Markets See Steepest Fall In Six Months
India's benchmark equity indices, the Sensex and Nifty, were down about 2.5% for last week, their steepest drop since late March
On Episode 690 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajit Ranade, former Group Exec President & Chief Economist at Aditya Birla Group and now Senior Fellow, Pune International Centre.
SHOW NOTES
(00:00) The Take
(06:17) Markets see steepest fall in six months
(08:27) BRICS backed bank may issue rupee denominated bonds in the domestic market by next year
(10:23) How can we really upgrade India’s judicial system
(22:42) Accenture to lay off staff who can’t reskill on AI
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 [email protected].
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Good morning, it's Monday, the 29th of September and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital once again totally rained out.
The Take
Chennai-based TVS Motor will relaunch the classic British Norton motorcycles, among other reasons, to help grow in the United States.
Now, this comes five years after TVS rescued British Norton from bankruptcy, the Financial Times reported over the weekend. Also over the weekend, US President Donald Trump unleashed a fresh set of threats, hinting at more tariffs against those countries or companies that do not invest in manufacturing capacity in the United States. Now, with the threats becoming a weekly, if not daily affair, perhaps it's time to ask, is there a meeting of objectives somewhere here from India's perspective? Now, Indian companies have expanded quite aggressively overseas and actively since the early 2000s.
Now, the acquisitions of entire companies or stakes in them have been a mix of brand and capacity. In the case of, let's say, Tata's acquiring Tetley, the T Company or Jaguar Land Rover, it was primarily brand and of course, capacity that came along. In the case of the $12 billion acquisition of Anglo-Dutch steel giant Corus by Tata's again in 2007, one could say it had the capacity and brand to serve local and export markets.
The same year, for example, Indaco acquired Novelis in the United States, a loss-making aluminium rolling company, which today is a $17 billion company and a leader in aluminium recycling and circular manufacturing. Novelis has since acquired other companies and capacities. And as you may have guessed, most cross-border acquisitions of that period were of companies which were in the doldrums for one reason or the other.
Indian companies used firm balance sheets, a strong rupee, and of course, a desire to expand into new and growing markets at a time when the India economy or the India domestic market was still finding its feet. Now, most big ticket acquisitions have worked out one way or the other, it would appear, though the chronology and timelines may not have been what was hoped for in the beginning. A smaller example, Bajaj acquired stakes in Austrian motorcycle brand KTM in 2007 too by taking a roughly 15% stake for about 300 crore rupees, but has also been forced to in some ways increase its stakes steadily as KTM has faced various hurdles over the years.
Now, KTM motorcycles are seen whizzing around on Indian roads, of course, but also exported to the United States, Europe, and Latin America from plants in China, Brazil, and Philippines, and of course, Pune. Last week, Trump unveiled sweeping new import tariffs, including 100% duty on branded drugs and 25% on heavy-duty trucks. Moreover, the Commerce Department is apparently considering a dollar-for-dollar exemption based on investment in US-based manufacturing only if a company moves half its production to the US, according to reports in Reuters and the Wall Street Journal.
Now, how all of this will work is not clear, but many of these seemingly far-fetched ideas have a habit of becoming reality quite quickly. Countries like India, and for that matter China, have of course had fairly clear rounds on on-ground investment as a route to access domestic markets. The challenge with the United States is that it's already on the higher end of value-add and labour costs, both in manufacturing and services, and thus may not be the best place to go back to square one or two for ostensible manufacturing glory.
An official of the Indian Drug Manufacturers Association told me a few months ago that the manufacturing cost of medicines in the US is prohibitively higher. A Gates Foundation study, for example, published on MedRxiv recently pointed out substantial cost differences based on regulatory market manufacturing active pharmaceutical ingredients, or API, and finished dosage form production, or FDF, for the Indian market is 43% lower capex, that's capital investment, and 47% lower operational expenditure compared to the US. And this is around regulatory compliance, facility infrastructure, equipment standards, quality control, and of course people costs.
And yet a dozen companies, at least, including Dr. Reddy's and Pharmaceuticals, or Obindo Pharma and Cipla, have manufacturing facilities in the United States, mostly making generics with the objective of being closer to the market and more responsive, and of course being and building an innovation ecosystem, while of course a bulk of the products do go from India. Now the question really is, does anything from our past track record suggest Indian companies can grow in the US with local manufacturing? The answer is a little mixed. Indian companies surely bring, or take, manufacturing talent and management capability to run, expand, or streamline businesses, as in the case of the Aditya Birla Group, or more recently, the pharmaceutical majors.
But there is some nuance in how these expansions happened and the fact that they were driven by both opportunistic and market imperatives. If you look at Norton and KTM, or Corus, and JLR, it would appear that these were global plays driven by the opportunity to grab a company that was in tough times. Of course, these are mostly in Europe.
Now, can Indian companies enter the USA from a position of strength today and set up capacity like Ford, GM, Toyota, Honda, BMW, and Hyundai did in India many years ago? Again, it's tough to say because unless there's a clear brand and domestic market play, the economics are stacked against such moves that's going into the US. Ford and General Motors, by the way, as we know, have left India and have found that leaving India is tougher than getting in, as a recent Wall Street Journal article pointed out. A larger question also is, do companies and business leaders operate better under gunpoint, in this case being tariffs, or strategic advantage over time? Creating capacity to keep the Trump administration happy today may prove counterproductive in a few years if a new administration changes its mind.
But building locally with a long-term view is feasible. Indian companies can surely do it, at least in some sectors, as they are already. But more importantly for that, they need policy certainty, which of course is exactly the same problem foreign investors complain and point to when asked to invest in India.
And that brings us to the top stories and themes for the day.
The stock markets see the steepest fall in six months, and where could it go now?
How can we really upgrade India's judicial system?
A BRICS-backed bank may issue rupee-denominated bonds in the domestic market by next year, and why this is important.
And Accenture says it will lay off staff who can't reskill on AI.
The Markets Drop
India's benchmark equity indices, the Sensex and Nifty, were down about 2.5% for last week, their steepest drop since late March. Persistent foreign institutional investors selling amidst fresh waves of tariff threats increased the downward pressure on markets and kept them down.
At this point, we've also passed a full year since September 26, 2024 market peak to which we've not returned or regained or of course surpassed, which of course means that the markets have not been very kind to investors over the year, they're about 5.5% down, though things would have been a little better had you invested earlier this year, that's if you did. On the other hand, a quote attributed to Samco Securities says that of the top 750 listed stocks, only 245 have delivered positive returns, while some 485 are in the red, 20 of them were listed after 26 September 2024. So the median return is a negative 11% or 11 and a half percent and the average return is about minus 6.25%. So what this means is that there's much more loss if you look at the wider spectrum of stocks than if you were to look at the index alone.
Moreover, mid cap, small cap, micro cap indices have all underperformed Nifty falling between minus 8 and minus 9% over the last year according to that report. On Friday, the markets were down as we said for the sixth consecutive session and the Sensex was down 827 points and then recovered to close 733 points down to 80,426. The Nifty was down 236 points to close at 24,654.
The Nifty mid cap and small cap 100 were also down about 2% and about 2.3% each. The rupee continues to be under pressure thanks to those persistent outflows and the continuing tariff uncertainty. The rupee closed at Rs.
88.71 against the US dollar on Friday. Not much changed on Friday but down 0.7% for the week. Its steepest weekly fall since late August according to Reuters.
The Reserve Bank will release data on the country's foreign exchange reserves on Friday which were last at about $703 billion. The dollar index was steady at 98.4.
BRICS Bonds
Well, there is once again talk of de-dollarization and let's see how that's going to pan out. The BRICS country's backed new development bank or NDB is going to issue its first Indian rupee denominated bond in the domestic market before end March 2026 according to Reuters.
The NDB which has previously raised funds in Chinese Yuan and South African Rand is in advanced stages of discussions with the Indian Central Bank that's the Reserve Bank for its debt rupee issuance and it will look to raise between 400 million to 500 million through three to five-year bonds in the first tranche according to sources who spoke to Reuters. Now of course as we all know China and India want more acceptance of the domestic currencies that's the rupee and Yuan. Earlier this week Reuters says China rolled out measures to support the development of Yuan bonds in Hong Kong and over the past few months the Reserve Bank has announced steps to allow wider investment options for foreign funds held in Indian bank accounts.
The bank's chief financial officer told Reuters that the NDB is working with the government of India and regulators to explore raising funds in the local markets to provide local currency finance for Indian projects. So final approvals are pending with the Reserve Bank and it's not clear at what stage this is but NDB has been planning to tap the Indian rupee bond market for some time now but there have been delays because of delays in approvals. Multi-retail agencies Reuters like the World Bank's International Finance Corporation have previously issued rupee denominated bonds in the overseas and local markets and there has been strong investor interest.
Can We Speed Up Our Judicial System?
Now there is much discussion around judicial reforms and quite rightly so but where can one begin to address this problem and how and what are the resources it will take? Now the big challenge is case pendency. Indian High Courts and District Courts had about 51 million pending matters as of January this year. 12% have been stuck for more than 10 years and half the cases at both tiers were pending for more than three years.
About 82,000 cases are pending in the Supreme Court according to Dr. Ajit Ranade, former Group Executive President and Chief Economist at Aditya Birla Group, former Vice Chancellor at Gokhale Institute of Political and Economics and now Senior Fellow of Pune International Centre. According to him, the pipeline itself has thickened because between 2020 and 2024, the total pendency rose by nearly 20%. But he argues that perhaps what is less well known is that the rate of case disposal is quite impressive.
I began by asking Dr. Ranade about a recent Mint column that he authored on this subject and what he saw as a way out.
INTERVIEW TRANSCRIPT
Ajit Ranade: The headline number which often grabs attention is the fact that the total pendency, that is total number of pending cases in the entire court system, that is the lower courts and the high court and the Supreme Court taken together is 51 million, 5.1 crores and rising. So that grabs your attention and you know I remember there was some article a few years back and they said if we try to estimate at the rate we are disposing it'll take 300 years or something. That's a very dramatic way of putting it.
So that's the big number, headline number which grabs attention. But I also wanted to highlight that actually the rate at which cases are being disposed of is also amazingly impressive. For example, last year in one year alone there were 27 million, 2.7 crore new cases filed in the entire court system and the system was able to dispose of 26 million cases. Not the very same one obviously, some of them are older cases, some of them are new cases. But that means the rate of disposal, they call it the case clearance rate, CCR, is on average close to 96 percent and some specific courts in the country including possibly some high courts are actually clearing at a rate of 100 percent or more than 100 percent and some of them I have told it's three years in a row. The Supreme Court itself, its statistics till last year was quite impressive at 96 percent.
This year in 2025 as of September I believe the case clearance rate is 88 percent, which means the court system is getting a flood of new cases and it is trying to clear older pending cases. But it is doing a good job of a disposal rate and this has to be juxtaposed with another important, very important fact is that the system is working at a very high vacancy rate, what is called the sanctioned strength of courts, the high court bench, the Supreme Court, the lower judiciary, the average vacancy rate is about 24-25 percent. So for example India is supposed to have something like 26,000 cases sanctioned, 26,000 judges all told and we have only 21,000, so roughly 5,000 short.
So the average vacancy rate is 25-24 percent. In high courts I think it's higher, 33 percent. The Supreme Court as we speak now is fully, you know the bench is full, there are 34 judges.
But the lower judiciary is at 21-22 percent. So what happens is we are actually seeing a system which actually is only three-fourths, 75-80 percent capacitized, its full capacity is not populated and yet it is delivering 100 percent efficiency in terms of case disposal rate, the CCR. So a simple arithmetic tells us that if that 80 percent vacancy goes, I mean if 20 percent vacancy goes down to zero, that means if you fill up all the sanctioned posts, I'm not even talking about increasing the strength of the judges, if you just fill up the sanctioned posts, we will definitely be exceeding the case clearance rate of more than 100, we'll go to 125 percent, which means that we'll start cutting into the backlog. That is simple arithmetic. On top of it, the more serious problem is that we have only 15 judges per population of 1 million.
In 1987, back in 1987, the law commission itself recommended that India should have, I think they said at least 50 judges per million population. So we are way short. Germany has something like 247 or something, more than 200.
France has more than 100. So if you look at some other peer countries, we are understaffed and hopelessly overburdened. So that's the broad macro picture.
Govindraj Ethiraj: Okay, so now in this kind of case, whether it's the new ones being filed and you said about 27 million cases are being filed every year and the backlog which is there already going back several years. What's the rough composition of these cases? I mean, how many are business, economy linked?
Ajit Ranade: Yeah, that's another thing of big concern is that 12 percent of, I said there are 51 million cases which are pending. Of these 12 percent are actually more than 10 years old. The cases being heard or being processed for 10 years, more than 10 years.
As they say, justice delayed is justice denied. So if you agree to those principles, we have a serious problem. But not just that, I believe between all different courts, you know, High Court, Supreme Court and the lower courts, between 40 to 60 percent, 41 to 60 percent of the cases are more than three years old.
So we have a problem that it takes time to dispose of cases. And this reflects in one of the ease of doing business metrics. I'm just sort of mentioning its connection to EODB, that dispute resolution, one of the 10 metrics that they use for computing an index of ease of doing business.
One of them was how fast is your dispute resolution in case of a dispute, a contractual dispute or something. If your dispute resolution is slow, then that actually puts a big drag on ease of doing business. So we have a situation where more than half the cases are up to three years, you know, taking more than three years to process and dispose of.
Govindraj Ethiraj: Right. And my question was also on, you know, how many are business, like, for example, tax litigation and so on. I mean, do you have any sense of what that breakup is?
Ajit Ranade: Actually, the interesting thing is that the huge majority are tax related. We have the exact number, but a very large number, maybe between 40 to more than 40 percent are cases where the government is either a defendant or has filed a case, which means that suppose, I mean, just to take a typical example, suppose I have an income tax dispute. So I first go to the tribunal.
I first went to the income tax officer. Then, you know, I say that I have not owed this, that there's a demand. I've owed this.
So it goes to the officer. Then there's a tribunal and so on. And then it escalates.
Then they file a case, take it to appeal and typically go to the high court and so on. So if you count such things, then the government of India or state governments are actually big litigants. And many of them are actually tax related.
It could be income tax. It could be the GST now. And that's why we had an announcement of the appellate tribunal.
Until now, we didn't have an appellate tribunal in place. It was just recently announced. So a large number of them are actually tax related.
And moreover, whenever you have that, you have the government as one of the parties, either defendants or as the complainant.
Govindraj Ethiraj: Got it. If you look ahead, I mean, again, whether you look at it mathematically and or otherwise, one is how could we accelerate the speed of judicial recruitment? And could it be done?
And is there something else holding it up or traditionally has been holding up? And secondly, if we were to reach that, realistically, how fast could we clear up most of our backlogs?
Ajit Ranade: Yeah, so the way to do this, first of all, I mean, this has been suggested for several years, and there's some progress that if there are cases, just to again, give the example of the tax litigation, it so happens that the tax officer, even if you have lost the case at the tribunal level, meaning the verdict is in favour of the taxpayer, they have to kind of automatically go into appeal because they are vulnerable to an accusation of corruption, that you did not pursue this case vigorously, did not go into appeal, because you had some private quid pro quo with the taxpayer. And that's the way it's a very skewed kind of incentive. So the incentives are such that it is safer for the tax officer to just file an appeal.
We need to address this incentive system so that it should not be the case that the tax officer is obliged to appeal and go into court. So there is something I mentioned in the article of settle or explain, you know, that there should be a compulsory recourse to arbitration out of court settlement. And in case the case is being taken by the government officer to court, there should be a mandatory settlement or explanation, like settle the matter or explain why you need to go to court.
So there's one filter. Secondly, we can also look at the amount involved. So there are two filters amount below a particular threshold, it should be settled out of court, or if it is a matter more than x years old, suppose the matter is more than four years old.
So they can do a combination of the two, the disputed amount and also if it is the age and the vintage of the case. So we can just say that to be deemed to be settled. Now I remember that in one of the interactions a few years ago with the finance minister, the minister said, Oh, well, we are happy to do this, you know, deemed settlement, the dispute is deemed to be settled.
But we don't want you to come back and accuse the government of helping its cronies. Kind of a tongue in cheek comment, but I think the government is prepared to go this way. As far as judge recruitment is concerned, surely the way to do so is to increase the amount that we spend on the judiciary.
On average, at the aggregate level, we are spending a measly 0.59% of the government budget that includes union and state governments. So that's a tiny, tiny amount that comes out to be a per capita spending of 182 rupees per person. If you think that judiciary is an infrastructure, like we are spending on physical infrastructure, we have that Rati Shakti or we have this, you know, huge infrastructure by plan of 100 lakh crores and so on.
So if you work it out, by comparison, the per capita spend on physical infrastructure works out to 15,000 rupees, a very high number and we are spending only 182 rupees on the judiciary. So I think the very first thing we could do is increase the budgets available. So the reason the sanctioned posts are not filled is sometimes lack of, I think, budgets.
So the one way to fast track is to increase the budgets. And secondly, of course, the judiciary itself can use various techniques of fast tracking. I mean, there are people, there is a whole recruitment machinery, but there's also a process by which bar to bench movement, we have had people move from the bar to the bench.
So both these things can be fast tracked. And not to forget that outside the court, the process, there is also ADR, arbitration dispute resolution. So that also has to be encouraged, not merely encouraged, but give it more strength.
And then there are other specific things to be done, which involves using more digital infrastructure, using AI now, for at least the scheduling processes, basically use of digital techniques and AI. That again, requires, by the way, a budget to kind of upgrade the infrastructure to be able to handle the work faster. Right.
Govindraj Ethiraj: Last question, Ajit. So some of this could be linked to talent and finding the right people in the case of judges at various levels. Do you feel that we are good on the pipeline?
Ajit Ranade: Well, we have a national law school system, which can also be just like we have gone to almost five IITs. We went to 23 IITs, you know, to increase the engineering pipeline and science and technology. Similarly, I think there is a case for increasing the legal education of these kinds of national law universities. There are a lot of private universities.
So I think the pipeline is there. We need to increase the supply of, that's the legal profession. So there may be something specifically focused on training judges.
I think recruitment is not that difficult a challenge. We just need to do it faster and allocate more budgets. But one quick thing, Govind, I want to mention that all this has an economic channel.
I said it affects ease of doing business. It affects investor sentiment, investor confidence. It takes up managerial bandwidth, you know, if your people are spending time in litigation.
So it has a real economic impact.
Govindraj Ethiraj: Right. And therefore, we should renew our focus on it. Ajit, thank you so much for joining me.
Ajit Ranade: Thank you. Thank you, Govind.
Accenture To Target Non-AI Ready Staff
Consulting major Accenture has set out plans to lay off staff who aren't able to rescale on artificial intelligence amidst a broader restructuring strategy, which will see the company prioritise its AI efforts according to a report in CNBC.
The roughly $70 billion Accenture, which grew about 7% from last year, said in a call on Thursday that as advanced AI becomes a part of everything we do, it expects employees to retrain and retool at scale. CEO Julie Sweet said that Accenture is investing in upskilling our re-inventors, which is our primary strategy. She also said that the company is exiting on a compression timeline, people for whom reskilling isn't a viable path.
On the other hand, Accenture has apparently reskilled about 550,000 workers on the fundamentals of generative AI and outlined a six-month, $865 million business optimisation programme, which detailed costs associated with severance and headcount reductions. Though it's continuing to hire and has beefed up its AI talent with 77,000 people employed, AI and data professionals in 2025, up from 40,000 in 2023.
