On Episode 1002 of The Core Report, financial journalist Govindraj Ethiraj talks to Srikanth Velamakanni, Chairperson of industry body Nasscom and Co-Founder and Group CEO at Fractal Analytics.

SHOW NOTES

(00:00) The Take

(06:17) Markets Could Come Under Pressure From Fresh West Asia Tensions

(09:24) Why Heavy FPI Selling, Including $4.5 Billion This Month, Will Challenge RBI’s Moves To Lift The Rupee

(11:26) A US Clampdown On Indian Tech Workers Puts The Spotlight Back On The Country’s AI Skills

(24:18) Why Microsoft's Satya Nadella Wants To Put Brakes On AI

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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 12th of October and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital

The Take

It's tempting to dive into Elon Musk's latest public spat with the Indian government and Reliance Industries Mukesh Ambani over its reluctance to authorise his Starlink satellite broadband service and yet doing so misses the forest for the trees. Musk's current frustrations are merely the predictable fallout from New Delhi's poorly scripted dealings with him more than two years ago. The entire saga should serve as a stark object lesson in the perils of economic negotiation by exception and the cost of trying to outsmart global trade dynamics.

India's trade policy has rarely been described as nimble. For decades, it has penalised its own consumers through prohibitively high tariffs. Until around 2015, it appeared that tariffs were headed down and trade would further liberalise.

Instead, the opposite happened. Tariffs began to creep upward again, a reverie broken only when US President Donald Trump imposed penal tariffs on Indian exports in April 2025, jolting Delhi's trade mandarins awake. Enter Elon Musk.

In June 23, the billionaire famously declared himself a fan of Modi and proclaimed that India possessed more promise than any large country in the world. He assured reporters then that Tesla would enter India as soon as humanly possible and the market was buzzing soon with reports of an impending $24,000 Tesla tailored for India. But there was a catch.

Tesla then wanted to test the waters by exporting cars to India first, including from manufacturing locations like China. And Musk understandably baulked at the country's punitive 110% import duties. A protracted back and forth ensued, and for a year it appeared that Tesla might actually bend India to its will, raising the hackles of established domestic and multinational automakers from the likes of Tata and Toyota to Hyundai and BMW, all of whom, either publicly or otherwise, protested the prospect of an unfair advantage.

Eventually, in March 2024, the government unveiled a bespoke policy to lower import taxes on specific electric vehicles for automakers willing to commit at least $500 million and commence domestic manufacturing within three years. The red carpet had been explicitly rolled out for Tesla. And yet, Musk, perhaps sensing that the addressable market for his vehicles was narrower than projected, began to backtrack.

In April 2024, citing very heavy Tesla obligations, he abruptly cancelled a planned trip to meet Prime Minister Modi. Instead, he landed in Beijing the same week. The promised mega investment never materialised.

And India, of course, went into election season around that time. When Tesla finally did enter the market between July and August 2025, it was with a whimper, not a bang. It opened two showrooms in Mumbai and Delhi and began selling fully imported cars.

Thus far, Tesla has sold about a thousand vehicles in India, all model Ys. And even a record September for auto sales saw just 291 cars being moved. Categorised now as a luxury EV, Tesla is hardly setting the Indian market ablaze.

Predictably, competitors are vastly outperforming it. In September 2026, Tata Motors sold about 14,700 electric vehicles. Mahindra about 7,780.

JSW MG Motors about 5,200. And the Vietnamese brand VinFast, which only launched last year, about 2,900 units. All of these cars admittedly are lower priced.

But even BMW outsold Tesla in the electric segment. And tellingly, Tesla's global arch rival BYD sold 836 cars in September. And while Tesla has received the royal treatment, BYD, burdened by strained China-India relations, has faced heavy regulatory headwinds for the last six years.

BYD also has a manufacturing presence in India, though not for cars. Looking back, Indian policymakers made two fundamental miscalculations. First, they suffered from the illusion that Tesla would replicate the Apple effect, ushering in an entirely new electronics automotive ecosystem that would galvanise investment and employment.

This ignored the reality that India's automotive ecosystem was already highly developed, boosting massive investments over time from nearly every major global auto giant. Buoying Tesla essentially meant discounting the domestic industry's own hard-won successes. Moreover, by the time India was beginning to make its EV policy moves, the global EV market was maturing rapidly.

And Tesla's preeminent brand positioning was already eroding in the face of technologically comparable, better-priced alternatives from companies like Hyundai and Kia, which possessed vast sales and service networks in India. The second, and perhaps graver, mistake was the geopolitical gamble, believing that appeasing Musk was a backdoor strategy to win brownie points with Donald Trump, who secured the presidency in November 2024. In hindsight, it's glaringly obvious that attempts to mollycoddle the Trump administration directly or indirectly have failed.

If anything, each of these manoeuvres have backfired spectacularly. But can India move faster on trade policy? Certainly. The recent free trade agreements with the UK and Europe demonstrate a capacity for agility, though delayed.

But conducting trade policy by exception, attempting to contort national frameworks to satisfy the singular demands of even the world's most famous innovator, has proven to be a series of unforced errors. And that brings us back to Starlink. The rationale for widespread satellite broadband in India, where terrestrial mobile data is cheap and ubiquitous, is debatable in itself, and the Core report has argued on this several occasions last year.

The real error was allowing Musk and his team to believe that changes to India's regulatory architecture could simply be rammed through, or that broadcasting displeasure on social media could force sovereign capitulation. That impression was likely cemented during the initial overly eager engagements in 2023. India is now paying the price for projecting weakness in the face of celebrity capital.

And that brings us to our top stories and themes…

The markets could come under pressure as West Asia tensions ratchet up again.

Why heavy foreign portfolio investors selling, including about $4.5 billion this month, will challenge reserve banks' moves to lift the rupee.

A US clampdown on Indian tech workers puts the spotlight back on the country's AI skills.

And why Microsoft's Satya Nadella wants to put the brakes on AI.

Markets, Diesel, FPIs and The Rupee

The war against Iran, started by the United States and Israel, continues to have ramifications beyond what the attackers had envisaged all war game.

Yemen's Houthis stepped up their attacks on Saudi Arabia with an attack on Riyadh's international airport that killed 12 people and wounded more than 300 others on Saturday. It was the deadliest such attack in the kingdom in more than a decade, and comes amidst an escalation of fighting between the Iran-backed Houthis and the Saudi-backed Yemeni government forces. Reuters reported the Houthis' warning on Sunday that airlines travellers and airport workers should stay away from Saudi airports and that Saudi airports and airspace had become a theatre of operations for their forces, with the exception of the airports in the holy cities of Mecca and Medina.

The Houthis said on a post on X that they urged everyone to take their warnings seriously and Saudi Arabia bears responsibility for any failed interceptions. In the US, President Donald Trump said he was considering joining Saudi Arabia in its retaliation against the Houthis after the deadly attack on Riyadh's airport, a move that would effectively pull the US further into a second front in the Iran war. Oil prices that closed over the weekend were at about $104.70, that's Brent crude, which were up slightly, and it does appear that they could be under pressure this week.

So where will oil prices go today? Traders will obviously weigh the tensions in West Asia versus US President Trump's announcement of importing diesel from Russia, which could moderate prices for diesel in the US. Now, this of course is a mind-boggling volt fast, even at a time when we're getting used to such dramatic about-turns. Trump on Friday said that Russia will supply more than 4 million tonnes of diesel to the global market under a deal he struck with President Vladimir Putin during a phone call.

The Treasury Department temporarily waived sanctions on Russian diesel through April 2027 under a general licence issued on Friday. So effectively, countries like India could still face US sanctions for importing Russian crude, but the US itself is importing Russian diesel because it's running short of it, prices are at record highs, and of course, midterm elections are around the corner. And the markets will continue to follow oil prices, but last week did end well.

India's benchmark indices turned around sharply on Friday after a hammering on Thursday, thanks to higher crude oil prices, higher bond yields, and foreign portfolio investors selling. On Friday, the CENSEX closed up 879 points to 72,472, and it gained about 0.8% for the week, ending a record eight-week losing streak. The NIFTY closed about 0.4% higher to about 22,520.

The second quarter earnings season has begun in earnest, as we've been pointing out, with some focus on IT services companies, with companies like HCL Technologies, Wipro, and Tech Mahindra reporting their September quarter results. Shortly, TCS, which reported earnings last week, seemed to have delivered better than expected numbers, and the stock price responded favourably last week. The big news for Indian IT was the U.S. government last week suspending eight IT firms, including TCS, Wipro, Cognizant, and Microsoft from a programme that allowed applications for green cards for foreign workers on the charge that the practise has shut out Americans from the job market, and more on that shortly.

Foreign portfolio investors have resumed heavy selling in signs that other markets are still looking better or India is looking weaker, including the U.S., where bond yields are now about 5% and at their highest since 2002. In the month of October alone, foreign portfolio investors have sold more than $4.5 billion after having sold in September as well. This selling is also putting renewed pressure on the rupee, which is continuing to slide down despite the earlier inflows, including the close to $140 billion via foreign currency non-resident deposits last month.

The Reserve Bank over the weekend rolled out a series of measures to support the sliding rupee in what is perceived as its strongest action since the last currency crisis in 2013. On Saturday, it announced a series of steps, including opening a special window to meet state-run oil companies' dollar requirements and the introduction of a new China central bank-type tool requiring banks to set aside cash with the Reserve Bank of India for some foreign exchange transactions, Bloomberg reported. The Reserve Bank's surprise announcement on Saturday is expected to support the rupee, which is also Asia's worst-performing currency this year, and closed on Friday, a little above its record low of Rs.

96.96 per dollar. Now, the Reserve Bank's reserves have fallen by about $51 billion in the four weeks to October 2, mostly lost to defending the rupee. In 2013, the Reserve Bank had introduced a dollar window for oil companies and provided about $12 billion to refiners to help stabilise the currency.

Remember, India imports close to 90% of its crude oil requirements. One analyst told Bloomberg that the Reserve Bank's measures represent a virtual shutdown of the market. The dollar demand from hedging and from oil companies will now exit the market, plus there are severe restrictions on export and import activities and thus should see at least a 1% rally in the rupee on Monday.

But the larger problem, of course, is not the vast menu of small steps, but the broader signal of signalling on where investors believe the economy is going or headed or the underlying attractiveness of stocks and, of course, foreign direct investment, which takes longer to come. Now, that is a problem that these line-by-line responses usually do not address.

US Clampdown On Indian Tech Workers

The U.S. government said on Thursday it's suspending some major global tech and IT firms, including Microsoft and Cognizant, from a key green card programme that allows skilled foreign workers to gain permanent residency through their employment.

Reuters report quoted senior U.S. officials citing alleged fraud as the reason behind the move, saying companies have been using the programme to replace American workers with cheaper foreign workers. And this, of course, is another step and the most recent one in the Trump administration's crackdown on skilled foreign labour. Companies like TCS on Friday said they do not expect the U.S. action on the green card programme to affect their workforce strategy or customer engagements, pointing to their single-digit applications under the programme in the last two years and a focus on local hiring.

The larger question, of course, is where India stacks up right now in its IT services offerings to clients who are predominantly in markets like the United States and, more importantly, where artificial intelligence is taking the new proposition. I spoke with SrikanthVelamakanni, chairperson of industry body NASSCOM and also co-founder and group CEO of Fractal Analytics, and I began by asking him how he was reading the latest developments.

INTERVIEW TRANSCRIPT

Srikanth Velamakanni: I think first of all, every country in the world has a right to enforce their own immigration policies. And it is important that every company that's operating in that region obeys the laws of the land. To that extent, there is some accusation that there are fraudulent practises and so on.

We must recognise that this is just an accusation. It is not an evidence of guilt. And the companies that are in question are extraordinarily well-governed companies, some of the best-run companies in the world.

So I feel pretty confident that maybe no smoking gun here, for no real evidence of guilt here. But the due process must be followed. So I see this in the light of overall, let's say, policies around creating jobs in the US, which I totally appreciate.

The one thing I'd like to add here is that immigration and job creation at home are not a zero-sum game. One doesn't preclude the other. Most often what happens is that immigrants create incredible companies.

They create jobs. They build fantastic products that create jobs and so on. And that's been the story of the US for the last 50 years, that immigrants have, or actually more than that, 500 years, that immigrants created incredible industries.

And the reason US has led the world in technology is partly because of its immigration policy as well, which attracts the best talent in the world. So to that extent that some of these announcements might dent the incoming traffic in terms of people coming and settling and creating products, getting jobs, and eventually creating great companies, if that comes down, I think it means that the world economy and certainly the US economy will go a little slower. And the other flip side to this is that when labour cannot transport itself, when people cannot move, then the work will move in the opposite direction to where the people are.

The capital will move where the people are. And therefore, some of the entrepreneurial ideas will move where the people are. So if you take that view, it might actually work out quite okay for India in the longer term as well.

Govindraj Ethiraj: Indian companies for many years, and definitely more than a decade, have been slowly increasing their on-ground presence, and to that extent, reducing their dependence on H1B. So why would the government respond on this particular aspect today? And therefore, is there work still to be done by Indian IT services companies, particularly the larger ones?

Srikanth Velamakanni: To the best of my knowledge, Indian companies have really implemented all those policies for a very long time now. They've been hiring locally, they've been contributing significantly to the economy. They're building offices in various parts.

They're going to campuses and recruiting fresh talent and really nurturing them to become leaders of various businesses over the next many years. So all those actions are in place. And from a governance standpoint, yes, there could have been instances in the past, if you go back 20 years, there could have been instances of some of these, let's say, process lapses.

But to the best of my knowledge, that is just in the past. Now, obviously, we must take it seriously that the government, the US government has accused many of these companies of, quote unquote, fraudulent practises. But I would like to wait for a due and fair process to take place.

And the outcome of that, all of us should welcome.

Govindraj Ethiraj: Right. And if you were to look at the composition of deal flow today, and the talent and skill levels of India and Indian engineers and companies to respond, how would you sort of lay that out?

Srikanth Velamakanni: See, the world is moving to a place where the density of talent matters a lot more than the volume of talent. Essentially, it means that we need fewer, but much more qualified people, because with very powerful tools like AI, a very good developer can build 10x or 100x of what he was capable of, let's say, five years ago. It's just a different world.

So in this, the quality of talent matters a lot because, well, everyone can get to the average talent of, let's say, five years ago, but the top talent can build 10x or 100x of what was possible earlier. So that's the world we are living in. To that extent, India has a very strong talent base with a million engineers a year and a million graduates a month overall, which means that we have very large numbers of that three sigma or four sigma talent, extremely talented people.

And these people have traditionally gone and worked for large American companies like Google or Microsoft. They've been talent magnets for people like this. Now, if they do not find that to be attractive, then they will stay in India and build amazing companies in the world of AI.

And given that capital is already in India, there are 440 space tech startups in India, 90% of deep tech startups are AI startups. So given that kind of evolution that India is already seeing, I feel pretty good even if the amazing talent doesn't go abroad, they will build amazing companies that actually result in growth for India.

Govindraj Ethiraj: Right. And if I can expand that question a little more. So the US is obviously a significant market for most Indian IT services companies or for that matter, Indian engineering talent.

What's the world at large looking like when you look at the opportunities and where is India itself likely to play a role in terms of, let's say, keeping back or attracting to build on the previous answer?

Srikanth Velamakanni: Right now, the whole world needs more AI because AI has completely upended how people build their companies. Every business process, every workflow has to be reimagined like it was when electricity came into the world and every manufacturing company or any factory had to rethink of how to electrify their own factory in such a way that they can produce better goods, more goods, higher productivity and so on. In a similar way, we are seeing that not just in the manufacturing company, but every company in the world has an opportunity to reimagine itself with AI.

So that opportunity is not just a US opportunity, it's a global opportunity. US is always very early adopters of new technology. So you're seeing that early on in the US, but Europe has woken up as well.

Australia has woken up, parts of Asia are booming. Middle East is very, very interested in AI. In North America, you have Canada, which is also on the forefront of AI.

So you're seeing a whole world as an opportunity. And from the vantage point of the Indian tech services companies, roughly two-thirds, slightly under two-thirds of their revenues today come from, let's say, US-based clients. But that number is slowly becoming more diversified.

And I expect that over the next five to 10 years, it will get more diversified as these companies become larger, open up new offices in Japan and China and in Europe and other places, you'll start to see that revenue diversification happen. But the opportunities are everywhere, and that opportunity is large. Let me also say that the total opportunity is as big as 6 trillion, right?

100 trillion world economy, world economy, world GDP, roughly 6% of that is a tech demand overall. So it's a 6 trillion market. So you can be anywhere and grow your business in today's economy.

Govindraj Ethiraj: So India is, let's say, about $220 billion of IT services exports. Do you see this figure continuing to grow at roughly the same level as before? Do you see some moderation?

Srikanth Velamakanni: If you look at the tech services companies, you have two pools of revenue that they're seeing. One is a shrinking pool, and another is an expanding pool. So if you look at legacy tech services that Indian tech services companies have been doing for the last 20 years, 25 years, some of those like application maintenance services or business process management services, infrastructure management services, there's some expectation of productivity to seep in, and therefore, work should contract because a number of hours required to do a certain job should contract dramatically. So you are seeing some of that already play out. But the other pool is the expanding pool, which is AI-led services, which is helping companies reimagine their business processes, building their AI foundations, which is data and getting the data together, building the company's digital brain, and helping companies reimagine their work and workforce.

If we look at these pools of work, they are expanding very, very fast. So the growth that you're seeing today is somewhat muted. It's in the low single-digit number because the contracting pool is contracting faster than the expanding pool can replace it.

And therefore, the growth numbers are somewhat muted. But I expect that this will change quite substantially in the next year itself and a lot more in the following years because AI is now taking off in a very big way. We're still seeing the very early signs of what AI can do.

And a lot of the progress that enterprises can leverage has only happened in 2026. So much of the revenue growth that you will see will all come from 2027, 2028, and so on. So I feel pretty optimistic that the growth rates will dramatically go up, but it means we're still low single digits for the next few months.

After that, maybe mid to high single digits and potentially double digits in the next 24 to 36 months. That's the kind of growth I see. Overall, it's a growing industry.

It's not an industry that has reached its sort of stable phase or declining phase, as some may have commented. Tech is very, very important to the world. And tech companies have a very nice way of reinventing themselves to be very relevant to wherever the tech is going at any point in time.

Govindraj Ethiraj: Last question. So one of the top companies put out their Q2. According to them, more than 10% of their top line is already AI linked.

My question is now to do with the skilling and the talent. So this obviously means that many of our Indian engineers are already upskilled. But if you were to look at the journey and the opportunity ahead, what's the level of effort that needs to go in to ensure that we are better upskilled in order to maximise the opportunity that lies ahead?

Srikanth Velamakanni: Absolutely right. Because this is a completely new stack. Everybody has to learn it.

And you've seen that the biggest companies that we are referring to here have all done extraordinary efforts to upskill their talent with AI. It's still early days. And AI is still evolving.

But for example, writing code, everyone should use AI to write code. That's really becoming the norm now. And therefore, anyone who's not doing that is probably less efficient than otherwise.

So that is a place where it's relatively easy for someone who has written code for a long time to now use AI to write code. So it's a relatively easy transition. But there are other newer skills like becoming a forward deployed engineer or making sure that enterprise AI has the right harness to be able to do agentic workloads and solve complex problems, long horizon problems.

How do you make that AI excitement translate into enterprise performance? Those kinds of forward deployed engineers and data scientists and AI researchers are people who are non-existent in many of the tech services companies until recently. So what they're doing is, number one, they're taking their existing extremely talented people and upgrading them to be that or helping them learn the FDE, forward deployed engineering skills.

Secondly, they're also hiring extreme talent right now. So what they're doing is they've created a twofold pathway of, apart from the regular talent they're doing, they're also going and hiring extreme talent from the best of the universities in order to have enough of a critical mass that can lead the transition. So when that happens and that plays out in the next 12 to 18 months, you will start seeing that these companies will become extraordinarily capable of solving complex problems with AI inside large enterprises.

Govindraj Ethiraj: Good note to end on, Srikanth. Thank you so much for joining me.

Srikanth Velamakanni: Thank you, Govind.

Why Microsoft's Satya Nadella Wants To Put Brakes On AI

Elsewhere in AI, Microsoft chairman and CEO Satya Nadella on Saturday called for advanced AI systems to be built with containment, independent controls, and an emergency brake that lets authorised people pause or shut a model down mid-task.

CNBC quoted him saying that we need to surround non-deterministic models with strong deterministic system design, human controls and reliable operating procedures and establish industry standards where existing ones are insufficient. He said, treating frontier closed and open weight models like insider risks is a way to build such a system. According to him, several top tech executives and researchers, including Microsoft co-founder Bill Gates, Anthropic CEO Dario Amodei, OpenAI CEO Sam Altman, and SpaceX CEO Elon Musk have warned about insufficient AI safety protocols, among others.