Revisiting India’s consumption story

Over the past few years, and especially since the pandemic, a list of familiar global names has thinned out of India’s consumer landscape. Dulux Paints (AkzoNobel sold its India business to JSW Paints), MG Motor (whose Chinese parent SAIC is progressively ceding control to JSW Group), Harley-Davidson, Citibank’s and now Deutsche Bank’s retail banking franchises, Ford Motors, Metro Cash & Carry, the Disney-Star combine, and Oriflame have all either sold out, scaled down, or handed the wheel to an Indian partner. Holcim exited ACC and Ambuja Cement. And as I write this, Volkswagen is reportedly in advanced talks to give JSW Group majority control of its India operations.

Strung together like this, the list reads like a verdict: global capital is losing patience with India’s consumption story. I don’t think that verdict survives a closer look — but the list is still worth taking apart, because the reasons behind each exit tell a more interesting story than the headline count does.

Not all exits are the same

Put these names together and it may look like one trend. But actually, it is at least four different stories.

The first is genuine competitive loss in a market that has moved on. Harley-Davidson’s 2020 retreat from direct sales and the slow bleed of foreign retail banking — Citibank’s book to Axis in 2023, Deutsche Bank’s now headed to Kotak — belong here. In both cases, the economics of scale — dealer networks, branch footprints, distribution cost — favored domestic players who could out-invest and out-price the global brand. This is the closest thing to a real “local brands are winning” story, and it is real.

The second is regulatory and geopolitical, not consumption-driven at all. SAIC is diluting its stake in MG Motor primarily because Chinese capital has faced tightened scrutiny since the 2020 border standoff — not because Indian buyers have stopped wanting MG’s cars; the Windsor EV, in fact, has sold rather well. Reading MG into a consumption-story narrative is a category error.

The third is global portfolio rationalization that has little to do with India specifically. Ford’s 2021 exit was part of a worldwide restructuring that also closed plants in Brazil and elsewhere. Holcim’s sale of ACC and Ambuja was a cement conglomerate stepping back from a market it judged non-core to its European strategy — not a comment on Indian construction demand, which has stayed fairly resilient. Disney folding its India business into the Reliance-controlled JioStar venture mirrors what Disney has done to linear television everywhere as broadcast economics erode; Reliance, not the Indian consumer, is the reason Disney still has a seat at that table at all.

The fourth is a capital-and-control trade, not a retreat. Volkswagen’s reported talks with JSW are not Volkswagen leaving India — they are Volkswagen conceding, after twenty years and a stubborn sub-3 per cent market share, that it cannot fund the next EV cycle alone and needs a local partner who reads the price-sensitive Indian buyer better than Wolfsburg does.

The JSW thread

One thing this exercise turned up that I did not expect going in: JSW Group shows up on the buying side of an unusually large share of these stories — MG Motor, Dulux Paints, and now potentially Volkswagen. That is not proof of anything by itself, but it is a useful reminder that “global MNC exits India” and “India loses access to global capital and technology” are not the same sentence. In each case, an Indian conglomerate with balance-sheet strength is buying its way into precisely the categories — autos, EVs, paints — that are supposedly the casualties of a weakening consumption story. That is an odd thing to do if the underlying demand were actually disappearing.

What the FDI numbers actually say

If the consumption story were genuinely broken, I would expect the capital data to show it. It does not, at least not yet. Gross FDI inflows into India rose to roughly $39 billion in calendar 2025 per UNCTAD, DPIIT’s own FY26 numbers show a similar climb, and India’s ranking among global FDI destinations improved rather than slipped. One caveat is worth flagging honestly: UNCTAD’s tracking also shows the value of newly announced greenfield projects easing off its 2024 peak, which suggests investors are increasingly buying into existing India-scale platforms — the JSW pattern again — rather than building fresh capacity from scratch. That is a subtly different form of confidence, not necessarily a weaker one.

Where this leaves the consumption thesis

I don’t read this list of exits as evidence that India’s consumption story might be weakening. I read it as evidence that the story is maturing. The easy years, when any global brand could set up shop and ride a rising tide on its own, are behind us. What survives now is either a business with genuine India-specific scale economics, or one willing to share control and capital with a domestic partner who has already solved for the Indian price point. That is a tougher bar than it used to be — it is not the same as demand disappearing.

Investor takeaways

·         Don’t treat every foreign MNC exit as one signal. Ask why — competitive loss, geopolitics, global restructuring, or a capital/control trade each carries a different implication for India-facing businesses.

·         Watch the consolidators as closely as the businesses exiting. JSW and its peers are effectively buying discounted access to categories — autos, paints, EVs — that global capital still wants exposure to.

·         Track greenfield investment announcements, not just aggregate FDI inflows, for a cleaner read on fresh conviction versus capital simply changing hands.

·         The bifurcation thesis I have written about earlier — mass versus premium, with the middle squeezed — remains, in my view, a better explanation for these exits than a blanket loss of faith in Indian consumption.

Highways are about human lives, not cement & steel

A highway built only for speed, without regard for the land and the people it passes through, honors only half that duty. True development binds kilometers to the wellbeing of those who live alongside them.

Last week, a section of the Dehradun-Mussoorie Road caved in after overnight rain weakened the embankment beneath it. The road was shut, and hundreds of vehicles were stranded on both sides. This is the same hill road that now absorbs every additional vehicle the new Delhi-Dehradun Expressway sends toward Mussoorie, since the expressway itself terminates at Dehradun and goes no further.

This was not an isolated event, either. Just weeks earlier, a stretch built barely six months ago at Mussoorie’s Paani Wala Bend developed a large crack and began sinking, prompting a former legislator to allege negligence and demand an inquiry. Landslides and road damage in the Garhwal Himalayas are not new, but their frequency and severity have risen noticeably over the past decade.

Rapid deforestation for road widening, a sharp rise in vehicular traffic on wider roads, growing tourist and pilgrim inflows, and hurried construction of hospitality infrastructure to house them are all straining the fragile ecology of the region. This raises a pertinent question: is the impact-assessment process followed by governments and public authorities before approving and building infrastructure projects, especially highways and expressways, actually adequate?

The newly built Delhi-Dehradun Expressway is a useful case study. Inaugurated in April 2026 at a cost of roughly ₹12,000 crore, the six-lane, access-controlled corridor has cut travel time between Delhi and Dehradun from about six-seven hours to roughly two-and-a-half hours, and to Mussoorie from around seven hours to under four.

The government has projected that this faster connectivity will boost tourism and support industrial corridors around Dehradun. What I find missing from that projection is any visible reckoning with the fact that the expressway does not reach Mussoorie itself. Every vehicle it delivers to Dehradun in a fraction of the earlier time still has to funnel onto the very same unwidened hill stretch that collapsed last week. That is not a coincidental juxtaposition of two unrelated news items; it is a supply chain, with the expressway as the intake and the old Dehradun-Mussoorie Road as the choke point.

I say this carefully: last week’s collapse was triggered by rainfall saturating the embankment, not by traffic volume directly, and I do not want to overstate a mechanical link that isn’t there. But higher volume raises the stakes of every such failure, in how many people are stranded, how much pressure builds to keep a weakened road open, and how much rushed widening work gets done on unstable slopes to cope with the load. The two roads appear to have been evaluated, if at all, as though they belonged to two entirely separate projects under two separate agencies, rather than as one continuous journey for the traveler.

Part of the reason such downstream questions may never have been asked is structural. Under India’s (Economic Impact Assessment (EIA) Notification of 2006, many highways and road-widening stretches below defined length thresholds are exempt from a full environmental impact assessment. If that exemption applied here, then the absence of a study covering hotel capacity, sanitation load or the old road’s carrying capacity is not a gap in my research; it may be a gap the law itself permits. This would not be the first time Himalayan carrying capacity has been flagged as inadequately assessed before construction. The 2023 land subsidence in Joshimath, and the Supreme Court-mandated High-Powered Committee set up to review the Char Dham road-widening project, both arrived at the same underlying finding: that road-building in this terrain proceeded well ahead of any serious study of what the land and the towns at either end could actually absorb.

It is worth asking whether the following questions were part of the impact analysis for the expressway, and what measures were put in place to manage the consequent burden on regional ecology and local civic life:

·         How much will passenger and commercial vehicle inflow into Dehradun and Mussoorie increase, and is there adequate parking capacity to absorb it?

·         Was the additional load the expressway places on the existing, unwidened Dehradun-Mussoorie stretch modelled as part of the expressway’s own clearance, or was it treated as a separate agency’s problem because the two roads fall under different jurisdictions?

·         What is the likely impact of higher vehicle inflow and construction-linked deforestation on local air quality, and what mitigation measures, if any, are built into the road contract?

·         How many additional hotel rooms will be needed to house the increased tourist inflow, and do local regulations even permit new tourist accommodation at that scale?

·         What additional water supply, sanitation, sewerage treatment, garbage disposal and healthcare capacity will the higher tourist inflow require, and is augmentation of these civic amenities planned alongside the road itself?

·         How will the expressway affect local residents through higher land and home prices, increased transit traffic, and food and hospitality inflation, and who is accountable for measures to protect local affordability and traffic-handling capacity?

·         Is the road designed for safe traffic flow at every exit and interchange, particularly at points where a 100-120 kmph expressway meets local roads?

·         How will a high-speed, access-controlled expressway affect villages along its route whose residents are used to a slower pace of life, and what safety awareness and training do they need for themselves, their livestock and their property?

·         What systems exist for periodic safety audits and disaster management, including medical response and rapid evacuation in the event of a major accident, and has responsibility for these systems been fixed before the road opened to the public?

Despite genuine effort, I have not been able to establish whether the impact study for the Delhi-Dehradun Expressway addressed any of these points. I raise them not to oppose the project, but to draw the attention of policymakers, regulatory authorities and civil society to what I consider a critical gap in how highway development is planned and executed in ecologically sensitive regions.

At minimum, a corridor of this kind should require a mandatory downstream carrying-capacity study covering every connecting road it feeds traffic into, an independent post-construction audit rather than a one-time pre-approval clearance, and a single accountable authority spanning both the new expressway and the older roads it terminates into, rather than the current split between agencies.

Investor takeaways

Faster connectivity is a genuine tailwind for Uttarakhand-linked hospitality, real estate and consumption stories, but the pace of civic infrastructure build-out (water, sewerage, healthcare) is the real gating factor for how much of that tailwind converts into sustainable earnings.

Where a new expressway feeds traffic into an older, unwidened connecting road under a different agency, that jurisdictional seam is itself a risk; closures on the connecting stretch can strand demand the expressway was built to capture.

Recurring landslide-driven closures are a direct operating risk for logistics, tourism and construction companies with revenue tied to these corridors, and are worth factoring into weather-linked earnings volatility.

If regulators tighten carrying-capacity and post-construction audit requirements in response to episodes like Joshimath, future Himalayan infrastructure timelines and costs could extend; this is worth watching as a sector-wide execution risk, not just a single-project one.

 

Think about simpler solutions

We have a habit of ignoring simpler solutions for our problems and love to over complicate things. Energy security and air pollution are two specific issues where the policymakers have often ignored simpler and sustainable solutions and favored adhoc solutions, often with uncertain outcomes.

When petrol prices rise, we cut fuel taxes, burdening fiscal balance with economy wide ramifications. When crude oil prices rise, we worry about the import bill. When Delhi’s air turns unbreathable, we restrict traffic and close schools. When accidents climb, we call for stricter enforcement. Each problem gets its own emergency response.

One question, however, rarely gets asked: why do we engineer ordinary family cars to run at 200–240 kmph when the highest permissible speed on any Indian road is 120 kmph, on access-controlled expressways, with 100 kmph the norm on national highways?

This is not a question of engineering capability. Indian manufacturers can build fast cars. The question is whether a country that imports the bulk of its crude oil, battles severe air pollution, and records one of the world’s highest road-accident tolls should keep paying, in fuel, cost and emissions, for a top-speed capability its drivers are legally barred from using.

The case in numbers

Consider two hypothetical family cars of similar size and utility, one engineered for a 240 kmph top speed, the other purpose-built for 150 kmph. Directionally, the trade-off may look like this:​

​

The distinction matters: this is not about bolting an electronic speed limiter onto an existing 240 kmph car. It is about designing the vehicle, from engine and transmission to tyres and aerodynamics, around a lower top speed from the outset.

Caveat

India’s fuel-efficiency and emissions norms (BS-VI, CAFE) are measured over standardized drive cycles, not top speed, so a car’s advertised maximum speed does not feed directly into its certified mileage; efficiency gains would have to come through the weight and drivetrain changes described, not from the speed cap itself. Second, high-performance engines are frequently shared across model variants and export markets, so the cost and engineering savings from a lower top-speed design would vary widely by manufacturer and platform, and are unlikely to be uniform across the industry. The reader should treat the table as a plausible order of magnitude for the direction of the argument, not as a verified engineering estimate.

Why pay for speed we cannot use?

An ordinary Indian family car can often exceed 180–240 kmph, well beyond the 120 kmph ceiling on our fastest roads, and beyond what most global markets permit. Even in the United States, the highest posted speed limit is 85 mph, about 137 kmph, on a single 41-mile stretch of State Highway 130 in Texas; most US interstates cap out at 70–80 mph.

A car engineered for 240 kmph is not simply a car with a bigger engine. Reaching that speed safely requires a stronger transmission, larger brakes, higher-speed-rated tyres, more sophisticated suspension and cooling, and greater structural strength. Each addition adds weight, and weight compounds fuel consumption. It is an expensive chain: more speed capability leads to more power, a heavier drivetrain, bigger brakes and tyres, and ultimately more fuel burned, on every single journey, regardless of whether that top speed is ever used.

The oil, pollution and safety angles

India imports roughly 85% of the crude oil it consumes, so every additional liter burned adds to the import bill, pressures the rupee and widens the current account deficit. Fuel-price policy gets debated in detail. The amount of fuel a given vehicle needs to burn in the first place gets far less scrutiny.

The same logic applies to pollution. Reactive, winter-only restrictions on traffic and construction treat a structural problem as a seasonal one. A lighter, more efficient vehicle fleet reduces emissions at source, every day of the year, not only when air quality crosses a threshold.

On safety, the physics is straightforward: kinetic energy rises with the square of speed, so high-speed crashes are disproportionately more destructive. A lower speed ceiling will not by itself curb reckless driving, but resources currently spent engineering unusable top-end performance could instead fund better brakes, more airbags, stronger crash structures and wider adoption of electronic stability control.

Performance need not suffer

A 150 kmph ceiling does not mean a sluggish car. Top speed and usable performance are different things. What matters on Indian roads is strong 0–100 kmph acceleration and confident overtaking in the 80–120 kmph band, not a theoretical capability twice the legal limit.

Policy levers, not a ban

A blunt speed cap is not the only option. Fiscal policy could nudge the market toward efficiency without dictating design: lower registration fees or GST for lightweight, fuel-efficient vehicles, insurance incentives for safer and lower-risk cars, and taxation more closely linked to vehicle weight and engine capacity. The aim is to let the market reward efficiency rather than horsepower.

Investor takeaways

·         The oil-import and current-account channel is the more durable investment link: any structural reduction in average vehicle fuel consumption reduces India’s crude import intensity over time, a theme relevant to INR trajectory and to companies exposed to the import bill.

·         Passenger-vehicle OEMs face a genuine strategic question on where to allocate engineering spend, high-performance variants versus efficiency and lightweighting, as regulatory and fiscal incentives evolve; this is a multi-year theme, not a near-term catalyst.

·         Ancillary segments tied to lightweighting, efficient braking systems and advanced driver-assistance technology stand to benefit disproportionately if policy shifts incentives in this direction; treat any related exposure as a slow-moving structural theme.

Progress, Peril and Robustness - 2

Continuing from yesterday (see Progress, Peril and Robustness – 1)

Investment implications

A BIS report provides a clear map of where systemic risk is building, and reading it is a useful discipline before you decide how much risk to carry and where. Here is how I would prefer to incorporate the four pressure points highlighted in the BIS 2026 annual report in my investment strategy.

Not assuming the disinflation trade is safe

Markets have priced in resumption of the disinflation path that was underway before the Hormuz shock. The BIS’s own work suggests otherwise — energy shocks of this size have historically produced inflation effects that outlast the shock itself by a year or more, and the mitigating factors this time (anchored expectations, looser labour markets) are real but not guaranteed to hold if the shock persists. My own view: don’t fully unwind inflation hedges just because oil has pulled back from its peak. Real assets, select commodity exposure and inflation-linked instruments may still be relevant in a diversified book.

Separate the technology story from the financing story

I remain a believer in AI as a genuine productivity technology — the BIS’s own task-level studies show real efficiency gains. What worries me is not the technology; it is the financing structure around it. Circular financing arrangements — where the same dollar of capital seems to be creating revenue for multiple related entities — are exactly the kind of opacity that precedes a repricing. The practical takeaway: be diversified within your AI exposure rather than concentrated in the handful of hyperscalers and their closest financing partners, and treat any single-stock AI position as a venture-style bet, sized accordingly.

Private credit is not free lunch

The report flags that direct lending funds have quadrupled their exposure to AI and IT borrowers over five years, often with similar pricing and tenor despite growing concentration risk. Retail investors who have moved into private credit funds chasing yield should understand that liquidity terms in these vehicles can become binding constraints exactly when you need liquidity most. This is a reminder to price illiquidity properly rather than treat the extra yield as a free lunch.

Expect more volatile sovereign bond markets, not fewer

The BIS’s description of a fragile fiscal-financial nexus, where bond market liquidity can evaporate quickly, is a structural reason to expect higher volatility in developed market sovereign bonds over the coming years — not a one-off event, but a recurring feature. For fixed income allocations, this argues for staying closer to the shorter and intermediate end of the curve, and being selective about duration bets even when yields look attractive, since the BIS itself flags that governments may increasingly need central bank backstops to keep these markets functioning smoothly.

Reading the global report through a domestic lens

None of the four pressure points above originate in India, but all of them touch us, and in ways worth spelling out separately.

·         Energy dependence is our biggest transmission channel. India imports the overwhelming majority of its crude, and the BIS’s own exposure analysis places India among the emerging economies most affected by Hormuz-related disruption scenarios. A sustained oil price premium — even a modest one, well short of the panic peak — shows up quickly in our import bill, the rupee and the fiscal arithmetic. This is not a new theme for readers of this blog; it is the same fiscal-currency link I have written about before, just now driven by a fresh external trigger rather than a domestic one. (Read here and here)

·         Our macro buffers are genuinely better than in past crisis episodes, but they are buffers, not immunity. Strong bank balance sheets, healthy capital ratios and steady domestic institutional flows into equities have absorbed shocks well so far. That is a real strength. But a BIS report that flags global inflation persistence and fiscal fragility as base-case risks, not tail risks, argues for treating our own resilience as a cushion to lean on, not a reason for complacency about valuations.

·         India’s IT services sector sits directly in the AI capex cycle’s crosswinds. A continuation of the hyperscaler spending boom is a tailwind for the sector through cloud migration and AI-enabled services demand. But the BIS’s own warning about the sustainability of that capex — debt-funded, concentrated, partly circular — means a sharp AI capex slowdown, should it materialize, would hit sentiment toward Indian IT stocks even though our companies are several steps removed from the actual financing risk. Worth distinguishing between the operating exposure (mostly indirect and manageable) and the sentiment exposure (which can move faster than fundamentals).

·         The dollarization risk the BIS discusses is low for India today, given capital account management, but it is worth watching over a longer horizon as stablecoin regulation evolves globally and domestic crypto/stablecoin adoption picks up at the margins. This is more a five-year theme than a this-year theme.

·         On fixed income, the domestic story is somewhat more comfortable than the global one — our own fiscal consolidation path has been more disciplined than many advanced economies’, and RBI’s recent Financial Stability Report corroborates that domestic financial stress remains low by historical standards. But global yield volatility, if it persists, will still spill into our markets through FPI flows and benchmark repricing, so treat domestic bond market calm as conditional on the external environment staying orderly, not as a given.

To conclude: India’s relative position within this report is a source of comfort, not complacency. The buffers are real, but the report is fundamentally about a world where shocks have become more frequent and financial systems have become more interconnected in ways that are hard to see until they matter. Being well-diversified, avoiding concentrated bets on any single global narrative — AI, energy, or otherwise — and keeping some genuinely defensive assets in the mix remains the right posture, regardless of how sound our own banking system looks on paper.

There is a line from the Gita that I keep returning to in years like this one: योगस्थः कुरु कर्माणि सङ्गं त्यक्त्वा धनंजय — perform your actions established in yoga, having abandoned attachment. The BIS report, at its core, is a document about attachment: to easy financial conditions, to a single technology narrative, to the assumption that resilience shown once will hold indefinitely. The investor’s job, as always, is to keep doing the work — reading, rebalancing, staying diversified — without becoming attached to any one story about how the world must unfold.

Also Read

Progress, Peril and Robustness - 1

Progress, Peril and Robustness - 1

The Bank for International Settlements — the “central bank of central banks” — released its Annual Economic Report for 2026 in June. The report steps back from the daily noise of markets and tries to describe the plumbing of the global financial system — where the stress points are, and where the next one might come from.

I am briefly describing here what I gather from an extensive reading of the report. Tomorrow I will share my thoughts on its investment implications.

What the BIS is actually saying — In plain English

The title the BIS chose for this year’s report is itself a clue: “From resilience to robustness?”. The question mark is doing a lot of work. Their argument, stripped of jargon, is this: the world economy has shown it can absorb one shock after another without breaking. But absorbing shocks repeatedly is not the same as being structurally sound. Resilience is what you have when you are lucky and adaptable. Robustness is what you have when the foundations themselves are strong. The BIS thinks the world has had plenty of the former and not enough of the latter.

A year that came in two acts

Act one was surprisingly good news. Global trade absorbed the 2025 US tariff shock far better than anyone expected. Effective tariff rates settled near 10%, well below the 25%+ initially announced, and firms simply rerouted trade, ate margins, or front-loaded shipments. At the same time, a wave of AI-linked capital expenditure — data centers, chips, power infrastructure — became its own growth engine, particularly in the US, with spillovers across Asia’s export economies.

Act two was a reality check. In late February 2026, the conflict in Iran led to an unprecedented closure of the Strait of Hormuz — the corridor through which a huge share of the world’s oil and gas flows. Roughly 13% of global crude supply was cut off, a bigger shock than the 1970s oil crisis. Oil spiked over 60% in weeks. Inflation, which had been cooling nicely, jumped back up. Asia, being the most dependent region on Gulf energy, took the biggest hit.

Pressure points to closely watch for

·         Inflation is making a comeback. Fertilizer and plastics prices are up 30–50% on the back of the energy shock, and these costs are still working their way through supply chains. The BIS’s own modelling shows large energy shocks have disproportionately larger effects on inflation than small ones — this is not a linear story.

·         The AI investment boom is running hotter than its cash flows justify. The five largest hyperscalers are set to spend over a trillion dollars on AI capex through 2026, increasingly funded by debt rather than free cash flow. The BIS draws an explicit parallel with canal mania, railway mania, and the dotcom bust — genuine technological breakthroughs that still attracted more capital than commercial returns could justify.

·         Financial vulnerabilities are the amplifier, not the trigger. Equity valuations are stretched, risk premia have compressed to levels last seen before the pandemic, and a growing share of AI financing is “circular” — hyperscalers investing in AI labs that then commit to buying the hyperscalers’ chips and compute. The BIS flags this web of related-party financing as opaque and hard to unwind cleanly if sentiment turns.

·         Fiscal space has quietly disappeared. Public debt in advanced economies is near post-war highs. Cyclically adjusted primary deficits have nearly doubled since 2022 compared with the two prior decades. And critically, the arithmetic has flipped: bond yields now exceed nominal GDP growth in many countries, which means governments can no longer simply grow their way out of debt — they need actual primary surpluses.

A new and less familiar risk: the fiscal-financial nexus

Chapter II of the report is, to my mind, the most important part. The BIS describes a “new fiscal-financial stability nexus”: as governments issue more debt, non-bank financial intermediaries — especially leveraged hedge funds running basis trades — have stepped in to absorb a growing share of it. These funds rely on short-term repo financing that can vanish overnight. The old worry was banks holding too much government debt. The new worry is that market liquidity for government bonds can look ample for months and then disappear in days, forcing yields up sharply with very little warning. The BIS is candid that central banks may increasingly be pulled into acting as backstops for sovereign bond markets themselves, not just banks — a role that blurs the line between fiscal and monetary policy in ways that make both harder to manage.

And a quieter chapter on the future of money

Chapter III looks at stablecoins and digital money. The BIS’s verdict is measured but skeptical: today’s stablecoins fall short of what money needs to be — they don’t always hold value at par, the infrastructure is fragmented across blockchains, and the absence of proper know-your-customer checks on many wallets is a financial integrity problem. Where stablecoins matter more for the rest of us is the dollarization risk they pose to countries with weaker macro fundamentals — if households in such economies start preferring dollar-pegged stablecoins over their own currency, it chips away at monetary sovereignty. The BIS’s preferred solution is not to ban innovation but to bring tokenization into the existing two-tier system — commercial bank money plus central bank money — through projects like Project Agóra.

The moot point, in the BIS’s own framing, is whether the world can convert this year’s resilience into lasting robustness — by rebuilding fiscal space, keeping inflation credibility intact, and extending prudential discipline to the parts of finance that now sit outside the banking perimeter — before the next shock arrives. On their own assessment, the jury is still out.

…to continue tomorrow

 

Cockroaches, rats and termites

Three unlikely teachers

Cockroaches, rats and termites are not creatures anyone invites into their home. Biologically, though, they have a lot in common. All three live close to us, mostly unseen, active at night, and multiply quickly once conditions favor them. Cockroaches and termites even share a common ancestry, both belonging to the insect order Blattodea.

But it isn’t their biology that has made them part of everyday language. It’s the role each has come to symbolize. The cockroach stands for resilience — something that survives almost anything thrown at it. The rat stands for opportunism — quick to sense danger and quicker to leave. The termite stands for quiet, structural damage — weakening something from the inside, often before anyone notices.

I want to borrow these three ideas — resilience, opportunism and internal decay — not to describe people, but to describe what I observed at the protest site in Delhi last weekend, and what it might mean for how India’s political landscape shifts over the next few years.

Resilience: a movement that keeps showing up

I visited the student protest site at Jantar Mantar in New Delhi over the weekend. The immediate trigger was the NEET paper leak controversy, but what struck me was how the grievance has broadened. It no longer reads as anger about one exam. It reads as a wider demand for accountability — a demand that keeps resurfacing, gathering more voices each time it does.

That resilience is the interesting part. Protest movements in India have a habit of losing steam once the original trigger fades from headlines. This one hasn’t, at least not yet. What it currently lacks is a clear ideology or political vehicle — it is closer to a demand for competent governance than a platform with a defined manifesto. Whether it can convert that energy into something more durable, the way the anti-corruption movement of 2011 briefly did before losing momentum, remains an open question. The Tamil Nadu assembly election result is one template worth watching, since it showed how anti-incumbency sentiment can be organized into an electoral outcome rather than staying confined to a protest site.

Opportunism: how firm is the base, really?

At the protest site, I met several people who described themselves as long-standing supporters of the ruling government, and of the prime minister in particular. A few admitted, candidly, that their support isn’t unconditional — that a credible alternative could make them reconsider. That kind of honesty is more common in private conversation than in public commentary, but it points to something real: political loyalty, even where it looks solid from the outside, often has more give in it than the visible numbers suggest.

The journalists at the site were speculating on a related question — which coalition partners within the ruling NDA alliance might reposition themselves if public sentiment shifts further. This is ordinary political calculation, not disloyalty; coalition partners across the spectrum, in every country, recalibrate when the wind changes. It’s worth remembering that the government has its own counter-narrative here — pointing to welfare delivery, infrastructure execution and macro stability as reasons this loyalty should hold. Which reading proves correct will only be visible in hindsight.

Internal decay: the part that worries me most

The third theme is harder to pin to a single event. It’s the slower, less visible erosion of institutional trust caused by (i) the unholy nexus of corrupt public servant, unscrupulous businessmen and opportunist politician, and (ii) the perception, fair or not, that enforcement agencies and the judiciary are not always able to move quickly or independently against wrongdoing, whichever side of the political spectrum it comes from. I want to be careful here: I’m not asserting guilt against any individual or institution, only noting a pattern of public perception that shows up repeatedly in survey data and in conversations like the ones I had this weekend. Perception gaps like this matter for investors too — they show up eventually in governance risk premiums and in how foreign capital prices India relative to peers.

What this means going forward

·         A protest movement that refuses to fade (resilience).

·         A political base that looks firmer than it may actually be (opportunism).

·         A slow erosion of institutional trust that no single election result fixes (internal decay).

None of these three, on their own, changes an investment thesis overnight. But together, they are worth tracking as a governance risk indicator — the kind that eventually shows up in currency stability, policy continuity and how comfortable foreign capital feels holding Indian assets through an election cycle. 

India’s External Debt: The Post-Covid Slippage Investors Can’t Ignore

 The Reserve Bank of India put out its quarterly external debt release on 29th June 2026, and as usual, the headline number got a polite nod and nothing more: India’s external debt stood at US$ 762.8 billion at the end of March 2026, up US$ 26.3 billion over the year, taking the debt-to-GDP ratio to 20.8% from 19.8%. On the surface, unremarkable. But when we look at the internals, the story that emerges is less reassuring than the headline suggests. The external sector isn’t in danger, but it has quietly become more fragile since the post-Covid recovery years, and that fragility matters for how we think about the rupee and India’s external financing risk over the next few years.

A manageable ratio, a weakening structure

The debt-to-GDP ratio at 20.8% remains comfortably in what economists would call manageable territory, and it isn’t wildly different from the 21.1% recorded in 2021, the last full year still shadowed by the pandemic.

However, the foreign exchange reserve cover for total external debt has fallen from 100.6% in 2021 to 90.6% in 2026. The share of short-term debt (original maturity) in total external debt has risen from 17.6% to 19.6%, and short-term debt as a proportion of forex reserves has climbed from 17.5% to 21.6%. Each of these is a small move in isolation. Together, they describe a debt profile that is shorter in tenor and less well cushioned by reserves than it was three years ago.

The debt service ratio is the one metric that needs a more careful read, because a straight 2021-to-2026 comparison is flattering — it fell from 8.2% to 5.8%. But 2021 was still a Covid-distorted year with depressed current receipts inflating the ratio. Using the post-pandemic trough of 5.2% in 2022 as the fairer base, the ratio actually climbed for three straight years, peaking at 6.7% in 2024, before easing back to 5.8% in 2026. That is not a story of steady deterioration, but it is not a story of steady improvement either — it is a debt service burden that has been more volatile and, on trend since the 2022 low, higher than the immediate post-pandemic years.​

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None of this is a crisis signal. But it is a genuine, multi-year softening in India’s external debt buffers since the immediate post-Covid years — exactly the kind of quiet deterioration that headline ratios are designed to hide.

Who is doing the borrowing — and what it says about domestic savings

The more interesting story sits in the borrowers’ profile. Government external debt has risen from US$ 133.3 billion at end-March 2023 to US$ 167.5 billion at end-March 2026 — an increase of roughly 25% in three years. That is a meaningful acceleration in sovereign external borrowing, even though it remains a modest 4.6% of GDP.

Deposit-taking corporations — India’s banks, effectively the country’s lenders — have grown their external debt from US$ 163.4 billion to US$ 202.1 billion over the same period, a rise of roughly 23.7%. I read this as a signal worth sitting with: when banks lean more heavily on external borrowing, it is often because domestic deposit and savings mobilization isn’t keeping pace with credit demand. FCNR(B) inflows and forex swap windows, which I’ve written about in recent months, are part of the same story — the banking system reaching outward because the domestic liability side isn’t growing fast enough on its own.

Non-financial corporations, by contrast, have grown their external debt far more modestly — from US$ 242.5 billion to US$ 277.9 billion, an increase of about 14.6%. Corporate India has been comparatively restrained in tapping external debt markets even as government and bank borrowing has run well ahead of it.​

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The composition matters as much as the aggregate. A rising share of government and bank borrowing, growing faster than corporate borrowing, is consistent with a fiscal and financial system leaning more on external capital to plug gaps that domestic savings once filled comfortably. That ties directly into the fiscal-deficit-and-currency thesis I laid out in my recent post on rupee depreciation: subsidy and transfer liabilities pushing the government toward more external financing, even as it stays a small share of GDP.

The one-year wall: US$ 327 billion coming due

This is the number that should get more attention than it does. On a residual maturity basis — that is, counting all debt obligations falling due over the next twelve months, regardless of original tenor — India has US$ 326.9 billion of external debt maturing within one year. That works out to 42.9% of total external debt, and 47.3% of foreign exchange reserves.​

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Read that last figure again: nearly half of India’s forex reserves would be required to cover just the debt coming due in the next twelve months.

This is where the debt story connects directly to the currency story. A large share of this near-term debt will need to be rolled over rather than repaid outright — that’s normal in any economy with an active external debt market. But rollover risk is precisely the channel through which global risk-off episodes, a sudden Fed repricing, or a fresh leg of the West Asia crisis I’ve been tracking, could translate into real pressure on the rupee. When $327 billion needs refinancing within a year and reserve cover has thinned from 100.6% of total debt to 90.6% since 2021, the margin for error on the currency has narrowed, even if nobody is calling it a crisis today.

Investor takeaways

·         India’s external debt-to-GDP ratio remains manageable at 20.8%, but this headline number masks a genuine post-Covid weakening in reserve cover and debt tenor — don’t let the stable ratio lull you into complacency.

·         The debt service ratio’s apparent improvement since 2021 is partly a base effect; on trend since the 2022 low, the near-term repayment burden has actually risen before easing slightly in 2026.

·         Government and bank external borrowing are growing markedly faster (c.25% and c.24%) than corporate external borrowing (c.15%) since 2023 — a pattern consistent with slower domestic savings and deposit growth funding the gap through external channels.

·         US$ 327 billion of external debt — 43% of the total, 47% of forex reserves — falls due within a year. This is the single most important number in the release for anyone positioning for currency and rate risk over the coming twelve months.

·         None of this points to a solvency crisis. It does argue for staying selective on rupee-sensitive and import-dependent sectors, and for treating any near-term INR stability as a rollover-financing outcome rather than a structural improvement.

 

Rupee Depreciation: A Fiscal Reading

Every time the rupee slides past another round number against the dollar, the same debate breaks out. Television panels turn it into a scoreboard of national strength. Social media turns it into a political weapon. Very little of this debate is about economics.

Strip away the noise, and an exchange rate is just a price — the price of one currency in terms of another, set by demand and supply like any other price. Demand for the rupee comes mainly from India’s trade earnings and from foreign capital that wants to own rupee assets. Supply of rupees is shaped by domestic fiscal deficit, money supply growth, and the pace of domestic inflation relative to the rest of the world. A country that runs a trade deficit, expands its money supply to fund government spending, and tolerates a higher inflation rate than its trading partners will see its currency drift lower over time. This is not a defect. It is arithmetic.

What is worth examining more closely is the fiscal piece of that arithmetic — not fiscal deficit as a single number on a budget slide, but as a growing stock of promises that a democratically elected government finds very hard to walk back.

Promises are liabilities too

A subsidy, a free ration scheme, a monthly cash transfer to women or farmers, a pension — once announced, these are rarely withdrawn. Politically, taking away a benefit is far costlier than granting one. Over time, these commitments start to behave less like annual budget line items and more like long-duration liabilities sitting on the government’s balance sheet, denominated entirely in rupees.

This detail — that the liability is in the government’s own currency — matters more than it first appears. Sovereigns that owe money in their own currency almost never default outright. They have a far easier option available: let inflation and currency depreciation quietly reduce the real value of what they owe, while continuing to pay the promised amount in full nominal rupee terms. The pensioner still gets the same number of rupees. The farmer still gets the same cash transfer. But each of those rupees buys a little less than it used to, and each dollar of external obligation gets a little easier to run since the government’s own tax revenue — also denominated in inflating rupees — grows in nominal terms even when real growth is unchanged.

Seen this way, currency depreciation is not simply something that happens to a fiscally stretched government. It is something that works in that government’s favor. A rupee that strengthened sharply would do the opposite — it would raise the real value of every subsidy and every pension commitment already on the books, making an already large fiscal burden heavier rather than lighter. Structurally, the incentives point only one way.

The scale of the promise

It helps to put a number on how large this pool of promises has become. Going by the 16th Finance Commission’s own review of state finances, states’ spending on subsidies has grown from roughly INR 4 lakh crore in FY19 to about INR 10 lakh crore budgeted for FY26 — two and a half times in seven years. Unconditional cash transfers to households have grown even faster, from about INR 73,000 crore to roughly INR 4.2 lakh crore over the same period, nearly a six-fold increase. The Commission’s own conclusion is that this expansion, more than anything else, is what is pushing an increasing number of states into revenue deficit — borrowing not to build a road or a hospital, but simply to fund routine, recurring expenditure.

The states, taken together, are currently budgeting a fiscal deficit close to 3% of their combined GSDP, and the Finance Commission’s own roadmap does not see the center’s fiscal deficit falling below 3.5% of GDP before FY31. Add the two together and general government borrowing in India stays well above 6% of GDP for years to come. That is the pool of rupee liabilities this argument rests on — large, growing, and, going by the political economy of welfare spending in India over the last decade, not something that reverses easily regardless of which party is in office.

What this means for an investor

Treat gradual rupee depreciation as the default, ongoing case for planning, not as an occasional shock to be reacted to. Anyone with long-dated rupee liabilities, or future foreign expenses such as a child’s education abroad, should build this into their planning horizon rather than their reaction to headlines.

Some permanent allocation to real assets or growing assets like equities is a reasonable hedge against this specific dynamic — the slow erosion of the rupee’s purchasing power — distinct from any short-term view on the dollar.

Businesses with real pricing power, export linkages, or import-substituting products benefit structurally from a currency that drifts lower over time. Businesses carrying dollar-denominated debt against rupee revenues carry the opposite exposure and deserve closer scrutiny.

The composition of government spending — how much goes to capital creation versus how much goes to subsidies and transfers — is a slower-moving but more revealing signal of currency direction than the monthly trade deficit or foreign investment flow numbers that dominate financial headlines.

A closing thought

The Bhagavad Gita’s second chapter tells Arjuna that heat and cold, pleasure and pain, come and go like the seasons, and that a steady mind learns to bear them rather than resist them. A currency behaves in much the same way over a long enough horizon. Its slow drift lower is not a nation failing to be mourned or denied. It is simply the mechanism doing what it was always going to do — quietly, and on schedule.

(This post draws heavily from Vikas Sehgal’s post My Mother’s Pressure Cooker . All copyrights are acknowledged with gratitude.)

Also read

Why this Kolavari di over INR

Rupee Depreciation: Demand, Supply, and Simple Economics