On Episode 971 of The Core Report, financial journalist Govindraj Ethiraj talks to Rajiv Mitra, co-chair of the National Committee on Dairy of the Trade Promotion Council of India. We also feature an excerpt from our show How India’s Economy Works featuring Ananth Narayan, Economist and Former Whole Time Member, SEBI.

SHOW NOTES

(00:00) The Take

(04:31) A Fresh Battle With The Federal Reserve And Oil Price Uncertainty Could Keep Markets Down

(06:37) Forex Reserves Hit A Fresh All Time High

(09:06) TCS To Build A $7 Billion 1 GW Data Centre Near Hyderabad

(10:00) Birla’s Jump Into Hot Wires And Cables Market With New Range

(10:38) Fresh Capital Is Flowing Into The Dairy Sector, What Could Change?

(20:22) Are India’s Interest Rates Being Kept Artificially Low?

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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 7th of September and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital

The Take: India's 7.8% GDP question

India's economy officially grew at a roaring 7.8% last quarter or so the statisticians in New Delhi would have the world believe.

The headline figure prompted predictable triumphalism from government ministers only to trigger an equally theatrical row when a former finance bureaucrat mistakenly cited a botched baseline to argue actual growth was a paltry 2.6%. Opposition parties pounced, the airwaves erupted, and a technical statistical release degenerated into standard political theatre. The episode exposed a deeper vulnerability in India's economic narrative, a persistent trust deficit in state-issued data. Now, national accounting is inherently complex, relying on proxies, deflators, and subjective modelling.

But when methodological opacity meets political spin, as it clearly did this time, statistics cease to inform policy and become tools of propaganda. Headline proxies that we track, including booming luxury real estate, soaring automobile sales, and resilient corporate earnings, suggest that the economy is expanding, and quite strongly. And yet, when state-issued GDP figures require endless ideological defence, public suspicion naturally follows.

The far more consequential question is, why a nation compounding at 7.8% feels so surprisingly sluggish to the people running its factories and buying its goods. Government officials routinely scold corporate leaders for failing to open their checkbooks, pointing out that industrial capacity utilisation sits near 75%. I was witness to one such remonstration last week, in a private gathering in Mumbai, where a former finance ministry official and colleague to said former finance secretary called out business leaders sitting at the back for not investing enough.

The one who I could spot sat composed and unmoving. But private promoters are not foolish. Behind closed boardroom doors, chief executives point to tepid mass-market consumer demand and the persistent friction of doing business.

Growth is real, but it is deeply bifurcated, driven by the top tier of affluent consumers, while broad-based purchasing power has lagged. A few years ago, the head of a major paint manufacturer publicly noted that his firm's sales had decoupled from official GDP numbers, a rare moment of corporate candour, and he was quickly pressured to walk back. Compounding this domestic asymmetry are mounting external headwinds, heightened trade friction with the US and an escalating conflict in West Asia, which have pushed up input costs and injected profound uncertainty into global trade.

For an industrialist weighing a multi-decade capital commitment, a headline GDP figure carries far less weight than rising freight tariffs, energy inflation, and fragile global supply chains. Ultimately, the gap between official statistics and public sentiment is grounded in daily experience. New Delhi celebrates aggregate output, but millions of citizens scattered across the country experience the economy often through urban decay.

A resident navigating Mumbai or many cities in India through clogged, garbage-ridden streets, broken pavements, and persistent smog finds little comfort in a quarterly GDP report. When basic civic infrastructure deteriorates, high growth numbers feel like an abstraction, dreamed up by mandarins in the capital. If India wishes to convince its citizens and investors that its economic rise is real, its leaders must understand that prosperity cannot be mandated by statistical releases.

True economic dynamism is not measured in fractional GDP gains, but in functional cities, predictable policy, and a rising tide that reaches beyond the affluent elite. Until the quality of everyday life catches up with those headline figures, a 7.8% figure will remain a number to be debated on television rather than felt on the street.

And that brings us to the top stories and themes for today…

A fresh battle with the Federal Reserve in the United States and oil price uncertainty could keep markets down.

Forex reserves hit a fresh all-time high.

TCS to build a $7 billion one gigawatt data centre near Hyderabad.

And the Birlas are jumping into the wires and cables market with a new range.

Fresh capital is flowing into the dairy sector. What could change?

And are India's interest rates being kept artificially low?

Markets, Forex and Oil

Indian markets only represent about 3% of world markets, but Indian investors have more than 95% of their savings in it.

Why is that the case? Marcellus Investments founder Saurabh Mukherjee pondered last week in a breakfast conversation with us in Mumbai at a Lower Parel cafe attended by scores of investors and market enthusiasts. Investing overseas is logical and now several institutions are promoting it even as several mechanisms including the gift city structure are enabling it. But investing globally as we've pointed out comes with its own risks like the wildly gyrating technology stocks and thus markets of South Korea and Taiwan.

All the uncertainty now over interest rates and bonds in the United States. Speaking of which, a bizarre battle has broken out in the U.S. once again between the White House and the Federal Reserve. The process and outcome of this almost juvenile battle will inject fresh bouts of uncertainty in global markets.

President Donald Trump has said he will stop trade with some countries unless the Federal Reserve cuts interest rates. While all the data points to and as per his own pronouncements, Trump appointee Federal Reserve Chairman Kevin Walsh may want to hike as soon as the next central bank meeting in two weeks. But Trump said in a truth social post on Friday that the Fed board with its great new leader must get smart, be patriots for a change.

This post came after the Bureau of Labour Statistics reported that employers added nearly three times as many jobs in August as economists had expected. Trump said a strong country means a lower interest rate. It's a better credit.

Very simple. Of course, in a high growth, high inflation economy, one should be tightening monetary policy, not losing it. He then took fresh aim at America's trading partners.

We should have the lowest rate of any country in the world. Lower the rate or I'll stop trading with countries with which we have a deficit. Now, this is to remind you that this is a threat to his own central bank governor who he appointed after publicly quarrelling with his predecessor and not some random head of state elsewhere in the world.

Now, all of this will weigh on Indian equities going into this week, though the last trading day of the last week did end on a positive note. For the week, though, the benchmarks were down for the fourth consecutive week and also marked their longest losing streak in five months, according to a Reuters report. Meanwhile, foreign portfolio investors have turned net sellers in the first week of September after two months of net buying selling a little under a billion dollars.

If the selling spree continues, then expect markets to be under more pressure. And then there are the IPOs that are lining up and sucking out liquidity as well. The primary market is poised to see something like 11 main board companies raising about 7000 crores through IPOs.

Of this, more than 60% is secondary sales, which means promoters or investors cashing out or exiting. And on Friday, the markets did end on a note with the sensex rising 362 points to 76,515 and the nifty 50 rising 24 points to 23,897. In the broader markets, the nifty mid cap fell slightly while the nifty small cap rose.

Oil markets were active again. Crude prices were up 7% last week, and that will continue to weigh substantially on Indian stock prices and markets as they have in the past. The weekend saw fresh attacks against Iranian ships and exchanges of fire between Iran and the United States.

Meanwhile, in keeping with the huge flows that we've been seeing, India's forex reserves are now at a record $740.8 billion in the week to 28 August. Thanks to all those heavy inflows from the special schemes, including aimed at NRI deposits. Meanwhile, as we said, attacks in West Asia have resumed oil prices rose even on Friday, ending the week substantially higher Brent crude futures were at about $96.28 or up 76 cents.

IT Sector Consolidation and Birlas Entry into Wires and Cables

A consolidation and expansion wave is picking up steam in India's IT industry as we've been talking about including in the last week when referred to a smaller consolidation deal between ITC Infotech and happiest minds. All of this is happening after years of small bets and limited capital deployment despite the presence of much cash on the books and data centres continue to be the latest flavour of the month.

Tata consultancy services subsidiary will invest around 70,000 crores or $7.4 billion to build a one gigawatt AI data centre campus in Telangana. According to the company, TCS subsidiary HyperVault has already got 264 acres in Hyderabad for the project which will be developed in phases according to the company. It's aimed at AI companies and hyperscalers supporting high density GPU deployments for AI training and inference.

Last week TCS has said it was buying Porsche AG's automotive and consulting unit MHP. Among other corporate expansion news, the Aditya Birla group announced its foray into wires and cables with the launch of UltraVault in less than two years. After announcing it, products are aimed at both residential and commercial users, including data centres.

This marks the Birla group's fourth new business foray in three years following launches in paints, that's Birla Opus, B2B e-commerce, Birla Pivot, and Jewellery retail Indria. Stock prices of other wire and cable companies were under pressure on Friday. The Birla group said that UltraVault is backed by an investment of 1,800 crore rupees and will be the second largest player in the wires segment by capacity and is housed under ultra-tech cement.

Capital Inflows for Dairy

India's dairy industry is seeing a fresh part of capital inflows with companies capitalising on the IPO boom. Will the new capital change the structure of the industry and what lies ahead in the near term? Dairy industry veteran Rajiv Mithra recently took over as co-chair of the National Committee on Dairy of the Trade Promotion Council of India. One of the objectives of this council is to raise India's dairy share in global trade from less than 1% to 10%.

I reached out to him to ask him what the industry's near-term objectives were and whether fresh capital of the likes that we've seen in the recent past would help in addressing them and how they would go about it.

INTERVIEW TRANSCRIPT

Rajiv Mitra: I think it is a very welcome capital infusion that is happening. Very timely, very welcome. There is a massive formalisation opportunity.

Only about 25 to 30 percent of marketable surplus of milk comes to the organised sector for processing. So there is a huge opportunity here which the influx of capital may fix. You may be referring to the recent IPO, Milky Mist IPO, which is a success and there may be a few others lined up.

So to answer your question, yes, I think absolutely this capital infusion is towards institutionalisation of the industry. But capital infusion will be for, say, it will build plants, it will go for modernisation, it will go for distribution, marketing. Will that alone create institutionalisation is where the doubt is.

Unless it goes upstream and helps create good milk, helps the farmer to create good milk, quality assurances and the supply chain infrastructure, if that is also developed alongside distribution, that will help create institutionalisation along with it.

Govindraj Ethiraj: So when you talk about formalisation of the dairy sector, you said that about 30-40 percent is formalised and the balance is informal. And I presume you mean the collection of milk and the interaction with farmers, which is where maybe there is an opportunity to formalise further. So that's the last part I'm referring to.

So that's my question. I mean, how does that become more formal or institutionalised?

Rajiv Mitra: Milk has to be more and more handled by the organised sector, be it the private sector or the cooperatives. But my reference to 25 percent is that only 25 percent is handled by the organised sector. The rest is by the unorganised sector.

So there is a formalisation opportunity. Unless that happens, institutionalisation doesn't happen. The consistency of quality, the consistency of supplies to the factory, that doesn't happen unless it is more and more handled by the organised sector.

That is what I mean by formalisation. So when a company is raising capital and it's a success, that's very good. That helps institutionalisation.

But I would want to see capital moving beyond the factories and distribution to the farms, farm productivity and market linkages, the farmer and the market linkages. That also helps formalisation. So just influx of capital in a factory, in creating a factory and a distribution structure may not alone go to institutionalise the sector.

By institutionalisation, what do you mean? It may not alone be sufficient. So we need to create a robust backend, that upstream, which is the linkage from the farmer, the farm productivity, the milk quality and the supply chain, the collection infrastructure, the supply chain and how milk is brought to the and how it is handled by the organised sector.

That is what I mean by institutionalising the sector.

Govindraj Ethiraj: So how could industry focus on or what could industry do more at this point to ensure that there is greater, let's say, traction or greater control of the sourcing of milk and the farmer's output, so to speak?

Rajiv Mitra: No, see, farmer's output depends essentially on three things, which is genetics, feed and management and farm management. This is where the organised sector helps more. This cannot be done by the unorganised sector.

You need all these three things, as I said, how you are feeding the animals, what is the farm management and genetics. It can't happen by chance. There has to be concerted effort in improving farm productivity.

And once the productivity is improved, then how are we helping the farmer market linkages?

Govindraj Ethiraj: Right. So one of the points that you've talked about in your new role at the Trade Promotion Council of India is to raise or help raise India's dairy share in global trade from less than 1% towards 10%. So what will this take?

Rajiv Mitra: See, first of all, there has to be why are we not exporting? It is not that we don't have surplus to export. We are exporting a little bit.

Whatever 1% we are exporting is just commodities. There is no value addition. So there has to be a lot of value addition done.

There has to be competitiveness in the sector. So that is precisely the agenda at the Trade Promotion Council of India to raise this less than 1% exports to 10% exports. And this export cannot be done by just exporting commodities.

We will not be able to do that. So there has to be value addition per litre of milk. We have to add more value.

We have to produce products that are needed by the countries where we aspire to export to. So value addition and competitiveness in the sector will drive exports. And we cannot treat it like we export surplus.

That will not bear fruit. We will have to have more value per litre of milk to be able to export more, which will work backward to drive competitiveness, to drive quality, to drive consistency.

Govindraj Ethiraj: So what are the kind of products that India could produce when you talk about value add today or in the near future that could help the country get a better share of the global dairy market?

Rajiv Mitra: See, there is a huge demand supply gap in protein. So dairy protein can bridge that gap to a extent. And India being the largest producer of milk, the largest cattle population in the country, we should be able to help bridge this gap, not only for our country, but globally.

So that is one area where I can think of bridging the gap, which could be whey protein. We can produce cheese, we can produce casein, even paneer as a finished good. Even paneer can be exported.

Govindraj Ethiraj: And why are we not able to do as much as we could or maybe the market needs right now?

Rajiv Mitra: No, see, one is there is a little bit of issue with the current FTAs that we have, where dairy is left out of the ambit of the FTAs. And to an extent, justifiably so, because this is a matter of food security and sovereignty of 80 million farmer families. So this is being left out.

But this is also a question of the competitiveness of the sector. We have to work towards making the sector more and more competitive so that we don't have to protect the farmers because of food security reasons. Currently, we have to.

We can argue in favour of this protection, but going forward, there has to be a plan to open this up and make it more competitive, bring more technology and technical know-how to produce value-added products and therefore able to export. I mean, we have to open it to the market forces. That's what we need to do.

Currently, it is not open to market forces. Therefore, there is no pressure on competitiveness.

Govindraj Ethiraj: Got it. Would you say that, I mean, this goes back to the first question, and we talked about a capital raise by one company, but would you say that this is likely to become or is becoming an interesting sector which could see more private capital come in, venture capital or private equity come in?

Rajiv Mitra: Yes, going forward, I think the success of this current IPO shows us that this is an interesting place to be. And this will be an encouragement to much more capital infusion from within the country and globally.

Govindraj Ethiraj: Right. And when you look at some of the mature companies which have been around in the country for a while, and some of whom are listed as well, what would you say has been their key success factors? I mean, is it brand?

Is it distribution or combination of everything?

Rajiv Mitra: The more mature companies who are successful in the listed area, it's a combination of everything, I would say, you know, starting from the farm level support to the farmers, the procurement, the processing and the distribution. I also see some of the new age companies riding on the quick commerce and D2C distribution channels are doing very well. And some of the brands of the mature companies that were very respected brands, we would place them well, but not making money for themselves, suddenly riding on the quick commerce and D2C distribution models.

Some of these brands are doing very well within those mature companies. So I think it's a combination of everything, starting from dairy, if you don't work across the value chain, this is a agricultural produce, the raw material is an organic agricultural produce. So starting from there, and ensuring quality at all levels, until it reaches the consumer, you wouldn't succeed.

So the mature companies have done very well to make this sector interesting.

Govindraj Ethiraj: Got it. Rajiv, thank you so much for joining me.

Rajiv Mitra: Thank you, Govind. Pleasure.

India’s Self-Inflicted Outflows

Anant Narayan, economist and former whole-time member of the Securities and Exchange Board of India, has argued that the Reserve Bank's aggressive intervention in the bond market, including record purchases of government bonds, has kept interest rates artificially low and weakened the appeal of fixed income assets for domestic savers. This, he says, has pushed more savings into equities and overseas assets, contributed to stretched equity valuations, and made it harder for foreign capital to flow into India.

At the same time, lower interest rate differentials have created incentives for hedgers and speculators to buy dollars, adding pressure on the rupee. Narayan spoke to Pooja Mehra on the course How India's Economy Works podcast, where he also spoke of greater freedom for investors, that's Indian investors, to invest overseas and why policymakers need to take a holistic view of financial markets.

TRANSCRIPT

Ananth Narayan: the reality is discretionary savings find that on a post-tax basis, the returns you get by investing in bonds or any fixed income for that matter is just ridiculously low. So a discretionary saver who's at the highest tax bracket has to pay 39%, let's call it 40%, inclusive of all surcharges, on every cent she makes on interest income or on fixed income investments. So if you're earning 7% and you're at the highest tax bracket, and remember, a lot of the discretionary savings are at the highest tax bracket, you're losing 2.8% to tax. So your net interest that after tax you get is 4.2%, which is simply not enough for a person who sees inflation, especially inflation, at a much higher level. So what therefore happens is your 6.1% or currently 10-year bond deal is 6.85%. That's not being determined by you and I saying that, you know what, this interest makes sense to me on a post-tax basis. And this is a good return for my inflation risk and my duration risk.

It's being determined by factors outside of us. And it's being set at a rate which is not where the free market is being determined by discretionary savers. Now, as you said, the RBI can do this, central banks around the world do this.

But there are consequences. There are multiple consequences that result when you decide to set aggressively rates at such a low level. First, your fixed income market does not develop because it's no longer a free market, which is being decided by free savers and free borrowers.

The rates are being set artificially low. And you know economics better than I do, Puja. So moment you set price controls on a particular product, you're effectively killing the development of that market.

Because why should supply come in? Why should that market develop at all? There might be a lot of demand for money at 6.85%. But guess what, nobody's willing to save money, especially when you have to work a counter or a huge amount of tax as well at that particular rate. So which means that the market doesn't develop automatically. Therefore, your fixed income markets tend to become suppressed and repressed in relation to other fear markets. Our equity markets are a lot more freer.

Because while we have a lot of regulations surrounding our equity markets, at least no government agency or regulator stands and says this is a free price at which you should dip. Prices are effectively dealt and agreed upon by willing buyers and willing sellers. That's not the case with our fixed income markets.

One statistic I track, Puja, is what is the size of the non-government credit in an economy as a percentage of the total equity market capitalisation of that economy? So how big is the credit market in relation to the equity market? India, the size of the non-governmental credit market, including loans, including corporate bonds, including NBFC lending to non-government corporates, all that put together, is 65% of our equity market capitalisation.

It's the lowest, Puja, anywhere in the world. In the US, which has a far bigger equity culture, the non-government credit market is 95% of market cap. In Italy, in France, in Germany, in South Korea, in Japan, middle-income or high-income countries with a large industrial base, credit markets are 125% to 195% of the market capitalisation, equity market capitalisation.

China, and let's not go there, is 310% of market capitalisation, the credit markets. But in India, we've managed to keep this credit market suppressed simply because we set rates at a very, very low level and then expect free markets to develop around it when you know that there are no real true savers coming at those particular rates. So that's one consequence, your credit markets tend to be underdeveloped.

The second consequence, which flows as a result of this, especially in a country where you have a K-shaped recovery and you have a lot of savings at the top portion of the K, where you have people who have discretionary savings, that savings will not go to fixed income, it will instead go to gold, it will go to overseas assets, it will go to real estate, and it will go to equity markets. And in fact, over the last 6-7 years, we've seen this bludgeoning of savings going into our equity markets. I would argue that a big reason for this flood to go into equity markets, there are plenty of reasons, including the success of this Mutual Fund Sahiya campaign.

But along with that, the fact is, discretionary savings simply does not see fixed income as a viable alternative. Because on a post-tax basis, and you remember, there were changes done to the taxation in 2023, where some SOPs that were available to fixed income debt funds, even those were removed, indexation was removed, right? So which means that there was simply no way you would put money into fixed income for your discretionary savings.

Instead, you have to chase other assets. And the one asset which seemed to make the most sense was equity markets. And you know, when I was in SEBI, Puja, we saw this regularly going through year after year, where the amount of money flowing into our equity markets from people like retail savers, through mutual funds, through pension funds, through insurance companies, or even directly, people going into the equity markets was just growing year after year after year.

Third, when you keep interest rates low in India, and therefore your differentials between global interest rates and Indian rates are very, very low, you're making it cheaper in the currency market for anybody to buy forward dollars as opposed to sell forward dollars. Because as you well know, the price of forward dollars, so one-year forward dollars, if I need to buy dollars one year from now, that's a function of where the spot rate is, where the current spot dollar rupee is, and it's a function of the differential between the interest rate and the dollar interest rates. Of course, you can argue that interest rate parity does not work perfectly in India.

That's true. But nevertheless, it's guided by the interest rate parity. So which means, if my interest rate differential is only 2.5%, 3% as it is today, and therefore I can buy dollars one year forward by just paying a 3% premium over the current spot rate. Remember, at the time in FY26, rupee was weakening by 1-2% every month. So if I could buy one-year forward dollars for a 2% or 2.5% premium, it seemed like a great bet. Now, it's not just speculators who end up buying dollars, therefore.

People who have taken ECBs, external commercial borrowings, and have liabilities in dollars. Hedging that makes a lot of sense if you can buy forward dollars at just 2% per annum. Similarly, for a foreigner who is invested in India and is holding rupee assets, buying dollars as a hedge against your rupee assets seems like a great idea.

And of course, speculators as well. If you think that, you know what, I can buy forward dollars at 2% premium over the current spot market, and here is rupee going from 83 to 85 to 87 to 89 practically every month, this sounds like a great bet again. And we saw all of that happening.

In fact, you know, one metric I am fond of quoting, Puja, during FY25 and FY26 two years, the RBI sold $192 billion in the spot and forward markets put together. This is data available from the RBI own monthly bulletins on they give exactly how much have they intervened in the spot market, how much is the forward book changing by. So if you put the two together, you can figure out how much they've intervened across spot and forward markets.

So $192 billion is what RBI sold to protect the rupee between FY25 and FY26. If I take all the outflows that you can explain through the current account deficit, which was remember only 0.6% of GDP last year, and the net FDI and the net FDI, all of that put together was only $75 billion. So who was buying the remaining $117 billion?

I would argue that that $117 billion, which is higher than the 75 of FDI plus FDI plus current account deficit was either hedging demand for dollars or speculative demand for dollars. And I'm saying that was instigated by the fact that your interest rate differentials were so low that it was so cheap to buy forward dollars. So therefore, you saw this tremendous buying of dollars coming through not because you were only facing a current account deficit and FDI was taking out money, but it went far beyond that because speculators and hedgers came in and drove, taking advantage of the fact that you've kept rupee interest rates low to buy cheap forward dollars.

What I would also suggest, Puja, is now I know that if you allow interest rates to be determined by actual free markets, rates would probably be a lot higher than where they are currently. And that might not be to our liking. And I agree with that supposition that we have to give credit growth a chance.

Many of our SMEs really are struggling to get credit, and therefore you've got to give them a better shot at capital formation. Then change the taxation. If you move to a situation where this huge anomaly between interest rate taxation being so high and equity taxation at least optically being so low, if you at least remove that anomaly and bring it to a more even keel, as I said, you don't want taxation to determine asset allocation.

It should be based on risk perception and return perception. For instance, if you said interest income will be taxed at a maximum slab rate of 20% or lower, if you're a lower slab rate. If you said that capital gains and fixed income would be subject to the same capital gains in equity markets, which is beyond one year, you pay 12.5% on whatever your capital gains is. If you brought things to an even keel, you would allow for rates to remain low. At the same time, you would have interest rate markets on a much more sustained basis under free conditions, rather than RBI having to sit on it or FCRB funds coming into banks, forcing the interest rates to be low, as is going to be the case over the next one year. You won't have RBI intervention, but you have all this cheap money which banks are sitting on, which will keep interest rates low.

Again, it's not free discretionary savings, keeping the interest rates low. Instead, if you allowed for that, interest rates could be low if you change your taxation. For God's sake, don't increase the taxation on equities.

India is a capital-served country. Do not try to change this anomaly by raising the taxation on equities. That would be a disaster for us.

We need capital formation. Do not kill the goose that's laying the golden eggs. Bring down the capital gains tax on fixed income.

By the way, you won't lose much because discretionary savings anyway is not going to fixed income, which means nobody is paying capital gain or paying any tax on fixed income. Instead, people will start paying tax on 12.5% or whatever reasonable tax is on fixed income. You will see interest rate markets stabilise at some equilibrium, which makes sense.

You will see equity markets stabilise at levels which make sense. You will see capital flows much more incentivised to come in because the markets now are standing on their own without being propped by some anomaly here or the other. I would go one step ahead.

I would say, allow Indians to invest overseas through the mutual funds. Increase that $7 billion limit to buy $1 billion every month over the next 12 months. Take it up to $20 billion.

Of course, money will flow out. But guess what? If you allow markets to be efficient because people choose and have the choice of investing in different markets, you will ensure your domestic markets are efficient and you will get in money.

You will actually be letting some money out to bring money in. That's the only way you can bring it on a sustained basis that people know it's being sustained by true market forces rather than by anomalies. I think less intervention, less of this tax imbalance against fixed income, more freer savings avenues for domestic savers actually can lead to a far more sustained capital formation in this country, which is one way of saying allow the impossible trinity to do its work.