On Episode 991 of The Core Report, financial journalist Govindraj Ethiraj talks to Indrani Bagchi, CEO at Ananta Aspen Centre as well as Kanan Bahl, Founder at Fingrowth Media.

SHOW NOTES

(00:00) The Take

(04:44) Oil Prices And Stalemate In West Asia Will Determine Market Direction This Week

(07:26) Get Set For Price Rises Across The Economy

(09:26) Government Asks Businesses With Captive Power Plants To Work At Full Capacity And Sell Surplus Power

(10:44) What Does The US-China Bonhomie In Washington Mean For India?

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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 28th of September, and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital.

The Take

Last month, I was invited to speak at an industry gathering where the presentation's flanking mind fixated on a familiar obsession of tax minutiae and the ease of doing business. Having sat through countless such panels, I was struck once again by a perennial truth.

Indian businesses still expend a staggering amount of capital and caloric energies simply battling the regulatory system. Ease of doing business has become a rhetorical catch-all to describe the bureaucratic agony of enterprise in India and the piecemeal efforts to relieve it. And looking back on decades of reform promises, one wonders if we will ever reach a point where commerce feels genuinely unimpeded.

India famously climbed to 63rd place in the World Bank's 2019 doing business rankings up from 142 in 2014. We don't have a ranking after that because the bank scrapped the index entirely amidst data irregularities and ethical scandals. And yet, much like India's headline GDP numbers, the corporate reality on the ground rarely aligns with the optimism of the metrics.

Consider the regulatory ticket. A team-lead's rec tech study two years ago calculated that India Inc. must navigate a labyrinth of 1,536 acts, 69,233 compliances, and 6,618 annual filings.

While no single company bears the entire brunt, the exact load varies by geography, sector, and headcount, the aggregate burden remains suffocating. Labour regulations, according to that report, alone accounted for nearly half of all compliance requirements and, alarmingly, 68% of those provisions carried imprisonment clauses. Even when the state manages to streamline one set of rules, as it has in the last two years, a new hydra inevitably emerges elsewhere, often within or around the tax codes.

The competencies required to manage this friction shift, but the total burden rarely diminishes. Which really prompts a necessary question, is it time to move the goalposts? In an interview I conducted last week in Mumbai, Jahangir Aziz, co-head of macroeconomic research at JPMorgan, suggested exactly that. For 30 years, he says, India has tried to improve the ease of doing business, and it, frankly, hasn't eased much.

Why, he asked, should we continue fighting a battle that is structurally hostile to victory? Instead, Aziz argues, India must pivot from pitching itself as the cheapest or easiest place to do business to positioning itself as the safest. The guiding principle of global capital allocation has profoundly shifted over the last five years, he says. Multinational corporations and investors are no longer chasing marginal cost arbitrage, they are deploying trillions to secure supply chain resilience.

Aziz noted that JPMorgan, his firm, alone wails a $1.5 trillion loan book to promote security and resiliency, alongside $10 billion of its own capital invested in companies advancing those exact goals. The vulnerabilities of the old model are glaring. Aziz quotes the example of India's pharmaceutical industry, a massive global exporter of generic drugs, but which remains perilously dependent on Chinese APIs or active pharmaceutical ingredients.

If Beijing halts exports for some reason, the Indian drug sector collapses. Global investors are now willing to pay a premium to mitigate precisely this kind of geopolitical and operational risk. Now, this does not mean we abandon the crusade for simpler industrial policies or a rationalised tax code, but we must recognise that genuine ease of doing business will evolve at a glacial pace.

In the interim, our immediate focus, as Aziz says, must be on offering global capital the one asset it currently values above all else, a sanctuary of safety and resilience.

Which brings us to the top stories and themes…

Oil prices and the stalemate in West Asia will determine market direction this week.

Get set for prices across the economy.

What does the US, China, Bonhomie, and Washington mean for India?

And government asks businesses with captive power plants to work at full capacity and sell surplus power.

Markets, Oil, Iran War and Price Rises

Iran said it's awaiting a definitive US response to a 7-day proposal for reopening the crucial state of Hormuz, but will not soften its condition. The Islamic Republic is aware of Trump's remarks, though has yet to receive anything from mediators Qatar and Pakistan. Bloomberg quoted foreign minister Abbas Araqchi as cited by state-run broadcaster IRIB late Saturday.

Araqchi said that the US president has made some good remarks as well as some contradictory ones, which unfortunately we hear from him frequently. Only a negotiated solution can resolve the impasse over the global energy bottleneck, he added. Trump said on Saturday that they made a proposal, but he rejected it.

Referring to Iran, they want to make a deal where they open the state immediately because they're losing so badly, Trump said. Brent crude prices were ruling around $104 a barrel or just above that last week. Meanwhile, stock prices in India were up slightly in a partial rebound, but have still locked their longest weekly losing streak in six years thanks to higher oil prices which drove up bond yields and inflationary concerns in the United States.

The benchmark indices saw the Sensex rising 315 points to close at 73,895 and the Nifty 50 rising 77 points to close at 23,140 on Friday's trade. Now this is a holiday shortened week with Friday, that's October 2nd being a holiday for Gandhi Jayanti. The Nifty was down for the 7th straight week last week down 5.8% to 1430 points and that was its longest weekly losing streak since the February-March 2020 Covid fall, says Reuters.

And the Nifty and Sensex have lost about 0.9% and 0.5% for the week, which is also their 7th straight weekly decline. Meanwhile, if you felt India's consumer product or FMCG stocks were going nowhere in the last two years, China's consumer stocks are trapped in a lost decade, a Bloomberg report says, adding the industry is showing a stark contrast with the high-flying tech sector. MSCI China's consumer goods sub-indices have fallen 18% over the past six months to near 10-year lows, while the AI-heavy technology gauge has risen to more than double its 2016 level.

Also, during the latest earnings season, consumer staples firms in the MSCI gauge have missed profit expectations by nearly 50%, all of which reflects China's lopsided economy, where Beijing's drive for tech supremacy has fuelled an export boom and funnelled capital into AI firms with limited spillover to domestic demand, said the Bloomberg report. It also added that August retail sales were just up 0.4% and there are few signs that investor pessimism towards the sector will ease in the near future. Back home, appliances and consumer electronics companies are set to increase prices of air conditioners, television sets, washing machines, and other products by between 5% and 8% from October 1, passing on the rise in inputs of soaring metals like copper, steel, crude derivatives, as well as currency exchange volatility because of the ongoing West Asia crisis, according to a report from the Press Trust of India.

This year, of course, is seeing a longer festival season. Elsewhere, auto company Tata Motors warned on Friday of a possibility of a price hike as it braced for another hit to profit margins from a significant increase in commodity costs, though its bigger concern is how long the uncertainty will last, Reuters report said, adding that the Iran war has pushed up costs of energy, freight, and raw materials, forcing companies so far to absorb some of the increases or passing them on to customers who are turning to alternatives like electric vehicles. Now back to oil, the Trump administration's talk of a possible ban on diesel exports is widening the gap between U.S. crude oil futures and the global Brent crude oil price, a signal that markets expect U.S. refiners to process less crude oil if their diesel output gets stuck at home.

That could reduce domestic diesel prices in the U.S., which last week hit a record $6.5 per gallon. The bigger discount for domestic crude prices could be a double-edged omen, an indicator of higher gasoline prices to come, while in the longer term, diesel prices could begin rising again, the Reuters report said. And meanwhile, you would have expected some demand-side management with these rising fuel prices, but instead, the U.S. Transportation Department on Monday will finalise much lower vehicle fuel economy standards for cars and trucks through 2031, which is essentially reversing a push by the previous Biden administration to force automakers to build more electric vehicles, according to the Reuters report.

The new standards would cut the cost of new vehicles but increase fuel consumption and carbon dioxide emissions for decades, according to the department's own estimates, quoted by Reuters.

Government Asks Businesses With Captive Power Plants To Sell Surplus Power

India's Ministry of Power has ordered more than 100 captive coal-fired power plants to operate at maximum capacity from October 1 through the end of the year to meet increased electricity demand, Reuters is reporting. The order has been invoked under emergency provisions of the Electricity Act, and it applies to plants with an instal capacity of at least 50 megawatts.

The objective is to meet an expected rise in electricity demand, the order dated September 25 said, and has been seen by Reuters, and it covers 112 plants belonging to companies like Vedanta, Tata Steel, Hindalco, GSW Steel, Ultratech, Reliance Industries, among others. All these plants primarily serve energy-guzzling industrial facilities like aluminium smelters, steel manufacturing, cement factories, and oil refineries. Nearly 40 percent of coal-fired plants in India are operating with critically low fuel stock due to an increase in power demand because of lower rainfall and the El Niño climate phenomenon, which has raised temperatures higher than normal.

The Power Ministry has asked the private generators to sell surplus electricity through power exchanges, and Section 11 of the Electricity Act allows the government under extraordinary circumstances to direct generators to operate power stations in accordance with its instructions.

What does the US, China, Bonhomie, and Washington mean for India?

The United States and China have agreed to reduce tariffs on $30 billion of goods and launch a on AI, both countries said following President Xi Jinping's visit to Washington. The three-day summit between the two leaders ended on Friday and was high on pomp and low on any visible breakthroughs.

A trade truce has, however, been extended by a few months. On the other hand, India's own trade talks with the U.S. are still in limbo, with both sides deadlocked now, despite signals to the contrary. And the U.S., of course, could slap sanctions on India for buying oil from Russia.

Last week also saw the United Nations General Assembly taking place in New York, which brought, among others, Iran's political leadership to the city. I reached out to Indrani Bakshi, CEO of Ananta Centre and foreign affairs columnist for the Times of India, and began by asking her what were the implications of this new China-U.S. bonhomie for India and its economic priorities.

INTERVIEW TRANSCRIPT

Indrani Bagchi: To your first question about the China-US summit, I think what came out very clearly was President Trump was looking for the pomp and the rhetoric, and the Chinese president was looking for much more substantive gains. I don't think either of them took away anything, in the sense that the truce that they are on, the trade truce, which started in Busan last year, is going to expire, if I'm not incorrect, on the 10th of November. And I think the Chinese were hoping for an extension of the truce by two years, the US was pushing for six months, they all settled for two months.

So that truce is only until the 11th of January, 27, which basically means that there is literally very little give on either side. The Chinese, I think, were hoping for a lot more relaxation on export controls for advanced chips and technologies, which the US is not willing. Meanwhile, the Chinese are not willing to give up their chokehold on critical minerals, rare earth magnets, etc.

So I would say that this is kind of a, let's push the can down the road and say nice things to each other kind of a summit. But basically, the biggest sort of signal, in all the words, was a Chinese president actually referring to the QCDD's trap for the second time in six months. And I don't think anybody was under any illusions about what that meant, which is the US as a declining power and China as a rising power, and whether the conflict is inevitable or not.

But some degree of conflict is certainly happening, and we can see that. Whether it's a hot conflict, I would be sceptical at this point. What the Chinese were looking for was also relaxation on the Taiwan bit.

Here, the Americans are very confused. They have agreed to give weapons to Taiwan in the first round, which was last year. This year, they have held back.

So nobody knows what to make of it. That was it. But it was very clear that these are the top two superpowers in the world, seeking some degree of strategic stability between themselves.

That was Washington. New York is New York in September, which is everybody's there for chai, adda, and everything else in between. We saw India putting a serious multilateral step forward, trying to gather friends and allies from across the board, whether it was the developing south, whether it was the Europeans, whether it was middle powers.

Foreign Minister Jaishankar met his counterparts in the G4, which is the group of four countries, India, Brazil, Germany, and Japan, looking for a seat in the UN Security Council. Really, nothing's going to happen right now. There is no appetite for a reform of the Security Council.

A lot of those boxes rhetorically have been ticked this week. We've ticked the boxes of UN reform. We've ticked the boxes of middle powers.

We've ticked the boxes of peace and diplomacy must prevail. Jaishankar did his speech against Pakistan and terrorism. And all of that, I mean, the predictable speeches, predictable stuff happened.

The Iranians were on a charm offensive across the UN, except with America, and there is literally no movement forward on the Iran war. Meanwhile, I see the Saudis are hitting the Houthis. Some degree of escalation is baked in, but the Iran war remains at a stalemate.

And what is a matter of concern is the U.S. midterm elections are due the first week of November. And many people have said, I think even President Trump has said that he is perfectly willing to escalate afterwards. I don't know if you noticed that he put out a map saying that Trump's straight.

We are all in the same place. We have nobody as vote.

Govindraj Ethiraj: Right. So we saw what happened between China and the United States and the sort of G2 kind of formation as some people have called it. What does this mean for India, if anything?

Indrani Bagchi: Look, G2 is something that Americans are pushing and have pushed earlier as well. The Chinese are not interested in a G2. The Chinese are much more interested in a G1.

It's not like China and America are carving out spheres of influence. China believes its sphere of influence is growing daily. The U.S. is still holding on to its traditional spheres of influence. But with the unpredictability and the mercurial temperament of President Trump, they're losing allies and they're losing friends. But having said that, this G2 may not be a realistic possibility. What it is, though, is it tells India that for India to find itself in a position where it can exercise leverage or it can find its feet or find its seat at the table, India has to walk a very long road.

We should have started walking this road a long time ago. This has only put it in sharper focus that we really haven't taken serious steps to build the kind of resilience in our economy, in our technology bases that can be used in times like this. And we are floundering in that respect.

Govindraj Ethiraj: Right. And last question. I know that there may not have been any specific, at least external references to the trade talks, which are still ongoing.

Do you see any connect between what happened in New York or Washington in the last week and what India is looking to achieve from the trade talks, which, of course, have been pending for a while?

Indrani Bagchi: Yeah, I think a State Department official went on record yesterday to say that it was 90% done. Foreign Minister Jaishankar spoke to his counterpart Marco Rubio in New York on the sidelines of the UNGA. And basically he said to him that the SRIA, that is sanctions on Russia and Iran Act, that the Congress passed and the president has a few more days to make a determination whether to put 100% tariffs on India and China or not.

I think though Indian concerns regarding the relationship, the state of the relationship, the future of the relationship was all conveyed. We don't know what the result of that conversation will be. We don't know whether the US president will impose tariffs on India.

Having said that, the trade deal is stuck for a reason that is actually not India's problem. Although there is a congressional delegation walking around Delhi right now. And that was one of the things that they were like, oh, yeah, India should just sign the deal.

But the point is the Americans have put Section 301 investigations on India. There are, if I'm not mistaken, three more investigations pending on India. Without the investigations being done, being completed, there is no government in this country that will sign on a dotted line on a tariff for a trade deal where the tariffs could just increase from what you have agreed.

So I think that's going to stay till the end of the year.

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

Indrani Bagchi: Thank you. Thank you very much.