Rein your horses

In the past three months, a quiet but consequential story has been playing out in the Indian equity markets. While the benchmark Nifty 50 has ground along with minimal enthusiasm, the broader market has put on a spectacular show. The Nifty Midcap 100 has outperformed the Nifty 50 by ~10% in this period, and the Nifty Smallcap 100 has done even better, outperforming Nifty 50 by ~15%. This material outperformance of the broader markets implies that “greed” has been a dominating sentiment in the past three months, decisively beating fear.

 ​

​

This dominance of greed, against a backdrop of elevated geopolitical tensions — an ongoing conflict in West Asia and persistent uncertainty around US trade policy — is noteworthy. The question worth asking, carefully and honestly, is whether the market is reading the future correctly or simply repricing hope.

What has been driving the broader market outperformance?

The outperformance of mid and smallcap indices is not entirely irrational. There are identifiable, structural reasons behind it — even if the magnitude of the move warrants some scrutiny.

To begin with, Foreign Portfolio Investor (FPI) selling has been persistent and, critically, concentrated in large cap stocks. FPIs sold over Rs2trn worth of Indian equities in the past three months, and a disproportionate share of that selling was absorbed by Nifty 50 constituents. When the biggest sellers in the room target the biggest names, the smaller names benefit from neglect — and sometimes, from active rotation by domestic investors seeking alternatives.

The second factor is sectoral de-rating at the index heavyweight level. IT services and private sector banking together account for close to 40% of the Nifty 50’s weight. Both have faced meaningful valuation compression. IT has struggled with demand visibility in a slowing global environment, while private banking has grappled with margin compression and asset quality concerns in select pockets. When the two most influential sectors in a benchmark underperform, the benchmark itself cannot outperform, regardless of what else is happening elsewhere.

Third, and perhaps most interesting from a structural standpoint, is the massive valuation re-rating of stocks connected to what markets have come to call “sunrise themes” — Data Centers, energy transition (renewables, green hydrogen, EV infrastructure), and defense indigenization. These sectors are populated almost entirely by mid and smallcap companies. A defense electronics company that was trading at 25x earnings two years ago may now trade at 60-80x on the back of record order books and a government policy tailwind that shows no signs of reversing. The same logic applies to several renewable energy plays and select data center infrastructure names. Domestic institutions and retail investors have piled into these themes, and the resulting re-rating has been dramatic.

Finally, there is an earnings growth divergence that has provided at least partial fundamental justification for the rally. Aggregate earnings growth for Nifty Midcap 100 constituents has tracked in the 18-22% range over recent quarters, while Nifty 50 earnings growth has been closer to 10-12%. When earnings diverge, price divergence follows. The question is whether the divergence in price has now exceeded the divergence in earnings — and that is where the story gets uncomfortable.

The valuation question that cannot be deferred

Let us look at where valuations actually stand. The Nifty Midcap 100 is currently trading at approximately 35-38x trailing twelve-month earnings, a significant premium to its own historical average of around 26-28x. The Nifty Smallcap 100 presents an even starker picture, with the price-to-earnings multiple in the 40-45x range for several constituents, well above any sensible reading of long-run sustainable earnings multiples for companies of this scale and quality.

In the “sunrise theme” stocks, the valuation conversation becomes even more challenging. Several defense stocks now trade at price-to-earnings multiples north of 80-100x on the back of order book-driven earnings projections that extend three to five years into the future. Data center plays have been accorded valuations that imply an almost frictionless execution of extremely ambitious capacity expansion plans. The market is not merely pricing in optimism — it is pricing in perfection.

This is not to say that the underlying businesses are unworthy of investor attention. India’s defense order pipeline is real. The energy transition is real. The data center buildout is real. But markets have a long and well-documented history of taking genuine structural stories and extrapolating them to valuations that assume everything goes right and nothing goes wrong. The honest investor’s job is to separate the story from the price.

The sharp correction this week: A warning shot, not a blip

The sharp correction witnessed this week — the Nifty Midcap 100 fell approximately 3.5-4% in a matter of two sessions, with several momentum favorites dropping 7-10% from recent highs — deserves to be read not as a buying opportunity in isolation, but as a revelation of the fragility that had been building beneath the surface.

When markets correct sharply on relatively modest triggers — in this case, a combination of slightly disappointing earnings from one sector, a modest uptick in geopolitical risk premium, and a political gesture by the prime minister — it typically signals that positioning has become crowded and valuations have left little room for disappointment. The high-beta, high-momentum trade in mid and smallcaps had attracted significant participation from retail investors through SIP flows into sectoral and thematic funds, many of which had concentrated exposure to exactly the names that corrected the hardest.

The data on retail participation is instructive here. Monthly SIP contributions have crossed ₹25,000 crore, with a meaningful and growing share directed into midcap, smallcap, and thematic funds rather than diversified large cap or flexi-cap vehicles. This is not inherently bad — systematic investing in the broader market has a sound long-term logic. But when that flow becomes heavily concentrated in momentum themes and elevated valuations, the market structure becomes vulnerable. A correction feeds on itself as stop-losses are triggered and sentiment sours quickly.

The rally since February 2026, which took the Nifty Midcap 100 up approximately 18% from its lows, was built on a narrowing base of momentum names. Breadth — the proportion of stocks participating in the rally — had been declining even as the headline index climbed. This is a classic warning sign that a rally is running on borrowed time rather than broad fundamental support.

Is it time to rebalance?

The correction this week is a useful reminder that markets do not move in straight lines, and that the fragility of a rally built on multiple expansion rather than earnings delivery is always greater than it appears while the momentum is intact. Geopolitical uncertainty has not been resolved. Earnings growth in momentum sectors still needs to be delivered, not just projected. And the global environment — with US monetary policy, dollar strength, and West Asia risk all unresolved — provides ample triggers for further volatility.

For investors who have ridden the midcap and smallcap rally well, this is a moment for honest portfolio review rather than celebration. The question is not whether India’s broader market will outperform over the next decade — it very likely will, on the back of genuine structural growth drivers. The question is whether one’s current portfolio is positioned to capture that outperformance at an acceptable price, or whether the enthusiasm of the past three months has led to concentration risks that deserve attention.

The rebalancing question is one that every serious investor should be asking at this point, and answering honestly rather than in the hope that momentum themes will rescue a concentrated portfolio from a correction.

Austerity vs. Reform: Which way are we headed

The Appeal — and the Controversy

The Prime Minister recently called upon citizens to embrace austerity as a means of helping India navigate its current balance-of-payments (BoP) stress. The appeal had two broad asks. First, curtail fuel consumption — work from home where possible, use public transport, avoid discretionary travel, and prefer virtual meetings over in-person ones — in the interest of energy security. Second, conserve foreign exchange by forgoing overseas vacations, deferring gold jewelry purchases for a year, and moderating consumption of plant-based edible oils, most of which India imports.

The appeal has drawn sharply divided reactions. Supporters have characterized it as a statesman-like call to national duty, drawing parallels with similar appeals made by Prime Ministers Jawaharlal Nehru, Lal Bahadur Shastri, and Indira Gandhi during periods of national stress. Critics, however, have dismissed it as hypocritical, pointing to the Prime Minister’s own busy schedule of large-scale road shows, public rallies, and overseas travel — arguing that the ask for restraint rings hollow when the loudest voice in the room is not leading by example.

I do not intend to adjudicate this political debate. What I do find worth reflecting on, from an investor’s standpoint, are the broader signals this episode sends.

Five Things Investors Should Consider

1. India’s External Position Is Fragile

India’s external balance is under meaningful stress. While the current situation may not yet match the severity of the crises of 1979–80, 1990–91, or 2013, the trajectory is concerning. Each of those earlier BoP episodes was followed by a notable economic slowdown, social unrest, and a change in the political dispensation. Investors would do well to not dismiss the present stress as merely cyclical.

2. The Unfinished Business of 1991

The economic reforms of 1991 were transformative. They shifted policy’s center of gravity from consumption control — the hallmark of India’s post-independence socialist era, characterized by licensing and rationing — to supply-side expansion. Massive capacities were built across telecom, automotive, cement, steel, power, textiles, and chemicals. Yet three critical sectors were left largely unreformed: petroleum, natural gas, and edible oils. Import dependence in these areas has remained dangerously high, leaving the Indian economy perennially exposed to global energy price shocks triggered by geopolitical or climatic events.

3. A Return to the Pre-1991 Playbook?

The PM’s tone could be read as signaling a preference for consumption control over supply augmentation — a reversion to pre-reform thinking. If that reading is correct, investors may need to brace for regulatory measures targeting fuel consumption (steep price hikes or formal rationing), restrictions on gold purchases and holdings, and tighter controls on outward remittances under the RBI’s Liberalised Remittance Scheme (LRS). Some of these instruments were deployed briefly in 2013. The critical question is whether India’s economy today is as structurally vulnerable as it was then — or in 1991.

4. Has the Government Thrown in the Towel on Reform?

The tone of the PM’s address may have deepened the anxiety of investors who were already watching the reform pipeline closely. Many will now be asking whether the government has quietly abandoned its reform agenda. The actions taken — or not taken — in the coming weeks will be telling. Will the government revert to interventionist, consumption-curbing measures reminiscent of the pre-1991 era? Or will it demonstrate resolve by executing a set of tough supply-side reforms that have been deferred for reasons of political expediency? The answer to this question will likely set the tone for equity markets over the next twelve to eighteen months.

5. The Popularity Barometer

Finally, and I assign this relatively less weight as an investment signal, the public response to the PM’s appeal will serve as an organic indicator of his political capital — one that cuts through the noise of recent electoral outcomes. India has seen before what genuine mass mobilization looks like: in November 2016, citizens stood in hours-long queues to exchange their own hard-earned cash, rang bells and lit lamps during the most stressful Covid pandemic time, and still returned the Prime Minister to power with a thumping mandate. Whether this appeal generates even a fraction of that voluntary compliance will be worth watching.

Conclusion

The PM’s austerity appeal is, on one level, a routine political gesture. On another, it is a potential inflection point. India’s BoP vulnerability is real, the import dependency in energy and edible oils remains a structural Achilles’ heel, and the reform pipeline has been thinning. If the government’s response to external stress is to reach for the pre-1991 toolkit of controls and rationing, the implications for long-term growth — and for equity valuations — could be materially negative.

Investors should not be paralyzed by this uncertainty, but they should certainly be paying attention.

Indian economy – at an inflection point

In the past twelve months, Indian equities have been one of the worst performing asset classes globally. The benchmark Nifty 50 (+1%) has been flat in the past twelve months, whereas Asian peers like South Korea’s KOSPI (+270%), Japan’s Nikkei 225 (+68%) and Brazil 50 (+36%) have yielded superlative returns. Even on three basis Nifty50 (+32%) has been sharply lower than its EM peers.

Several experts have cited a variety of reasons for India’s underperformance. For example—

·         Many experts have blamed lack of adequate investment opportunities in the sunrise sectors like Artificial Intelligence and Semiconductors, for lack of investors’ interest in the Indian equities. Global investors have been consistently exiting Indian equities for the past three years, selling over Rs4trn worth of equities. Domestic HNIs have also increased their overseas portfolio investments materially.

·         Some investors have cited the “very high” cost (STT + Capital Gain Tax) of investing in India as one of the key factors behind lack of investors’ interest in the Indian equities.

·         Consistently depreciating INR has also discouraged most overseas investors. Pertinent to note that Nifty50 in USD terms (-9%) has massively underperformed INR denominated Nifty50 (+1%) in the past twelve months.

But in my view, the reason behind India’s underperformance is far more structural and fundamental than these micro and cyclical issues. The government policies and corporate behavior in the past 10 years have severely diminished the growth potential of India. The government has completely failed to invest in human capital and rent seeking corporations have focused on exploiting government subsidies and natural resources rather than investing in innovation. This has not only slowed down India’s growth momentum, but has crippled the growth drivers clouding any acceleration in the near term.

In this context, I would like to highlight the view of two reputable top economists – Chief Economic Advisor Dr. V. A Nageswaran and former RBI governor Raghuram Rajan.

Why Did India's Growth Falter?

From FY21 to FY25, corporate net profits tripled to ₹7.1 lakh cr (FY25) as corporate taxes were reduced by one-third and strong government investments pushed GDP growth.

Corporate India retired its debt instead of investing profits in CapEx. Debt-to-Equity ratio for companies declined from 139% to 94%.

Corporate cash reserves increased from ₹9L cr in FY21 to ₹16L cr in FY26. Private Investment to GDP ratio declined to a 20-year low from 16% during 2004-08 to 12% in FY23. FY26 investment halved from FY25.

As per Dr. V.A. Nageswaran, CEA, this reluctance of corporates to invest in growth has contributed to demand uncertainty (broken consumption) in India. Post-Covid, corporate profits of NSE 500 companies have grown at 30.8% annually. But investment has been disappointed.

The promoters and their next generations are accumulating profits and setting up family offices elsewhere rather than investing in real assets (factories, technologies, R&D etc.)

With a weakened rupee, the gap between Indian and Chinese currencies (real effective exchange rate or REER) is closing. This is the moment when Indian industry can compete in the global markets at a level footing with China.

Recent Free Trade Agreements (FTAs) have also created a level-playing field for Indian exports. Yet, India’s FTA utilization record remains poor compared to other countries.

Developed countries achieved so much because their industry acted in national interest. Now they are aggressively securing supply chains, refusing technology transfers, while India is heavily exposed to risks.

Rent seeking over innovation

In a recent newspaper article Dr. Raghuram Rajan, former RBI governor, highlights-

India’s largest “AI hub” on a 600-acre site is coming up in Visakhapatnam. LLM Models: Owned by Google; Chips: designed in California, fabricated in Taiwan; India’s Contribution: Land, Electricity, Construction, and Labour.

30 years ago we celebrated IT labour services the same way. But we did not build the next layer of technology, did not invest in R&D and deep-tech, and did not develop manufacturing depth. Now the bill is coming due in the form of AI.

Worse than 30 Yrs Ago: This time the mistake India is making is with stronger lock-in to the foreign tech owners. For every inference running on a foreign LLM model from a server in Vizag, a small rent will go to California on infra built by Adani. Same game, worse rules.

India’s AI strategy can be summed up as follows: Acres of land, tons of concrete, and gigawatts of power for a foreign-owned data center. No industry investments in AI research, labs, and scientists.

India’s Attitude: Since we are not investing in frontier AI, we tell ourselves frontier AI does not matter. Since we are good at secondary work (AI diffusion or AI services), we tell ourselves diffusion is enough.

Growing disparities

Between 2019 and 2025, the number of Indian billionaires grew by 77%, and their total wealth jumped by 227%. Now India has the world's highest number of billionaires per trillion dollars of GDP. Meanwhile, for the middle and lower income populations, real wages stagnated in the last 10 years. No GDP growth happened in their households.

There is no evidence in human history where a bunch of self-serving oligarchs have made an economy “developed”.

Conclusion

India is not yet in an economic crisis — it remains one of the world’s fastest-growing major economies. But it is certainly at an inflection point. The policy and corporate choices of the next five years will determine whether it replicates the high-investment, broad-based development trajectories of East Asia’s success stories, or settles into a middle-income equilibrium characterized by elite wealth concentration, technology dependency, and unrealized demographic potential.

The structural problems— the profit-investment gap, the AI dependency risk, the human capital quality deficit, and the inequality-consumption feedback loop — are serious and compounding. They are also solvable, provided the political economy can be shifted away from rent protection and toward productive investment. That shift requires institutional reform, credible commitment mechanisms, and leadership willing to challenge entrenched interests. It is a demanding agenda. The cost of not pursuing it, however, is considerably higher.

Where does AI fit in the business paradigm

A few days ago, I had an interesting interaction with some technology students. The discussion was primarily meant to be about the businesses these students can do. However, midway the discussion took an interesting turn and veered towards artificial intelligence (AI) – the business of AI; and AI in business. I would like to share a gist of the discussion with the readers.

In my view, there are primarily three kinds of businesses in the world.

1.    Businesses designed to serve the needs of the people. Some of these businesses actually manufacture needs for people, mostly in the form of aspirations, and then serve to fulfil these needs/aspirations. Fashion, digital entertainment, luxury tourism etc. are some examples of such businesses.

2.    Businesses to protect the lives and property of people. Some of these businesses, manufacturing of arms and ammunition, both threaten and protect the lives and property of people.

3.    Businesses that serve the institutions and structures created to organize, govern, grow and manage people. Examples would be social & physical infra developers, universities, etc. There are certain businesses which are mostly based on systemic inefficiencies and corruption. Private coaching and general medical practice for example are two such businesses that should not exist in an efficient governance system.

These are of course broader and porous categories. For example, a hospital serves human needs and also anchors a healthcare system that is an institutional structure.

The framework of business

In my view, the business schools need to teach why businesses exist, not just how they make money. That is the more interesting question and the less taught one. Business schools spend a great deal of time on revenue models and competitive strategy and almost no time on the prior question: what is this business actually for?

The idea that a business can manufacture the very need it then profits from satisfying, is the defining feature of modern consumer capitalism. A clothing company does not simply clothe people. It constructs an anxiety — you are not dressed correctly, you are not current, you are not who you could be — and then sells the relief. Instagram does not simply connect people. It engineers a particular kind of loneliness that its own product then temporarily addresses.

Most of these businesses run on a variety of revenue and profitability models. Traditionally, the businesses that understood the human needs most and created a business model that would serve those needs in the best possible manner were the most successful. However, in the modern times, the businesses that inspire the human aspirations and manage to successfully fulfil these aspirations. Economists often ignore an uncomfortable principle - the demand curve is not always discovered. Sometimes it is built.

The business of arms is structurally about threat-and-protection simultaneously. It requires the world to be dangerous in order to justify its own existence.

Scarcity – a governance failure or arithmetic

In my view, in a country with good and equitably distributed public education, private tutoring would shrink dramatically.

A counter argument however could be that the problem in India is not merely that public schools are poor. The problem is that the gates are narrow. There are more people who want to be engineers and doctors and civil servants than there are seats in the institutions that confer those identities. Private coaching exists not just because teaching is bad — it exists because competition is intense and the stakes of that competition are high. You could fix every government school in the country tomorrow and still have a Kota. Scarcity is not a governance failure. It is arithmetic. And businesses that serve people navigating scarcity are not parasitic — they are, for better or worse, responding to something real.

It is a valid argument, but I would like to disagree.

What actually makes businesses succeed

Ideally, the businesses that understood the human needs most and created a business model that would serve those needs in the best possible manner were the most successful. Of course, it certainly does not mean that the most empathetic business always wins. The structural positioning of the business plays a major role in its success. The most durable competitive advantages in history have rarely been rooted in sensitivity to human desire. They have been rooted in control of chokepoints — physical, digital, regulatory, or social.

The uncomfortable truth is that many of the world's most profitable businesses have made their money not by understanding what people want, but by making it structurally difficult for people to want anything else.

Standard Oil did not succeed because John Rockefeller understood human needs more sensitively than his competitors. He succeeded because he controlled pipelines. The railways did not win because they grasped the human desire to travel — they won because once you owned the track, nobody could run a train without your permission. Google did not become the default portal to human knowledge because it was the most empathetic company — it became that because once you are the search engine everyone uses, you are the search engine everyone uses. Network effects are not about understanding needs. They are about structural position.

And so: where does AI go?

An interesting question was asked, “which of the three categories should we place the business of developing in selling Artificial Intelligence?"

The honest answer is that AI fits comfortably in all three of his categories — and that this is precisely what makes it unusual.

·         It serves human needs directly: it reads your scans, drafts your contracts, translates your documents, helps you write the email you have been putting off for a week. Category one.

·         It is already deeply embedded in the security and protection business: surveillance systems, autonomous weapons research, fraud detection, cyberdefence. Category two. And like the arms trade, it simultaneously creates and addresses certain threats — deepfakes being perhaps the most visible example.

·         It is becoming infrastructure for institutions: government systems, healthcare bureaucracies, financial regulators, universities that now have to decide what a degree means when a machine can write the essay. Category three.

But here is what I think is actually interesting. AI is not just a business that fits across these categories. It is a technology that is changing what each category means.

When AI enters healthcare, the question of what general medical practice is for becomes more complicated. When AI enters education, the question of what a coaching centre is actually teaching becomes more complicated. When AI enters governance, the question of what institutions are even supposed to do becomes more complicated. It is not slotting into the existing structure. It is pulling at the joints.

The closest historical analogy I keep returning to is electrification. Electricity was not a business in any of the mentioned three business categories. It was a medium that transformed every business in every category — what manufacturing could do, what medicine could do, what governments could do, what entertainment could do. You could not place it in a taxonomy of 1880 because it was in the process of making that taxonomy obsolete.

I suspect AI is doing the same thing. Which means the question — which category does AI belong in? — may be a wrong question. The right question might be: what do the categories look like after AI has been inside them for twenty years?

I do not know the answer. But I think the students who ask this question are well ahead of most people who are simply using the product.

Roads are not enough, we need smarter infrastructure thinking

A journalist’s question about the newly opened Ganga Expressway caused more outrage than reflection last week. After officials announced that the road connecting Meerut to Prayagraj would cut travel time by five hours, he asked simply: “What will people do when they arrive five hours earlier?” Critics piled on immediately, calling him anti-development and politically motivated.

That reaction is telling. In India, large infrastructure announcements have become almost sacred — to question them is to invite accusations of obstructing progress. But civic scrutiny of public spending is not obstruction. It is a democratic obligation. And when a government spends thousands of crores of public money on a single road, the public is entitled to ask hard questions about what they are getting in return.

The journalist’s question was clumsy, and his critics were not entirely wrong to push back. But the debate it triggered is worth having — carefully, honestly, and without political point-scoring on either side. Because the real question is not whether expressways are good or bad. It is whether we are building them well, for the right reasons, with the right safeguards. On that score, India’s record is genuinely mixed.

What the research actually says

Let us start with something the connectivity sceptics rarely acknowledge: there is substantial evidence that roads work. A large body of economic research from developing countries, including India, shows that improved road access correlates with reduced rural poverty, higher agricultural incomes, better school attendance, and greater access to healthcare. The World Bank’s studies on India’s rural roads programme (PMGSY) found measurable improvements in wages and consumption for villages that received paved road connections.

The Mumbai–Pune Expressway, for all its early controversies, is now widely credited with catalysing the growth of Pune as a technology and manufacturing hub. The Delhi–Jaipur corridor has made Rajasthan more accessible to investment and tourism. These are not trivial outcomes. Connectivity, done well, genuinely changes economic geography.

So “improved connectivity” is not a hollow justification. It is a legitimate development goal with a real evidence base. Anyone building a critique of expressway policy needs to engage with this evidence honestly, rather than dismissing it.

…and yet, something is missing

Acknowledging that roads can work is not the same as concluding that every road will work, or that every road is being built responsibly. India’s expressway program, impressive in its scale, has real and documented failures that deserve honest examination.

Financial viability has been a persistent problem. Several private developers have walked away from projects or gone bankrupt, not because the infrastructure was unwanted, but because of poor traffic projections, mispriced tolls, and land acquisition delays that the original models never accounted for. These are not just business failures — they strand half-built roads, strand displaced communities, and waste public money through guarantees and bailouts.

Environmental review has been inconsistently applied. The Char Dham road-widening project in Uttarakhand became a national controversy because planners pushed ahead with designs that geologists and ecologists warned were unsuitable for fragile Himalayan terrain. The Supreme Court had to intervene. That a project of such environmental sensitivity could proceed as far as it did reflect a planning culture where speed is rewarded and caution is treated as an obstacle.

Safety awareness is almost entirely absent. This is perhaps the most damaging and most easily correctable failure. When a new expressway opens, NHAI and its concessionaires invest enormous sums in construction and virtually nothing in educating the communities that suddenly find themselves living beside a high-speed corridor. The results are predictable and tragic: helmetless riders on expressway lanes, wrong-side driving to avoid distant U-turns, pedestrians crossing where no crossings exist. These are not failures of local people. They are failures of institutional responsibility.

The two-way street nobody talks about

The most genuinely original idea in the public debate around expressways — and one that receives almost no attention — is that connectivity is not a one-way gift from cities to villages. Roads move things in both directions.

Yes, expressways give rural communities access to larger markets, better hospitals, and educational institutions. But they also open those communities to the full force of urban commercial culture: processed food in non-biodegradable packaging, aggressive consumer marketing, and a torrent of digital content that has arrived in villages faster than the institutions — schools, libraries, community centers — needed to help people engage with it critically.

This does not mean rural communities need to be protected from the outside world — that would be paternalistic and wrong. People have the right to make their own choices about what to consume and how to live. But it does mean that policymakers should think seriously about whether new infrastructure is accompanied by investment in the social and institutional capacity that allows communities to benefit from connectivity rather than simply being swept along by it. A fast road to a city is most valuable when the village at the other end has functioning schools, healthcare, and economic opportunity to anchor its residents.

What the Instagram reels argument gets right and wrong

The journalist’s original question — what will people do with five extra hours? — was trying to make a real point, but it made it badly. The implication that saved travel time is worthless unless people use it productively is not only elitist; it is also historically shortsighted. People did not immediately know what to do with electricity, the telephone, or the internet either. The value of infrastructure often takes a generation to fully materialize.

But the underlying concern is not entirely without merit. If five hours of saved travel time accrues primarily to people who are already mobile, already connected, and already economically active — if it is, in practice, a subsidy to freight logistics and middle-class car owners rather than a transformation of life for the rural poor — then the distribution of benefits matters. Infrastructure that predominantly serves the already-advantaged, while displacing the poor and degrading local environments, is not neutral. It is a policy choice about whose lives we are prioritizing.

The right question is not “should we build expressways?” but “who benefits from this expressway, who bears its costs, and what are we doing to ensure the benefits are broadly shared?” These are harder questions. They take longer to answer. But they are the questions a serious development conversation demands.

A framework for better infrastructure decisions

Rather than either celebrating every expressway as a triumph of national ambition or dismissing them as vanity projects, we need a more rigorous public conversation. That conversation should center on five questions:

·         Who benefits, and how? Traffic modelling should be transparent and independently verified. The distribution of economic gains across income groups, regions, and communities should be projected and monitored.

·         Who bears the costs? Land acquisition, displacement, environmental degradation, and cultural disruption are real costs. They should be quantified, minimized, and fully compensated — not treated as acceptable collateral damage.

·         Is the financial model honest? Traffic projections for toll roads in India have historically been over-optimistic. Unrealistic forecasts lead to developer failures, public bailouts, and stranded assets. Independent scrutiny of financial models should be mandatory.

·         What complementary investments are planned? A road without safety awareness programmes, without access roads to villages, without integration with public transport, and without local economic development planning delivers a fraction of its potential value.

·         How will we measure success? Not ribbon-cuttings. Not traffic volumes. But changes in rural income, school attendance, healthcare access, and quality of life for the communities the road was meant to serve. These should be measured, published, and held up against the promises made at the inauguration.

Conclusion: scrutiny is not cynicism

India needs infrastructure. It needs better roads, faster connections, and bolder investment in its physical backbone. Nobody serious disputes that. But need alone does not make every project good, every design sound, or every cost acceptable.

The journalist who asked what people would do with five saved hours was reaching for something important, even if he reached clumsily. The critics who shouted him down were defending something real too. But neither side actually answered the question that matters: are we building this road in a way that will genuinely improve the lives of the people who live along it?

That question is not anti-development. It is the most pro-development question you can ask. Because infrastructure that fails the people it was meant to serve is not progress — it is just very expensive concrete.

 

Speculating post-war world - 4

Continuing from yesterday - Scenario 3: A Multi-Axis World

Last week I shared some of my thoughts about what the world might look like after the latest episode of war in West Asia. I speculated the following three alternative outcome scenarios:

Scenario 1: Deglobalization

Scenario 2: The return of colonialism

Scenario 3: A multi-axis world

In my view, Scenario 3 is the most desirable, but Scenario 1 is the most plausible, under the current circumstances. And the world we actually get is probably a messy hybrid of the two, with regional flashes of Scenario 2 thrown in.

Why scenario 1 is most plausible

Deglobalization already has momentum. This is the critical point. The other two scenarios require discontinuous breaks from the current trajectory. Deglobalization does not — it simply requires the current direction to continue. The friend-shoring of supply chains, the CHIPS Act, MAGA, India’s PLI schemes, the weaponization of SWIFT, the rise of rupee-yuan-ruble trade settlement — these are not responses to the West Asia conflict. They predate it by years. The conflict is accelerating a trend, not creating one. When historians look back, 2018 (the US-China tariff war) may prove to be the actual hinge point, not 2026.

Scenario 2 is real but localized. Return of Colonialism-style behavior is already happening — in Ukraine, in the South China Sea, in Chinese debt infrastructure across Africa — but the constraints on it going global are still formidable. Nuclear deterrence is the biggest one. Great powers cannot annex each other or each other’s close allies without triggering escalation calculus that even the most reckless leaders fear. So, neocolonialism expresses itself at the margins — in small states, in failed states, in economic coercion rather than military occupation. Deeply worrying, but not a systemic reorganization of world order.

Scenario 3’s problem is the collective action trap. Everyone rationally prefers a well-functioning multilateral system. Nobody wants to pay the short-term political cost of reforming one. The UN Security Council has needed reform for forty years. The IMF quota system is visibly anachronistic. The WTO dispute mechanism has been broken since 2019. The reason none of these have been fixed is not ignorance — every policymaker knows what the problems are. It is that the beneficiaries of the current dysfunction (primarily the US and China, in different ways) have no incentive to change it, and the middle powers lack the coercive leverage to force change.

The India angle is worth thinking about carefully. India is the country with the most to gain from Scenario 3 and the most to lose from Scenario 1. A deglobalized world puts India’s IT services, its pharmaceutical export model, and its diaspora remittance architecture under serious stress. A Multi-Axis World, by contrast, is essentially designed for a country of India’s strategic positioning. This is probably why India’s foreign policy establishment has been among the most consistent advocates for multilateral reform — it is not idealism; it is self-interest correctly understood.

The uncomfortable conclusion is that the world drifts toward Scenario 1 not because anyone chose it, but because nobody chose otherwise forcefully enough. That is how most bad historical outcomes happen — not through malice but through the accumulation of individually rational, collectively disastrous decisions.

The question worth watching over the next three years: does the post-war period produce any serious institutional initiative — a genuine reform proposal, a new multilateral framework, something beyond rhetoric — or do governments simply return to their corners and manage the fragmentation? The answer to that question will tell us a great deal about which scenario we are actually in.

I shall be delighted to hear readers’ views on the post-war world, especially if someone foresees alternative scenarios far removed from the three scenarios I envisage.

Also read

Scenario 1: Deglobalization

Scenario 2: The Return of Colonialism

Scenario 3: A Multi-Axis World

 

Scenario 3: A multi-axis world

 Continuing from yesterday - Scenario 2: The Return of Colonialism

Scenario 3: A multi-axis world

A multi-Axis world is the most optimistic outcome of this war, in my view. Unfortunately, it may not be the most likely outcome. Optimism in geopolitics requires more than goodwill — it requires institutional capacity, distributed leadership, and the willingness of major powers to accept constraints on their own behavior in exchange for systemic stability. History suggests these conditions are rare.

Nonetheless, the Multi-Axis World scenario is not wishful thinking. It has strong intellectual foundations and some precedents in the existing architecture of global governance. More pertinently, it represents the trajectory that the world’s middle powers — including India — have the strongest interest in pursuing, and the most agency to shape.

The core argument of this scenario is that the US-Iran conflict, rather than destroying the globalized order, forces it to evolve. The shock is severe enough to delegitimize the old architecture — US-led unipolarity, dollar hegemony, a rules-based order in which the rules were largely written by the powerful — but not severe enough to collapse it entirely. What emerges is not a simpler world but a more complex one: a world of multiple overlapping coalitions, negotiated interdependencies, and reformed institutions that more accurately reflect the distribution of actual power.

What the Experts Say About Multipolarity

The Multi-Axis World draws heavily on the international relations (IR) tradition of complex interdependence, developed by Robert Keohane and Joseph Nye in the 1970s and refined through subsequent decades of scholarship. Their central insight — that in a world of deep economic integration, military force becomes less effective as an instrument of foreign policy, and the costs of disrupting interdependence become prohibitively high — remains one of the more empirically durable propositions in IR theory.

The argument is not that conflict disappears. Keohane and Nye were not naifs. Their claim was more specific: that certain types of conflict — interstate territorial war between economically integrated states — become rarer and more costly. The European Union is the most successful real-world experiment in this proposition. Despite deep historical enmities, Western European states have not fought each other since 1945. The mechanism is precisely the complex web of economic interdependence that makes the cost of war with a trading partner prohibitive.

More recent work by Erik Gartzke on the capitalist peace, and by Bruce Russett and John Oneal on the Kantian peace, adds further layers. Democratic governance, trade interdependence, and membership in international institutions are individually associated with lower conflict probability; together, they are strongly reinforcing. The Multi-Axis World scenario is essentially a bet that these mechanisms survive the shock of the West Asia war and reassert themselves in a reformed institutional architecture.

The Architecture of Overlapping Coalitions

The defining structural feature of the Multi-Axis World is not the absence of blocs — it is the overlapping and partially contradictory nature of those blocs. States belong to multiple groupings simultaneously, with different memberships for different purposes. Trade blocs are not the same as security blocs. Technology coalitions cut across both. Mobility frameworks — governing the movement of people — have their own logic entirely.

This is not a hypothetical. The current world already exhibits this structure in embryonic form. India simultaneously participates in QUAD (a security dialogue with the US, Japan, and Australia), SCO (a security and economic grouping dominated by China and Russia), BRICS (an economic forum that includes both China and the West’s adversaries), I2U2 (a technology and infrastructure forum with Israel, the US, and UAE), and G20 (the broadest legitimate forum for global economic governance). India is in all of these simultaneously, and its memberships create both constraints and leverage.

In the Multi-Axis World scenario, this pattern generalizes. Most major and middle powers build portfolios of overlapping memberships. The result is that no single great power can afford to rupture its relationships with others — because doing so would cascade through too many shared institutional memberships. This is complexity as deterrence: not military deterrence, but systemic deterrence. The cost of unilateral action rises with the density of the interdependence web.

Democracy Survives — But Changes

One of the more counterintuitive claims in this scenario is that democracy not only survives the post-war shock but actually strengthens over the medium term. This requires explanation, because the short-term trend clearly runs the other way: the West Asia conflict has boosted nationalist and authoritarian politics in multiple countries, as crises typically do.

The longer-run logic, however, draws on the democratic resilience literature. Research by Milan Svolik at Yale on the survival of democracies under stress suggests that democracies facing external threats tend to consolidate — both internally, as citizens rally around institutions, and externally, as democratic states deepen security cooperation with each other. The post-war period, in this scenario, becomes a catalyst for democratic solidarity rather than democratic retreat.

The more plausible mechanism is economic. The multi-axis world is one in which growth returns, trade recovers, and middle classes expand — particularly in the large developing economies that successfully navigate the transition. Historically, sustained economic development is the single strongest predictor of democratic consolidation. South Korea, Taiwan, and Chile all made democratic transitions at income levels that India, Indonesia, and Nigeria are now approaching. If the multi-axis world delivers development, democracy follows.

The Demography Dividend — Managed This Time

The demographic dimension of the Multi-Axis World scenario is among its most interesting and most practically important features. The scenario posits material demographic shifts driven by regulated immigration from developing to developed countries.

This is not just a hopeful extrapolation — it is a structural necessity. The developed world faces a demographic crisis of its own making. Europe’s total fertility rate has fallen to 1.5, well below the 2.1 replacement level. Japan’s population has been declining in absolute terms since 2008. South Korea’s fertility rate, at 0.72 in 2023, is the lowest ever recorded for any country. Without immigration, these economies face unsustainable dependency ratios: fewer workers supporting more retirees, with cascading effects on pension systems, healthcare, and GDP growth.

The developing world, meanwhile, has the opposite problem: abundant young populations and insufficient domestic capital and institutional capacity to employ them productively. The match is obvious in theory. The challenge is political. Immigration has been one of the most destabilizing political forces in Western democracies over the past decade, and for understandable reasons — rapid, unmanaged demographic change produces genuine social disruption.

The Multi-Axis World scenario’s bet is that the post-war shock creates the political conditions for a new social contract around managed migration. Not the chaotic, crisis-driven flows of the 2015 Syrian refugee wave, but structured bilateral agreements — skilled labor corridors, circular migration schemes, and portable social security arrangements — that meet the developed world’s labor needs while preserving the sending country’s human capital base through remittance flows and diaspora investment.

The Neutral Currency Question

Perhaps the single most consequential institutional change in the Multi-Axis World scenario is the emergence of a neutral global reserve currency — one that is not the liability of any single sovereign state and cannot be weaponized through sanctions or exclusion.

The dollar’s dominance has been both an extraordinary privilege for the United States and an increasingly resented asymmetry for the rest of the world. The use of dollar clearing as a sanctions mechanism — most dramatically against Russia in 2022 — has convinced virtually every non-Western central bank that holding reserves in dollars is a geopolitical risk as much as a financial asset. The search for alternatives is now serious and well-funded.

The academic literature on reserve currency transitions — including Barry Eichengreen’s work on the dollar’s exorbitant privilege — suggests that transitions are rare but not impossible. Sterling’s loss of reserve status in the mid-twentieth century is the relevant precedent. What replaced sterling was not another national currency — it was a multilateral institution, the IMF’s SDR system.

In the Multi-Axis World scenario, a reformed and genuinely representative IMF administers a reserve asset — whether an enhanced SDR, a commodity basket, or a jointly-managed digital currency — that provides a neutral settlement mechanism for cross-bloc trade. This is technically achievable. The political obstacles are formidable but not insurmountable, particularly if the US calculates that losing the reserve currency privilege through geopolitical overreach is worse than negotiating an orderly transition.

Reforming the Institutions That Failed

The United Nations Security Council structure, designed in 1945 to reflect the power distribution of a world that no longer exists, has been one of the most persistent sources of institutional dysfunction in global governance. A council in which the US, China, Russia, the UK, and France each hold a veto was barely functional during the Cold War and has been increasingly paralyzed in the post-Cold War era.

The Multi-Axis World scenario requires reformed global institutions that command genuine legitimacy — which in practice means institutions that give adequate voice to the world’s emerging powers. India, Brazil, Nigeria, Indonesia, and others have been making this argument for two decades without result. The West Asia conflict, by demonstrating the limits of the existing system so dramatically, may have created the political window for reform that decades of incremental advocacy could not.

What would reformed institutions look like? The proposals are not new — they have been debated in academic and policy circles for years. Expansion of the Security Council’s permanent membership to include regional powers. Weighted voting in the IMF that reflects current economic realities rather than 1945 GDP shares. A reformed World Trade Organization dispute settlement mechanism. A genuine global climate governance body with binding enforcement. The content of reform is less uncertain than the political will to achieve it.

What India Stands to Gain — and Lose

For India, the Multi-Axis World scenario is the most congenial of the three. It is a world that rewards India’s existing strategic architecture: a country too large and too democratic to be a client state, too pragmatic to be confined to a single bloc, and too development-hungry to accept the deglobalization scenario’s growth penalty.

India’s ambition to be a Vishwaguru — a civilizational anchor — fits naturally into a multipolar world where no single power dominates the normative agenda. India’s diplomatic tradition, from Nehru’s non-alignment through the current strategic autonomy doctrine, is essentially a bet on a world like this. India has been preparing for the Multi-Axis World for seventy years. If it arrives, India is better positioned than almost any other country to benefit.

The risks are internal rather than external. A Multi-Axis World that rewards institutional quality, democratic governance, and human capital development will expose India’s internal contradictions more sharply than either of the other scenarios. Governance quality, judicial independence, minority rights, and the rule of law are not just domestic concerns in a multi-axis world — they are competitive assets that determine how seriously other members of the system take you.

The Most Hopeful Bet

The Multi-Axis World is the hardest to achieve of the three scenarios. It requires institutional innovation, distributed leadership, and the willingness of major powers to accept genuine constraints. These are demanding conditions. But the alternatives are more costly, and the major powers know it. A deglobalized world imposes large economic losses on everyone. A neocolonial world risks escalation to great-power conflict. The Multi-Axis World, for all its complexity, is the outcome that all major powers can rationally prefer — even if none of them is willing to lead the way to it.

In 1945, after the worst war in human history, the major powers built the United Nations, the Bretton Woods system, and the Marshall Plan. These were imperfect institutions, designed partly to serve the interests of the powerful. But they also reflected a genuine, hard-won understanding that the alternative — a world of pure great-power competition — had just killed fifty to eighty million people.

The West Asia conflict has not killed tens of millions. But it has reminded the world of what unconstrained great-power competition looks like. That reminder may be enough.

Concluding part on 5^th May 2026.

Also read

Scenario 1: Deglobalization

Scenario 2: The Return of Colonialism

Speculating post-war world -2

Continuing from yesterday - Speculating post-war world-1

Scenario 2: Rise of colonialism

There is a moment in the decline of every multilateral order when the strongest player realizes that the rules no longer constrain them — and that being constrained while others cheat is simply irrational. We may be approaching that moment. The US-Iran conflict has demonstrated, for any remaining doubters, that international law and UN Security Council resolutions are effective only insofar as the most powerful nations choose to observe them.

This is the premise of this second scenario: a world in which the post-war environment triggers not a retreat into national fortresses, but an aggressive outward expansion by two or three major powers — a resource grab dressed up in the language of security, development, and alliance. A second scramble, this time for rare earth minerals, water, arable land, deepwater ports, and human capital, in addition to the traditional prizes of oil and gas.

It is the darkest of the three scenarios I am exploring in this series. It is also, historically speaking, one of the most precedented.

The Historical Mirror: 1885 and 2026

In 1885, the major European powers convened the Berlin Conference to divide Africa among themselves. There were no African representatives at the table. In roughly three decades, 90% of the African continent passed under European colonial rule. The trigger was not malice alone — it was industrial capitalism’s insatiable demand for raw materials combined with the military and technological superiority of European states over African polities.

The parallel to 2026 is not exact but it is instructive. The trigger today is not coal and rubber — it is lithium, cobalt, rare earth elements, and water. The technologies that the developed world is betting its future on — electric vehicles, semiconductor fabrication, renewable energy infrastructure — all depend critically on mineral inputs that are geographically concentrated in politically unstable regions. The Democratic Republic of Congo holds an estimated 70% of the world’s cobalt. Chile, Argentina, and Bolivia command the Lithium Triangle. China controls 85% of global rare earth processing capacity.

In a post-war environment where the fiction of a rules-based international order has been further punctured, the temptation to secure these resources through coercive means — military bases, puppet governments, debt traps with real teeth, or outright annexation — becomes more politically viable.

The Race for Resources: What We Already See

The Return of Colonialism scenario does not require an imaginative leap. Its infrastructure is already being built, quietly and methodically, by multiple actors.

China’s Belt and Road Initiative, now in its second decade, has created a network of infrastructure debt across Africa, Central Asia, and South Asia that critics characterize as a form of strategic dependency. The Hambantota port in Sri Lanka — leased to China for 99 years after Sri Lanka could not service its debt — is the most cited example, though scholars debate whether it represents a deliberate strategy or opportunistic exploitation of fiscal distress. Either way, the outcome is the same: a foreign power with effective control over strategic infrastructure in a sovereign state.

Russia’s territorial expansion — Crimea in 2014, eastern Ukraine in 2022, and its post-war positioning in the South Caucasus — follows a different but related logic. It is the assertion that geographic proximity plus military superiority confers the right to determine the political status of neighboring territories. This logic, once normalized, is extraordinarily difficult to contain.

The United States, meanwhile, has used financial infrastructure — SWIFT exclusion, dollar clearing dominance, secondary sanctions — to exercise a form of economic coercion that functions as soft annexation of policy space. The imposition of oil sanctions on Iran, Venezuela, and Russia are exercises of sovereign power over third-country economic decisions.

The Weaponization of Technology and Space

The Return of Colonialism scenario has a twenty-first century dimension that the nineteenth century version lacked: the race for technological and space dominance. The scholar Alfred McCoy, in his work In the Shadows of the American Century, argues that control of the global commons — sea lanes, cyberspace, and now space — is the modern equivalent of controlling trade routes. Whoever dominates these commons sets the rules for everyone else.

The US-China competition in semiconductors, artificial intelligence, and space capabilities is already a defining feature of the current era. The CHIPS Act in the US, the EU’s semiconductor sovereignty push, China’s Made in China 2025 and its successor initiatives — these are not merely industrial policies. They are assertions of technological sovereignty that carry unmistakable echoes of nineteenth century imperial competition for industrial advantage.

In space, the Artemis Accords — championed by the US and now signed by over 30 nations — essentially propose a framework for lunar resource extraction that mirrors the Berlin Conference logic: the major powers agree among themselves on the rules, and others are invited to accept them or be excluded. China has refused to sign and is building a parallel space architecture with Russia. The militarization of space, already underway with anti-satellite weapons testing by the US, China, Russia, and India, adds a military dimension to what was once framed purely as scientific competition.

Democracy’s Retreat

One of the most consequential features of the Return of Colonialism scenario is its impact on governance forms. The liberal democratic model assumed, for three decades after the Cold War, that it represented the end point of political evolution — Francis Fukuyama’s famous thesis. That assumption has been steadily eroding since 2016, and the West Asia conflict may have dealt it a serious blow.

The research of Larry Diamond at Stanford’s Hoover Institution documents what he calls a democratic recession — a global decline in the quality and scope of democratic governance that has been underway since approximately 2006. The Freedom House index has recorded seventeen consecutive years of declining global freedom. The post-war environment, characterized by security anxiety and resource competition, tends to favor strongman governance, where decisiveness and control are valued over accountability and rights.

Theocracy — which the author of the original text flags as potentially regaining prominence — deserves particular attention. In the Middle East and parts of South and Southeast Asia, the failure of secular nationalist models to deliver economic security has consistently strengthened Islamist political movements. The Iranian revolution itself was a response to the perceived corruption and Westernization of the Pahlavi dynasty. In Turkey, Egypt, Pakistan, and Tunisia, the pattern has repeated with variations. A post-war environment that further delegitimizes Western liberal values will strengthen these alternatives.

The Human Cost: Mass Death in the Periphery

Perhaps the most disturbing feature of the Return of Colonialism scenario is its demographic consequence. The nineteenth century scramble was accompanied by famines, forced labor, and population collapse across colonized territories. King Leopold’s Congo lost an estimated half of its population. The Bengal famine of 1943 killed between 2 and 3 million people under wartime colonial governance.

The twenty-first century version would not take the same form — there are no colonial governors and no official labor extraction regimes. But the functional outcome could be similar. A world in which the great powers prioritize resource extraction over human development, in which climate change is weaponized through food system disruption, in which war becomes endemic across multiple theatres simultaneously — this is a world where mortality in poor countries rises sharply.

The Lancet and WHO projections on climate-related mortality already suggest tens of millions of excess deaths by 2050 under high-emissions scenarios. Add armed conflict, disrupted food systems, and collapsed health infrastructure — all consistent with the Return of Colonialism scenario — and the demographic catastrophe in the developing world becomes very large indeed.

Meanwhile, the developed world faces the opposite problem. Low fertility rates in Europe, Japan, and South Korea have created structural labor shortages. In a neocolonial world, the solution is not open immigration — it is selective import of skilled labor under conditions that favor the receiving country and strip the sending country of its human capital. Brain drain, rather than population growth, defines the demographic story of the periphery.

What This Means for India

India occupies a peculiarly vulnerable but also strategically interesting position in the Return of Colonialism scenario. It is large enough that no great power can simply ignore it or coerce it into submission — 1.4 billion people with nuclear weapons and a credible military are not a compliant client state. But it is also resource-dependent enough — particularly on oil, critical minerals, and increasingly on semiconductor imports — to be vulnerable to supply-chain coercion.

India’s strategic response — the policy of strategic autonomy, membership in multiple overlapping groupings like QUAD, SCO, BRICS, and the G20 — is well-suited to a transitional world. But in a world that has definitively split into two or three imperial blocs, strategic ambiguity becomes increasingly costly. India will eventually face pressure to choose sides, and the terms of that choice will be set by others.

The optimistic reading is that India’s scale, its democratic legitimacy, and its geographic position make it an indispensable partner for any great power coalition — not a client but a swing state. The pessimistic reading is that a neocolonial world respects scale only when backed by coercive capability, and that India’s internal fractures — economic inequality, communal tension, institutional stress — reduce its effective bargaining power.

A World Nobody Should Want — But Might Get

The Return of Colonialism scenario is not inevitable. It requires a specific set of conditions: the failure of multilateral institutions to adapt, the escalation of resource competition to the point of military coercion, and the replacement of democratic governance by authoritarian alternatives across enough major states to normalize the new order.

But history’s lesson is that these conditions have been met before, and more than once. The first globalization ended in a world war. The interwar period produced fascism, Stalinist terror, and colonial famine. The comfortable assumption that we have evolved beyond these outcomes rests on institutions and norms that are, right now, under serious strain.

In the final post of this series, I explore the most hopeful of the three scenarios: a Multi-Axis World in which the conflict forces not fragmentation or domination, but a genuine restructuring of the global order around more equitable and durable foundations.

Also read

Scenario 1: Deglobalization