device companies and hospital systems. And they’re betting on a specific future: that continuous health monitoring becomes the standard front door to preventive healthcare, and that they’re inside the platforms that get there first.

The fundamental question

Which brings us back to where we started. Is there a point to this?

For one specific thing, definitely. The Apple Heart Study proved, across 400,000 participants, that a consumer wearable could catch atrial fibrillation before it caused serious harm. A separate study in the American Heart Association’s journal Circulation confirmed similar results. That evidence is real and peer-reviewed.

Beyond that, things are complicated. An independent study that tested Apple Watch, Whoop, Oura, Garmin, and Polar simultaneously against clinical-grade sleep monitoring equipment found that even the best consumer device correctly classified sleep stages around 65% of the time. Now, classifying sleep stages from a wrist sensor is genuinely hard, and they only claim to give estimates. But it’s important to remember that there’s a major difference between an estimate and a clinical measurement.

But the question we began with isn’t whether these wearables measure things; it is whether there’s a point to measuring things. Do they actually change behaviour?

It isn’t clear that they do. A systematic review of clinical trials found no evidence of continued behaviour change beyond the original study period. Research by Endeavour Partners found that more than half of people who bought a modern activity tracker eventually stopped using it. Knowing your recovery score is red only matters if you actually do something about it. Most people, it appears, don’t — at least not consistently over the long term.

Keeping a tab

In the first generation of wearables, companies sold sensors. The industry matured from there; companies like Whoop and Oura started selling intelligence instead — they learnt how your body worked, over time, and fed insights that get more accurate with time. We know for a fact that these can catch some major risks.

What we haven’t seen yet, however, is the other side of the equation: where ordinary people change how they live, at scale.

In India, at least, that won’t change anytime soon. We need such services; according to the Indian Council of Medical Research, non-communicable diseases now account for 61.8% of all deaths in our country — led by cardiovascular disease. But most Indians are simply nowhere near the price points these devices come at.

But what about a single Indian — Krishna? Well, he still doesn’t know if he’s getting a Whoop.

The unglamorous reforms that actually work

Until recently, if you had unclaimed shares or dividends sitting with a company, getting them back was a nightmare.

The Investor Education and Protection Fund Authority (IEPFA) was set up in 2016 precisely for this — to hold unclaimed corporate shares and dividends, and return them to their rightful owners. Simple enough in theory, but in practice, the process involved 25 steps spread across three separate web portals. One portal handled the application and approval. A second, run by the depositories, handled the actual share transfer. A third handled dividend payments.

The three portals didn’t talk to each other. Information had to be manually re-entered at every stage and cross-checked multiple times. A single data-entry mistake at any point could send the claimant back to square one. Resultantly, by March 2025, the IEPFA had accumulated a backlog of ~51,000 applications and the claimants were waiting close to three years to recover what was rightfully theirs. Many gave up while others paid commissions to intermediaries just to navigate the system.

When the Economic Advisory Council to the PM (EAC-PM) started researching this in early 2025, they mapped out the actual process and found that the biggest problem was also the most obvious one: the three portals operated in silos. Each segment was digitised on its own, but the absence of integration defeated the very purpose of going digital.

The fix was straightforward — integrate the portals. Eliminate the redundant data entry and make share transfers and dividend payments happen in parallel instead of sequentially.

The results have been dramatic. Between April and September 2025, IEPFA was approving about 850 applications a month. After the new integrated system went live, that number jumped to over 9,100 a month — the monthly rate now matches what used to be the annual rate. What earlier took up to two years after approval now gets done in days. At this pace, the entire accumulated backlog will be cleared within months.

This isn’t a new law or institution. Unlike broad-based policies designed from the top-down, the appreciation of the IEPFA story comes from what a simple fix it really is. It’s what Sanjeev Sanyal, an EAC-PM member, calls a “process reform”, which fixes something that existed.

Better plumbing.

Think about what actually fixed the IEPFA. Nobody passed a new law or created a new regulator. Someone mapped how the system actually worked, asked why three portals didn’t talk to each other, and integrated them. With one coordination fix, a three-year wait turned into a three-day one.

When we think about economic reforms, we tend to think big — the 1991 liberalisation, GST, the Insolvency and Bankruptcy Code, and so on. These are structural reforms that reshape the architecture of an economy.

Process reforms, though, are different. They’re the small, targeted fixes to how the government actually operates on the ground. They’re simple corrections to existing architectures. And unlike big-bang reforms, they’re far cheaper to execute. India’s headline structural reforms are mostly done or already underway. But what could unlock the next leg of growth is fixing hundreds of broken processes across the government.

The Economic Survey 2020-21 explains why there are so many broken processes to fix. Cross-country comparisons show that India actually does well at having rules and regulatory standards, and following due process. Where India falls behind, dramatically, is in whether those regulations actually produce results.

And more rules don’t help. It’s really difficult to write rules that anticipate every possible future scenario. Any such attempt adds complexity, and complexity only creates ambiguity. Every ambiguity, in turn, becomes a judgment call, which only leads to more discretion. That creates huge, uneven variance in outcomes that are related to a single rule set. It becomes nearly impossible to enact these rules uniformly.

The Economic Survey found exactly this when, for instance, it looked at construction permits across Indian states. States with more elaborate regulatory requirements for granting permits didn’t have more, but rather less predictable timelines. The more boxes an applicant had to tick, the more divergence existed in the experiences of each firm in getting a permit. In many ways, the rules made it feel like a lottery.

But the solution, Sanyal argues, isn’t deregulation or removing the government from things it shouldn’t be doing. It’s process reform, which is getting the government to do things it should be doing, but better. And the case studies from India show just how powerful this can be.

A cascade of fixes

Closing a company: 1,570 days → 60 days

The first case relates to how a corporation is closed in India.

Before 2024, it used to take 1,570 days to voluntarily close a company in India, even when there was no dispute, no litigation, and all paperwork was in order. For comparison, Singapore does it in about 12 months, while Germany took 12-24 months, and the UK did it in 15.

When the EAC-PM mapped the actual process, they found the delays weren’t caused by some deep structural flaw. Over 2/3rd of the days were eaten up waiting for clearances from Income Tax, Provident Fund, and GST departments. But even before that, there was a more mundane bottleneck: the Registrar of Companies had to publish closure notices in newspapers, and because publication was expensive, RoCs would wait until they had enough cases to batch-publish in one go. There were also no fixed timelines and no cap on how many times they could demand document resubmissions.

The fix arrived in stages. First came an administrative push to publish notices weekly or fortnightly instead of waiting; this alone cut average processing time from 499 days to 195 days.

Then, in 2023, the Ministry of Corporate Affairs set up C-PACE — a centralised, faceless, one-window portal. That set fixed timelines for every step with nodal officers identified in each department and resubmission requests capped at two. As a result, average processing time dropped to 60 days by 2024-25. Over 38,000 companies have been struck off through C-PACE since May 2023.

Patent pendency: 6 years → 4 months

The second case study relates to India’s patents.

India’s patent office used to be one of the slowest in the world. Average pendency was around five years — the highest among major economies. The problem wasn’t the patent law itself but capacity. India had roughly 900 staff processing patent applications while China had 13,700 and The US had 8,100.

A few years ago, examiners were added at the junior level. But that just shifted the bottleneck as applications cleared the first examination faster, only to pile up at the senior controller level, waiting for final disposal. The real fix required tripling overall capacity, adding senior staff, cutting fees by 80% for startups and MSMEs, and mandating e-filing. The outcome was a 17-fold surge in patent grants from ~6,000 in FY15 to over 100,000 in FY24.

Welfare delivery: ₹3.65 spent to transfer ₹1

The last case study is about India’s welfare distribution.

India’s welfare system had a delivery problem. For every ₹1 of income transfer to the poor, the government spent ₹3.65. That meant one rupee of budgeted subsidy was worth only 27 paise to the actual beneficiary. About 58% of subsidised food grains under the public distribution system were lost to identification errors, duplicate beneficiaries, and middlemen, never reaching the intended recipient families.

To fix this, the government triangulated three things that mostly already existed: Aadhaar (unique ID), Jan Dhan (no-frills bank accounts), and mobile linking. Benefits were routed directly to Aadhaar-linked bank accounts, cutting out intermediaries entirely. The Direct Benefit Transfer system has since saved an estimated ₹3.48 lakh crore, weeded out 42 million fake ration cards, and expanded coverage 16-fold.

Similar patterns show up wherever you look. The Government e-Marketplace (GeM) brought transparency to public procurement, cutting average prices by 15-20% and making them comparable to Amazon and Flipkart. Telecom regulations for the IT-BPO sector were slashed from 40 pages to 5, scrapping registration requirements and allowing work-from-home. In fact, 92% of companies surveyed by NASSCOM said compliance burden dropped due to this.

The unfinished business

There is a recognizable pattern in how these bottlenecks are recognized and fixed. But the scale of remaining friction in India’s system is enormous.

For instance, India’s courts have 55.8 million pending cases. The judge-to-population ratio is 21 per million; in comparison, the US has 150 per million. The government itself is the biggest litigant, responsible for roughly half of pending cases. And the Income Tax department loses 73% of its own cases at the Supreme Court and 87% at High Courts. Yet, it continues to file appeals as a matter of routine, just because no official wants to exercise the discretion to not appeal.

Tax litigation alone has over 5.4 lakh appeals pending before Commissioners of Income Tax, with disputed demands exceeding ₹16.75 lakh crore locked up in procedural limbo. India’s compliance ecosystem remains extraordinarily dense: a 2025 study found that manufacturing MSMEs face 1,450+ regulatory obligations annually, maintain 48 different registers, and spend ₹13-17 lakh per year on compliance. And land — where over 60% of all Indian litigation originates — still runs on a deed registration system inherited from the Registration Act of 1908, where buying property doesn’t actually guarantee you own it.

Each of these could be a process reform waiting to happen. The question is whether the approach that turned shortened year-long waits into days can be institutionalised and scaled across various arms of the government.

Tidbits

1. Google’s $15 billion data centre in Andhra Pradesh Google is set to break ground on April 28 on what would be the single largest foreign direct investment in Indian history — a $15 billion, 1-gigawatt data centre hub spanning three campuses across 600+ acres near Visakhapatnam, targeted for completion by July 2028.
   Source: The Hindu BusinessLine

2. Biocon’s insulin and GLP-1 strategy Biocon Biologics, already a leading global supplier of biosimilar insulins, is now pushing into the fast-growing GLP-1 market — drugs like Ozempic and Mounjaro — arguing that its existing insulin R&D, manufacturing, and prescriber relationships give it a foundation similar to the one Novo Nordisk and Eli Lilly built before dominating that space.
   Source: Business Standard

3. Saudi Arabia raises oil prices to Asia at record premium Saudi Aramco has set Arab Light crude prices for May sales to Asian refiners at a record premium of $19.50 per barrel over regional benchmarks, as Iran’s near-closure of the Strait of Hormuz disrupts Gulf oil flows — though the figure came in well below the $40 premium many traders had anticipated.
   Source: The Print

- This edition of the newsletter was written by Krishna and Kashish

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #6

Hi folks, hope you’ve had a great week…

Read more

23 days ago · 18 likes · Zerodha

We’re now on WhatsApp!

We’ve started a WhatsApp channel for The Daily Brief where we’ll share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops, so you can read or watch it right away. Here’s the link.

See you there!

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. How India’s Ratna system for PSUs works

2. Why the GST can’t police itself

How India’s Ratna system for PSUs works

India’s listed PSUs account for 8-9% of India’s total stock market capitalisation. Many of them are household names — like ONGC, NTPC, Coal India — and millions of Indians own their shares directly or through mutual funds.

Yet, we found ourselves asking a key question: why are some PSUs called “Navratna“, some others “Maharatna”, and others “Miniratna”? Why does this classification matter all that much?

Well, the Ratna system determines how freely a company can spend, borrow, and expand without waiting for ministerial approval. In a system where government ownership still dominates large stretches of the Indian economy, the Ratna tier a company sits in is effectively a measure of how much it is trusted to run itself.

Last year, Cabinet Secretary T.V Somanathan led a committee to review this classification framework — a system that, at its core, has been largely unchanged for nearly three decades. The report was due before the Union Budget of FY27, but the Budget came and went with no announcement.

However, the review signals recognition that a framework that long ago may not be fit for the India of today.

Whither autonomy?

To understand what needs fixing, you first need to understand how we got here.

After independence, much of India’s economy was centrally governed, and PSUs were expected to be the linchpin of India’s investment planning. Our PSUs had basically become instruments of employment, regional development, and political economy — all at once.

But, by the 1980s, the model had curdled. Every significant business decision inside a PSU necessarily required a sign-off from the corresponding ministry. If a PSU wanted to invest in a new facility, buy equipment, or even enter a joint venture, it had to route its request through many layers of bureaucracy. Managers had formal responsibility for their companies, but no real authority to run them.

The government’s first attempt to fix this was the Memorandum of Understanding (MoU) system, introduced in the mid-1980s. The system entailed annual performance contracts between PSUs and their ministries setting targets for profit, production, and efficiency. While initially promising, the results were mostly limited. After all, the same ministry that set the targets evaluated performance against them — an obvious conflict of interest.

Then, in 1991, India’s economy liberalized at once, while also cutting government spending. This, in turn, left PSUs exposed. With their poorly-run finances, many PSUs were uncompetitive and found it difficult to survive. It was expected that, in order to truly give them autonomy and pressure them to market discipline, they would be privatized.

However, fully privatizing them was politically impossible. For one, there was plenty of opposition from public-sector unions and many parts of India’s bureaucracy. But secondly, in many cases, it would have been undesirable to sell them off, too. PSUs are often designed to serve national interest rather than profit alone.

So, the government had a problem to solve. Its PSUs were hampered by constant intervention from the top-down, which didn’t leave them much room in how they should be run. However, just to achieve that goal alone, it couldn’t sell them off wholesale to the market. How does it find a middle path between both scenarios?

The nine jewels

Enter the Ratna system of classifying PSUs.

In 1997, India named nine public sector companies as Navratnas — a term originally referring to the nine most distinguished advisors to Akbar, the Mughal emperor. Within months, the government also introduced the Miniratna classification for smaller, profitable PSUs. Maharatna, a new topmost tier, followed in 2010.

The result is a three-step ladder. Each stage reflects the size and scale of a company, and how much autonomy they should be granted in making investments. Upgradation to the next stage is subject to periodic government approval, and is based on the performance of the PSU: its revenue, profitability, and so on.

Miniratnas

At the base are the Miniratnas, split into two sub-categories. Category I requires the PSU to have three consecutive years of profit, with a pre-tax profit of at least ₹30 crore in one of those years. It unlocks the ability to invest up to ₹500 crore without seeking government approval. Category II has a slightly easier profitability benchmark to meet, with capex autonomy up to ₹250 crore.

There are over 50 Miniratna companies as of today. Most of them are located in sectors that are not as strategic to India. Some are project-specific secondary firms in important industries, or subsidiaries of larger PSUs. Some examples of Miniratnas include Airport Authority of India (AAI), National Seeds Corporation, Hindustan Copper, and so on.

Navratnas

Now, to qualify as a Navratna, a company must meet a few conditions.

1. It should be a Category I Miniratna

2. It should achieve “Excellent“ or “Very Good“ MOU ratings in at least three of the last five years

3. It should score 60 or above on a composite index of six financial parameters — including net profit to net worth, manpower cost ratios, and earnings per share.

Navratna status allows a company to invest up to ₹1,000 crore in a single project without government approval. It can also form joint ventures, float overseas subsidiaries, and raise debt from capital markets within the amount.

Companies in this category include National Aluminium Company (NALCO), Central Warehousing Corporation, MTNL, etc. Some recent upgrades from Miniratna status include IRCTC, Indian Railway Finance Corporation, NHPC and SJVN (both of which work on hydropower projects), and Mazagaon Dock Shipbuilders.

Maharatnas

The Maharatna is the top rung, introduced in 2010. These are usually the most critical, strategic PSUs of India — like Coal India, Steel Authority of India, Indian Oil, BPCL, NTPC, and so on.

An eligible company must average ₹25,000 crore in annual turnover, ₹5,000 crore in net profit, and ₹15,000 crore in net worth, all over three years. Critically, a Maharatna must be publicly listed. It is the only tier where external market accountability is baked into eligibility. Maharatna boards can invest up to ₹5,000 crore or 15% of net worth per project without seeking approval, and also undertake acquisitions in India and abroad.

Mixed results

As far as how helpful the classification system has been, the results have been mixed.

A 2017 paper by economist Ajay Chhibber found that Maharatnas outperformed comparable private firms on return on capital by roughly 4 percentage points and on return on assets by about 2 percentage points. But Navratnas and Miniratnas performed worse than private companies of similar size. Another paper found only 6 Navratnas that were consistently financially sound; the remaining 8 showed financial weakness in many years.

On one hand, the Ratna system can indeed be helpful. NTPC, for instance, has used its Maharatna status to build joint ventures and subsidiaries to execute power projects. It is also using its autonomy to make the pivot from thermal power to renewables.

However, even prior to becoming a Maharatna, NTPC has always been consistently profitable. After all, it signs long-term contracts, which always ensure that the power it generates will be sold to a utility at predictable rates. In such a case, the Ratna system became a catalyst for further success of a firm that was already winning.

But can it save a company that’s failing? Well, if MTNL’s story is to be believed, the answer is no.

See, MTNL was one of the original Navratnas, and has held that status since. Over that same period, it has become one of the most spectacular business failures in India. In FY24, it recorded a net loss of over ₹3,300 crore, and held liabilities worth ~₹34,500 crore; many of these loans were owed to public-sector banks.

However, MTNL’s problem could, perhaps, not truly be solved by more freedom. It was restricted to just Delhi and Mumbai, which are India’s most competitive telecom markets. It was up against private operators with national networks and zero obligation to carry bloat, unlike MTNL did from its monopoly days. Its technology also lagged most of its peers.

Clearly, the Ratna system may be an amplifier for firms with healthy balance sheets. If you’ve performed well enough in the past, and have a high net worth, you are worthy of an upgrade. However, it cannot fix companies with deeper structural problems (like MTNL). A classification system merely based on past performance will be extremely inadequate in transforming a struggling PSU.

Diamonds aren’t forever

Even within the current implementation of the system, issues exist.

For one, enforcement is pretty weak. In fact, seemingly, no PSU has ever been downgraded for lackluster performance — even though in theory, it’s possible. And the most telling example of this is BSNL.

BSNL is, of course, India’s most strategic public-sector telecom firm, and ranks among the top 30 PSUs by annual turnover, crossing ₹21,000 crore in FY2024. Yet, somehow, BSNL has always been a Category I Miniratna. The reason, quite simply, lies in its lack of consistent profitability, and its inability to pay off debt. Now, ideally, BSNL should probably have been subject to a re-revision of its rating in light of such results, but it still remains a Miniratna.

Secondly, formal autonomy and real autonomy are different things. A World Bank review found that ministerial directives routinely override the formal powers the guidelines grant, intervening in commercial decisions the board is supposed to make independently. CEOs are government appointees serving uncertain tenures, and may be unwilling to take strategic risks that might expire with the next reshuffle. In fact, sometimes, the board of members may include ministerial staff themselves.

The third problem also lies in the boards of PSUs. Enhanced powers under Maharatna and Navratna status are explicitly conditional on having at least four non-official directors, while Miniratnas require at least three. These directors are supposed to provide the external check that a listed company gets from its shareholders.

But as of October 2024, 441 of 750 independent director positions across PSU boards were vacant. This included 200 vacancies on listed PSU boards, making them non-compliant with SEBI’s own governance rules. A system built to function with independent oversight is running, at scale, without it.

Lastly, there’s a sectoral problem. As per the same paper by Chhibber, manufacturing and mining PSUs respond meaningfully to performance contracts, but service-sector PSUs (like airlines and telecoms) don’t. That’s because services are generally more competitive and change faster in the face of new technology. Easy access to soft government loans actively removes the pressure for services PSUs to adapt quickly.

The next version

That’s where the Somanathan committee’s proposals enter. It suggests new Ratna tiers, and criteria that look beyond just past performance and financial size. Without such upgrades, you could be left with outliers like BSNL, which are incredibly strategic to India, but are at the bottom tier of the classification.

Whether the next framework changes any of this is the open question. Reforming the classification is the easy part. Creating downgrade consequences that actually get used, and filling board seats with people who can genuinely push back on ministry interference — all of that is going to be considerably harder.

Why the GST can’t police itself

A working GST system is a fascinating thing.

The tax has a built-in compliance mechanism. Every business that buys something has a financial incentive to demand a proper tax invoice from its seller, because that invoice is how it claims credit, in turn, for the tax that it paid. And so, every buyer polices its sellers. The seller, knowing the buyer will insist on an invoice, reports their sale honestly.

Only, the way India’s GST currently works, this mechanism is stuck, according to a recent paper by Modi and Shah. Well… not that Modi and Shah — Arbind Modi and Ajay Shah.

It wasn’t meant to be this way. But we made a series of design choices around input tax credits and refunds that might sound fair, in isolation — but taken together, have broken the credit chain the GST depends on.

Together, they meant that India’s GST, built to tax consumption, instead drifted into taxing production.

Understanding the GST

Before 2017, India’s indirect tax system was a complicated mess. The central government levied excise duties on manufactured goods, and a separate service tax on services. Meanwhile, each state ran its own value added tax (VAT) regime. Together, this created a mass of different rates, rules, and credit chains.

To you, as a consumer, this created an awkward problem. Imagine you bought a shirt. Everyone that had a hand in bringing it to you — the mill that spun the yarn, the weaver that turned it into fabric, the tailor that cut and stitched it, your local clothing store — might have paid a different kind of tax. By the time the shirt reached you, its price hid half a dozen taxes which different businesses had paid at different points in the supply chain. Ultimately, however, you had to foot the entire bill.

In an ideal world, these stacked taxes would cancel each other out, removing any duplications. The tailor, for instance, would get credits for the tax he paid when buying fabric, which would be adjusted at the next stage. But while there were some such systems in theory, the mess of taxes often didn’t actually allow for it. If the tailor paid service tax for a tempo to transport fabric, that wouldn’t be adjusted against the excise duty on the shirts he stitched.

GST was supposed to end the confusion. It replaced this mess of taxes with a single, unified, destination-based tax. This was a single tax system, which applied at each stage of the supply chain.

Input tax credits

Running through it was a single thread — a credit mechanism that neutralised upstream taxes. Every business would get tax credits for anything they bought. Whenever they made a sale, they could adjust these credits against the tax they were due to pay. As a result, the extra tax paid at any one step only applied to the value added at that step, and nothing else. In this system, when you came in as the last link of the chain — when you bought that shirt — you only paid one tax on it.

This made input tax credits (ITC) a key load-bearing pillar in the system. It wasn’t a concession or subsidy. It was what prevented the GST from collapsing back into the cascading mess it replaced.

At least in theory, the GST was India’s version of what’s called a “consumption-type VAT” — where businesses could deduct tax for all the inputs they purchased to make something, including capital investments. This is the global standard. It ensures that people’s consumption, and nothing else, yields tax. To economists, this is the most neutral way of charging such a tax. If you start taxing specific business decisions — like something that makes capital-intensive methods more expensive than labour-intensive ones — you can end up creating all sorts of weirdness in the economy.

Three restrictions

There was, however, one complication. In the eyes of the government, input tax credits could become a path for misuse; people would claim bogus credits, and try to avoid paying tax. So, it began creating restrictions.

First, it created a wide list of blocked credits. There are many things the GST law denies credits on: motor vehicles, food and beverages, health insurance, works contracts related to immovable property, club memberships, and so on. In isolation, this made sense: these were all effectively personal expenses that people billed to businesses. If a company was footing the bill for its director’s meals, the government shouldn’t subsidise that meal further with a tax credit.

Only, this list often catches genuine business inputs. If a logistics company rents a warehouse, or a tour operator buys vehicles to take people to a nearby attraction, these expenses are clearly core to their businesses. But they’re blocked from receiving credits for this. The tax paid on them instead gets baked into their bills as a cost, which adds to the final price of whatever is sold downstream.

Second, the refund rules are narrow. Sometimes, a business pays more GST on its inputs than it collects on outputs. The classic case is that of exporters: they sell at zero per cent GST to foreign buyers, but purchase inputs at full GST rates. If the GST is to behave like a consumption tax, in a case like this, the government should refund any excess tax a business has paid. India does so — but only in two specific cases: exports and “inverted-duty” structures, where the tax rate on inputs exceeds the rate on outputs. In other cases, that excess tax simply carries forward indefinitely as an entry on a ledger.

Even where refunds are permitted, there are restrictions. That has strange consequences. For instance, an exporter can’t claim refunds for capital goods. If you run a pharmaceutical company that sells to Europe, for instance, you can claim refunds for any chemicals or APIs you buy — but not on the machines you use to make that medicine. Similarly, if there’s an inverted duty, refunds aren’t permitted for services or capital goods. Imagine you sell packaged goods for instance — with 5% GST — while paying 18% GST for the cold storage services you need to transport them to the market. Because that’s a service, you don’t get a refund.

Third, and finally, there’s a web of procedural conditions. To claim tax credits, the suppliers of a business must have filed returns and reported the invoice correctly. If your supplier defaults, you lose the credit, even if you paid tax in good faith, and have the invoice to prove it. There are a variety of other process-based restrictions — each designed to plug a problem. In isolation, they make sense.

But as we’ve seen repeatedly on The Daily Brief, most bad outcomes come out of something that sounds sensible.

When the ITC system breaks

Let’s return to the self-policing mechanism we started with.

The magic of the GST, at least in principle, is that it enforces itself. Instead of an expensive tax enforcement system, it relies on peoples’ self-interest. Buyers watch sellers themselves; because they want their own tax credits, they demand GST-compliant invoices from their suppliers. As this game of incentives works itself through the supply chain, it creates an automatic audit trail that any tax authority can check.

Some of that is actually happening. According to recent research, the GST has pushed many businesses into formality, while making a serious dent in undocumented transactions.

But this relies on one fact: buyers have to trust that those tax credits and refunds will come through.

Choosing amongst trade-off

If there’s too much friction in claiming credits, the system breaks down. Why insist on proper invoices if some rule stops you from getting credits? Every gap gives sellers the room to underreport what they sell. As these gaps accumulate, the system drifts back toward what Modi and Shah call “the high-evasion equilibrium of the pre-GST era.” This is a particularly bad problem with services, which are intangible and often supplied informally, making them harder to audit without a trail of invoices that makes them legible.

Think of this as a trade-off. When credits flow easily, the in-built compliance loop works better, even if it creates room for people to game the system. When credit flow is limited, people game the system less, but it’s easier for them to defect from the system entirely.

Most OECD countries let credits flow freely first, and catch fraud later, using data analytics and risk-based audits. India’s approach is precautionary: we deny credits upfront to prevent bad actors from claiming them. This minimises the risk of a fraudulent credit getting through. But it does so at the cost of denying legitimate credits to honest businesses. Our approach — of blocked credits and restrictive refund formulas — has no real global peer.

And that, in turn, compromises the self-policing mechanism of the GST in the first place.

The cost of our choices

To Modi and Shah, there are three costs that we unwittingly pay for our choices.

One, there’s a hidden gap between what a business owes on paper and what it effectively pays. Imagine you buy a strip of paracetamol — which theoretically comes with 5% GST. Only, the pharma company pays 18% on the machines it uses to make your tablet, and because it can’t claim a refund, it pushes that extra cost down to you. That GST then cascades through the supply chain, exactly as so many taxes did before the GST. Your bill might just show a GST of 5%, but in fact, much more of your money has gone to the government. It would be simpler for the government to charge a clean 10% GST with refunds passing through the system.

Two, this has a cascading effect on India’s competitiveness. Imagine somebody imports the same strip of paracetamol from another country, with a simpler tax system. They pay a clean 5% GST, while the Indian manufacturer’s prices carry an embedded tax in them. The import is structurally cheaper than our own produce.

The opposite happens with our exports. Even though the export itself carries no GST, an exporter’s prices contain the burden of whatever GST they paid on capital goods. This makes them less competitive than their peers from elsewhere in the world.

Three, this drags on our growth itself. In many ways, our GST system makes capital investments unattractive. This effectively raises the effective price of new machinery, compared to labour. This creates a bias, in our businesses, towards less productive methods. Ironically, in major industrial states — like Gujarat, Maharashtra or Tamil Nadu — it was easier to get credits for capital goods before the GST. A lot of the wealth of any economy comes from the investments of the past. A slow drift towards less investment, over time, is a drift away from growth.

China used to have many of the same problems as us: its VAT originally covered just goods, not services — and restricted credits for capital goods. But between 2009 and 2016 they ran a series of reforms, ending with a modern consumption tax system, with broad input tax credits. This brought major productivity gains all through. Those same gains are available to India as well.

The path to better gains

The authors lay out a roadmap for reform. We need to make tax credits move more easily, slashing through all restrictions — combined with simple, automatic refunds. We have the digital infrastructure for it; we just need the will to push things through. In fact, they go so far as to suggest that we need a single tax slab, to cut through most complications.

Modi and Shah end with a philosophical observation. Our systems assume that people behave in bad faith — and treat them accordingly, denying first and asking questions later. That, ultimately, hurts the system itself.

Tidbits

1. Wipro has agreed to acquire Mindsprint, the IT and digital services unit of Singapore’s agri-business giant Olam Group, for $375 million. The deal comes bundled with an eight-year services agreement in which Olam commits $100 million annually to Wipro — taking the total contract value past $1 billion.
   Source: Economic Times

2. The Strait of Hormuz crisis has brought exports from Sojat — which accounts for a ₹4,000–5,000 crore annual henna trade — to a near standstill, with around ₹250 crore worth of consignments stuck at ports and production down nearly 80%. Traders say the disruption is worse than COVID, with factories that once ran 24 hours now operating half-shifts, and workers returning to their home states.
   Source: Business Standard

3. With the West Asia conflict adding currency pressure on top of existing liquidity stress, Indian banks are offering their highest certificate of deposit rates in nearly two years to attract short-term funds. CSB Bank offered the highest rate at 8.32% for 91 days, while HDFC and IDBI offered 7.6% for 33-day funds.
   Source: Economic Times

- This edition of the newsletter was written by Manie and Pranav

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #6

Hi folks, hope you’ve had a great week…

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23 days ago · 18 likes · Zerodha

We’re now on WhatsApp!

We’ve started a WhatsApp channel for The Daily Brief where we’ll share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops, so you can read or watch it right away. Here’s the link.

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Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Should CSR be compulsory for companies?

2. When competition forces smart innovation

Should CSR be compulsory for companies?

Somewhere, in the fine print of India’s corporate law, sits one of the most unusual policy experiments in the world. Since 2014, any sufficiently large Indian company has been legally required to spend a fixed share of its profits on social causes. Not disclose or report what it spends. Our law mandates that they spend. No other major economy on earth does this.

Other economies — even those philosophically wedded to social spending — have something milder. The European Union’s landmark Corporate Sustainability Reporting Directive, for instance, requires companies to publish exhaustive data about their environmental and social footprint. What it does not do, however, is require them to open their wallets.

Section 135 of India’s Companies Act, 2013, meanwhile, does precisely that.

A decade since it kicked in, at least going by the headline number, this has unlocked a flood of capital for social issues. The qualifying listed companies have spent over ₹1.22 lakh crore on CSR activities since FY14. Compliance is near-universal and annual spends are rising.

Yet, a growing body of academic evidence tells a story that is more… complicated.

Why India decided to force companies to be generous

On two different occasions, before the 2013 law, India tried pulling corporate money for social causes voluntarily. In 2009, the Ministry of Corporate Affairs issued CSR guidelines. Another set of guidelines followed in 2011.

The industry ignored both.

SEBI jumped into the act, too. In 2011, it asked top listed businesses to submit Business Responsibility Reports, where they would have to answer 36 broad questions on different environmental and social themes. But they, too, did not require spending.

But in the political context of the day, people demanded more. India’s post-1991 liberalisation had produced extraordinary private-sector growth, but inequality had widened alongside it. When the Companies Bill was being debated in Parliament in 2012, 176 million Indians still lived in extreme poverty, while the top 1% captured 22% of national income.

When the Companies Act was first being drafted, the government attempted a comply-or-explain agenda. If a firm did not spend on social issues, it merely had to disclose why in the Board’s report, with no penalties. When the law went to the Parliamentary Standing Committee, they pushed for mandatory language. The law that was eventually passed, and came into force on April 1, 2014, required spending.

India had become a genuine global first. Mauritius, before us, had experimented with a 2% CSR rule from 2009, They, however, unwound it by 2015. India’s version has only grown since.

Here’s what the law actually requires: if you’re a company that crosses one of three thresholds — your net worth is above ₹500 crore, your turnover exceeds ₹1,000 crore, or your net profit crosses ₹5 crore — you have to spend at least 2% of your average net profits from the last three years on social issues. That money could go into education, healthcare, hunger eradication, or so on. The law carries a detailed list of activities you can spend on.

Source

Companies spending more than ₹50 lakh must even constitute a board-level CSR committee to oversee the spending.

For a while, companies found it easy to get around these requirements. But amendments from 2021 turned the framework from comply-or-explain to comply-or-suffer. A failure to spend now carries real financial penalties.

A decade and ₹1.22 lakh crore later

The new law unleashed a gigantic wave of spending. An addition ₹1.22 lakh crore hit the social sector. 63% of that amount — roughly ₹77,000 crore — arrived in just the last five years. In FY24 alone — a single year — companies deployed more than ₹19,000 crore. Two-thirds of companies now spend above the mandatory 2% floor: between FY 2015 and FY 2024, the aggregate spending, as a share of average profits, has risen from 1.8% to 2.65%.

Source

If you wanted to prove that a legal mandate can mobilise private capital, India’s CSR data should be exhibit A.

But there are two structural patterns underneath the headline which tell a more complicated story.

The first is geography. Maharashtra accounts for 34% of all listed-company CSR spend. Delhi takes another 12%. The top 10 states absorb 95% of the total. These happen to include some of the richest parts of our country. Meanwhile, India’s “aspirational districts” — the government’s designation for its most deprived areas — received just 12% of total CSR spend in FY24.

This flows directly from the law. The law has a “local area preference”, which was meant to ensure that communities near corporate operations benefit from their social spending. In practice, this just directs money toward industrial and corporate hubs. But these are already economically vibrant places. Instead of going to those who need it the most, money reaches places with the most business. The government’s own CSR portal acknowledges this skew, describing CSR spending as “supply driven” and noting concentration in industrialised states.

The second pattern is the quiet hollowing out of the NGO ecosystem.

At first, CSR money flowed into India’s NGOs, who were best placed to deploy it. But fly-by-night operators, too, saw this as an opportunity to get their hands on easy cash. Companies found it difficult to identify high-quality, transparent NGOs — particularly in rural areas. Instead, that money was routed through in-house foundations. The share of companies using external implementing agencies fell from 78% in FY20 to just 28% today. CRISIL explicitly flagged this as a challenge in its 2025 yearbook.

As a result, even though the mandate created a large statutory pool of social money, the organisations that had the community-level relationships to actually deploy it were slowly cut out of the pool.

When everyone does CSR, CSR means nothing

Social spending, elsewhere in the world, tells you something about those who spend.

When a company spends generously on social causes, it is a costly, credible signal. Investors could see it as evidence of institutional quality. Customers might interpret it as a proxy for trustworthiness. Employees could see it as evidence of the culture they’re joining.

That signal has value precisely because nothing requires it.

Of course, the signal isn’t the point — the spending is. But those bragging rights, alone, can push a company to contribute. It visibly did so in India, until the CSR mandate destroyed it. Rajgopal and Tantri, writing in 2021, looked at what happened to companies that were voluntarily spending large amounts on CSR before the law came into effect. The generosity of these firms, pre-mandate, had meant something.

Interestingly, after Section 135 kicked in, they no longer saw a point in giving out that signal. And so, they cut how much they spent. This cohort of companies actually slashed their CSR spending from 10.8% of profits to just 3.6%.

After all, why spend if it no longer differentiates you from the crowd? That 2% floor instead became the ceiling.

This might sound vain, but there’s an economic logic to it, worked out theoretically by Albuquerque, Koskinen, and Zhang in a 2019. For a company, CSR can be a product differentiation strategy. Companies that do it voluntarily have more loyal customers, who stick around even when things get rough. This insulates them from economic downturns.

But that only works when relatively few firms do CSR. If everyone’s compelled to do it, the differentiation evaporates, while the cost remains. Strategically, this no longer makes sense.

Instead, those companies started looking for other ways to stand out. The firms that cut CSR spending instead increased their advertising budgets by nearly 25%, trying to replicate the brand-building function that voluntary CSR had previously served.

That didn’t work for them, however. Researchers found that firms that made this switch saw their return on assets fall by 8% and return on equity fall by 11.5%, relative to pre-mandate averages. Advertising, it turns out, was a less efficient use of capital than the voluntary CSR those firms had previously chosen. So, the mandate cut down their generosity, while pushing firms into a replacement strategy that actively damaged their financial performance.

Doing good made firms riskier

Oddly enough, the capital markets punished CSR spending as well.

A study by Chauhan, Ghosh, and Jadiyappa ran an analysis, comparing companies forced into CSR spending against those that remained below the legal thresholds. Curiously, the firms mandated to spend experienced roughly an 8% increase in “systematic risk”, relative to those who weren’t.

Systematic risk, or beta, is a measure of how much a stock moves with the broader market. A higher beta means greater volatility relative to the economy. Those stocks’ prices swing harder than their peers.

Weird, isn’t it? Why would being forced to spend on social causes make a firm riskier?

The reason is operating leverage. Before the mandate, CSR was a discretionary expense. Companies could cut back in bad years, and scale up in good ones. This made it behave like a variable cost. After the mandate, they developed a quasi-fixed obligation — 2% of average profits — backed by financial penalties. No matter how that year’s business was, their previous profits weighed down the year’s P&L.

When a firm’s cost structure becomes more rigid, profits become more sensitive to revenue fluctuations. A drop in revenue now produces a steeper drop in earnings, because its costs don’t budge. The firm’s earnings become more cyclical. Its stock co-moves more aggressively with the market. And so, beta rises.

Another study found that the announcement of the mandate caused a 4.1% drop in share prices for anyone forced to spend — a decline that actually exceeded the 2% spending requirement itself. The market was pricing in more than just the cash outflow. It was looking at compliance costs, managerial distraction, and this operating-leverage effect. Other research found mandatory CSR also increased corporate debt yield spreads by around 43 basis points, adding financing costs on top of the equity risk.

There is also an irony to its tax treatment. CSR expenditure is explicitly not tax-deductible under Section 37 of the Income Tax Act, The government actually added a specific carve-out to deny this deduction. So, companies pay the 2% levy and cannot offset it against taxable income. This operates like a tax, but one that can’t be adjusted against what a normal business would attract.

All of this became a reason for companies to avoid qualifying for the CSR expense, and they found innovative ways to avoid it. Gangopadhyay and Homroy, found an unusually large cluster of companies reporting net profits that happen to fall just short of the ₹5 crores threshold that triggers the obligation.

How come? The firms near the threshold started inflating R&D expenditure, which is tax-deductible, to bring reported profits below the trigger. The spillover was oddly positive. These firms filed more patents and announced more new products than their peers. All of this was motivated by avoidance, not innovation. Another study found that mandatory CSR firms adopted more conservative accounting practices, recognising losses faster and gains more slowly, because CSR obligations are pegged to reported net profits. Conservative accounting, in this context, has become a tool for minimising a regulatory burden.

So did it work?

This isn’t to argue that CSR is worthless. It moved real money towards real needs. ₹1.22 lakh crore went to education, healthcare, and sanitation over a decade. During COVID-19 alone, nearly ₹7,000 crore in CSR funds went to healthcare infrastructure.

But the evidence suggests that while it increased the quantum of CSR, it reduced its quality. It made firms reluctant to spend because the signal that spending created was diluted. It also made firms riskier.

In other words, this was a trade-off. Maybe even a good one. But not one without problems.

How do India’s informal firms shape innovation?

The story of economic development, at its simplest, goes like this: poor countries have large informal economies, rich ones don’t.

As we’ve covered before, informality is usually a sign of an economy that is yet to fully develop. As incomes rise, firms formalize — they register, pay taxes, follow regulations — and the shadow economy gradually shrinks. And as they formalize, they also gain scale and increase productivity.

The journey in the middle of both these places is what’s really hard to navigate. And India is very much in that middle.

Depending on how you measure it, the informal sector accounts for somewhere close to half of our GDP, and over 85% of the workforce. These are firms that produce real things, like textiles, garments, furniture, and food, but do so outside the formal regulatory and tax system. Many of them, as we’ve covered before, are tiny household operations that aren’t very productive. Others may still be unregistered, mid-sized manufacturers with significant output.

This is where the standard development story gets complicated.

See, informal firms still compete with formal ones for similar resources. And since they’re informal, they skirt many rules that formal rules have to compulsorily adhere to. They’re not bound by labour laws governing minimum wages, working conditions, or severance. They don’t carry the overhead of formal compliance. That, in some cases, gives them an advantage that formal firms don’t have.

An intriguing new paper by management researchers Bibek Bhattacharya, Sudhanshu Maheswari and Ashneet Kaur looks at what happens inside formal Indian manufacturing firms when that competition intensifies.

Let’s dive in.

The hypothesis

The hypothesis of the paper starts with the idea that informal firms are cheaper — almost by design.

For a formal manufacturer trying to compete, this is a structural problem, not an operational one. You can try to cut costs, but there’s a floor below which you can’t go without breaking the law. And the informal competitor doesn’t have that floor.

The obvious response is to get better — to offer something the informal sector can’t easily replicate. But differentiation tends to require investment, spending on R&D and new technology, and so on. For the average small or medium-sized formal manufacturer, most of that is simply not viable. Access to capital is constrained, technical talent is expensive, and the returns on formal R&D investment are uncertain and slow.

So the paper asks a different question: is there a cheaper form of innovation that resource-constrained firms can reach for instead?

The answer it proposes is something the researchers call “innovation time off“. It’s the practice of giving employees discretionary time to experiment with new ideas, explore better processes, or think about improvements to products and marketing. Google’s famous 20% time policy, which reportedly gave engineers the space that produced Gmail, operates on exactly the same principle.

The implementation at an Indian SME is considerably more modest, but the underlying logic is the same. If you can’t buy innovation, you might be able to create the conditions for it to emerge from within. However, it’s worth noting that this “innovation” doesn’t refer to new technology or products. It relates primarily to process-level improvements.

The paper’s central hypothesis is straightforward. Formal firms facing greater competitive pressure from informal rivals should be more likely to turn to this kind of frugal, employee-driven innovation as a response. Managers, confronted with a competitive threat they can’t match on cost, redirect their attention toward building internal capability cheaply.

The main finding

To test this, the researchers used data from the World Bank Enterprise Survey of Indian manufacturing firms, conducted between 2013 and 2014. Informal competition was measured through a separate survey question asking how much of an obstacle the practices of informal competitors were to the firm’s current operations.

The hypothesis, it seems, held up: the more intense the informal competitive pressure a firm reported, the more likely it was to offer employees innovation time off.

When the pressure doesn’t translate

The main finding is that informal competition increases the likelihood of innovation time off. But the paper also asks: under what conditions does this relationship weaken? When do formal firms facing informal competition not respond by investing in employee-driven innovation?

The paper finds two factors that dampen the effect of informal competition. And in a way, they are very relevant to the broader Indian economy.

The first is whether the formal firm is located in a Special Economic Zone (SEZ).

SEZs in India offer formal firms tax exemptions, simplified regulatory procedures, better physical infrastructure, and a more predictable operating environment. These advantages allow firms inside SEZs to close some of the cost gap with informal competitors through policy rather than through internal effort.

As a result, the competitive threat from informal firms is less salient for SEZ-located manufacturers. The threat from informal firms feels less urgent to formal firms, and hence, the impulse to pursue frugal innovation doesn’t arise in the same way.

The second condition is labour flexibility.

Historically India’s labour laws have made workforce adjustment difficult for formal firms, and this rigidity itself is one of the structural reasons informality has remained so prevalent. Informal firms don’t have to comply with employment protection requirements at all, which gives them yet another dimension of operational agility. But some formal firms do possess meaningful labour flexibility — either through the nature of their contracts, or the composition of their workforce.

For these firms, the response to informal competitive pressure may run through a different mechanism. Rather than investing in internal innovation, they might choose to manage cost pressure by adjusting headcount — hiring and firing as per demand. It’s a rational competitive response, but it means the innovation channel gets weaker.

Caveats

There are a few caveats to these findings.

For one, the survey only asks whether firms grant employees this time — not whether anything useful comes of it. A firm could answer yes and have genuinely nothing to show for it: no new products, no process improvements, no measurable outcome. The paper is a study of the adoption of a practice, but not of its effectiveness. Whether innovation time off in resource-constrained Indian manufacturing actually produces better outcomes is a separate question that this paper doesn’t answer.

Secondly, what’s also worth acknowledging is the time period of the data. The findings come from a dataset that’s over a decade old.

Since then, India has changed in significant ways. GST was introduced in 2017 and has measurably pushed some activity into the formal economy, the regulatory environment has shifted, and digital infrastructure has expanded substantially. There are legitimate questions about how precisely these findings would replicate today.

But the informal sector in India is still enormous. It still employs the vast majority of the workforce, and the fundamental structural dynamics the paper describes haven’t been resolved. The broad direction of the findings is likely still valid, even if the precise magnitudes have shifted.

The unintended cost of protection

The policy implications that emerge from these findings are, well, complicated.

Both SEZs and labour flexibility are policy instruments that India has used to help formal manufacturers compete. As we’ve covered before, they can be highly valuable to India’s economic development, while also formalizing our economy further.

But the paper’s findings suggest they work with a side effect: by reducing the pressure that informal competition creates, they also reduce the likelihood that firms respond through this kind of low-cost, employee-driven innovation.

That’s not a reason to abandon SEZs or labour reform, and increasing formalization of the economy is certainly an aspiration worth striving for. However, policies that shield formal manufacturers from the cost disadvantages of informality may need to be paired with explicit incentives to invest in internal innovation capacity. Otherwise, protection enables survival without necessarily enabling growth beyond it.

This conundrum is less about how innovation works, and more about how a developing country is forced to fight through its constraints.

Tidbits

1. Bharti Airtel has secured a $1 billion investment in its data centre subsidiary Nxtra Data from Alpha Wave Global, Carlyle, and Anchorage Capital. This to expand its network footprint across India. Airtel is also investing in the round.
   Source: Business Standard

2. The government hiked ATF prices by over 115% to Rs 2.07 lakh per kilolitre. This reflects the full pass-through of surging crude prices to aviation fuel. IndiGo has already added a Rs 10,000 fuel surcharge on long-haul international routes in response.
   Source: Business Today

3. TVS Motor posted its strongest-ever March with total sales surging 25% to over 519,000 units. EV sales jumped 44% to nearly 39,000 units, three-wheeler sales rose 46%, and international business grew 25%. The numbers cap a record quarter for TVS on sales, revenue, and profits.
   Source: LiveMint

- This edition of the newsletter was written by Kashish and Manie

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #6

Hi folks, hope you’ve had a great week…

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21 days ago · 18 likes · Zerodha

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