On Episode 957 of The Core Report, financial journalist Govindraj Ethiraj talks to Shankkar Aiyar, economic journalist, columnist and author. We also feature an excerpt from our episode of How India’s Economy Works featuring Partha Chatterjee, Dean of Academics and Professor of Economics at ⁠Shiv Nadar University.

SHOW NOTES

(00:00) The Take

(03:43) FIIs Pick Up Buying, Will They Balance Out Rising Oil Prices

(05:13) FCNR Deposits Now Over $65 Billion As The Deadline Approaches

(08:46) 87 Million Indian Youth Aged 15 To 29 Are Not Studying, Working, Or Receiving Training, Govt Report.

(10:55) Why India Is No Exception To Rising Debt Global Levels

(22:09) Why Rising GDP Has Not Translated Into Rising Household Prosperity

RESOURCE LINKS

- Government Carry Trades: A Rising Global Risk by Shankkar Aiyar

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Monday the 24th of August and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

The Take

Last week, Aditya Birla Capital, a non-bank finance company and part of the Aditya Birla conglomerate announced plans to launch a thousand dedicated gold loan branches over the next three years. The corporate logic behind this expansion and foray sounds impeccable.

Indian households sit on more than 25,000 tonnes and sometimes estimated over 30,000 tonnes of physical gold and yet formal loan penetration against this pile hovers around a modest six percent. To ambitious financers, it looks and even is a vast untapped frontier of secured credit waiting to be digitised and monetised. On paper, the asset class is a banker's dream.

Non-performing loan ratios sit at a razor-thin 1.1 percent, thanks also to a deep-seated cultural imperative borrowers rarely default on the gold passed down through generations. Sustained strength in global gold prices, despite all the swings that we've seen in recent months, provides lenders with an escalating safety margin. It is no surprise that gold loans now account for more than 11 percent of India's entire retail credit portfolio, up from about 5.9 percent just four years ago in 2022, making it the second largest retail lending segment behind home mortgages, which is around 28 percent.

Total origination value has jumped five times over that period, while the average loan size has more than doubled to about 1.96 lakh rupees. Yet, what makes for a bulletproof balance sheet for lenders reflects a somewhat darker economic reality for individual households. The surge in gold-backed borrowing is less an indicator of consumer confidence than a barometer of underlying balance sheet distress.

Data from credit bureau transunion Sibyl reveals that one in five gold loan borrowers is already delinquent on other personal debts. Further, 20 percent of these borrowers belong to Gen Z, a demographic unlikely to have acquired this gold or bullion through personal savings but rather tapping family assets to stay afloat. For borrowers carrying high unsecured debt and histories of delinquencies, pledging gold is increasingly becoming a move of last resort.

Indeed, credit access closure rates for defaulted borrowers who turn to gold loans are 1.6 times higher than for non-defaulting peers, signalling an end of the road in formal credit. While middle-class aspirations and living costs have surged, real income growth across broad swathes of the population has failed to keep pace and this is pretty well established. When credit cards and personal loans reach their limits, family duality seems to be filling the gap.

As corporate heavyweights join traditional southern incumbents like Muthoot and Manipuram in the gold loan business, competition will expand credit access but regulators and investors should avoid confusing institutional safety with macroeconomic health. Millions of citizens must routinely pawn family heirlooms to manage basic liquidity. It is yet another warning signal about the fragility behind India's headline growth numbers.

And that brings us to our top stories and themes…

Foreign portfolio investors pick up buying in August. Will they balance out rising oil prices?

FCNR deposits now over $65 billion as deadlines approach.

87 million Indian youth between the ages of 15 to 29 are not studying, working or receiving training, according to a government report.

Why India is no exception to rising global debt levels and why that's important.

Then why rising GDP has not translated into rising household prosperity, better jobs or greater economic security.

Markets, Oil, FCNR and Rising Prices

Foreign portfolio investors have stepped up buying in Indian equities in August so far, investing a little under $3 billion net as improving quarterly earnings and a somewhat stable rupee have helped.

The inflows come after they invested about or rather a little over $2 billion in July, all of which seem like smaller numbers but do reflect a turnaround from the four consecutive months of heavy selling before that. And therefore for 2026, foreign portfolio investors are still net sellers. On Friday, the markets were somewhat flat as global equities were down and bond yields or rather global equities were down because bond yields were up and oil prices continued to rise.

The Sensex was up only about 3 points to close at 77,540 and the Nifty 50 was up 20 points to close at 24,252. This was the second consecutive week of fall for both indices. In the broader markets, the Nifty mid cap and small cap were also up but very marginally.

Crude prices are still rising, including on Friday after US President Donald Trump threatened economic sanctions on Iran's trading partners, thus raising expectations of tighter supply in the coming weeks according to Reuters, which added that international benchmark Brent crude futures were at about $94.39. So now over $95 and just under $95 a barrel. Brent crude has now risen about 6.4% and West Texas Intermediate has risen about 5.7% in the last week and both have touched their highest since the 24th of July. Elsewhere for data until 21st of August, foreign currency non-resident bank or FCNRB deposits of three to five years duration have pulled in more than $65 billion in just 75 days.

That's from June 8th this year to August 21st. According to various reports quoting the Reserve Bank of India's data, the scheme closes at the end of the month earlier than first announced. India's foreign exchange reserves have also climbed to about $717 billion, their highest in about six months as of the week to August 14th, according to data that was released on Friday, thanks additionally to those inflows.

So the reserves according to Reuters are now within striking distance of a record high of $728 billion, which was hit in February. The reserves have jumped nearly $10 billion week on week, led by a $7 billion gain in foreign currency assets, while the value of gold holdings rose by about $2.7 billion. Now all of this is as of 14th of August.

Elsewhere in a sign that prices are rising and likely to rise further across the economy, Reuters reported Tata Motors passenger vehicle saying it will raise prices of cars and SUVs across its portfolios by up to 25,000 rupees from the 1st of September, with the extent of the hike varying by model and variant. And these price increases are aimed at partially offsetting rising input costs and persistent commodity inflation. Many automakers have been raising vehicle prices as the cost pressures continue.

Hyundai Motor announced its third price increase of 2026 last week, while Maruti Suzuki, the biggest carmaker in India, has already implemented two portfolio wide hikes in recent months, according to Reuters. Now all these price hikes will obviously see the sales numbers rise at a gross level, though it will be interesting to see if the breakneck pace of sales that the industry has reported since September last year will continue. Meanwhile, shares of sugar companies fell over 7% in Friday's intraday deals after the government announced duty-free imports of a million metric tonnes of raw sugar in an attempt to curb record high prices up almost 40%.

The development we discussed in the core report with Shri Renuka Sugar Director Atul Chaturvedi on Friday. And on trade, two countries are fighting back the United States. It's China and Canada.

Prime Minister Mark Carney of Canada said that they would apply counter tariffs on $20 billion of U.S. products on the 8th of September, escalating the feud, rocking one of the world's biggest trading relationships, according to Bloomberg, which quoted Carney saying on Saturday that we take this step reluctantly, acknowledging it will raise costs and reduce choice for Canadians, hit innocent U.S. companies, and make it harder for the two countries to work together. He said he was left with little choice after trade talks with Trump's administration broke down on Friday night, and the U.S. put import taxes of 50% on items like plywood, liquor, electrical equipment, and hockey gear from Canada. Trump used a Depression-era authority known as Section 338 to impose the tariffs on Canadian goods, totalling to about $20 billion in annual U.S. imports.

Now, Bloomberg says Carney has returned to what his predecessor Trudeau did in March 2025, big counter duties meant to match Trump in dollar terms. The Canadian levies will apply to U.S. steel, dairy appliances, agricultural equipment, electronics, pulp, and with more detail to be published in coming days. Now, the question, of course, is will America's tariff tantrums, which are now almost 18 months old, having started in April last year, revive for other countries, including India? And if so, in what form? Remember, we are also in talks for a bilateral trade agreement and have been for a while, but there is no clear sign of that reaching fruition, at least as of right now.

New Study Points Massive Gap In Training of Indian youth

An estimated 87 million Indian youth between the ages of 15 to 29 are not studying, working, or receiving training, according to a recent Niti Aayog report published by Business Standard. The report highlights the urgent need for subsidised training programmes to encourage self-employment and align with local demand and emerging sectors. The report, titled Reimagining Skilling for Vixit Bharat 2047, said the estimate is based on data from the 78th round of the National Sample Survey conducted five years ago in 2021, according to that report.

To ensure the highest impact, the Aayog has organised India's workforce landscape and learners into five segments, schooling, tertiary education, formal and informal work, not in education, employment, and training, that's NEET, youth, and women. The report says NEET youth are constrained by the absence of income and the sunk cost of prior education and cannot layer paid skilling onto existing financial commitments. It also defined NEET youth as comprising individuals between the age of 15 and 29 who are not engaged, as we said, in education, employment, or training, as well as those who are unemployed.

The report points out that NEET youth and women require affordable or subsidised training options alongside dedicated financial support where constraints are most binding across segments. The ability to combine learning with earning remains a central requirement. The report also pointed out that students, especially those from low-income households, are already stretched by college expenses and in many cases, private tuition.

And that's another area that we've not touched much upon, but we should in coming days. As a result, says the report, making additional investment in paid skilling alongside a traditional degree is often financially unviable. As a result, many students choose to get themselves a formal job income source after graduation to support their families and often end up taking whatever brings in some stable income, even if that is low paying.

And others, however, struggle to transition into work and thus become NEET. The report also says only about 8.25% of graduates or a little over 8% of graduates are employed in roles aligned to their qualifications.

India's Sovereign Debt

We've been banging on about rising global debt, including US gross federal debt, which crossed $40 trillion last week.

Now this figure, as economic journalist and author Shankkar Aiyar pointed out in his weekly New Indian Express column over the weekend, is more than the combined GDP of China, Germany, Japan, India, and the UK. The interest on it is more than a trillion dollars a year. And this triggered, as we've been discussing, a rise in bond yields.

The 30-year treasury yield hit 5.33%, the highest in 19 years. US Treasury Secretary Scott Bessen tried to calm markets by doubling bond buybacks to $4 billion a day. Yields did fall, but then went right back up.

The markets called it a band aid on a bullet hole. Elsewhere, someone said that intervening in the bond markets like this by the Treasury Department is the equivalent of using a credit card to pay your mortgage payments. But what Iyer is arguing is that it's not just the US.

The top 10 economies, that's G7 plus China, Russia, India, carried $94 trillion in sovereign debt and pay about $2.2 trillion a year in interest between them. So how should we in India be viewing this number? And what is the impact of this on India's own finances? And I began by asking Shankkar Aiyar that question.

INTERVIEW TRANSCRIPT

Shankkar Aiyar: Well, India is not exactly in the Goldilocks area, because 25% of total government expenditure, roughly around that, depending on what the year ends at, is spent on interest costs. So, basically, you earn a rupee, and out of that 25 paise, or let me put it this way, you earn 100 crores, and 25 crores goes to pay interest on past borrowings. When you pay interest costs at that high level, that means that you have less money to do new investments, to fund your other programmes.

And remember that it is not as if India doesn't have welfare issues. We have a lot of welfare issues. We still underspend on health, we still underspend on education.

I mean, the combined spend on health and education, Govind, is far less than it should be. So, this is affecting India on how we borrow. Now, why do we borrow so much is because almost 50% of the economy is still rooted in the rural agricultural-based economy.

And if you have like roughly about 45% of the workforce in agriculture, then your incomes are lower, your consumption is lower, your taxes are lower. So, it is an issue that needs to be resolved.

Govindraj Ethiraj: Right. So, and you've also said that India carries the extreme version and it has the worst ratio of the 10 countries that includes the G7 that we've referred to. So, what does that mean?

That we are paying more interest than anyone else proportionately?

Shankkar Aiyar: Yes, that is exactly what it is. And I want to sort of bring in another aspect here. This is about the carry trade of governments.

Basically, governments borrow today and hope that tomorrow we will grow and the day after they will pay back. That's the principle of the carry trade here. In India's case, we also have one silent carry trade, which is that every year the RBI transfers money to the government of India.

I think roughly, if I am not mistaken, in the past so many years, the RBI would have transferred roughly under 10 lakh crores or 10 trillion rupees to the government of India. This money that RBI earns in forex management and other management of government of India debt, the profits or surplus is shared with the government of India. Now, if you take that off, your macro picture won't look so rosy.

We can claim now that we are 4.6% fiscal deficit, but if you take out the money that the RBI has transferred, it won't look so good. Your borrowings would probably be higher or you would be spending less. So a lot depends on how you allocate your resources and how you harvest your resources.

The one consistent problem with this government has been, and with the previous governments, is that reluctance to monetise assets. So about 17 lakh crores is the, I think, the market cap of shares that have been listed, the companies which have been listed in the last 20 years. And the government's holding in all these companies is in excess of 75%.

Now, should the government own all that it owns, manage all that it manages? That is a question that the government should answer. These are wasteful silos that the money is left in.

So if, for instance, LIC, if the government owned less of LIC or less of state bank, would that make a material difference to the management of the company or the political perception? I don't think so. So various countries have different ways to manage this.

India can very easily put all the excess government holding. Let's just say that 30 lakh crores is the total public sector market cap. Out of that 50%, 50 plus percent government holding, whatever is in excess of 50% is put on fund.

And you create a fund like a GIC in Singapore or a Temasek or whatever, and list it on the markets as ETFs. And then you divest when you want, you disinvest and add the assets, monetise it. So government of India has struggled to monetise both its financial assets and its physical assets.

And therefore, it borrows more, and therefore, you pay more interest, and therefore, you have less money to spend on what it needs to spend on, right from capacity. As of today, there are about 25 lakh, that is 2.5 million posts vacant across governments, central government, state government. And this is a country which is struggling with unemployment.

Why is that so? If you ask the government, they said, we don't have money or we don't get people. Both are functions of lack of spending.

Govindraj Ethiraj: Right. And we referenced the $40 trillion mark that the US has crossed in debt for the first time last week. So what point do the chickens come home to roost?

And do they come at all? Or will they at all come? And therefore, are governments only kicking the can down the road, including in India?

Shankkar Aiyar: So, Olivier Blanchard has a simple formula. The rate of GDP growth should be higher than the rate of the growth in debt of your borrowings. So if you can service your debt, so it's a very simple way to think about it is look at it like a mortgage, house mortgage.

So you earn a salary out of which the mortgage company says, yeah, you can spend about 20% of that to repay the loan, or 30% depending on the size of the loan. And thereafter, you have some money left to live the life. So this is a simple principle in governments also that if you borrow, after you service the debt, there should be enough left for you to manage it.

What's happening in India is that we are creating new welfare programmes like the Ladki Behen Yojana and other stuff, and not providing enough for the growth of the economy. There is another hazard that is propped up. So if you are, for instance, living in, say, the district of Karekudi, or you're in Banaras, or if you're in some districts in Mysana in Gujarat, a family there gets free ration food, free medical treatment.

If they have women in the household, most states have a cash transfer programme. You get free health cover. You get, if not 100 days employment, you get about 70 days, 50 days employment.

What does this do? So India runs the largest rural employment programme, the largest food security programme, the largest health coverage programme, and the largest farmer income support programme. What does this do is actually changes or distorts the terms of engagement between labour and industry, between the factors of productivity and GDP growth.

Those are the things that need to be thought about. I'm not saying that you shouldn't have welfare programmes. I'm saying that there must be a way to lift people off the welfare chart into sustainable income profiles, and that requires a lot of hard work.

I can give you two programmes that should have been champions of this government. The government should have championed these two programmes. One is a one district, one product programme, and one is a one district, one crop programme.

If you had integrated these two ideas, and agriculture produce and produce from the factory, you could have enlarged manufacturing. You could have enlarged employment of the farms into the factories. But there are no champions.

I mean, C. Subramaniam learned the hard way when he did the Green Revolution that every aspect that you want to sell to the people of India, you require a champion. Aadhaar was successful because Nandan and Ramsevak Sharma championed it.

The problem with governments in India is that they don't think about the champions. There is an idea, it comes up, it is announced, it declares, and it dies a quiet death.

Govindraj Ethiraj: Right. And last question. So this government has been stepping up on or had stepped up on public expenditure, for example, around infrastructure.

So there is a lot of expenditure that's going on in addition to all the schemes that you talked about. So how does that balance out? Because I'm assuming the investment in infrastructure will also create returns of some kind, even if it's a little down the road.

Shankkar Aiyar: Well, of course. So for instance, the rural roads programme, the Pradhan Mantri Gramme Sadak Yojana has delivered results, connectivity, people are able to go out, the produce is being shifted out. Now, all of these are required, they are necessary conditions, but the sufficiency factor comes, kicks in when you don't invest in health and education.

If China is ahead, it is because first it reformed its agriculture, the farms, then it pumped money into its education sector and health sector. And thereafter, it opened up or whatever it did for its manufacturing system. Now, you might say that China is manipulating the global trade, China is deflating global markets.

All of that is that, that is their game, that's how they're playing, that is the pitch that they're playing in. And you have to find ways to do the same things or the things differently. So if you have physical infrastructure, we must also remember that to bring out the maximum return out of that physical infrastructure, you need to have a robust human infrastructure programme.

Govindraj Ethiraj: It's good not to end on, Shankar. Thank you so much for joining me.

Shankkar Aiyar: Thank you, Govind.

Why Rising GDP Has Not Translated Into Rising Household Prosperity

India has been one of the world's fastest-growing major economies for years, yet for millions of Indians, rising GDP has not translated into rising household prosperity, better jobs, or greater economic security, something that partly links back to our earlier concerns about gold loans.

A structural reason behind this disconnect is India's missing middle, the absence of enough productive mid-sized firms and middle-income jobs. Pooja Mehra, who hosts How India's Economy Works on The Core, spoke with Professor Partha Chatterjee, Dean of Academics and Professor of Economics at Shivnath University, about the structural reasons behind this disconnect. And this is what he said.

TRANSCRIPT

Partha Chatterjee: The first point is that the labour market is in some sense the reflection of the whole economy. The labour market is not necessarily the cause of it. It's what we see as an effect of all the rest of the things that's happening.

And in that mirror, we can do certain cosmetic changes, we can polish the mirror, but that won't change the basic facts as such. So to understand why this is not happening, I think we need to look at both the labour markets, but also the firm side of the things, and in between the scaffolding that's needed to transmit that. So on the firm side, what happens is that firms generate jobs, and firms generate jobs when they become productive, and firms generate better jobs when they become more productive, and the wage rates increase, and there is a mobility, both working within the firm as well as if you're moving across firms and things like that.

So that's something that's not happening in India. We don't see a lot of firms which are in the middle. There are some which are large and producing formal jobs, but there are a whole bunch of firms which are very small.

And here I think we kind of romanticise small a little bit and sometimes confuse between small and young, because young firms are needed, new entrepreneurs, because that brings in a lot of energy, ideas, and things like that. But they have to grow. So if you look at the US economy, for example, in a few years, a firm which is starting, they grow seven-fourths, whereas in India, the average firm hardly grows twice its size.

So that's not happening. So I think that's the thing, because if that's not happening, then that means that layer of jobs which would allow people to generate more income by scaling themselves, by growing into these roles that these kinds of firms would generate, that's not happening. That's one of the critical challenges.

And that also brings us to this scaffolding of a layer that could allow things to happen. One is, of course, the policy. And we can have another podcast on why firm sizes stay small in terms of policy prescriptions and things like that.

But one critical policy aspect is that we always think about policies as cliffs, that after certain things, there's a cutoff. After 10, you can't do this, or you will be subject to this, and so on and so forth, rather than creating slopes. How do you create different kinds of slopes as you gradually increase what changes for you?

So what that means is that in India now, it might be easier to do business when you're very small. It might be easier to get finance when you're very small. And on the other end, of course, if you're very big, then you have the power, market power, status, brand name.

So it's also easier to access funds, generate resources, and things like that. But for the middle, it's very difficult. Firms, therefore, often choose to stay small.

That's the challenge, right? The second thing is what we need is not only policies to help firms, but also a whole set of other things that allows individuals to tap into all of these things. So investment in education is absolutely critical, right?

And then that's one of the things that these recent protests are also talking about, which is very important for this group of people. Because without the investment in education, again, what kind of jobs can they get into? So both from the supply side, because we are not generating enough, but also from supply of job site and as well as demand of job site, because if you're not getting enough education or enough skills, then you're not going to tap into high paying jobs.

And what we have seen in case of India, we have been looking at firm entries and exits and things like that. And the standard economic theory would say that firms which are very low in productivity should exit and very high productive firms should come in. And as a result, the productivity goes up, the high paying jobs increase, and so on and so forth.

But in India, that doesn't really happen. The exits happen all across. And therefore, its exit is not happening because of productivity and things like that.

So there's a lot of, not a lot, but there's market churn, but there's no selection. That is a big challenge. So with education, what happens is that firms are able to produce kind of innovation that's missing in the economy.

So right now, if you look at what's happening in the economy, we see a lot of imitation. Imitation is kind of, the ladder is already there. You are going up the ladder a little bit.

But to create a new rung in the ladder, we need innovation. And that's not happening. If we invest in education, if we create the right incentives for firms to innovate, then that's something that will happen.

And that can allow far higher mobility, both in terms of the economic growth, as well as individual aspirations and things like that. So those are some of the things why we are not seeing the prosperity to percolate to a broader set of things. And the third is also the misallocation that a lot of people have already talked about, but misallocation in all kinds of margins, both in capital, but also human capital, and also that we talked about.

So there has been a lot of issues. And the flip side of that is that when you don't see these happening, then demand for education will also fall. Because if you see that, okay, after college graduation, I get into a delivery, food delivery or a logistics supply company job, the kind of skills that allows me to get into, I might as well join after high school, why do I want to spend time getting into a college or degree?

So in fact, this is the first year we have seen somewhat drop in college enrolment across the country. So that's also something that's kind of preventing the prosperity to spread across a larger mass of people. So we really need policy, we need the scaffolding of social investment in education, health.

Again, I did not talk about that, but health is also very important because health risks are very real. One hospitalisation really wipes out whatever savings at the margin people had, and that brings them back to a very difficult situation. So investment in all of that allows people to move up gradually and build on whatever they have rather than being stagnant and moving laterally at that level.

So again, the third thing that I talked about is kind of a misallocation, that where are the resources going? Are they going into the things that will actually allow us to? So again, we can also talk about whether or not we need certain kinds of subsidies versus investment in education and things like that.

So those kinds of misallocations are also there. So all of that means that the bunch of different things, which is keeping people and keeping firms at the two ends of the distribution, either very small or very poor versus very big or very rich, and the middle is thin in that sense.

Indian Businessman are Struggling to Get chinese Visas

India is discussing with China visa delays faced by its businesses, according to a Bloomberg report quoting Foreign Minister S Jaishankar. India's government has taken up the issue with its neighbour, the foreign minister said on Saturday, in response to a question on the inability of Indian businesses to get Chinese business visas. China has tightened the issuance of business visas to Indian executives to such an extent that even companies with advanced partnerships are facing visa denials, forcing them to shift crucial executive meetings to nearby countries, The Economic Times reported last week.

Physical Indian AI startups are also impacted by this, according to that report.