India-Pakistan Clash Shows It’s Time To Back Defence Startups
To outpace Pakistan militarily, India must match China’s defence tech by boosting funding for defence-focused startups.
Operation Sindoor has been suspended, not concluded, said Prime Minister Narendra Modi, attesting that terror attacks would henceforth be considered attacks of war, and Operation Sindoor would resume.
Pakistan’s domestic audience is largely happy to go by Islamabad’s claim of having inflicted damage on India over the four days of intense aerial combat between the two countries. International media concurs with the Indian claim of having inflicted serious damage to Pakistan’s defence assets and terror infrastructure, even as India suppressed Pak air defence systems and foiled, for the most part, Pakistan’s cross-border attacks.
Reuters quoted an American source as saying that Pakistan’s China-supplied J-10C shot down a Rafale aircraft. India has not specifically confirmed loss of aircraft, but admitted that losses are part of any combat operation. Losing aircraft does not alter the fact that India forced Pakistan to request the US to intercede and end the war. A day after US vice president JD Vance had disavowed any American interest in this distant war, Trump declared on social media that he had negotiated a ceasefire between India and Pakistan.
This has led to a needless controversy in India, as if Trump’s desire for a Peace Nobel and ignorance of history or current political dynamics away from the US (India and Pakistan have been tussling over Kashmir for a thousand years, he said) is any reflection of New Delhi’s conviction in India’s sovereignty.
India did not set out to go to war with Pakistan. It sought to teach Pakistan that sponsoring terror attacks on India would invite serious retaliation. That lesson would appear to have been taught, at least for the time being.
Capital Crunch
But what becomes clear is that achieving military superiority over Pakistan calls for equalling and surpassing Chinese defence tech. India needs to step up funding for the startups that are working on defence technology as part of the iDEX (Innovations for Defence Excellence) platform and off it. While startups are increasingly attracted to the challenges thrown up by defence establishments, funding is still scarce.
India must encourage pension funds to allocate a portion of their giant corpus to venture capital, so that Indian startups stop depending on western funders and their priorities. Members of India Inc are willing to invest in startups that have proven viability in defence tech. But the point is to permit many more startups to reach the point of viability, including by struggling through honest failures that use up capita. The provision of that risk capital is vital.
Markets’ Sigh Of Relief
The US and China have kissed and made up, well, almost. After the dollar’s steady fall, tanking consumer confidence, falling approval ratings and bond market turbulence, US president decided to adopt the better part of valour, and initiated talks with the Chinese to wind down the trade confrontation.
As a result of talks between US and Chinese officials at Geneva over the weekend, American tariffs on imports on China have been brought down from 145% to 30%, and Chinese tariffs on US imports to 10%. Of the 30% tariffs that remain on imports from China, 20 percentage points are on account of fentanyl/precursor chemicals. This is something the Chinese could address, and eliminate — after all, there is no Chinese interest in pushing a tiny amount of these chemical exports at the expense of making its much larger export portfolio more expensive. China’s fast fashion giants that were staring at heavy de minimis tariffs on their small packet exports via post have also been spared – they would also face a 30% levy, reports Reuters. China has also removed its export restrictions on certain minerals vital to the electronics industry.
The new tariff respite is for three months. What happens after that still remains in suspense. It is the uncertainty that holds up investment and makes growth anaemic. Unless Trump moves to bring clarity on the eventual tariff rates, regardless of where they fall, high or low, investment and growth would stay stalled.
However, the markets heaved a huge sigh of relief and recovered somewhat. The relief has been felt in India, too, with the return of foreign portfolio investors. However, the relief in the US soon could soon evaporate if the fresh US budget proposals making their way through Congress retain their tax cuts, unmatched by spending cuts, which would jack up the US fiscal deficit and raise bond yields. The spending cuts that have been proposed are to essential domestic welfare, apart from to foreign aid, causing Paul Krugman to characterise the budget proposals as those that starve the poorest to further fatten the richest.
Regulatory Confidence
Japanese major Sumitomo Mitsui Banking Corporation is taking a 20% stake in Yes Bank, and the Reserve Bank of India, India’s central bank, seems happy to let a second Indian bank, after Lakshmi Vilas Bank was salvaged by Singapore-based DBS, be taken over by a foreign bank. This is a sign of regulatory confidence. After all, how a bank behaves is a function less of its ownership and more of the quality of the regulation it is subjected to.
While the Supreme Court delivered its verdict annulling the insolvency resolution of Bhushan Power and Steel Ltd and its sale to Jindal South West on May 2, the commentary on how this derails the entire corporate insolvency resolution process under the Insolvency and Bankruptcy Code has been gathering steam in the last week. What seems to be missing from the commentary is any concrete proposals to rid the resolution process of the flaws that the Supreme Court enumerated in its BPSL ruling.
The Insolvency and Bankruptcy Board of India (IBBI) does not receive the attention it deserves. It is the sector regulator, the way the Securities and Exchange Board of India is the markets regulator. A regulator is in charge when guidance and correctives have to be applied on an ongoing process, and so mere laws and guidelines are not sufficient. IBBI has been missing in action on corporate insolvency resolutions.
The sensible course of action would be to ask IBBI to stop playing the innocent bystander and act as motivated regulator, when an insolvency resolution takes place, so that no court would be called upon to say that such and such procedures laid down in the law were not followed.
