India’s Energy Security at a Crossroads: Navigating Geopolitics, Supply Risks, and the Clean Energy Transition

 Introduction

Energy security has long been a central pillar of India’s economic strategy. As the world’s third-largest energy consumer and the fastest-growing major economy, India’s development trajectory depends critically on reliable, affordable, and diversified energy supplies. However, the ongoing conflict involving the United States, Israel, and Iran, and the resulting disruption to shipping through the Strait of Hormuz, has once again highlighted the fragility of global energy systems and the vulnerabilities faced by import-dependent economies such as India.

For India, this moment is not merely a crisis to be managed, but a strategic inflection point, which underscores the urgency of rethinking energy security in a world where geopolitics, markets, and the energy transition are increasingly intertwined. The crisis underscores the urgency of strengthening India’s energy security through diversification, technological innovation, and accelerated energy transition.

Energy Security in a Changing Landscape

India’s energy security challenge is shaped by a dual reality: rapidly rising demand and persistent import dependence. As the world’s third largest energy consumer, India imports nearly 90 percent of its crude oil, over half of its natural gas and around 60 percent of its liquefied petroleum gas requirements. Much of these imports originate in, or transit through, the Gulf region, making the Strait of Hormuz a critical artery in India’s energy lifeline.

The current disruption has brought this vulnerability into sharp focus. Supply bottlenecks, rising freight and insurance costs, and delays in shipments have already begun to affect domestic energy availability. The impact is visible not only in industrial supply chains but also in household consumption, particularly in cooking fuel markets.

These developments reinforce a fundamental reality: energy security today extends far beyond resource availability. It is equally about logistics, maritime security, financial risks, and geopolitical stability. In an interconnected global system, disruptions in a narrow maritime corridor can cascade across economies thousands of kilometres away.

Energy security in this context involves not only securing physical supplies but also ensuring resilience against geopolitical shocks. Policymakers therefore emphasize strategies such as expanding strategic petroleum reserves, diversifying import sources, promoting domestic production, and accelerating the shift towards renewable energy.

The Strategic Importance of the Strait of Hormuz

The Strait of Hormuz, located between Iran and the Arabian Peninsula, is one of the world’s most important energy chokepoints. Nearly 20 percent of global oil consumption and LNG trade passes through this narrow waterway, making it vital for global energy markets.

For India, the significance is even greater. Estimates suggest that around 40–50 percent of India’s crude oil imports,  i.e., around 2.5 million barrels per day, pass through the Strait of Hormuz, creating a major strategic vulnerability. India’s economy remains extremely sensitive to oil price shocks. A $30 rise in crude prices could lift inflation by 2 percentage points and push the current account deficit closer to 2.5 percent of GDP. In practical terms, this means that any disruption in this corridor, whether due to military conflict, sanctions, or maritime restrictions, can quickly affect India’s energy supply chain.

Recent geopolitical developments have dramatically demonstrated this risk. Maritime activity through the Strait is estimated to have declined by as much as 95 percent during the recent conflict, highlighting the scale of disruption possible in times of crisis. Even short-term restrictions can have immediate consequences for global oil prices and shipping costs.

Emerging Challenges for India

The sharp surge in Brent crude prices above $100 per barrel in early 2026 reflected the deep vulnerability of global energy markets to geopolitical shocks in West Asia. The escalation of the US-Iran conflict, coupled with disruptions in the Strait of Hormuz, triggered severe supply concerns, pushing prices to intraday highs of nearly $120 in March and above $124 in late April. Although prices moderated briefly in May on hopes of diplomatic resolution, continued blockades and stalled negotiations kept Brent above $106 per barrel (15 May 2026), underscoring the persistence of supply-side inflationary pressures and heightened uncertainty in global commodity markets.

India’s continued dependence on West Asia, particularly for LPG where about 60 percent is imported, has already resulted in shipping delays and reduced availability, underscoring the fragility of supply chains. These disruptions have broader macroeconomic implications. Higher energy prices can fuel inflation, widen fiscal deficits through increased subsidy burdens, and dampen economic growth by raising input costs across sectors. For a fast growing economy with rising energy demand, such shocks can have significant spillover effects.

Beyond economics, energy security also carries a strategic dimension. Heavy reliance on a limited set of suppliers and critical transit routes, such as the Strait of Hormuz, exposes India to external risks and can constrain strategic autonomy during periods of geopolitical instability.

From Vulnerability to Resilience: India’s Strategic Response

India has, over the years, adopted a multi-pronged strategy to enhance its energy resilience. A central pillar of this approach has been the diversification of supply sources. Today, India imports crude oil from around 40 countries, including Russia, the United States, and several African producers. This diversification reduces dependence on any single region and provides a degree of flexibility in times of crisis.

However, diversification is not without limits. Logistical constraints, longer shipping routes, cost differentials, and geopolitical considerations restrict how quickly supply chains can be reconfigured. The current crisis illustrates that while alternatives exist, they cannot fully insulate the economy from short term disruptions.

Efforts have also been made to reduce reliance on the Strait of Hormuz. A growing share of India’s crude imports now arrives through alternative routes, reflecting improvements in supply chain resilience. Complementing this is the development of strategic petroleum reserves, which provide a critical buffer against short term supply shocks.

Domestic policy measures have further strengthened resilience. Investments in refining capacity, initiatives to improve energy efficiency, and policies to promote upstream exploration are aimed at reducing structural dependence on imports over time.

Macroeconomic Implications of Energy Shocks

Energy price volatility has immediate and far reaching macroeconomic consequences for India. A sharp increase in crude oil prices can quickly feed into inflation, widen the current account deficit, and strain fiscal balances. Higher energy costs also raise input prices across sectors, affecting industrial competitiveness and economic growth.

The current crisis illustrates how energy shocks are no longer confined to commodity markets. Rising logistics costs, disruptions in global shipping, and uncertainty in financial markets amplify their impact. In this context, energy security becomes central to macroeconomic management, influencing monetary policy, fiscal strategy, and external sector stability.

The Energy Transition as a Strategic Imperative

While the current crisis exposes India’s vulnerabilities, it also reinforces the urgency of accelerating the transition to a more secure and sustainable energy system. India has made notable progress, with over 50 percent of its electricity capacity now from non-fossil sources, compared to about 32 percent in 2014, with capacity exceeding 242 GW, out of roughly 485 GW.

The country has crossed 100 GW of solar capacity and is targeting 500 GW of non-fossil capacity by 2030, with the aim of meeting around half of its energy needs from renewables. These gains are supported by policy measures such as competitive bidding, production linked incentives, expansion of transmission infrastructure, and investments in energy storage. Flagship schemes like PM KUSUM and PM Surya Ghar are further promoting decentralised and household level energy resilience.

Emerging Pillars of Long Term Energy Security

India’s energy strategy rests on diversification and transition. Rapid expansion of solar, wind, and hydro is reducing import dependence, while green hydrogen and biofuels aim to cut fossil fuel use in key sectors. Nuclear energy is expected to provide reliable base load power, supported by investments in storage to stabilise an increasingly renewable grid.

At the same time, electrification, especially in clean cooking, must become a policy priority. A phased transition from LPG to electric cooking, supported by targeted subsidies, reliable power supply, and incentives for efficient appliances, can significantly reduce dependence on imported fuels while strengthening household energy security. Countries such as China have already demonstrated the scalability of electric cooking solutions alongside rapid electrification, offering useful lessons for India. Deeper energy partnerships across regions are also reinforcing long term resilience.

India’s immediate response has focused on maintaining supply and protecting consumers through prioritised domestic allocation, demand rationalisation, and increased sourcing from non-Gulf suppliers. Strategic reserves and inventories have cushioned short term disruptions, but remain stopgap measures.

Structural constraints persist. Coal will remain significant, while grid limitations and renewable intermittency demand sustained investment in transmission and storage. At the same time, dependence on global supply chains for clean energy technologies introduces new geopolitical risks.

India’s long term strategy is anchored in its net zero commitment by 2070, announced by Prime Minister Narendra Modi at COP26, with a target to reduce carbon intensity by 45 percent by 2030. Achieving this will require a decisive shift towards cleaner energy, greater efficiency, and scaled deployment of new technologies.

Conclusion: A Crisis as Catalyst

The disruption of energy flows through the Strait of Hormuz represents a defining moment for India’s energy security strategy. It highlights the risks associated with external dependence while reinforcing the importance of resilience, diversification, and strategic foresight.

India’s response demonstrates a growing capacity to manage short term shocks through diversification of supply, strategic reserves, and proactive policy measures. Yet the deeper lesson of the crisis is that long term energy security cannot be achieved through incremental adjustments alone. Instead, it requires a structural transformation of the energy system—one that reduces dependence on volatile fossil fuel markets while building a diversified, resilient, and sustainable energy architecture.

By accelerating the transition towards renewable energy, strengthening domestic capabilities, and investing in emerging technologies such as nuclear power and green hydrogen, India can move from a position of vulnerability to one of resilience and strategic autonomy. In this sense, the current crisis, while disruptive, may ultimately serve as a catalyst for building a more secure and future ready energy system.

 

 

 

 

From Commitment to Leadership: India’s Evolving Climate Strategy for 2035

 

Introduction

India’s approval of its updated Nationally Determined Contribution (NDC) for the period 2031–2035 marks a significant evolution in its climate policy architecture. The revised commitments not only raise ambition but also reinforce a distinctive development paradigm, one that seeks to harmonize economic growth, energy security, and environmental sustainability within a framework of equity and climate justice.

At the core of India’s updated NDC are three quantitative targets: a 47 percent reduction in emissions intensity of GDP from 2005 levels, 60 percent of installed electric power capacity from non-fossil fuel sources, and the creation of an additional carbon sink of 3.5–4.0 billion tonnes of CO₂ equivalent through forest and tree cover by 2035. These targets signal a calibrated yet ambitious progression from earlier commitments, reflecting both improved domestic capacity and evolving global expectations.

From Credibility to Ambition

A key strength of India’s climate positioning lies in its track record of overachievement. The country met its earlier NDC targets, such as 40 percent non-fossil capacity and emissions intensity reduction, well ahead of schedule. This lends credibility to its enhanced commitments and distinguishes India from many developed economies that have struggled with implementation gaps.

The transition from early achievement to higher ambition also underscores a strategic shift: India is moving from a compliance-oriented framework to a leadership-oriented one. By setting more aggressive targets for 2035, India is positioning itself as a central actor in global climate governance, particularly among emerging economies.

Energy Transition as Development Strategy

India’s climate strategy is deeply intertwined with its development agenda. The emphasis on renewable energy expansion, green hydrogen, battery storage, and clean manufacturing highlights a structural transformation of the economy rather than a narrow environmental policy push .

Importantly, the target of 60 percent non-fossil installed capacity is not merely an environmental milestone, it is also a strategic response to energy security concerns. Reducing dependence on imported fossil fuels enhances macroeconomic stability while fostering domestic innovation ecosystems. Initiatives such as the Green Hydrogen Mission and production-linked incentives (PLI) are designed to create competitive advantages in emerging green industries.

Adaptation: The Understated Pillar

Unlike many climate strategies that disproportionately focus on mitigation, India’s NDC places significant emphasis on adaptation. Measures such as coastal protection through mangrove restoration, glacier monitoring in the Himalayas, and heat action plans reflect a pragmatic recognition of climate vulnerabilities .

This dual focus on mitigation and adaptation is particularly relevant for a country with high climate exposure and developmental heterogeneity. It also aligns with India’s long-standing advocacy for greater global attention to adaptation financing—an area where international progress remains limited.

Institutional Depth and Policy Integration

The operationalization of the NDC through frameworks like the National Action Plan on Climate Change (NAPCC) and State Action Plans (SAPCCs) reflects a multi-level governance approach. Climate policy is embedded across sectors—agriculture, water, urban development, and infrastructure, ensuring that sustainability is not treated as a standalone objective but as an integrated policy imperative .

Moreover, the consultative process involving multiple stakeholders—government agencies, industry, and civil society, enhances policy legitimacy and feasibility. This “whole-of-government, whole-of-society” approach is critical for implementation in a complex federal structure.

Equity, Lifestyle, and Global Signalling

India’s NDC continues to be anchored in the principle of “Common but Differentiated Responsibilities and Respective Capabilities” (CBDR-RC). By foregrounding equity and development priorities, India seeks to balance domestic imperatives with global expectations.

The emphasis on Lifestyle for Environment (LiFE) introduces a behavioural dimension to climate policy, shifting part of the responsibility to societal choices and consumption patterns. This is a notable departure from purely technocratic approaches and could serve as a model for other developing countries.

Challenges and Strategic Trade-offs

Despite its strengths, India’s climate pathway is not without challenges. Achieving 60 percent non-fossil capacity will require massive investments in grid infrastructure, storage technologies, and regulatory reforms. Similarly, expanding forest cover to meet carbon sink targets must navigate competing land-use pressures.

There is also a broader macroeconomic trade-off: balancing rapid industrialization with decarbonization. While green technologies offer long-term gains, the transition costs, particularly for sectors like coal and heavy industry, could be significant.

Conclusion

India’s NDC for 2031–2035 represents a sophisticated blend of ambition, pragmatism, and strategic positioning. It reflects a maturing climate policy framework that is increasingly aligned with long-term development goals and global climate leadership.

By demonstrating that economic growth and environmental responsibility can be mutually reinforcing, India is not only advancing its domestic agenda but also reshaping the narrative of climate action in the Global South.

 

 

The US–India Interim Trade Framework: Strategic Convergence with Economic Caveats

 

Introduction

The US–India Interim Trade Framework, announced on 7 February 2026, marks a consequential, though carefully circumscribed, shift in bilateral economic relations. Framed as a bridge toward a comprehensive Bilateral Trade Agreement (BTA), the arrangement seeks to de-escalate trade tensions, unlock early market access, and embed economic engagement within a wider strategic partnership.

The framework undeniably opens up large-scale new opportunities for India’s farmers, artisans, manufacturers, and technology firms. At the same time, it is not a conventional free trade agreement. Its design is selective, conditional, and deeply embedded in geopolitical considerations. Understanding its real significance therefore requires moving beyond headline tariff cuts to examine its political economy, sectoral trade-offs, and long-term strategic implications.

Context: From Trade Coercion to Conditional Cooperation

The interim framework follows a period of heightened strain in bilateral trade relations. Indian exports to the US had faced combined tariffs of up to 50 per cent, comprising reciprocal duties and an additional punitive levy linked to India’s purchases of Russian crude. The rollback of the extra 25 per cent tariff and the reduction of reciprocal tariffs to 18 per cent represent a meaningful easing of pressure on Indian exporters and a restoration of near-term predictability.

However, this détente is explicitly conditional. The US retains the right to reimpose duties if underlying strategic assumptions, particularly related to energy sourcing, change. This underlines a broader structural shift in global trade: market access is increasingly contingent on strategic alignment, rather than governed solely by neutral multilateral rules.

Market Access: Expanding Opportunities with Political Guardrails

Under the interim framework, the US has agreed to reduce or eliminate tariffs on a wide range of Indian goods, opening opportunities on a scale that is particularly significant for labour-intensive and MSME-dominated sectors. Duties on products such as gems and jewellery, pharmaceuticals, smartphones, machinery parts, textiles, and leather goods have been lowered or eliminated, improving India’s competitive positioning in the world’s largest consumer market.

Additional gains are expected in machinery, aircraft parts, toys, silk, home décor items, and artisanal products, as well as in high-value technological segments, including semiconductors and emerging areas such as quantum devices. For Indian manufacturers and exporters, these changes reduce entry barriers and restore commercial viability after a period of tariff-induced disruption.

Beyond tariffs, a critical, and often underappreciated benefit of the framework is the reduction in trade uncertainty. Frequent and abrupt tariff changes over the past year had disrupted export planning and investment decisions. Even as an interim arrangement, the framework provides a credible policy signal that stabilises expectations across agriculture, manufacturing, and technology sectors.

Farmers and Agri-Exports: Incremental Liberalisation with Asymmetric Gains

One of the most politically salient and economically significant aspects of the interim framework lies in its treatment of agriculture and farmers. Unlike past trade negotiations that often stalled over agricultural liberalisation, this framework adopts a selective, export-oriented approach, opening opportunities where India enjoys comparative advantages while firmly insulating domestic food security systems.

Under the agreement, a wide range of Indian agricultural and horticultural products will now face zero reciprocal tariff in the United States. These include spices, tea, coffee, coconut, cashew, mango, banana, guava, pineapple, and processed agri-products such as jams and fruit juices. These categories are closely linked to smallholders, Farmer Producer Organisations (FPOs), cooperatives, and agri-MSMEs, and are less dependent on minimum support prices or public procurement.

From a structural transformation perspective, this is significant. India’s agri-export strategy has been gradually shifting away from bulk staples towards high-value, differentiated, and processed products. Tariff-free access to the US market can accelerate this transition, improve farm-gate realisations, and strengthen rural value chains spanning logistics, cold storage, processing, packaging, and certification.

Crucially, the framework also draws clear red lines. Sensitive commodities such as rice, wheat, sugar, millets, pulses, and dairy products remain fully protected. This reflects a recognition that these crops are embedded in national food security arrangements, procurement systems, and rural income stability. By excluding them, the agreement avoids the risks of import surges and price volatility that have historically generated political resistance to agricultural trade liberalisation.

This calibrated approach, liberalising where India exports, not where it imports, signals a quiet but important shift in agricultural trade policy. It attempts to reconcile export competitiveness with farmer protection, a balance that has eluded many previous trade efforts.

That said, zero tariffs do not automatically translate into market access. Stringent US sanitary and phytosanitary standards, fragmented domestic supply chains, and uneven access to certification and logistics could limit the distribution of gains. Without complementary domestic measures, such as support for quality compliance, cold chain infrastructure, and FPO capacity building, the benefits risk remaining concentrated among better integrated regions and producers.

Rules of Origin, NTBs, and the Adjustment Challenge

While tariff concessions dominate public attention, the framework’s provisions on rules of origin (RoO) and non-tariff barriers (NTBs) may prove more consequential over time. The emphasis on RoO that ensure benefits accrue predominantly to Indian and US producers reflects shared concerns about third-country routing and non-market practices.

India has also committed to addressing long-standing NTBs in medical devices, ICT imports, standards recognition, and agricultural market access, with a six-month review window to assess the acceptance of US or international standards. Over the medium term, this could enhance competitiveness and integration into global value chains. In the short term, however, compliance costs, particularly for smaller firms, could be significant, underscoring the need for supportive domestic policies.

Strategic Commerce, Employment, and Youth Opportunities

The agreement is also framed by the government as a catalyst for broader economic and employment gains. As India’s commerce minister Piyush Goyal noted, “This deal does not harm India or the US but provides new opportunities for our youth and industry. Market access in the United States will help India’s economy grow and support employment in multiple sectors.”

This assessment is broadly plausible, especially for labour-intensive sectors such as textiles, leather, food processing, and handicrafts, where export growth has strong employment multipliers. However, the translation of market access into jobs will depend on complementary reforms, viz., logistics efficiency, access to finance, skills development, and regulatory capacity.

Opportunity with Constraint

The interim framework also reinforces a broader trend in global trade: economic engagement is increasingly intertwined with strategic alignment. Expanded access to the US market comes alongside deeper integration into US-centric supply chains, particularly in energy and advanced technology.

This presents India with both opportunity and constraint. While scale, technology access, and export momentum improve, risks of over-concentration and reduced strategic autonomy must be managed carefully.

Conclusion

The US–India Interim Trade Framework is best understood as a platform for expansion rather than a panacea. It opens meaningful new avenues for farmers, artisans, manufacturers, and technology firms, reduces uncertainty, and restores momentum to bilateral trade relations.

At the same time, it remains interim by design, selective in liberalisation, conditional in implementation, and embedded within a larger geopolitical context. Its long-term success will depend on whether India leverages these openings to strengthen competitiveness, broaden participation, and negotiate the eventual BTA from a position of confidence rather than compulsion. In that sense, the agreement offers opportunity, but also poses a test of policy follow-through, institutional capacity, and strategic balance.

 

Building Global-Scale Banks for Viksit Bharat

 

As India sets its sights on Viksit Bharat @2047, the strength and sophistication of its financial system will determine how effectively the country can finance its developmental ambitions. Despite being the world’s fourth-largest economy, India has only two banks—State Bank of India (43rd) and HDFC Bank (73rd)—among the top 100 global banks. This limited presence underscores a structural gap: an economy aspiring to reach USD 30 trillion cannot be served by a banking system that remains modest in scale and capacity.

Finance Minister Nirmala Sitharaman recently emphasised the need for India to build “big and world-class banks,” noting that discussions with the Reserve Bank of India and the banking sector are already underway to create larger financial institutions. The case is compelling. If India’s GDP grows to USD 30 trillion by 2047, bank funding must increase to around 130 percent of GDP, a stark rise from the current level of roughly 56 percent. India’s total bank credit stands at ₹192 lakh crore, and deposits at ₹239 lakh crore—figures that need to grow substantially to match international peers.

Scale matters because large banks can finance large ideas. Globally, the largest banks—particularly those in China—have been able to undertake massive lending to infrastructure, manufacturing, technology, and strategic overseas projects. If India is to power its next phase of growth, it needs banks that are not only big in size but also capable of operating at global levels of efficiency, resilience, and innovation.

Why India Needs Larger Banks

Large banks enjoy structural advantages that smaller institutions simply cannot replicate. Their bigger capital base provides a stronger buffer against shocks, and their operations benefit from economies of scale. For Indian public sector banks (PSBs), the cost-to-income ratio averages around 52 percent, compared with 45.9 percent for private banks. Well-designed mergers can close this efficiency gap by streamlining overlapping operations, harmonising technology platforms, and creating stronger, more capable institutions.

Scale also enhances reach. A merged entity can combine the technological strengths of one institution with the regional dominance of another, expanding access to both high-growth urban markets and underserved rural geographies. This is directly aligned with India’s financial inclusion priorities, especially in credit for MSMEs, agriculture, and digital banking penetration.

Lessons from India’s Previous Consolidation

India has already experimented with consolidation. The 2019 round of mergers reduced the number of PSBs from 27 to 12, and the early evidence has been encouraging. Public sector banks have regained market share, and loan growth in the June 2025 quarter surpassed that of private banks. Notably, this growth was driven not by large corporate lending but by retail and MSME credit, suggesting that scale and inclusion can coexist.

It is also worth recalling the Narasimham Committee’s vision (1991), which recommended a three-tier banking structure with three or four large banks, including SBI, that could operate at the global level. Over 30 years later, that vision remains only partially realised. Today, India once again faces a strategic moment to consider another round of consolidation—this time not just among PSBs, but also within the private sector, to build banks of global scale.

Global Experience: Insights and Caution

Internationally, the consolidation of banking sectors has yielded mixed but instructive lessons. After the 2008 financial crisis, the United States and Europe saw numerous mergers, resulting in fewer but more resilient institutions. China’s state-owned banks, by virtue of their scale, have been central to financing the Belt and Road Initiative and expanding geopolitical influence.

However, bigger is not always better. The IMF has warned that overly large banks without strong governance frameworks can become “too big to fail,” creating systemic risks that may undermine financial stability. Therefore, any move toward creating global-scale Indian banks must be accompanied by reforms that ensure transparency, strong oversight, and sound risk management.

Beyond Mergers: Building an Enabling Ecosystem

Creating global-scale banks requires much more than merging balance sheets; it demands a holistic strengthening of India’s financial ecosystem. A critical starting point is governance reform, particularly within public sector banks. Recent policy moves—such as opening senior leadership positions in PSBs to private-sector professionals, including a Managing Director position at the State Bank of India and executive director roles in other large PSBs—signal an important shift. These steps reflect an understanding that managerial expertise, digital fluency, and strong risk-management capabilities are essential if Indian banks are to compete globally.

Equally significant is the ongoing debate on bringing PSBs under the Companies Act rather than the existing nationalisation-era legislation. Such a transition could allow the government to reduce its shareholding below 50 percent while still retaining strategic influence. More importantly, it would free banks from the oversight of agencies such as the Comptroller and Auditor General and the Central Vigilance Commission, thereby granting boards greater autonomy in decision-making. Aligning PSB governance structures with contemporary corporate norms would also strengthen accountability and facilitate quicker operational and strategic decisions—an essential requirement for modern, competitive banks.

A strong ecosystem also depends on talent. India’s public banks have long faced a mismatch between the compensation they offer and what the private sector provides. This has contributed to a steady migration of experienced professionals away from PSBs. Multiple committees—from Rangarajan to the P.J. Nayak Committee—have pointed to the urgency of revamping HR policies, creating performance-linked incentives, and offering longer tenures to top leadership. If India is serious about building banks that can operate at global scale, it must invest not only in capital adequacy but also in leadership capability and institutional professionalism.

Finally, regulatory reforms will need to evolve in parallel. As emphasised recently by the Finance Minister, consolidation is not an end in itself; it must be complemented by an operating environment that encourages innovation and reduces compliance frictions. In a rapidly digitalising economy, Indian banks must be equipped to develop new competencies—whether in fintech collaboration, green financing, or cross-border financial services. Building this broader ecosystem of regulatory flexibility, technological upgradation, and managerial autonomy will be essential to transforming Indian banks from domestic leaders into global contenders.

The Road Ahead

India’s path to becoming a $30 trillion economy is inseparable from the strength of its financial institutions. Building global-scale banks is not merely a matter of increasing size; it requires enhancing governance, strengthening talent, modernising regulation, and fostering innovation.

The task before India is to build not only bigger banks but better banks—institutions that can finance large aspirations, absorb shocks, support inclusion, and demonstrate world-class standards. If India succeeds, its banks will not just support the journey to Viksit Bharat—they will help define it.

 

Understanding GST 2.0: What It Means for Consumers, Businesses, and States

 

India’s GST 2.0 introduces simplified two-tier rates, tax cuts on essentials, automobiles, and insurance, boosting consumption while balancing state revenues.

India’s Goods and Services Tax (GST) regime has undergone its most significant overhaul since 2017. On 3 September 2025, the GST Council, chaired by Finance Minister Nirmala Sitharaman, announced a simplified two-tier rate structure, exemptions for individual life and health insurance, and significant reductions on daily-use and aspirational goods. These reforms take effect from 22 September, just ahead of the festive season.

Consumer Relief at the Core

Households are the first to benefit. Essentials such as soap, toothpaste, chocolates, and coffee now attract 5% GST, down from 12–18%. Paneer, Indian breads (roti and paratha), and UHT milk, along with life-saving medicines for cancer and rare diseases, are now fully exempt. Exemption of all individual life and health insurance policies—previously taxed at 18%—is expected to make coverage more affordable and increase financial inclusion.

Finance Minister Sitharaman said that the reform had been designed with the common man in mind and that every tax levied on daily-use items had been reviewed carefully to ensure simplicity and fairness.

Structural and Industry Implications

The GST rationalisation is not just about lower rates; it addresses long-standing structural issues such as inverted duty structures and classification disputes. Key sectors stand to benefit:

• Automobiles: Small cars, motorcycles under 350cc, buses, and ambulances see GST reduced from 28% to 18%. Luxury vehicles and sin goods, including large cars, private aircraft, and tobacco products, now attract a 40% rate.
• Renewables and Agriculture: Biogas plants, windmills, handicrafts, tractors, and composting machines now fall under 5% GST, supporting sustainability and rural livelihoods.
• Consumer Durables & Hospitality: Televisions, dishwashers, air conditioners, and hotel rooms below ₹7,500 face lower taxes, encouraging discretionary spending.

The reform also simplifies compliance, reduces disputes, and improves predictability for businesses, particularly MSMEs.

Fiscal Considerations and State Concerns

Revenue Secretary Arvind Shrivastava estimates a net fiscal implication of around ₹48,000 crore. While improved compliance, higher consumption, and resolution of disputes are expected to offset some losses, opposition-ruled states—including Karnataka, Punjab, West Bengal, Telangana, and Sikkim—have voiced concerns over potential revenue erosion.

Without a clear mechanism for compensation, balancing fiscal sustainability between the Centre and states remains a critical challenge.

Sectoral and Market Impact

GST 2.0 is expected to boost consumer-facing sectors. Lower taxes on FMCG, durables, automobiles, and insurance could increase demand and improve revenue visibility. Analysts suggest the structural reforms and simplified slabs may also enhance investor confidence and attract portfolio flows toward domestic consumption sectors.

Experts note that clarifications on intermediary services and post-sale discounts will reduce litigation, settling long-standing disputes that previously hindered business efficiency. Meanwhile, the abolition of the compensation cess restores the original GST design, ensuring a more stable and predictable tax framework.

Balancing Consumer Gains with Fiscal Sustainability

While the reforms promise relief for consumers and clarity for businesses, the central challenge remains ensuring fiscal balance. Opposition-ruled states have called for compensation frameworks to safeguard their revenues, highlighting the political and economic dimensions of this reform.

Nonetheless, the initiative signals a commitment to ease of doing business, rate rationalisation, and structural simplification, which can stimulate consumption and support sustainable economic growth.

Conclusion

GST 2.0 marks a major step forward in India’s tax reform journey. By simplifying rates, correcting structural issues, and reducing taxes on essential goods, automobiles, and insurance, it promises significant benefits for households and businesses. Yet, its long-term success will depend on carefully balancing consumer relief with revenue sustainability for states.

As the festive season begins, GST 2.0 will be put to the test, providing early indicators of how consumers, businesses, and markets respond to this landmark reform.

4% and Flexible: The Case for Stability in India’s Monetary Policy Framework

 

The Reserve Bank of India (RBI) has set the stage for an important policy review. As part of its second five-year assessment of India’s monetary policy framework, the RBI has released a Discussion Paper on inflation targeting. The outcome of this review, which is expected to guide the government’s decision on the inflation target for the next five years in March 2026, comes at a time when the global economy is fraught with uncertainty. From geopolitical tensions and climate disruptions to supply chain fragilities and technological upheavals, the challenges are plenty.

At the heart of the debate is a simple but powerful question: should India continue with the 4% inflation target, or does the changing environment demand a rethink? And, more importantly, should the central bank focus more on headline inflation (the price changes households experience every day) or on core inflation (which filters out volatile food and fuel prices to reflect underlying demand pressures)?

FIT at Work: A Quiet Success Story

Since 2016, India has followed the Flexible Inflation Targeting (FIT) framework, which sets a target of 4% CPI inflation with a tolerance band of ±2%. The results have been impressive. Inflation has been lower and more stable compared to the pre-FIT years, and expectations are better anchored. Markets, businesses, and households now have a clearer sense of the RBI’s priorities. Even in the face of extraordinary shocks, viz., the pandemic and the Russia–Ukraine conflict, the framework held firm.

Of course, it hasn’t been perfect. Food and fuel prices, beyond the central bank’s direct control, continue to drive volatility. Headline inflation often overshoots the band, while core inflation sometimes stays stubbornly high. This underscores the need for sharper communication from the RBI, making it clear when deviations are driven by temporary shocks and when they reflect deeper demand-side pressures.

Headline vs Core: What Should Matter More?

The sharpest disagreement lies here. Should India continue targeting headline CPI, which fully captures the cost of living, or should it move toward core inflation, which many economists argue better reflects policy-relevant dynamics?

Globally, nearly all inflation-targeting central banks use headline inflation, and for good reason. For ordinary households, particularly the poor, food prices are the most important factor shaping their perception of inflation. Ignoring food inflation risks damaging credibility. Yet, relying only on headline numbers can misguide policy if underlying demand pressures remain unchecked.

The middle ground seems most pragmatic: keep headline CPI as the formal target, but integrate core inflation analysis more explicitly into monetary policy deliberations and forward guidance. This way, the RBI can stay true to its mandate while also addressing persistent demand-driven inflationary pressures.

Why 4% Still Works

When India adopted FIT in 2016, the Urjit Patel Committee identified 4% as the “trend inflation” rate consistent with growth and stability. That still holds. India’s fast productivity growth, coupled with the Balassa–Samuelson effect, which naturally leads to higher services inflation in emerging economies, justifies a higher target than advanced economies, which usually aim for 2%.

Lowering the target would mean tighter monetary conditions, which could slow growth unnecessarily. Raising it would risk unanchoring expectations and eroding credibility. Holding steady at 4% remains the best course.

The Band Debate

The ±2% tolerance band has served India reasonably well. Narrowing it to ±1.5% could improve credibility but would come at the cost of greater growth volatility. Widening it to ±3% would reduce breaches but weaken accountability. The balanced approach is to keep the current band while making the 4% midpoint the clear operational anchor.

Introducing formal “escape clauses” could also help, allowing temporary deviations during extraordinary shocks such as pandemics, global oil spikes, or extreme climate events. What matters most, however, is transparent communication: explaining why deviations occur and how they will be addressed.

Beyond Monetary Policy

Inflation management cannot be the RBI’s job alone. Supply-side measures matter just as much: strengthening buffer stocks, improving food logistics, diversifying energy sources, and building climate resilience. Stronger fiscal-monetary coordination is essential to prevent food and fuel volatility from spilling over into persistent inflation.

The Road Ahead

India’s monetary policy framework has matured since 2016. FIT has delivered stability, transparency, and credibility. But the world is changing, and refinements are needed. The path forward seems clear:

1)                1)      Retain the 4% target with a ±2% band.

2)      Keep headline CPI as the formal target but give greater weight to core inflation analysis.

3)      Strengthen RBI’s communication to clearly distinguish between temporary shocks and structural pressures.

4)      Complement monetary policy with supply-side interventions.

If India can do this, it will maintain the delicate balance between credibility and flexibility, anchoring inflation expectations without stifling growth. In today’s turbulent global economy, that balance is exactly what India needs.

Why India’s New Vision for BRICS Matters for the Global South

From an investment acronym to a global power bloc, BRICS has come a long way. Its new identity—anchored in resilience, innovation, cooperation, and sustainability—signals a shift with huge implications for the Global South and beyond.

When BRIC was first coined by Goldman Sachs economist Jim O’Neill in 2001, it was merely an investment term describing the rising economies of Brazil, Russia, India, and China. By 2010, South Africa joined, transforming it into a political grouping - BRICS. Fast forward to 2024–25, and BRICS has expanded into a ten-member bloc, now including Egypt, Ethiopia, Indonesia, Iran, and the UAE. Together, these countries represent nearly half of humanity and a growing share of global GDP.

But what does BRICS really stand for today? At the 17th BRICS Summit in Rio de Janeiro (July 2025), Prime Minister Narendra Modi announced a redefinition:
“Building Resilience and Innovation for Cooperation and Sustainability.”

This new full form is more than a play on words—it reflects an attempt to reposition BRICS as a future-oriented coalition that not only challenges existing power structures but also delivers global public goods.

Resilience in a Fragmented World

The pandemic, the Russia–Ukraine conflict, and supply chain disruptions have highlighted just how vulnerable emerging economies are to global shocks. Energy insecurity, food price spikes, and volatile financial flows have become the new normal.

By foregrounding resilience, BRICS acknowledges that collective strength is essential. For India, resilience means not only cushioning its own economy from external shocks but also championing financial safety nets and cooperative mechanisms that reduce dependence on Western-led systems like the IMF or World Bank. The New Development Bank, created by BRICS, is a step in this direction but needs more robust resources and mandates.

Innovation as a Growth Engine

The word innovation signals a shift in BRICS’ identity. No longer is it just a club of resource-rich economies—it wants to be a driver of technological progress.

India plays a central role here. From its successful digital public infrastructure (like UPI and Aadhaar) to its leadership in renewable energy (International Solar Alliance, Green Hydrogen Mission), India provides templates that BRICS can adopt and scale. Beyond technology, innovation also applies to new models of trade settlements in local currencies, development financing, and collaborative research in AI and clean-tech.

In short, BRICS innovation is about shaping tomorrow’s rules of the game, not just playing catch-up with the West.

Cooperation Beyond Borders

The expanded BRICS is diverse—geographically, politically, and economically. India and China have border disputes, Russia faces Western sanctions, and Middle Eastern members like the UAE and Iran have their own regional priorities. Despite these divergences, cooperation is the glue that holds the grouping together.

The strength of cooperation lies in collective bargaining. BRICS has long advocated reform of global institutions such as the IMF, World Bank, and UN Security Council. With eleven members, its voice carries greater legitimacy. By putting cooperation at the centre of its new definition, BRICS signals that its future lies in finding common ground, even amid internal rivalries.

Sustainability for Global Leadership

As the world grapples with climate change, energy transition, and food insecurity, sustainability becomes an unavoidable priority. BRICS members are among both the largest emitters and the most climate-vulnerable nations. The new full form emphasizes their shared interest in pushing for fair climate finance, technology transfers, and a just transition for developing economies.

For India, this aligns neatly with its domestic commitments—net-zero by 2070, expanding renewable energy capacity, and promoting sustainable agriculture. By putting sustainability at the heart of BRICS, India ensures the bloc is not seen as a geopolitical spoiler, but as a constructive partner in global climate action.

De-dollarization and Strategic Importance

One of the most significant shifts under BRICS 2.0 is the growing push for de-dollarization. By promoting trade in local currencies and developing alternative payment systems, BRICS members seek to reduce reliance on the US dollar in global trade. This move not only insulates their economies from exchange-rate volatility and sanctions risk but also enhances strategic autonomy for the Global South.

For India, while cautious about a rapid shift, participation in this agenda underscores its commitment to a more multipolar financial system—one where emerging economies have greater say in setting the rules. In the long run, de-dollarization strengthens BRICS’ strategic weight, giving it leverage in negotiations with Western-led institutions and shaping the contours of global economic governance.

India’s Strategic Role

By introducing this new vision, India positions itself as a thought leader within BRICS. It seeks to balance China’s economic dominance and Russia’s geopolitical weight by steering the bloc towards issues where India has proven leadership—digital inclusion, innovation in development finance, and climate diplomacy.

The terms resilience, innovation, cooperation, and sustainability are carefully chosen. They project BRICS as a reformist and development-oriented coalition, not just an anti-West alliance. For India, this reframing is part of a broader strategy to amplify its role as the voice of the Global South.

The Road Ahead

The challenge now lies in turning this redefinition into tangible outcomes. Can BRICS: 

§  Expand the lending scope of the New Development Bank to meet development financing gaps? 

§  Develop digital cooperation frameworks inspired by India’s UPI model? 

§  Push for meaningful reform in global governance institutions?

§  Present a united front on de-dollarization and climate finance at COP 30 and beyond

If BRICS delivers on even some of these, it could emerge as more than just a symbol of multipolarity. It could become a genuine provider of global public goods.

Conclusion

The new BRICS full form—“Building Resilience and Innovation for Cooperation and Sustainability”—marks a turning point. It reflects the bloc’s aspiration to move beyond symbolism and become a platform that strengthens economic resilience, fosters technological innovation, deepens cooperation, drives sustainability, and reduces overdependence on the dollar.

For India, this is an opportunity to shape BRICS 2.0 as the institutional voice of the Global South. For the world, it is a reminder that the future of international cooperation will not be decided solely in Washington or Brussels—but increasingly in platforms like BRICS, where emerging powers set the agenda.

 

AI as the Engine of Emerging Market Prosperity: The Global South Advantage

 With innovation-driven strategies, the Global South is poised to turn AI into a driver of long-term wealth

Introduction

Artificial Intelligence (AI) has rapidly moved from being a futuristic concept to a transformative force reshaping economies worldwide. For emerging markets, where structural challenges often coexist with high-growth potential, AI offers both a catalyst and a compass for creating sustainable wealth. Its integration across sectors can unlock productivity, foster innovation, and accelerate inclusive development—potentially allowing these economies to leapfrog traditional development pathways.

Unlocking Productivity Gains

One of the most immediate contributions of AI to wealth creation is in productivity enhancement. Emerging markets often face constraints such as low labour efficiency, inadequate infrastructure, and fragmented supply chains. AI-powered solutions—from predictive maintenance in manufacturing to smart logistics in agriculture—can mitigate these inefficiencies.

In India, startups like CropIn and Fasal are using AI-based crop analytics to guide farmers on irrigation, pest control, and fertilizer use, boosting yields while reducing input costs. In China, AI-driven smart factories are deploying robotics and computer vision for quality control and predictive maintenance, raising industrial productivity and narrowing the technological gap with advanced economies. Similarly, in Brazil, AI applications in logistics are optimizing commodity supply chains, cutting costs in agriculture exports like soybeans and coffee.

Driving Innovation and Entrepreneurship

AI lowers the entry barriers for innovation by providing affordable and scalable tools for startups and small businesses. Cloud-based AI services, open-source models, and no-code/low-code platforms enable entrepreneurs to access capabilities once reserved for global tech giants.

For example, India’s fintech ecosystem—home to players like ZestMoney and KreditBee—uses AI for credit scoring and lending to individuals and MSMEs without formal credit histories. In China, giants like Ant Group and WeBank use AI-driven risk assessment and digital platforms to bring millions of unbanked citizens into the financial system. In Kenya, AI-enabled mobile platforms like M-Shwari extend microcredit and savings products to rural households, showcasing how innovation can spread wealth to the grassroots.

Financial Inclusion as a Growth Multiplier

Wealth creation in emerging economies cannot be separated from financial inclusion. AI is playing a pivotal role in expanding access to banking, insurance, and investment products.

In India, the success of the Unified Payments Interface (UPI)—processing billions of transactions monthly—has been amplified by AI-driven fraud detection and transaction monitoring, making digital payments both safer and more efficient. Platforms like Paytm and PhonePe are embedding AI to improve user experience, detect suspicious patterns, and provide customized financial products. In China, AI-powered robo-advisors like Lufax are offering low-cost investment services to retail investors, while across Southeast Asia, firms such as Advance.AI are extending credit scoring and digital lending to underbanked communities. Together, these advances democratize wealth creation opportunities for rural households, women entrepreneurs, and informal sector workers.

Strengthening Human Capital

AI is often portrayed as a threat to jobs, but in emerging markets it can also be an enabler of human capital development.

In India, edtech platforms such as Byju’s, Vedantu, Unacademy, and upGrad are leveraging AI to personalize learning, adapt content delivery, and enhance test preparation. For instance, AI chatbots provide instant doubt resolution, while adaptive learning systems track student progress and recommend customized study plans. In China, Squirrel AI is providing AI-based personalized tutoring for millions of schoolchildren, while in Brazil, platforms like Descomplica are using AI to widen access to affordable higher education. Meanwhile, countries like Vietnam and Philippines are positioning themselves as hubs for AI-enabled business process outsourcing (BPO), turning their young, skilled workforce into a global service advantage.

AI in Healthtech: Building Resilient Societies

Beyond education, AI is reshaping healthcare in emerging markets, with significant implications for human capital and wealth creation.

In India, startups such as Niramai use AI-driven thermal imaging for early breast cancer detection, while SigTuple employs computer vision to automate blood sample analysis. Telemedicine platforms like Practo are integrating AI for patient triage and medical record analytics. In China, AI is being widely applied in hospitals for diagnostic imaging and patient monitoring, with companies like Ping An Good Doctor offering AI-powered health consultation to millions. In Africa, AI initiatives such as mPharma are using predictive analytics to improve medicine supply chains and ensure affordability. These innovations not only reduce healthcare costs but also enhance workforce productivity and longevity, contributing directly to wealth creation.

Accelerating Sustainable Development

Emerging markets are disproportionately affected by climate risks, which can erode wealth and exacerbate inequality. AI contributes to sustainability by enabling precision agriculture, optimizing renewable energy grids, and predicting natural disasters.

In India, AI is being applied to solar energy forecasting and smart grid management by companies like ReNew Power, helping to stabilize renewable energy integration. In China, AI models are being deployed for real-time monitoring of air pollution and energy efficiency in urban areas. In South Africa, AI-enabled early warning systems are being tested to predict droughts and floods, protecting communities and agricultural livelihoods.

Governance and Policy as Enablers

While the promise is vast, realizing AI’s wealth-creating potential in emerging markets depends heavily on governance. Investments in digital infrastructure, data protection frameworks, ethical AI guidelines, and public-private partnerships are essential.

For instance, India’s National AI Strategy (NITI Aayog) emphasizes inclusive growth and AI applications in agriculture, healthcare, and education. China’s New Generation AI Development Plan (2017) has positioned the country as a global AI powerhouse, with massive state support for R&D and commercialization. Other emerging markets, such as Brazil and Indonesia, are drafting national AI roadmaps, reflecting growing recognition of AI as a driver of long-term prosperity.

Conclusion: A New Frontier for Prosperity

AI offers emerging markets a rare opportunity to reshape their growth story. By boosting productivity, empowering entrepreneurs, expanding financial inclusion, strengthening human capital, and fostering sustainability, AI can accelerate the transition from factor-driven growth to innovation-led prosperity. If nurtured with the right policies and investments, AI has the potential to become not just a tool of efficiency, but a cornerstone of wealth creation for billions across the Global South.