On Episode 937 of The Core Report, financial journalist Govindraj Ethiraj talks to Umesh Sharma, CIO–Fixed Income at The Wealth Company Mutual Fund as well as Ashok K Bhattacharya, Editorial Director at the Business Standard.

SHOW NOTES

(00:00) The Take

(05:00) NRIs Bring In Close To $37 Billion, Though The Rupee Is Little Changed

(06:35) Foreign Portfolio Investors Are Inching Back Towards India

(10:54) Why Bloomberg Has Deferred Inclusion Of Indian Govt Bonds In Its Index

(19:08) Is Strong Political Capital Distracting The Government From Focussing On The Jobs Question

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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 3rd of August, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

The Take

For years, governments and international technocrats have treated financial inclusion, wiring the unbanked into the formal financial grid and the economy, as a key metric of progress. But behind sorting digital transaction figures lies a sobering reality.

Transaction efficiency is not a substitute for wealth creation. Is it time for a far more crucial objective, even if definitionally, which is, rather than financial inclusion, it should be economic inclusion. To understand the gap between financial access and real prosperity, consider some of these statistics.

In July 2026, India's UPI, or United Payments Interface, processed a staggering 23.6 billion transactions worth about 29 lakh crore rupees, up 22% year on year. By any standard, India's digital payment architecture is a marvel of public engineering. And the economic benefits of digital payments are also well documented.

An oft-quoted study by researchers at the Bank for International Settlements, or BIS, found that a one percentage point increase in digital payment usage correlates with a 0.1%, that's 0.1% point bump in per capita GDP growth and a 0.06% point contraction in informal employment over two years. Remember, on the other hand, cash in circulation also continues to expand, rising just under 12% year on year in April this year. But mistaking digital plumbing for economic prosperity, as some are warned to, can lead to policy delusions.

High transaction volumes do not automatically yield expanding industries or structural mobility. The distinction between access and agency was articulated clearly by Ugandan development finance expert, Abraham Arima, in a recent LinkedIn post that I came across. He argues there that financial inclusion is transactional.

It ensures the availability of bank accounts, microcredit, insurance, and mobile money. But economic inclusion is structural. It enables citizens, particularly the marginalised, to participate meaningfully in the economy through secure jobs, capital accumulation, asset ownership, and scalable entrepreneurship.

As Arima notes from Uganda, mobile networks allow a farmer in the remote Umbe district to take out a microloan on his phone. But if local infrastructure is broken, seed quality is poor, and roads to market are impassable, the loan merely finances subsistence. It does not lift him out of poverty.

Similarly, he says, a merchant in Kampala can pay supplies instantly via mobile money. But if high taxes, import competition, and exorbitant borrowing costs prevent her business from expanding, digital access simply streamlines stagnation. Financial access gives citizens a tool.

It does not build the ecosystem required to thrive. Now, this dynamic is playing out quite visibly across India today. Recent street protests by millions of Indian youth over competitive exam leaks and bottlenecks are not merely an outcry against administrative incompetence.

They are a manifestation of a deeper economic anxiety, a stark lack of visibility into sustainable, well-paying careers, and a future. India's young population has bank accounts, UPI apps, and low-cost data. What they lack are dynamic labour markets capable of absorbing their ambitions.

Financial inclusion has performed its duty as a digital enabler as part of a feeder network. But political leaders and analysts who point to payment statistics in hyped-up PowerPoint presentations as evidence of underlying economic vigour are looking at the wrong ledger. Just to reiterate, there are many who know and understand these distinctions quite well, though their voices may not match those PowerPoint presentations, which present a rise in digital payments as a critical proxy for economic potential.

If we want to fulfil the aspirations of our massive workforce, we must raise our policy sights. An ease-of-doing business framework that highlights digital compliance and frictionless payments even partially is misleading itself. True economic inclusion requires structural reform, deregulating job-creating industries, lowering barriers to capital for small enterprises, improving trade infrastructure, and creating real market access.

We of course know all of that. But we must also know that the ultimate test of an economic strategy is not how seamlessly a citizen can move money across the screen, but whether he has the opportunity to earn it in the first place.

And that brings us to our top stories and themes…

Foreign portfolio investors are inching back towards India. What does this week hold in store?

NRIs bring in close to $37 billion, though the rupee is little changed.

Why Bloomberg has deferred inclusion of Indian government bonds in its index?

And is strong political capital distracting the government from focussing on the jobs question?

Markets, The Rupee, FPIs and AI

The most interesting market stat for the last month is this.

The nifty IT index is up almost 17% in July as the Philadelphia Semiconductor Index, which reflects all the major chip stocks globally, fell 21%. Will Indian IT continue its rebound? Well, we don't know yet, but more on that flip shortly. The markets are drawing some relief and even celebrating ahead of further foreign inflows into the country.

The hitch is that it's not enough. Let's look at the rupee for a moment. India's efforts in attracting overseas capital has brought in more than $40 billion since June.

Figures released by the Reserve Bank of India on Saturday showed that the amount mobilised through foreign currency non-resident or FCNRB deposits stood at $36.7 or close to $37 billion as of July 31st. That along with inflows through overseas foreign currency borrowings and external commercial borrowings takes the total to about $41 billion. Now, despite this, Bloomberg index services on Friday deferred the inclusion of Indian government bonds in its flagship global aggregate index, something that the fixed income market was looking forward to and more on that in a moment.

But the problem right now is that all of these inflows have not really moved the needle for the rupee in any major way, which in any case has been battling rising crude prices in the past few weeks. Even if crude were going by most forex experts, the rupee would be roughly where it is today. As it happens, the rupee ended stronger on Friday, having risen about a percent week on week to close at Rs.95.38 per dollar, though it has fallen about 0.7% for the month, thanks mostly to oil prices rising because of renewed hostilities in the Middle East, according to Reuters.

Now, back to equities. Foreign portfolio investments are now trending positive but are largely in the nature of a compared to the consistent waves of selling India has been seeing for close to two years. The last month saw about $2.5 billion of net foreign investments after four consecutive months of heavy or even record selling in some of them.

Foreign investors have pulled out about $28 billion from Indian equities so far in 2026, and this is much more than the $19 billion withdrawn during the whole of 2025. So, only if there were similar waves of inflows, then maybe the sensex could rise in a more determined fashion, and as would the rupee trend that now there are varying views on the rupee and where it should be right now and what the central bank should or should not do about it, as you've been hearing on earlier editions of the core report. But in the benchmark indices, the consensus obviously is that everyone wants them to go up.

Meanwhile, Q1 results have been coming in stronger than expected or continue to come in stronger than expected sectors like passenger vehicles are continuing to do well going by the latest numbers released over the weekend and we'll have more on that in a day or two. But all of this is not reflecting in stock prices as much as investors and analysts would like them to. A Reuters report, meanwhile, says that beaten down Indian stocks led by software exporters have rallied as global investors exit crowded AI link positions and look at markets with limited exposure to that sector.

So, the weakness or the AI weakness, if you want to call it that, is now proving a strength after a pullback in AI link shares hit markets like South Korea and Taiwan. A portfolio manager at William Blair Investment Management, which manages about $65 billion of assets, told Reuters that there has been a major sector rotation over the last few weeks and India has emerged as an obvious destination for investors trimming their exposure to North Asian and US technology stocks and he said that his fund had turned positive on India in April and added to positions in June after the central bank took steps to support the rupee. With all of this as a backdrop, the Nifty 50 and Sensex ended higher for the third day on Friday and the Sensex rose 166 points to close at 78,094 and the Nifty was up 66 points to close at 24,383.

In the broader markets, the Nifty mid-cap and small-cap were also up about 0.4% and the markets could be stable to higher this week at least as long as the United States does not resume bombing Iran which it promised once again it will not do so on Saturday night after having threatened to bomb the country to levels not seen since World War II just a day before. Brent crude was under $88 a barrel over the weekend.

Why is Indigo Stopping Flights To London and Amsterdam?

Speaking of hostilities and their impact on businesses, Indigo will halt wide-body operations to London and Amsterdam in October citing geopolitical tensions as a key reason for that decision.

It will continue to operate services to Amsterdam from Mumbai on a A321XLR narrow-body jet while services to London Heathrow will resume when it receives the Airbus A350 jets it has on order it said in a statement reported by Bloomberg. In May, Air India had also revealed that it planned to operate about 37% fewer international flights between June and August compared to April thanks to prolonged airspace restrictions and soaring aviation fuel prices amidst the West Asia war. Six Boeing 787 Dreamliners that Indigo had taken on a damp lease from North Atlantic will be returned to that Norwegian carrier.

A damp lease is where the Lessor provides the aircraft pilots and maintenance Bloomberg summed up.

India and BIS

Well more on Bloomberg, Bloomberg index services on Friday deferred the inclusion of Indian government bonds in its flagship global aggregate index disappointing investors who had expected that those recent tax changes would help the inclusion. Reuters report said that inclusion in the index typically leads to increased foreign inflows into the debt market and could help the which has lost about five and a half percent so far this year.

Bloomberg index services said it will continue to assess Indian government bonds for inclusion in the index. It said that given the significance of recent market enhancements and the importance of ensuring they are fully reflected in day-to-day market practise, BISL believes additional time is warranted for these developments to become more firmly established before making a decision. I reached out to Umesh Sharmachieff, investment officer of fixed income for the Mumbai-based wealth company, the mutual fund, and I began by asking him to give us a background on global fixed income markets right now in context particularly of US bond yields rising before coming to BISL's actions.

INTERVIEW TRANSCRIPT

Umesh Sharma: So basically, what we have been witnessing across the developed world is that the long bond yields have been rising pretty steadily. So there are several factors which are underpinning that rise in bond yields. One is, of course, the developed world fiscal deficit is high, as well as the government borrowing have risen post the COVID-20 support that governments as well as the respective central banks give to their economies.

Normally, as the economy normalises, that support winds down, but somehow led by the countries like US, that support has continued unabated. The second aspect is, of course, the heavy capex, which has been going into AI, and the sort of growth push it is giving to the global economy. Third, of course, is the defence spend, which has increased quite drastically into the geopolitical uncertainties that we have been facing.

De-globalisation definitely is another theme, which has been adding to the inflationary pressures. So there have been many underlying themes which have been working, leading to this incessant rise in global bond yields. And ultimately, how it affects India is because we are a country which imports more than it exports.

And we have a current account deficit to fund, which typically gets funded by capital flows. And what we have seen is that in the past, current account deficit, when it reached 3% to 4%, it began to create a problem for us. But this time around, even a modest current account deficit is creating problems because we are not attracting capital flows to fund that modest CAD also, which is where the RBI has been spending a lot of its firepower to defend the rupee and to prevent inordinate depreciation in the rupee, which has led to the drain on forex reserves.

Over a period of time, so that it doesn't become self-fulfilling, that the currency depreciates and people expect it to depreciate, and further flows happen on that count, something had to be done. And thereby, the RBI came up with a big bazooka in the last monetary policy, where it announced FCNR-B policy flows relaxation. Relaxation was also given with respect to ECB and other external borrowings.

And on that count, we have already seen almost $40 billion flow in since that announcement was made. The expectation is that that count can go up to $70-75 billion. On top of that, there was another expectation that Bloomberg Global Aggregate Bond Index would include India as a component.

And the expectation was that it is going to be around 1% of the index, which will lead to about $20-25 billion worth of inflows, which is tied to that global index. Unfortunately, in this review, they have decided not to include it. Overall, the basic idea is that whatever shortfall that is being felt because of the capital flows slowing down, that gap is being plugged by this FCNR-BN related inflows that the RBI and government want.

For the time being, that leads to a situation where from a high BOP deficit, you're going to move into a BOP surplus for this year.

Govindraj Ethiraj: Okay, I'll come back to the surplus in a moment. But one of the things Bloomberg said was that it requires additional time to evaluate India's operational readiness and market infrastructure. So could you elaborate what that means?

Umesh Sharma: So basically, what they mean is that the process with respect to onboarding and registration of FBIs has to be much smoother. Second is that post-settlement procedure and tax repatriation, etc., because the government has announced certain tax SOPs for FBIs now. So all that process has to be automated and smooth.

They want to see this in action over the next few months. Remember, the next review is due in November. All the other commentary that they have made with respect to market infrastructure, market development, etc., that seems to be working towards ultimate inclusion. So we believe that it's a postponement. It's not that it's a final hearing where a case has been dismissed. I think the next review is due in November.

We are hopeful that in November, we'll get the good news. The only thing is that actual close can't happen until at least one year after the inclusion is done. So it becomes then a later next year kind of a linear after that kind of a story.

As far as the index data flows are concerned, of course, some flows are tied to that index anticipate those flows coming in and that money is front-loaded. So to that extent...

Govindraj Ethiraj: And we've seen some flows because of the inclusion in the JP Morgan bond index.

Umesh Sharma: Yeah, yeah. So that is already done and dusted with. So we have already seen that.

The fact is that post the RBI announcement in the June policy, we have already witnessed about $8 billion worth of flows in the government debt related to about $3 billion worth of outflows on the equity side. So already you were seeing the impact of those announcements that were made by the RBI and the government in June policy.

Govindraj Ethiraj: So the tax benefits that have been now given in the form of lower tax for investment in bonds or rather sale of investments in bonds. Now, is that sufficient to overcome what India may or may not get because of the inclusion in the Bloomberg index or indices like Bloomberg? Or essentially, what are the factors that are really powering or will power further flows?

Umesh Sharma: So basically, I think that most of the ask that the FBIs had have been met with. I think only a certain operational record. Remember that the investors tied to the indices that have come in were all the investors who are looking at emerging markets and they're used to certain procedural gaps or procedures not done being smooth within the emerging world.

This is the Bloomberg Global Index and they are the insurers and the other pension funds that are tied, which are used to investing in the developed world. Probably they were comparing with that kind of infrastructure over here. And that is where probably they want to see some passage of time and more smooth flow through of various processes and procedures before they want to dip their toes So definitely all the other major asks have already been met with.

Govindraj Ethiraj: Got it. So let me come to something which is going to happen this week. There is a Monetary Policy Committee meeting coming up.

What's your sense on which way things might go?

Umesh Sharma: So basically, going by the intermittent comments made by RBI Governor himself, we do believe that they're confident that growth will be around 6.5% or so kind of a mark, while inflation should be broadly in the 4.5% to 5% band. And they do not want to raise the policy rate at this stage. But given the fact that there are certain pressures which are building up on the inflation side, whether it is the developing El Nino or whether it is the rising commodity prices or whether it is the low base that we are starting from and the direction of inflation, definitely they will be watchful whether it is completely supply led or it is percolating down or there are any second order effects to inflation. Accordingly, they will try and prepare the market depending on what they read. Our sense is that driven by global factors, the RBI should start hiking somewhere around the October or December policy.

But this should be a shallow rate hike cycle, maybe 50 or 75 basis points. To add to this, the market pricing is already there for about 100 basis points of hikes.

Govindraj Ethiraj: Right. Umesh, thank you so much for joining me.

Umesh Sharma: Thank you so much, Govind. Thank you for having me.

Has The Government Neglected the Jobs Crisis?

A recent column by business standard editorial director and columnist Ashok K. Bhattacharya has argued that jobs may not be as much on the government's top priority particularly after its string of electoral victories after 2024. With these electoral gains in its pocket, the BJP-led government in New Delhi did not appear as worried over jobs as it was immediately after the general elections in 2024 where it clocked lower seats. Bhattacharya points to the job schemes unveiled in the government's first budget presented in July 2024 in the form of an ambitious package of schemes to facilitate employment, skilling, and other opportunities for 41 million young people with an outlay of about 200,000 crore rupees.

Not much is known on how those schemes have fared on ground, he says, pointing to the internship scheme which has performed poorly, something that other guests on the core report have mentioned as well. Till April 30th, companies had posted only about 297,000 internship opportunities, about 10% of the two-year target, and actual offers were even lower at 173,000. Interestingly, of those who received offers, only 18,000 showed up for work and only about 5,000 stayed till the end of the internship.

I reached out to Ashok K Bhattacharya and I began by asking him if the political capital was indeed causing the government to slow down on the jobs front and more importantly, what that meant going forward, particularly in the context of the recent student protests across the country.

INTERVIEW TRANSCRIPT

Ashok K Bhattacharya: I would say that jobs were a concern in 2024, which is why, as I argued, that the first budget that presented immediately after the elections did talk about quite a few, at least there are five employment-linked incentive schemes, but the focus on them was not sustained. My assessment and analysis is that this was because you saw the political party regaining its mojo, so to say, and they won state elections one after the other, whether it's Haryana, Maharashtra, Bihar, and then West Bengal. So the jobs were not that big a concern, and as I have shown in my piece, that those job schemes did not do very well.

So going forward, my sense is that jobs have come back to the centre stage of any political debate. I have a feeling that even after whatever examination reforms take place, the government will have to address concerns of salaried, dignified jobs, not just jobs that are now being created, whether it is a household job or whether it is an aggregator's job. The job issue is going to come back to the centre stage, and the government will have to address that concern.

So that's my point, and I think whether the government is politically strong or politically weak, they will have to address this issue, not by creating jobs in the government sector, but by creating an enabling condition in the marketplace so that investments take place that create different kinds of jobs.

Govindraj Ethiraj: Right. So maybe a sort of conceptual, slightly backward-looking question. The government has followed a policy of large public investment or investment in large projects, and that appears to be one way or vector to create jobs or create an economic environment where there is some progress.

So do you see a linkage between that and what has worked or not worked? Or was the government's policy of, let's say, high public investment really not connected with solving the jobs problem?

Ashok K Bhattacharya: See, there are two things that have happened. Very interesting things have happened. One, as you pointed out, that the government began ramping up its CAPEX or capital expenditure programme because it did not see that the private sector was coming forward with adequate investments.

So that did create jobs. But while the government ramped up its investment to create jobs, particularly in the infrastructure sector, you saw the advent of technology and the technological progress at a pace that precisely the kind of jobs that were to be created through this infrastructure ramp-up, or by shifting a part of the 43% workforce that is employed in agriculture to the manufacturing and the construction sector, you saw many of those low-level jobs, low-priority jobs, were disappearing because of technology. And a classic example was in the services sector, which was supposed to have created more jobs.

And in the services sector, the top-end jobs or the middle and upper-level jobs were growing, but it was the low-end jobs which were not growing. And the banking sector is a classical example of that. And I've also pointed that out in one of my pieces in the last few weeks.

So what really happened was, while the government was trying to create more jobs in the infrastructure sector through its own investment, technology played sort of, you know, a spoiled sport, and the opportunity for low-end jobs was getting fewer and fewer. So that is the challenge that the government has to face, probably by ensuring that investments don't just take place through only the national champions, but an overall broad-based recovery takes place in the sector. And if you stop imports of some plastic products into the country, which is used by a large number of companies just to benefit a few top large companies, it will impact jobs.

So there is need for policy responses also. The QCOs affected mostly the intermediate goods producers. Now they were getting many of their stuff through imports, and suddenly those imports came to an end because of the QCOs.

So what happened was the jobs were hurt. So some of the government's policies in this area, apart from encouraging private sector to invest across sectors, ease of doing business, getting better and better, but also some of the policy responses probably affected the necessary growth in jobs in certain sectors.

Govindraj Ethiraj: Right. And the quality control orders have been a contentious issue for many importing companies for sure. But my question goes back to where you left off, which is on, let's say, the damage that too much political capital can do in terms of decision making or the right decision making.

So at one level, it appears that the government has obviously done a bunch of things, but maybe strategically it has not worked out the way they thought it would. Equally, at the same time, there is confidence that they don't maybe need to do more because of the political capital that they have. So again, if we were to look ahead, my broader question is, could any government have done differently?

Because this government chose one approach to galvanise investment and economic growth. Previous governments may have done differently. This government is obviously enjoying political capital as well.

But what is it that can really spur either the government or those in it to think differently and think of the larger jobs challenge as we go ahead? Because nothing is going to happen immediately, which is really the point. It's a very important question that you have raised.

Ashok K Bhattacharya: I think the way decision making takes place, the way policies get framed probably need to get refined a bit. And what example would be, we are in the 35th year of India's economic reforms, and I was reflecting on what changed in 35 years ago and what has changed now is that all the major decisions that Dr. Manmohan Singh took in 1991 in the space of those first 100 days, those decisions emanated from expert committees' recommendations, and those expert committees were headed by domain experts. And those reports were made public.

So there was debate, discussion, engagement. So it was not a question of a group of civil servants sitting together and maybe calling you or me or some experts to get their views, but getting an entire body of experts to prepare a report on what needs to be done. And then the government makes it public and the debate takes place and policies get framed.

I think a politically strong government probably feels disinclined to undertake such efforts in this manner. And remember that Narasimha and Manmohan Singh were part of a government that was a minority government. So probably they were encouraged to do this kind of a consultation process.

So I hope that in spite of its political capital, its majority status, it should open up this debate of what should be done through domain experts. I mean, if Nandan Nellikani has been invited to head a committee on examination reform, please note that he is not reforming the examination system. He is reforming the technology that will be used for examination system.

It's a very narrowly focused committee. So can we have committees that look into the big challenge with the AI and technology ravaging the various sectors of the economy in terms of job opportunities? What should we do to create jobs and make sure the investments take place?

So can there be some sort of a public debate with experts? And there are employment job experts, there are independent institutions that are doing work there. So can a politically strong government undertake that exercise?

Because this is no ordinary time. I mean, for a moment, I'm not even thinking of the CJB protest. I'm thinking of the big challenge of jobs for the country.

Government should not be responsible only for creating its own jobs. Government should be responsible for creating an environment where more jobs can be created. I mean, there's a different matter that the government's own recruitment record has been very, very poor.

Its own vacancy levels are high. It began 2024 with the promise of allowing lateral entry of people into government jobs. But that move was shelved because the civil servants questioned it most probably.

So therefore, the government will have to take the lead by getting expert opinion, the domain experts to come in and weigh into this extraordinary situation, extraordinary challenge that the country faces in terms of jobs.

Govindraj Ethiraj: This is no easy solution. Right. And Business Standard has been covering the 35 years of liberalisation very closely.

So what's the one bottom-up, not top-down, because top-down is always wide. What is the one bottom-up suggestion that you would have to, let's say, address the jobs challenge?

Ashok K Bhattacharya: I would say that there are industry bodies, there are domain experts. The big decision that the government can take is that in the next three months, I want a body of experts, including industry, labour, and the economists to present a report that what the economy needs and what the government should do in terms of facing up to this challenge of jobs that are disappearing very fast in many sectors. And you're saying that such a committee does not exist or in some form or the Right now, the focus of whatever the government is doing is not really engaged with that big issue.

And I think it is quite important to do that. No, there is no specific committee that is looking into this issue.

Govindraj Ethiraj: Got it. AKB. Thank you so much for joining me.

Ashok K Bhattacharya: Thank you very much. Thank you.