On Episode 883 of The Core Report, financial journalist Govindraj Ethiraj talks to Prasanna Tantri, Associate Professor of Finance and Executive Director - Centre for Analytical Finance (CAF) at ISB as well as Yogesh Rawat, Chief Business Officer - Student Lending International at Avanse financial services.

SHOW NOTES

(00:00) The Take

(05:00) Why your SIPs are bringing the rupee down against the dollar

(06:14) Indian markets are set to open stronger on reports of an Iran-US deal.

(07:12) 150-member business delegation along with the trade minister to land in Canada.

(08:35) Interest rate hikes seem imminent. But what about the timing?

(19:50) How Indian students headed overseas are recalibrating their options thanks to tighter visa regimes and depreciating rupee

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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 25th of May and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

The Take

It is fast resembling the theatre of the absurd.

As the Indian rupee scrambles to avoid hitting the century mark against the US dollar, a milestone that's excellent for a batsman at the crease, but dismal for the optics of an emerging economy, New Delhi is sending baffling signals to global markets. Over the last 18 months, foreign portfolio investors have pulled out close to $50 billion from Indian equities. Net foreign direct investment has slowed to a trickle, and yet amidst this capital drought, India has somehow committed to invest a staggering $500 billion into just one country, the United States.

At a moment when India should be aggressively signalling its desire to attract foreign capital, it's effectively declaring, via visiting US Secretary of State Marco Rubio this time, that it is here to dispense it. To understand the problem with this posture, look at India's balance sheet. A collapse in FDI is at the heart of the country's capital flow story.

As economist Sajid Chinoy recently noted in an Indian Express article, net FDI, which historically averaged 1.5% of GDP, has completely dried up since 2024. Between 2010 and 2025, India's net FDI has been heavily correlated with US 10-year treasuries acting as a proxy for global financial conditions. When global yields are low, he says, India receives a gush of capital.

When yields harden, the capital vanishes. In other words, India's FDI is governed by global push factors rather than domestic pull factors. And the last time India generated its own pull was during the strong corporate capex cycle of 2005 to 2010.

Contrast this, he says, with Vietnam, which has consistently managed to attract FDI above 4% of its GDP, entirely agnostic of global financial weather. So India urgently needs to rebuild this kind of structural magnetism. Instead, it seems to be geopolitical philanthropists.

That brings us to Mr. Rubio's visit and the heralded Indian commitment to purchase $500 billion of American energy, technology, and agriculture goods over the next five years. The glaring problem here is that the underlying economic logic for this spending spree has already collapsed. A recent note from the Global Trade Research Institute details why this commitment may never and should never materialise.

The $500 billion purchase plan was originally baked into the February 6, 2026, India-U.S. joint statement. It was part of a bilateral trade agreement framework in which Washington agreed to reduce reciprocal tariffs on Indian exports from 25% to 18%. But on the 20th of February, the U.S. Supreme Court struck down the legal basis for those reciprocal tariffs, effectively nullifying the economic rationale of the entire bilateral trade agreement.

Following the ruling, the Trump administration slapped a uniform 10% tariff on all countries under Section 122. So the math is now simple. If India receives the exact same 10% tariff treatment, regardless of whether it offers sweeping concessions on market access, digital trade, and agriculture, what exactly are we buying for $500 billion? The commercial rationale is dead, and yet there is no clear explanation for this.

Other nations have recognised this shifting reality and acted accordingly. On the 15th of March, Malaysia boldly walked away from its own trade agreement with the U.S. after initially accepting a negotiated 19% tariff rate in exchange for market concessions. Once that 10% tariff was applied, Kuala Lumpur said that its agreement was null and void.

India should take notes. Sourcing $500 billion in American goods is not just a logistical nightmare, but a strategic misstep. We could theoretically buy fleets of Boeing aircraft, though it would be interesting to see how Airbus would compare, on price terms at least, following an impending free trade agreement with the European Union being the region where Airbus is produced.

Outbound investment is a natural and desirable consequence of globalised business, and Indian corporations must inevitably expand overseas for market access and technological gains. Sovereign signalling matters. Right now, India needs capital to come in.

This isn't a quick fix to arrest the depreciation of the rupee, but a structural necessity. The country needs technology, capital, and world-class businesses to set up and grow domestically. Secretary Rubio is welcome to visit, survey the market, and announce deals, but New Delhi must look out for its own economic interests.

And right now, those interests do not converge on acting as America's half a trillion-dollar customer.

And that brings us to the top stories and themes…

Indian markets could open stronger on reports of an Iran-US deal

Why your SIPs are bringing the rupee down against the dollar

A 150-member business delegation along with the trade minister to land in Canada

Interest rate hikes seem imminent but what about the timing

How Indian students heading overseas are recalibrating their options thanks to tighter visa regimes and a depreciating rupee.

SIPs, The Markets, Trade with Canada

It may come as a not-so-pleasant surprise that your systematic investment plans or SIPs into mutual funds every month have been providing the liquidity and exit for foreign portfolio investors since September 2024.

But more than that, the same exit has of course led to the sharp fall in Indian rupee, so your SIPs have led to the fall in the Indian rupee, arguably. A note from Jeffries, the stockbroker, says that not current account deficit but all-time low capital flows is the culprit for INR pressure. Equity market driven outflows accounted for 78 billion dollars over the last two years as strong domestic flows provided an easy exit to foreign capital escaping an expensive market.

Investor Shankar Sharma has also been writing on this theme since last year, arguing that Indian investors were getting played among others by social media figures and financial media into thinking that the markets were only going one way, that is up, and FIIs were making a mistake in selling while Indian investors were the smart ones. The Brightside, according to Jeffries' analysis of the past four episodes of sharp, that's over 10% depreciation in the rupee in 12 months, says that FBI flows could see a upsurge because that happened in three of the four episodes in the subsequent 12 months. Meanwhile, the Nifty and Sensex were higher on Friday as the rupee did appreciate against the dollar thanks to some fairly significant intervention by the Reserve Bank of India.

According to several reports, the Nifty 50 was up 64 points to close at 23,719 and the Sensex was up 231 points to close at 75,415. The rupee was strong and appreciated almost 51 paise on Friday but finally closed at 96 rupees 20 paise a dollar. In the broader markets, the Nifty mid cap was up 0.14 and the Nifty small cap fell though at 0.15. And of course today the markets could be more positive going by the latest news that Washington and Iran have largely negotiated that's in quotes a memorandum of understanding on a peace deal that would reopen the state of Hormuz.

Reuters quoted U.S. President Donald Trump saying now the war has lasted three months and India also saw its third fuel price hike in two weeks, again less than a rupee each on petrol and diesel on Saturday as the strategy clearly now is to space it out as opposed to one single shot. Meanwhile, in generally encouraging news though of longer-term import, India's state minister is leading a delegation to Canada this week with about 150 Indian industry leaders as part of efforts to strengthen trade and investment ties between the two countries. The important part here of course is that such a large industry delegation is accompanying the minister to a country with whom relations were somewhat tricky until recently.

Canadian pension funds and companies have invested nearly a hundred billion dollars and about 600 Canadian companies operate here with both sides aiming to raise that number to a thousand. Reuters quoted minister Piyush Goyal saying adding that India and Canada aim to reach about 50 billion dollars in bilateral trade over the next five years. And finally, heat wave conditions which are continuing are leading to power cuts as electricity demand is now beyond 270 gigawatts that's the level the system at large was geared for though without the help of gas-based power plants who are and would be facing supply crunches thanks to the West Asia war.

Nighttime outages are running from 40 minutes to one hour in the manufacturing and infotech hub of Chennai, residents told Reuters which also quoted regulator Grid India saying India's peak power deficit late on Thursday evening was about 2.57 gigawatts.

How Should Indian Inflation be tackled?

With inflationary pressures rising thanks to the energy shock, how far could an interest rate hike be and could it go? Several economists have already projected a 50 basis point hike starting next month. The present repo rate is 5.25 percent.

The question of course is, is it rightly timed? I spoke with Prasanna Tantri, an associate professor of finance and the executive director of the centre for analytical finance at the Indian School of Business who in a recent column in business standard asked if India's inflation targeting was too rigid for this oil shock climate and I began by asking him if he felt that that 50 basis point hike was coming.

INTERVIEW TRANSCRIPT

Prasanna Tantri: So my case for this 50 basis point is independent of Iran. Because, you know, we've been doing OMOs, you track these things. Last year we've done 7 lakh crores, basically driven by state government borrowings.

You know, we have a backward, you know, it feeds into my criticism of inflation targeting also. We've been very comfortable looking at reported inflation number. This is last year's number, what we're looking at, last year over this year.

I think we had a pressure building up, even independent of Iran. So that 50 basis point I think is given. They will, you know, whether they like it or not, at some point of time, this extra money that they have flushed into the system would have acted and maybe six months down the line or a year down the line, they would have had to increase at 50 basis point.

Question is, will they have to make more than that? That I don't agree because it's a supply shock. You know, it's a geopolitical issue.

And once that goes away, that is where backward looking inflation targeting is problematic. So I agree with 50 basis point hike, not for this Iran issue, but because of what we have done, you know, printing money, state government borrowings, higher deficit, the usual inflation argument. But for this, particularly for shock, I don't think we should raise beyond that because this is more of a supply shock issue.

Once that goes away, rates can remain much longer, like we did with food price inflation two years ago. We will be unnecessarily tightening interest rates. So yes, 50 basis point rate increase should be done, but not necessarily for Iran.

That's my view.

Govindraj Ethiraj: And the point that you made, Prasanna, or rather the question that you've asked is, is India's inflation targeting too rigid for this oil shock climate? Can you walk us through what you're arguing here?

Prasanna Tantri: I'll give you just last 10 years, just, you know, you track the data carefully. So what we've been doing, we have this 2 to 6% target, inflation target. Now the problem is, it is based on reported inflation.

Reported inflation is what you see today, 3.7% if you go to 3.48% on the That inflation is this year over last year. Now the problem is, what matters for any decision making is expected inflation because interest rate is a future concept. When you say repo rate of 5.25, that is what applies from today to next year. Now what we have been doing, because we have the implicitly, we subtract future concept, that interest, from the current inflation, which is the past concept and say our real rate is whatever, which is an error, which is wrong. For example, right now, if you remember 2-3 months ago, we were saying Goldilocks, great and all that by doing the same thing. And now already our reported real rate has come to 1%.

The point being that focussing on past inflation will make real rate very, very volatile. Because you realise the actual real rate charge after the fact. For example, in 2022, when we took 23, when we took repo rate to 6.5%, that time the reported inflation was 6%. But that is because of that year's food price. But reality, this was interest rate that was charged for 24-25, 25-26. But now we know that actual inflation turned out to be 2%.

In some months, it was almost zero, close to zero, as you know, right? So we ended up charging like 4-5% real rate and ended up appreciating the rupee beyond the point at that time in real terms, and which is now getting corrected. So there are consequences of trying to, you know, not getting this expected inflation right.

The one line answer to your question is we don't have a very good measure of future inflation, expected inflation. Until we have that, we should go with central bankers taking judgement call rather than a mechanical adherence to formula. Mechanical adherence to formula will make us more pro-cyclical.

For example, in this Iran context, we will be the last one to raise rates and the last one to cut also. Because the reported numbers will take a lot of time to show up. And by the time it shows up, war may be over, you know, everything may be over, but we will go to the 6% and we'll keep raising.

So that is what happened with the food price also. That is why I think this system is not suitable for India. That is my point.

I'm not saying you should not have fiscal discipline. And look at one more point. Look at RBI minutes of meeting.

There is no discussion on extra borrowing by government at all. You know, total borrowing of central and state governments together is 8-8.5% of GDP. Now, that is where inflation targeting is supposed to be a disciplining mechanism.

You know, there is no discussion. You will not even find a discussion. So that is the problem with this because the current reported number is low.

It gives us too much comfort and makes us panic at the wrong time. That is my point.

Govindraj Ethiraj: And when you talk about future inflation, I mean, how could we, and I know you've also said that we should be looking at more aspects of the economy to measure that inflation or other indicators as well. But what's the benchmark here? I mean, which, let's say, where do you feel or which countries do you think are doing this more effectively, including by looking at future inflation?

Prasanna Tantri: So the Michigan survey that US relies on, and if you track that with the actual inflation, because you can see how well it performs, it doesn't do very badly. Whereas India's survey, that you see RBI survey, expectation is always 10%. Median expectation in India is 9.5-10%. Even when the reported inflation is zero, because go and put a mic on people's mouth and ask what's inflation, everybody says inflation is high, irrespective, even when it is negative. So the survey approach doesn't work. That's very clear.

Now, what is the alternative? Many alternatives. One, rent contracts.

In different cities, rent is any price which is decided in advance is based on inflation expectations, school fees, rate of growth in school fees, a rent contract, or any contract where there is a time-based escalation clause. Let's say you have a contract where prices will change with time. Now, that escalation will actually reflect inflation expectation, wage increases, and 10-year bond.

10-year bond in India, for instance, last one year when RBI was cutting interest rate, and you follow this, 10-year interest rates went up from 6.2 to 6.3. Again, Iran has taken it from 6.8 to 7.1. But 6.2 to 6.8 happened pre-Iran. One of the things with this Iran kind of thing or COVID, we completely forget what was happening before. These washes of things that were happening before.

Now also, this whole inflation will be blamed on Iran. The 7 lakh crore OMO we have done, and now with LLM's data, any of you viewers can see, this is like record high. 2% of GDP kind of OMO.

This happened only during crisis. We did OMO in a non-crisis year when we are growing at 7%, doing a QE. This is sort of QE going.

I don't know why media has not picked up. This was kind of a QE when you're growing at 7%. I don't think anywhere it has happened.

You won't have a QE when you're growing at 7%, buying state government bonds. Like in the US, ultimately, they bought private securities. In Japan, they bought equities.

That I understand when you're in recession. But when you're growing at 7.5%, giving a stimulus of 2% of GDP, not small, it's 2% of GDP, that would have had some impact. So this COVID is going to wash that off.

So that's the problem. So the indicators, therefore, should be these contracts and financial markets. Ideally, if you have an instrument like TIPS, which is inflation-adjusted, that would have given you expectations.

But at least it should be a combination of that. I'm not saying ban survey. Even survey needs to be revisited.

I think the way you ask questions should change. You should not ask what inflation you expect. Maybe, for instance, a question can be asked, if I don't increase your salary by some x percentage, at what level you will quit your job?

That is your reservation. What I want for your inflation expectation is reservation. You ask in your office, at 3% will you quit?

5% will you quit? What is the minimum for you to continue in the job market? Because that is inflation expectation.

Because below that, leisure becomes preferable. So I think even the survey needs to be revisited.

Govindraj Ethiraj: Last question. So at this point, the world is not showing any signs of ending while we are all anticipating that it will. So the cumulative effect or impact of the energy shock is likely to increase.

Given that, do you feel that from a monetary or fiscal policy point of view, we are begun to take the right steps? Or do we need to do more at this point of time?

Prasanna Tantri: I think we need to do a lot more, Govind. You know, when I said monetary policy doesn't need to do anything, I don't, I'm not trivialising the shock. It's a very big shock.

My prescription for this shock is two, three. One, cut capital gain tax. That'll ease the pressure on the rupee.

Our big problem is money going out. In the long run, ease, you know, improve ease of doing business, but that you cannot do tomorrow morning. You know, you may make some announcement, but people, for you to trust and all, it'll take time.

Right? In the, something that you can do short run is cut capital gain tax. You will lose a lakh, lakh and half crores of revenue with that in the short run.

In the long run, it may recover through other ways. The other thing that I think they should cut is also the excessive tax that we have on oil. And cut some capex.

You know, we have this belief that somehow economy grows because of government capex. It doesn't work that way. You know, economies grow because of innovation.

Economies grow because of private investment. And we've been doing this for now several years. So I would say that cut capex, cut capital gain tax, cut some oil taxes, cut some expenditure, you know, on the government side, reduce government budget.

And that will sort of, because now the problem is not demand, problem is supply. That'll ease some pressure. Monetary policy, taking interest rate to 8, 9, 10% for a, and if it is persistent, then we'll not have a choice.

We will have to increase interest rate. We can't anticipate this. This is not money printing.

In money printing, you can anticipate that will lead to expectations. We don't know what those generals will, you know, what US will decide, what Iran is going to do, how it's going to, let's see. Let's, I don't think monetary policy should be the first line of defence here.

It should be fiscal policy and capital gain tax, privatise. And for some revenue, start that privatisation programme, use this crisis. We are good at using crisis for reforms, you know, get some money out there and try to see whether we can get more inflows from NRIs with something, which we're doing really well.

You know, it's $135 billion. I think through a combination of these, we should ride out next few months. When I say prescription, I'm saying, let's see next two, three months.

Maybe we'll have more clarity, whether we are heading for a major war, which will last for years. Because in the medium term, my hope is supply chains also will adjust. It's not that supply chain will never adjust.

You know, we have to survive somehow until that point when supply chains adjust and then we can recalibrate. So taking interest rate to 8%, 9% may not be a great idea.

Govindraj Ethiraj: Right. Prasanna. Thank you so much for joining me.

Prasanna Tantri: Yeah. Thank you. Thanks.

Why are Indian Students Studying less Overseas?

The number of Indian students going overseas has been falling steadily in the last year or so. Visa and other restrictions in Canada, USA, Australia and the United Kingdom are one reason.

The other of course as we look ahead particularly is a depreciating rupee presently circling around 96 rupees to a dollar. How are students and indeed their parents responding to the markedly higher costs of education right now which many of them have to fund and what's changing in the education funding portfolio so to speak? I spoke with Avanse financial services, an education focused non-bank finance company which predominantly provides loans to students to pursue higher education in India and overseas. Avanse has funded over 60,000 student loans across 51 countries.

Yes, the number of countries was a surprise to me. I reached out to Yogesh Rawat, chief business officer of Avanse and began by asking him how he was seeing the current market conditions for student loans particularly for going overseas.

INTERVIEW TRANSCRIPT

Yogesh Rawat: So, my take is, what we believe in advance is very clear, that there is a structural demand. Right? So, just to give you a background of it, why we say, there is a demographic dividend with India like any other sector.

It is also enjoying in education overseas overall, and of course, education financing being a catalyst of education overseas finance. We have seen 9 years CAGR of 33% in education financing overseas. We believe that there would be a continual demand of education financing and overseas education.

Why? 50% of the Indian population is less than 25 years. That is one.

Secondly, around 18 crores of Indian population is standing between 18 years to 25 years, which is the harbinger or anchor of overseas education demand. So, while I understand that in the last two years, if we see, there has been a slight normalisation, which was largely not because of the demand or a supply side issue. It was because of the macro led events.

And whenever then this is typically a sort of a customer demand, which is very, very linked with any macro level changes. However, we have seen if we see last nine years, there have been 24 macro events, there has been ups and downs, there is a reshaping of demand. So, for example, today, top five countries, which largely student mobility attracts, it was at 90% one point of time, today, it is less than 50%.

There has been shape and shifting. And we have seen Nordic countries, Japan, Korea, Dubai, Ireland, Germany, coming up and taking up the relevant spots. However, at the same time, as a top three or four countries, which are typically Australia, UK, Canada and USA, they eventually sought their overall whatever plans they have.

And in next two to three years, we also see them coming up, not in a big way, but at a very normalised way. All in all, demand is there, the supply side, which is a university seats are there, they are vacant, going vacant. And of course, there is a clear education financing as a catalyst, which itself is growing over a period of last around 10 years.

It has been a fabulous growth story for education finance. Coming to the another aspect of it, the depreciating rupee or appreciating dollar or maybe a pound. So, if we see around one, one and a half years, around 10 to 15% of depreciation across various currencies.

Now, what largely it leads to? It leads to two things. One is that there is inherent inflation in the destination country, around three to 4% cost of education, there is an inflation.

Then there is around 10% of currency exchange inflation. All in all together, we have seen the average ticket size growing up. However, is there a direct correlation between the average ticket size of cost of education growing as well as the student mobility impact?

Not much, we have not seen much. The only one thing largely which impacts is our overall stable immigration policies and overall macro event that is largely the biggest impact which largely creates.

Govindraj Ethiraj: Yeah. So, you're saying that it's still inelastic in that sense. I mean, if there are seats available and visas available, then Indian students are obviously able to finance it.

My question then is, if you know this already, what is the average, let's say, income of or parental income of people who take loans from you, average?

Yogesh Rawat: So, if we say average income of a parent who takes loan from us as a company and when I say us, I am referring to all the specialised education financing companies, NBFCs. So, they have a different model and I'll also talk about that model of underwriting. So, typically, it is around 10 lakh rupees annual income.

That is where the median, I would say, largely falls in. And when I'm referring to this, I'm referring to the master's education, wherein the student is typically 23 years of age with two years of experience, largely going for a master's in STEM, AI, cybersecurity, data analytics, or maybe a healthcare. These are the courses which largely the student selects.

And typically, the average size would be dependent on country to country. It ranges from 30 lakhs of Germany, Canada, to higher of USA, around 70, 75 lakhs. If I just may conclude with this, that why typically 10 lakhs is a sufficient income for us, because our, as well as any other specialised finance NBFCs, their model of underwriting is a very risk-integrated approach, wherein the major focus is on the student's ability to complete the education, their academic past performances, their test prep scores, and of course, their work experience related to their course of education, once they are selected. And of course, there is another very deep research which goes into the course, the college, and the future earning ability potential of that course in college.

Govindraj Ethiraj: Got it. And what's the repayment? Or are you seeing any stress? Or have you seen any stress, particularly in the last two to three years?

Yogesh Rawat: I'll also pick one example. And of course, the example largely relates to the entire industry. There are two things what we have seen. One is, of course, the slight decrease of student going abroad.

That is one trend which what we have seen. There is a reshaping of students selecting the destinations. Second, and third is that students choosing to come back to India and to get a gainful employment here in GCCs and the other emerging tech markets.

That is a third trend which we have seen. If the students are choosing to do that. Talking about specific quote, is there any related stress of financial with respect to the loan repayments?

As of now, we have seen that. However, we are still, as a continuous basis, we monitor, we engage customers to see whether what employment they are getting, what incomes they are getting, and whether they would be, and we also predict whether they would be able to basically pay in a foreseeable future. That is our regular exercise for us.

That is what largely we believe. It will continue like that. One specific example, we see Canada is one area where we see a lot of macro-led issues, geopolitical issues, suspension of mobilities across all nature.

Very happy to share that for the entire sector, the Canadian repayments for the students, they have been very, very immaculate. There has been no deterioration. The micro-level employment was there.

There was inflation, which was largely because of the shortage of housing, which thankfully the Canadian government resolved well in time. They took some time. It is resolved now.

We have not seen any of that stress percolating down to the repayment view.

Govindraj Ethiraj: So as you look ahead, particularly 26 into 27, what kind of trends are you seeing? I mean, you already talked about the shifting of preferences and countries or destination countries. What else are you seeing?

Yogesh Rawat: The main trend largely, I would say, is the change of mindset. The change of mindset that the aspirational families as well as students, they continue to see global overseas education as a very clearly go-to aspiration. For that, they are ready to basically enter into a strategic capital investment of education financing, which of course, maybe in their current income, it would be difficult for them to pay.

But largely, the choices are very well made. And that is one change of mindset, what we are seeing. The other is a clear mindset shift of changing a destination loyalty to largely a loyalty towards career outcomes.

What I'm talking about is Germany and Japan. At one point of time, the courses were always taught in their local language. Today, all these courses of masters, they are in English language.

The destination countries are also changing. Secondly, the students are also opting for these countries wherein there is a clear pathway of employment, leaving aside the all traditional destinations. And the other part I would say is that realising that upskilling is the critical requirement.

And unless and until there is a university selection, which is related to industry integration, which is largely internships, if you are doing an undergraduate course or a master's course. So this typical integration has also been identified as a critical component of the overall higher education.

Govindraj Ethiraj: Right, Yogesh. Thank you so much for joining me.

Yogesh Rawat: Thank you, Govind.