It is not. I think you replied without listening to the podcast. Listen to it fully if that is the case.
My main grouse is with the RBI deciding what the rates should be, rather than letting market forces determine them. Interest rates are the price of money, and should be determined by the free forces of demand and supply of money, which means by the borrowers & lenders. RBI sets the Repo Rate artificially low. Many of the downstream rates are linked to it (under the guise of “monetary transmission”). India decontrolled interest rates in the 1990s but administered rates have returned by the backdoor.
The Central Bank is supposed to be a ‘lender of the last resort’, but RBI routinely provides cheap funding to the banking system. This prevents banks from offering higher rates to savers. This in turn is leading to massive capital mis-allocation and causing asset bubbles in other parts of the economy, such as stock prices & real estate. It is also leading to a flight of capital outside the country. This contributes to the depreciation of the Rupee, and then the RBI intervenes to prevent that as well! The RBI’s stated policy is that they intervene only to curb volatility. But this is false. Even the IMF has classified India’s rate regime as a “crawl-like arrangement” (i.e. a soft peg).
An unfavorable tax regime for fixed income is not the main problem. If free forces of demand and supply were allowed to determine the price of money, the discovered equilibrium price would factor in unfavorable tax regime as well.
And what is worse…
What is worse is that there is little evidence that keeping interest rates low supports economic growth. If you look at India’s economic history, the best periods were when the interest rates were rising, not falling. The “mother of all bull markets” 2003-07 occurred in the backdrop of rising interest rates. The economic recovery from 2011-2013 crisis and the post Covid bounce back 2022-23 occurred when the rates were rising. Letting rates rise does not derail economic growth. Unfortunately, no economist or economic journalist wants to look at data. Japan experimented with near zero interest rates for 25 years and went nowhere. Europe experimented with negative interest rates and achieved little. All it leads to is increase in debt – both public & private. Even in India, household debt has been rising over the years. Do you think that is a good thing?
Economics – the way it is practiced across the world today – is a broken science. Economists cannot see beyond the next quarter’s GDP. It is a myth that low interest rates are “good” and higher interest rates are “bad”. But the media & political / economist tone paints rate rise as a negative and rate cut as a positive event. In reality, savers & borrowers are two sides of the same coin. You can’t perpetually favor one over the other, as a matter of policy. It will lead to disaster. Artificially low interest rates are the root cause of much of what is wrong with Western Economies today. We are unfortunately following the same path, instead of learning from them.
True, CB’s have contributed more to inequality in the world than most realize. Financial repression, untethered fiat currencies, and an unfettered printing press make an unholy trilemma for which the bill will come due one day.
I do agree with this, RBI doesn’t looks working independently. Real rates in India should be at least up by 1-1.5% at least. If RBI continue with current policy of holding rates forcefully when 145 B already collected under FCNR as cushion to support rupee and oil doesn’t seems coming down at least till US Mid term, we are doomed and rupee will fall further, its too much of liquidity in stock market and all PE investors are taking advantage of easy IPO exit route. Losses are directly or indirectly for retail investors small savings which could have earned at least 8% in fixed instruments. One of the worst policy handling see ever, all sabotaged by PMO.
What RBI will do if US 10 year shot up to 5.5 %? , a layman can guide that repo must go up.
A valuable article on the drivers of ROE (DuPont Analysis) from the folks at Value Research.
The article takes examples of high ROE companies, and groups them by drivers of the actual component that drives their ROE - NPM or Asset Turnover or Equity Multiplier.
Just to clarify, I have not alleged political interference or pressures as the cause. My grievance is against the conventional wisdom on the role of interest rates, propagated by the West and blindly emulated by the Rest- even when empirical evidence says otherwise. On the whole I think RBI has done pretty well. Our banking system is healthier today than it ever was, we have done well in technology adoption, financial inclusion, data dissemination & transparency, and so on.
Refreshing perspective. Its time we put the western conceptualizations of economics under scrutiny and try to emphasize and acknowledge metrics that suit and service us better.
My takeaway, or I can say divergent of his earlier views:
Loss-making startups are not automatically avoided. The key question is whether unit economics are improving and the addressable market is growing.
He then says their house view has been that they cannot totally avoid new-age companies, and that they have invested in some new-age companies after their IPO when valuations corrected.
Very interesting, Game theory says the best strategy in life seems to be : First be co operative, nice & forgiving, but if things are not reciprocated from the other end, always operate on ‘Tit for TAT’ strategy!!
How Delhi fixed its shitty power grid by privatizing utilities, upgrading tech, and cracking down on theft, reducing losses from over 50% to around 5%.
Venture capitalists spend a decade inflating tech startups to astronomical valuations in private, only to use the public stock market as their personal dump site where retail investors eagerly buy up the leftover scraps at peak prices thinking they just bought the next Amazon.
IMF published study on china Toward a New Economic Growth Model for China, September 2026.
Some people think everything in china is holy grail, but reality is different. Study the IMF report. Below is the summary as per my perspective.
China’s old growth model is losing effectiveness
Property cannot be the growth engine again
China needs to shift from investment to consumption
Productivity growth is slowing sharply
· SOEs are generally less productive than private firms but often receive preferential financing and other advantages.
· Industrial policy is creating excess capacity risks
Industrial policy costs about 4% of GDP every year
60–70% is being pushed toward a few favoured sectors when a more efficient allocation would spread it more widely.
Manufacturing receives a disproportionate share, with semiconductors, high-tech manufacturing and automobiles among the biggest beneficiaries, IMF thinks benefits exceed the cost and misallocation.
· Local-government debt is a major vulnerability. tnegmea.pdf (5.1 MB)
