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India Insider: Agriculture Still Traps Nation’s Workforce

by with No Comment AssetsBehavioral SentimentFeatured Highlights

India Insider: Agriculture Still Traps Nation's Workforce

A Field Survey in South India’s Agricultural Towns

India’s growth story is usually told through noteworthy headline numbers. Yet beneath these aggregates lies a persistent imbalance, agriculture continues to employ a large share of the workforce, while contributing a much smaller share of output. This gap shapes income stability, consumption patterns, and the complicated experience of growth across much of the country for many people.

This essay uses field observations comparing two major agricultural towns in Tamil Nadu State in India, Tiruvannamalai and Kallakurichi. After analyzing their respective data and examining how this imbalance plays out on the ground, I offer my perspective.

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Typical Agricultural Field in Southern India

Tiruvannamalai: Growth Without Employment Transformation

In Tiruvannamalai district, I visited several areas where housing conditions were poor and informal settlements were widespread. I have visited many households here since 2023. These conditions are now changing, but not in a way that fundamentally transforms employment.

Capital inflows from the neighboring State of Andhra Pradesh have fueled a real estate boom and expanded services such as lodging, restaurants, and transport. While this has altered the physical landscape and raised asset values, it has not created stable non-farm jobs at scale. Employment remains largely informal, seasonal, and low-paid, leaving the underlying agricultural labor trap intact.

Although Tiruvannamalai exhibits a relatively high services share in district GDP, the income generated by this sector accrues from a narrow group of asset owners, intermediaries, and rent-seekers. As a result, per capita income figures overstate the extent of broad-based welfare. A large share of the workforce remains engaged in low-wage service activities with limited income security.

Kallakurichi: Agricultural Dependence, Weaker Services

In Kallakurichi district, the structural imbalance is even more pronounced. Agriculture accounts for a noticeably larger share of district GDP than in Tiruvannamalai, while the services share is correspondingly lower. District level GDDP and sectoral composition data from the Department of Economics and Statistics, Government of Tamil Nadu (2022–23 provisional, current prices), show that agriculture contributes roughly one-fifth of district output, even as a disproportionately large share of the workforce continues to depend on this type of work for income.

This high dependence on agriculture results in extremely low output per worker, widespread disguised unemployment, and chronically weak incomes. Growth exists, but it is concentrated in activities that do not absorb labor effectively.

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Gross Domestic District Product Comparison of Agriculture versus Non-Agriculture

Core Problem: Growth Composition, Not Growth Absence

The core structural problem in districts like Tiruvannamalai and Kallakurichi is therefore not the absence of growth, but its composition. Too many workers remain tied to a sector that generates relatively little value. Services and industry have expanded, but not in a manner that absorbs surplus rural labor at scale.

As long as labor remains trapped in low productivity farming, while non-farm sectors fail to provide stable employment opportunities, headline income measures will continue to overstate actual welfare.

Consumption Consequences of Agricultural Dependence

This imbalance has direct consequences for consumption. Towns that depend heavily on agriculture tend to exhibit weak and uneven consumption patterns. Farm incomes are inherently volatile, driven by fluctuations in commodity prices, weather conditions, and market access. In many cases, farmers are forced to sell produce at a discount, incur outright losses, or delay sales under distressing conditions. Only intermittently do they realize meaningful profits.

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Chart Comparing Towns of Tiruvannamalai and Kallakurichi in Tamil Nadu

This volatility translates into cautious spending behavior. Consumption rises in short bursts following a good season, but thereafter contracts sharply. This pattern is clearly visible in districts such as Tiruvannamalai and Kallakurichi, where agricultural dependence suppresses steady consumption despite occasional income windfalls.

The same dynamic is visible at State level. Across Tamil Nadu, agriculture employs over 40 percent of the labor force, while contributing a far smaller share of output. The statistics exhibited at the district level are therefore not an isolated phenomenon, but a systemic one.

National Structural Imbalance

Zooming out further, what is visible in Tiruvannamalai and Kallakurichi mirrors India’s broader structural imbalance. Nationally, agriculture employs close to half the workforce, but contributes less than a fifth of GDP. This gap suppresses incomes, weakens consumption, and reflects India’s limited success in industrializing at scale.

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India Agriculture as Percent of GDP from 1990s into 2020s

Services have grown rapidly, but they remain reliant on capital and skill intensive, and unable to absorb surplus rural labor in large numbers. As a result, economic growth continues without broad based prosperity. Headline GDP numbers improve, but the underlying structure remains fragile.

India’s central economic scrouge is growth without labor mobility. Until workers move out of low productivity agriculture jobs and into stable non-farm employment at scale, income volatility and weak consumption will remain defining features of the economy. Regardless of how strong the headline growth numbers appear, a national challenge remains.

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India Insider: Weakening the MNREGA Employment Guarantees

by with No Comment Featured HighlightsFinancial InstitutionsIndia

India Insider: Weakening the MNREGA Employment Guarantees

When the Mahatma Gandhi National Rural Employment Guarantee Act was enacted in 2005, it was conceived as more than a poverty-alleviation program. It was a direct intervention in India’s rural labor market. By guaranteeing employment on demand at a statutory wage, MNREGA established what the agrarian economy had long lacked – a credible wage floor.

For India, where nearly half the workforce remains trapped in agriculture and align activities often involuntarily, this mattered enormously. Rural labor markets are structurally weak in India. They are seasonal, informal, and dominated by excess labor. In such conditions, wages do not rise organically. MNREGA altered that balance by providing an outside option. A worker who could demand public employment could also refuse exploitative private wages. That is why rural real wages rose meaningfully during the first decade of MNREGA’s implementation.

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MNREGA Rural Poverty Data from 2005 to 2018

The figure above illustrates the broader context in which MNREGA operated. Rural poverty declined sharply after 2005, falling from over 40 per cent in the mid 2000s to below 20 per cent by the late 2010s. While this decline reflects multiple forces like overall growth, structural change, and social programs, micro-level studies consistently find that districts and households with higher exposure to MNREGA experienced significantly larger gains in consumption and poverty reduction compared to areas where the program was weakly implemented.

The scheme also acted as a counter cyclical stabilizer. During droughts, agrarian distress, or macro slowdowns, MNREGA expanded automatically, injecting purchasing power into rural areas. This supported consumption, reduced distress migration, and softened downturns. In macroeconomic terms, MNREGA transferred income to households with the highest marginal propensity to consume, precisely where fiscal multipliers are strongest.

Despite its strong design, MNREGA has long suffered from implementation weaknesses. Chronic delays in wage payments undermined its credibility as a reliable source of income. Corruption has generated fake muster rolls, ghost workers, inflated material bills, and substandard asset creation. Social audits which meant to be the backbone of accountability were uneven across states while effective in some.

Technological reforms such as Aadhaar linked payments, and digital attendance reduced certain leakages but introduced new problems, including worker exclusion, authentication failures, and further payment delays. The result was not only fiscal leakage, but a weakening of MNREGA’s core economic function which had promised a dependable wage floor.

Yet instead of fixing these implementation failures, a new policy chose to change the promise itself. In December 2025, this shift became explicit with the passage of the VB-G RAM G Act, 2025 in Parliament, replacing the Mahatma Gandhi National Rural Employment Guarantee Act with a redesigned rural jobs framework.

Under MNREGA, employment was a legal right, if work was demanded, it had to be provided. The new framework reverses this logic altogether. Employment now depends on budget limits, administrative approvals, and notifications from the center, not on demand. What was once automatic is now conditional.

This change also quietly shifts risk onto States. With limited revenue powers and tight borrowing limits, States responded by rationing work and delaying payments. As a result, the employment guarantee weakens, rural workers lose bargaining power, and wages come under pressure. What appears as fiscal control for the central government to rein on capital expenditures on paper thus becomes wage suppression in practice for rural workers.

Almost half of India’s workforce, around 46 per cent, still depends on agriculture and allied rural activities for employment, even though agriculture produces a much smaller share of the country’s total output. This gap between employment and output signals very low productivity in rural work and a large pool of surplus labor. For most of these workers, moving out of agriculture is difficult. They face barriers because of a lack of skills, weak urban job absorption, high migration costs, and social constraints. As a result, the ability to bargain for higher wages is structurally limited.

In such an economy, rural labor markets tend not to be competitive. Employers often face many workers competing for few jobs, while workers have few alternative sources of income. This creates conditions close to monopsony, where employers have disproportionate power in setting wages. In the absence of an institutional counterweight, wages tend to settle near subsistence levels rather than reflecting productivity or broader economic growth.

The consequences are visible in wage outcomes. Daily wages in rural areas stagnate or decline in real terms, failing to keep pace with inflation. Over time, this suppresses labor incomes relative to profits and rents, leading to a further decline in labor’s share of national income. In effect, weakening the employment guarantee shifts income distribution away from workers and back toward employers, reinforcing existing structural inequalities in the economy.

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Iran, Oil and The Crumbling of a Criminal Dictatorial Wall

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Iran, Oil and The Crumbling of a Criminal Dictatorial Wall

Step aside for a moment from the conspiracy theorists and let’s consider that the U.S did not take out Maduro of Venezuela in order to facilitate more supply of oil. Let’s consider the possibility that Maduro was removed because he did not facilitate free enterprise and ran a criminal enterprise that did not favor the U.S.

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WTI Crude Oil One Year Chart as of 9th January 2026

Venezuela has the largest demonstrated oil reserves in the world, but the U.S has done rather well without it for years. The Trump administration’s move to take over Venezuela deters China and Russia’s influence in the Americas, while also putting another nail in the coffin of the Cuban regime. The word regime is used implicitly to point out that Venezuela, Russia, China and Cuba are all regimes of one sort via their one party ruling systems. Yes, you can argue the United State has returned to an imperialist philosophy, but that doesn’t mean it has dictatorial rule. Some will argue that point, I understand. But let’s step away from the complexity of political biases – including my own – and insights and discuss oil for a moment.

The takeover of the Venezuelan oil infrastructure, which has not happened in full yet via the U.S military action, does not mean U.S oil companies will make trillions of dollars from the adventure immediately. In fact a glut of oil is one of the potential consequences if Venezuela were to return to an open market system with its energy supply. Yes, the price of oil would in theory likely get cheaper. While it can be argued that this will help the U.S consumers, however many U.S producers of the shale oil industry would be put in a difficult spot. Producing oil from shale deposits requires hydraulic fracturing – known as fracking – and is an expensive endeavor. Cheaper oil from Venezuela in other words could put small and medium producers in the U.S out of business if supply becomes too ample

Now let’s turn our attention to Iran and the attempted revolution that is fomenting a reaction from the regime of that nation. Oil supply is certainly at stake for the world, but there is the overwhelmingly important possibility of allowing 90 million plus people to live in a system without repression. As of last night internet and telephone lines have been shuttered by the dictatorial government. There is a legitimate fear that many people protesting for their rights to be free now face the risk of violence and some have already begun to pay with their lives. Freedom is more important than oil for the people of Iran and Venezuela. It should also be pointed out that Venezuela and Iran are members of OPEC and this is likely not going to change.

The Trump administration is threatening military action against the Iranian rulers, but it is questionable how the regime of Iran could be overthrown by outside forces if there are not active combat boots the ground. While it may be possible to attempt a Venezuela like mission in Iran, that would be difficult at best considering the regime is already paranoid and on high alert. The civilians of Iran will have to do a lot of the work by themselves. Which means the populace of Iran will need to be able to organize and collectively topple a dictatorship, and this is unlikely to be done by handing out flowers. The regular army of Iran must disobey orders and the police must decide not to participate in violence against the protesters, allowing a seizure of power by the people.

At this juncture it remains difficult to say what will happen in Iran, except to say that there is likely going to be blood spilled. The Berlin Wall fell after decades of Cold War between the West and East. The wall of the Islamic Republic of Iran which was declared in the first week of April 1979 has nearly been running its dictatorship as long as the communists controlled Eastern Europe.

If and it is a big if, the Iranian people are able to topple the Islamic Republic of Iran it would be a game changer the world over. The complexity of the mafia style state that the current dictatorship has controlled not only in the Middle East, but throughout South America and elsewhere via influence with its proxies like Hezbollah is enormous. The dismantling of this network would take longer than the toppling of the Iranian regime. The world is unlikely to ever know in full detail the criminal activity of the current Iranian government and its proxies worldwide.

This is not about oil, it is about freedom. However, if the oil of Iran suddenly came under the control of a Western looking Iran that was unshackled, yes it would add to a vast amount of energy that the world already enjoys, but OPEC would find a way to manage the supply.

If Iran were to join the ranks of free nations and castoff its current leadership the world would benefit greatly. Only nations and proxies that gain from the exploitation of the Iranian dictatorship would worry. If the Iranian dictatorship falls there will not be paradise, but the event would be significant and transform the current state of global affairs.

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India Insider: Strategic Memory and Why Unilateral Power is Resisted

by with No Comment Behavioral SentimentBusinessFeatured Highlights

India Insider: Strategic Memory and Why Unilateral Power is Resisted

After Independence, India was often described as “tilting” toward the Soviet Union. In reality, this was the outcome of India’s pursuit of Non-Alignment at a time when the United States was actively backing perceived rogue actors in South Asia, most notably Pakistan. What appeared as ideological preference was, in fact, strategic necessity born of hard experience.

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The Soviet Union supported India on core security concerns when few others would. The first major Soviet defense deal was not merely a weapons sale. It included licensed production in India through Hindustan Aeronautics Limited, full technology transfer, and made India the first non-Communist country to receive the MiG-21. This distinction mattered. India was treated as a sovereign partner capable of absorbing technology, not as a dependent client expected to align unquestioningly.

By contrast, Washington’s alignment with Pakistan was driven by Cold War geopolitics rather than South Asian stability. Despite repeated military coups, wars with India, and regional destabilization, the United States armed Pakistan, provided diplomatic cover during conflicts, and sustained the relationship through military rule and nuclear proliferation. These experiences deeply shaped India’s strategic culture and explain its enduring emphasis on autonomy, redundancy, and diversified partnerships rather than alliance dependency.

This history is one of the central reasons India resists Washington dictating regional dynamics. South Asia, in New Delhi’s view, is not a chessboard for external powers to reorder at will.

Democratic Republic of the Congo Example

The same pattern is visible beyond Asia. Take the Democratic Republic of Congo. After decades of horrific colonial exploitation, the Belgians realized by the mid-20th century that they could not hold on indefinitely and exited abruptly, having never prepared the country for self-rule. What they left behind was not independence, but a political vacuum. The United States and the United Nations intervened, but their actions were shaped less by concern for Congolese society than by geopolitical rivalry, ideological competition, and racial hierarchy.

The assassination of Patrice Lumumba destroyed the Republic of the Congo’s (as it was known then) only credible attempt at building a unified nationalist state at independence. The dictatorship of Mobutu Sese Seko that followed did not merely fail to develop institutions; it actively hollowed them out. Corruption became a governing principle, loyalty replaced competence, and the state turned into a vehicle for extraction. Today’s instability in the Democratic Republic of the Congo is not a governance failure in isolation—it is the predictable outcome of a political system designed to rule without building state capacity. For countries like India, this is not ancient history, it is a warning.

Washington’s unilateralism reinforces this mistrust:

The recent military operation to remove Venezuelan President Nicolás Maduro without U.S Congress authorization, international legal justification, or an imminent threat would have been unthinkable as recently as the first Trump administration. It became possible in 2026 only because of congressional capitulation, judicial immunity, and the transformation of an apolitical defense establishment into a politicized instrument of executive power. To much of the world, this signals that restraint is no longer embedded in American decision making.

Europe exposes another contradiction. The post war order was built on liberal democracy and collective security through NATO. When that order is weakened by unilateral action, trust erodes, even among allies expected to align automatically.

Even before Trump, the U.S – India relationship remained cordial rather than fully strategic. Before 9/11, India was the most natural regional ally against Al-Qaeda, yet Washington lacked patience and local understanding to navigate India’s complex democracy and nationalism. That failure was not tactical, it was conceptual.

India’s neutrality today is deliberate:

It prioritizes diplomacy over military actions that violate international law. India sees a multipolar world emerging, not as disorder, but as the end of unchecked unilateral supremacy. This is not ambiguity. It is a strategic memory.

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U.S National Security, Part 3: Don’t Underemphasize Freedom

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

U.S National Security, Part 3: Don't Underemphasize Freedom

Opinion: The following article is commentary and its views are solely those of the author. This article was first published the 30th of December via The Angry Demagogue.

 
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Conclusion

The post-Cold War world that the Strategy Paper tries to figure out is much more than the collapse of the Soviet Union and the rise of China. One of the main goals of the Trump administration is to turn the clock back on “globalization”, be it via tariffs, other economic ways or even, military means.

While the world is panicking over AI’s destruction of good white collar jobs, it has, paradoxically, created a world where the auto industry can’t find enough qualified mechanics at nice six figure salaries. Not even ten years ago the journalists were haranguing out of work blue collar workers with “go learn to code”, the beer guzzling crew can now tell the tearful journalists and Hollywood “writers” who can’t write better than AI to “go learn how to weld” (or at least handle a screwdriver). But the strategic issues we are facing go beyond manufacturing jobs.

The challenge to the United States and to other free countries is how to handle a new reality where massive debt threatens the diminution, if not the destruction, of the life style we have all come to take for granted and where revanchist regimes don’t quite understand that their power and “prestige” is a result of what has been built in those free countries they want to replace. China, like Russia, Iran, Turkey, Qatar and the non-state actors like Hamas, Hezbollah, the Moslem Brotherhood and others don’t quite understand that while they can use, and even sometimes improve on what freedom has provided them, they will stagnate once they attain their goal of defeating and destroying the free world.

As advanced as China becomes and even if it flies to the moon, overtakes the United States in AI and quantum computing and manages to make the United States into only the breadbasket of the world, they will stagnate as only free markets and free people can move the world to the next step. Growth can only be accomplished by free people. True enough, the economy often grows in ways that we don’t always like, the alternative is stagnation and a return to the pre-scientific age. For all the talk of “new man” and “progress” and everything else that the Soviet Union strived to create, they produced no medicines, no medical devices and no medical treatments.

Therefore, the defeat of the revanchist world and the preservation of freedom needs to be the paramount goal of American foreign policy. This does not mean the creation of democracies where none have ever existed and it does not mean sending troops in every time a political prisoner is arrested or even a plan to militarily defeat the CCP, but it does mean always supporting free countries against the unfree even when the United States is also “friends” with the unfree one.

This means that it will also give free countries leeway when their interests do not align perfectly with America’s (non-core) interests. America as sole protector of the free world has leverage that America as midwife to a set of regional alliances does not. This is a choice that America can make and a correct reading of the Strategy Paper tells us that the United States no longer wants to or can be the main power in every region in the world. This means that there needs to be a change in attitude in America so that it cannot force its will on its allies just because there is another contract to be had or another “cause” that has caught the eye of the country’s establishment.

Encouraging regional alliances of free countries such as the new Eastern-Med Alliance that has already been established between Greece, Cyprus and Israel is a prime example. In addition to the economic cooperation there has been joint defense training and there are agreements that will lead to a defense cooperation pact if not a NATO-like security treaty. Turkey is the common competitor, or enemy, of these three countries. Turkey claims certain Greek islands, occupies parts of Cyprus and has designs on Israel as it strives to be the Islamic “liberator” of Jerusalem. There are gas exploration agreements and cooperation and there would have been a pipeline to Europe if the Biden administration had not stopped it (while they approved the Russian-German pipeline).

Italy ought to be a natural member of the East-Med Alliance and maybe the dissolution of NATO will make them realize that they have more in common with Israel and Greece than they think they do. If Italy were to join then that would create a powerful naval and air deterrence of free countries against aggressors in the eastern Mediterranean. The addition of Malta, a small but strategically important country south of Sicily would provide naval bases that could control the sea lanes between north Africa and Europe helping to stem illegal migration and Turkish attempts to control those same lanes. Malta also brings with it a history of defeating Suleiman the Magnificent in a four month siege when the Ottomans tried to conquer this important island. As we stated before, the United States as a “midwife” to alliances cannot instruct countries on their own national interests. That means that allies of the United States will clash but America must always come down on the side of the free countries and not the revanchist power – in this case, Turkey.

There are of course other regional alliances that can come into being and a remake of the post-WWII world is in order. The end of the cold war created economic booms across the globe raising hundreds of millions of people out of poverty, but recent decades have seen an increase in terror and tyranny and that itself needs to be dealt with. If not by the United States alone then by the US along with the regional alliances that the Strategy Paper has highlighted and we have demarcated (partially) here. But concepts like “territorial integrity” (see Syria, Somalia and the rest of Africa) and “sovereignty” have lost their moral imperative as they are used as excuses by tyrants (and their enablers at the UN) to further their cruelty. One of the faults of the old “liberal international order” has been allowing tyrannies the same rights and respect as free countries. During the Cold War, when nuclear war loomed, this might have made sense but after the fall of the Soviet Union these “principles” have created more harm than good.

In the National Security Strategy of the administration, the words “free” and “freedom” appear twenty times, but never in the context of an alliance of free countries. While it speaks of freedom of religion and speech and free markets it never speaks of the need to put allies that are free ahead of friends that are not free. Allies are those countries that share values and will come to your aid because of that. Friends, in international affairs, are those that look to short-term gain and have no desire to further your values or interests. There is no reason that the United States, in its current fiscal condition needs to fight the fight of freedom around the world alone, but neither can it abandon that fight in the pursuit of short-term contracts or frivolous causes.

Disclaimer: the views expressed in this opinion article are solely those of the author, and not necessarily the opinions reflected by angrymetatraders.com or its associated parties.

You can follow Ira Slomowitz via The Angry Demagogue on Substack https://iraslomowitz.substack.com/ 

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India Insider: Growth Without Development an Inequality Trap

by with No Comment AssetsBehavioral SentimentFeatured Highlights

India Insider: Growth Without Development an Inequality Trap

An India and Latin America Comparison

India’s strong headline growth reflects a rapid expansion of aggregate output. Yet this growth often coexists with weak job creation, uneven human capital formation, and persistent inequality. This coexistence is not a temporary anomaly. It reflects a deeper political & economic structure in which inequality itself constrains development, rather than merely emerging as a byproduct of slow growth.

This mechanism is similar to Latin America. In unequal political economies, rising income concentration encourages elites to exit from public systems like education, healthcare, transport, and social insurance. Once affluent groups no longer depend on public provision, political incentives to strengthen these systems weaken fiscal capacity erodes, public services deteriorate, and inequality becomes self-reinforcing.

Latin America’s experience illustrates this dynamic clearly. Despite periods of high growth driven by industrialization, commodity booms, or financial liberalization, many countries failed to build universal public systems. Elites relied on private schools, private healthcare, and offshore financial arrangements, while the majority depended on chronically underfunded public institutions. The result was a narrow tax base, weak state capacity, and growth that was volatile and socially shallow.

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Figure concept adapted from book, “The cost of Inequality in Latin America” by Diego Sanchez-Ancochea

India increasingly shows signs of a similar trajectory. Public spending on health remains around 1.2 – 1.4 percent of GDP. Government expenditures on education is around 3 percent of GDP, which is low not just by OECD standards, but comparative to many middle income Latin American economies. Out of pocket healthcare costs account for roughly 45 – 50 percent of total health spending in India, among the highest shares globally. These figures point to a systematic private substitution over public provisions, a hallmark of elite exit.

Implications of Elite Leaving Public Systems

Withdrawal from public systems has direct implications for growth quality. When education and healthcare remain uneven, the diffusion of skills and productivity across the workforce is limited. Growth then concentrates in capital intensive or skill intensive enclaves, while large segments of the labor force remain trapped in low productivity informal employment. India’s employment elasticity of growth has remained structurally low, estimated at below 0.2 in recent decades, meaning that even high output growth generates relatively few jobs.

This structural weakness is reinforced by the nature of Indian capitalism. Like much of Latin America, India’s growth model rewards scale, access, and regulatory navigation more than technological risk taking. Firms that can manage land acquisition, compliance complexity, market concentration, and political connections earn higher returns than those that invest in frontier innovation. Private investment in research and development remains modest: total R&D spending in India is around 0.6 – 0.7 percent of GDP, with a particularly weak contribution from the private sector. By contrast, East Asian economies that achieved solid employment growth invested 2.0 – 4.0 percent of GDP in R&D during their catch up phases.

This outcome produces poor job growth and entrenched dual labor markets, which is also another Latin American hallmark. A relatively small formal sector benefits from capital strengthening and productivity gains, but the majority of workers remain in informal employment with stagnant wages and weak social protection. Gradually this weakens domestic demand and increases reliance on credit, exports, or asset inflation to sustain growth. Latin America’s history also shows that such growth patterns are inherently fragile.

India Vulnerability and Structural Risks

Narrow tax bases limit counter-cyclical policies. High inequality constrains mass consumption. Credit expansion often substitutes for income growth, increasing financial vulnerability. India has thus far avoided repeated balance of payments or sovereign debt crises, but the underlying structural risks look similar to Latin America. Growth looks strong on paper, yet remains vulnerable to shocks and has been slow to translate into broad based societal gains.

India differs from economies that have escaped their inequality traps, like East Asia and Northern Europe, because of poor development sequencing. These successful regional giants expanded universal public education, healthcare, and social insurance early, before inequality became politically entrenched. Elite dependence on public systems sustained fiscal capacity and productivity diffusion, allowing growth to create gainful employment.

India’s Social and Economic Dualism

India’s economic liberalization grew before consolidating universal public provisions. As growth has accelerated, inequality has widened and the exit of elites has deepened from public centers. An opportunity to create inclusive institutions during this early growth phase is missing for parts of the society.

The implication is clear. High growth alone does not guarantee development. When inequality weakens public systems and limits fiscal capacity, this discourages technological risk taking and produces inadequate job growth. Output expansion becomes narrow and periodically fragile. Latin America’s experience is a warning. Without building strong public institutions and reshaping incentives toward broad based innovation, India risks portraying impressive headline growth while vast disparity persists.

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U.S National Security, Part 2: Regional Alliances – Europe

by with No Comment Behavioral SentimentFeatured HighlightsIndia

U.S National Security, Part 2: Regional Alliances - Europe

Opinion: The following article is commentary and its views are solely those of the author. This article was first published the 25th of December via The Angry Demagogue.

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As we continue our tour of the administration’s National Security Strategy we will stay with “part III: What Are America’s Available Means to Get What We Want?” and move to the sixth bullet point: “A broad network of alliances, with treaty allies and partners in the world’s most strategically important regions” and work through the important regions that the strategy documents – Asia, Europe, the Mideast and Africa. For good or for bad we will need to split these regions up since the key point is forming coalitions that can handle their actual region. Sweden can’t be part of a coalition to protect Italy’s interests in the Mediterranean and Japan won’t be protecting Singapore.

Some U.S allied countries, like Australia, Israel and India will be involved in multiple regions helping lead alliances in all areas important to them. With that in mind we will point out the first mistake of the discussion on regions and that is Europe. We will suggest something here that would not usually come from the mouth of a hawk and pessimist and that is that NATO has no real mission and needs to be replaced by a series of alliances that make more sense. While the fear during the Cold War was a Warsaw Pact ground invasion into Germany and beyond which would have required the totality of American and European forces, Europe now is facing a Russia that could not conquer Ukraine in nearly four years of war. That is not to say that Russia is not to be feared only that each part of Europe needs to ally to face a Russian onslaught in its own theatre.

Italy is not going to send troops to Sweden to prevent an attack and Norway won’t be helping Greece in any fight. Turkey is a country that other NATO countries fear more than trust, especially regarding Russia.

In short, NATO needs to be broken up into different alliances where each country will be allied with countries whose fall would affect its national security. The United States can either be a signatory to these alliances or it can decide how involved it wants to get in any conflagration depending on its own interests at that time. It can decide to position ground troops in the countries, supply air cover or, as in the 12-day war between Israel and Iran, help with missile defense and in providing the final blow with weapons only America has. Or – it can decide that it will never participate. One hopes that that won’t happen, but each alliance will need to be ready to fight on its own.

We can include France and the U.K as large countries with advanced armed forces as allies to all of these alliances. France certainly can contribute air power to each of the alliances that are faced against Russia. As for the U.K, it is difficult to know where that country is going but its navy and air force are still powerful.

Today we will deal with north, central and western Europe.

The Baltic Alliance

This would be an alliance that includes Poland, Germany, Sweden, Finland, Norway, Denmark, Latvia, Lithuania and Estonia and would provide cover for land, air and naval battles. Each of these countries, with the exception of Germany, has a border with Russia and all are on the Baltic Sea – a key waterway for them and for Russia.

An alliance of these countries would force them to concentrate on those areas necessary for their defense. An incursion, for example into Finland would force Poland to mass forces on its border with Russia and Belarus (Poland borders Russia in Kaliningrad which is separated from Russia proper by Lithuania) and Germany to move forces to Poland. All countries could also contribute ground forces to Finland as well as naval and air power.

The only thing missing is the lack of a nuclear umbrella. That is no small issue but can be dealt with by support or threats from France or the U.K.

The Atlantic Alliance

Aside from helping the Baltic Alliance, France and the U.K will have major responsibility along with the Netherlands for patrolling the North Atlantic and, with help from Portugal, and Spain the South Atlantic. As the Atlantic Ocean can be considered one of America’s seas, this alliance will need to have the close cooperation if not outright membership of the United States. Canada too, will need to be part of this alliance. We can include the increasingly important Arctic Ocean into this alliance’s responsibilities.

As we move towards the south Atlantic countries such as Morocco, can be included as well as other western African allies of the west. An alliance like that could encourage western African countries to abandon close security and economic ties with China and Russia. The “border” of this alliance would be that squiggly line in the middle of the Atlantic that separates the Eastern and Western hemispheres.

The Central European Alliance

We can look at the smaller central European countries that formed the heart of what was the Hapsburg Empire but are not front line countries bordering Russia – Romania, Hungary, Slovakia, Czech Republic, Austria, Serbia and Bulgaria – and we have an alliance that, backed by Germany, Poland and the United States, would create a further deterrence to Russian encroachment into Europe proper.

Where, do you ask does Ukraine fall in this European alliance structure? That answer will have to come from the major European powers in concert with the United States. Adding Ukraine to the Baltic alliance might be viewed as another attempt to NATO-ize them by the Russians. However, attaching them to the less threatening Central European Alliance of smaller countries might be the excuse and “victory” that Putin would need to end the war. But we are getting ahead of ourselves here. Ukraine is a problem that can only be solved if the West decides to actively join the fight against Russia (unlikely) or when Putin and Russia get tired of the fight and look for a way out that could allow them to claim victory (more likely than the former, but sadly, a long way off).

The Administration’s concentration on regions and how certain countries can become leaders in support of western and American interests is correct – but the breakdown of the regions has to go beyond the post WWII world. The place of America in the post-cold war world, with a China that wants to challenge America’s economic and military interests and leadership needs to break down old alliances into more manageable and logical pieces.

The wild card in all of this is, of course, the will of the European powers to take their own defense seriously. The Baltic Alliance we spoke about seems to be filled with countries that understand the threat from Russia, but do they recognize the threat to them from the alignment, the Axis if you will, of Russia, Iran, North Korea and China? And of more importance have they yet come to understand the threat to their countries, as they know them, from open immigration and from their own abhorrence of families? The former is something only the governments can handle, the latter though, must come from the people themselves.

A whole generation (or two in many instances) of Europeans have grown up not only as “only children” but in families that have no aunts and no uncles, no cousins and only very elderly grandparents, if that. They have grown up in other words without families. Will the young generation see the importance of families to themselves and their countries or will they continue the nihilistic lives that they parents have “sanctified”? Religious institutions, too will have a major role in this challenge. No amount of “parental leave” and childcare subsidies will convince the young to marry and have children – will only come from a change in the culture. Is Europe up to it?

Disclaimer: the views expressed in this opinion article are solely those of the author, and not necessarily the opinions reflected by angrymetatraders.com or its associated parties.

You can follow Ira Slomowitz via The Angry Demagogue on Substack https://iraslomowitz.substack.com/ 

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U.S National Security: USD Reserve Currency Importance

by with No Comment AMT MarketsAssetsFeatured Highlights

U.S National Security: USD Reserve Currency Importance

Opinion: The following article is commentary and its views are solely those of the author. This article was first published the 23rd of December via The Angry Demagogue.

We would like to start going through the U.S administration’s National Security Strategy released last month. There is a lot in there – much of it the same as in past administrations and much of it different. The tone of course is full Trump and while the introductory parts try to make it into a revolutionary document it does in fact build upon much of what has been American foreign policy for decades. One thing it most certainly gets right is that American foreign policy since the end of the Cold War has not found its compass. From a unitary world to one dependent upon global organizations, from a sharing of goals with western Europe to a pivot to Asia, from the war on terror and the middle east to Russia-Ukraine, the United States has struggled to find its way in the post-Cold War world.

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We however will concentrate today on one aspect of the strategy, the third bullet in part III – “What Are America’s Available Means to Get What We Want?”. The third bullet point speaks of America having “The world’s leading financial system and capital markets, including the Dollar’s global reserve currency status” – a point that no one with any knowledge of global capital markets can not accept. The end of the bullet point – the Dollar’s global reserve currency status – is the most important because it underscores America’s leadership and essentially allows the United States of America to finance its military and its welfare state. The U.S Dollar as the “reserve currency” means that nearly all the world’s goods are quoted and therefore sold in Dollars.

Why is that important to the United States? Because the U.S government depends on its ability to issue Treasury bonds and bills at will – something no other government can do. It can do this because for another country to buy oil or copper or titanium or corn or soybeans from a country that is not their own– they need access to Dollars. Saudi Arabia and the other gulf states quote the price of oil in U.S Dollars and demand payment in U.S Dollars. The Saudis can deposit those Dollars in American banks or in what is called Eurodollar deposits in foreign banks (there are some 13 trillion Dollars in Eurodollar accounts globally). The Eurodollar accounts are essentially promises by the bank to give U.S Dollars to the holder when he makes a withdrawal. This strengthens the U.S capital markets and allows investors to have better and more investment choices. It is not only America’s often superior companies that bring profits to 401k’s and pension funds but the liquidity and vastness of America’s capital markets that can list domestic and foreign corporations. The reserve currency leading to the advanced capital markets allows the world – and America – to do this.

The U.S Treasury market is so liquid because every country needs Dollars in order to trade. They need to have enough dollar reserves since no one actually wants their own currency. In Israel, for example, local gas companies cannot buy oil with Israeli Shekels, since what will Azerbaijan, for example, do with them? There are only so many products that Israel can sell them. They need Dollars so that they are free to buy other commodities or other products.

The U.S Dollar as a reserve currency also is a break on inflation since the price of oil and other commodities is always in U.S Dollars. A weak or strong U.S Dollar influences the inflation rate in non-USD countries. A weak Israeli Shekel, South African Rand or Chinese Yuan does not influence the price of gasoline in the United States.

In short – as the Trump Administration understands well, the dollar as a reserve currency is a luxury the U.S cannot give up. The lack of the USD as a reserve currency could cause the Dollar to collapse and along with it the price of U.S Treasuries. As UST prices drop, their yields will rise and the cost of financing the U.S government will make interest payments on debt to rise well beyond its already absurd figure of over 4% of GDP – while debt itself is 120% of GDP. The U.S government currently pays over $1 trillion in debt service (interest payments on its bonds and bills). By contrast, the U.S defense budget for 2024 was $836 billion (about 3.3% of GDP).

We need to ask ourselves what can challenge the USD as the reserve currency and what could happen that would encourage the world to change? While the E.U had dreams of making the Euro an alternative reserve currency, the lack of growth in the E.U’s economy and population have put that dream to rest. The only other country that could theoretically replace the United States as the global economic go to country could be China. While in the long run, China’s lack of openness would probably mean that the Yuan would not last long as the reserve currency, that does not mean that they couldn’t jolt the global economy just enough to force it to use the Yuan to buy oil and other commodities.

China is already cornering the market on rare earth minerals and it making inroads in Africa where it mines all sorts of commodities from gold to copper to platinum and so many others (Africa has about 30% of global mineral reserves). That in itself is not enough to rock the global markets and cause a change in how the world does business.

Oil though, is that one thing that could allow China to challenge the USD as the reserve currency, even if it just presents the Yuan as an alternative.

How could that happen?

A Chinese takeover of Taiwan, by whatever means it uses would give the Chinese Communist Party control not only of the South China Sea but also allow its noisier and inferior (to America’s) submarine fleet to enter the Pacific and patrol it freely. The Chinese Navy, with a base on the “other” side of Taiwan would give it control of the north-south sea lanes that Japan and South Korea are dependent upon. Essentially, Chinese control of Taiwan would put Japan, South Korea, Vietnam and the Philippines at the mercy of the Chinese Navy. China could blockade these countries but that would be an act of war and then involve the navies of those countries and possibly the United States. It would affect the global economy negatively but it would not cause a change in world’s reserve currency. But, what if China works out a deal with Saudi Arabia to quote and sell their oil in Yuan (or the Chinese Petro-Yuan it wants to create) and then tells these countries, especially industrial powerhouses and energy poor Japan and South Korea that it will allow the passage of oil as long as they purchase the oil in Yuan?

Russia is already trying to get India to pay it for its oil in Yuan, to some success. Adding economies the size of Japan and South Korea would mean that any country that wants to buy oil could buy it in Yuan instead of Dollars. Once in Yuan, these countries would need to use the Yuan to buy Chinese products, deposit cash there and buy Chinese treasury bills. If China were to combine that with demands that all chips made in Taiwan also be sold in Yuan, the U.S Dollar would suddenly and forcefully no longer be the only reserve currency in the world.

Obviously, the way to stop this from happening is by stating outright that the United States will not tolerate a Chinese takeover of Taiwan. It is true, that the Strategy claims that the US “will also maintain our longstanding declaratory policy on Taiwan, meaning that the United States does not support any unilateral change to the status quo in the Taiwan Strait” but in practice the administration has criticized Japan’s tough talk on China instead of leaving it be. A strong silence on Prime Minister Takaichi’s remarks on China would have served the purpose of keeping the status quo more than telling her to tone down her rhetoric. There is a strong “no intervention ever” strain in the country and the President must make the case that that is not an option if the United States wants to maintain its leadership position, way of life and general prosperity.

In short, the threat to the Dollar as the reserve currency heads right through Taiwan. For those who think that the investment the U.S makes in keeping the Dollar where it is, is too expensive, just think of going on vacation and having the change to Yuan before you leave the country, wondering how much to change because of currency fluctuation and how much fun it is to return with hundreds of dollars in banknotes that you can’t use. Imagine your credit card bill on such travels and wondering how you went 15% over budget but didn’t get anything extra for it. Now imagine the national economy working that way.

Disclaimer: the views expressed in this opinion article are solely those of the author, and not necessarily the opinions reflected by angrymetatraders.com or its associated parties.

You can follow Ira Slomowitz via The Angry Demagogue on Substack https://iraslomowitz.substack.com/ 

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India Insider: The 8.2% Growth Mirage Needs a Reality Check

by with No Comment AMT MarketsAssetsFeatured Highlights

India Insider: The 8.2% Growth Mirage Needs a Reality Check

India is celebrating the 8.2% real GDP growth result for Q2 FY26, as if it has entered a new economic orbit. Politicians are claiming victory and media is packaging optimism. The narrative is simple: India cannot be stopped. But once we move beyond the headline, the number loses credibility. It rests on a broken deflator, a statistical gap that no one can trace, and data architecture that doesn’t consider half the economy. This is not a story of unstoppable growth. This is a story of statistical convenience.

The Production–Expenditure Divide

On the production side, the numbers look heroic. Manufacturing allegedly grew 9.1%, and financial and professional services posted more than 10% growth. Corporate India looks like it is flying. But when the same activity is measured from the expenditure side – who actually spends this income – the story weakens.

Private consumption at 7.9% is respectable, not outstanding. The real shock is government consumption, which contracted by 2.7%. A shrinking government should normally mute growth, not accelerate it. Yet the GDP shoots up. How does that make sense? It doesn’t unless the number is being propped up somewhere else – and this is the case.

₹1.63 Lakh Crore of ‘Unknown Growth’

GDP includes a category called ‘discrepancy’. It exists because the two methods – production and expenditure – never perfectly align. The discrepancy stands at ₹1.63 lakh crore ($18.2 Billion USD) which equates into roughly 3.3% of real GDP. That means a chunk of this 8.2% growth has no identifiable spender: No households. No firms. No government.

It is income without absorption. A statistical plug. When a number this large is called ‘discrepancy’, the headline becomes unreliable – suspicious. You cannot claim world beating growth when your own data admits it cannot explain where that growth came from.

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Chart via the National Statistical Office

The Deflator Illusion

The next distortion is the nominal vs real GDP gap. Nominal GDP is growing at 8.7% and real GDP at 8.2%. A gap of 0.5 percentage points implies inflation has almost vanished. Every Indian knows this is not true. Costs did not collapse. Food inflation has not disappeared.

The explanation is mechanical: India still uses the Wholesale Price Index (WPI) to deflate nominal output. Global commodity prices fell, WPI softened sharply, and that flattening pushed up the real number. In other words, GDP grew because the denominator fell, not because production surged.

This creates a fiscal problem. The Union Budget assumed 10.1% nominal growth. At 8.7%, tax buoyancy will weaken, deficit targets become more difficult, and next year’s fiscal capability shrinks. Real GDP does not pay the bills, Nominal GDP does.

The Informal Blind Spot

India still cannot measure its informal economy accurately. Nearly half of GDP and employment sits outside the formal system, yet the NSO uses formal sector proxies such as corporate balance sheets, GST data, and financial flows to estimate the rest of the economy. If a small business collapses and a corporate giant expands, the data shows a net gain, erasing distress at the bottom which means real economic circumstances are not portrayed accurately for Indian citizens.

Agriculture grew at 3.5%, but it still supports 46% of India’s workforce. That means growth is concentrated in capital intensive and balance-sheet heavy sectors, not into areas that put cash into rural hands. A booming Nifty Index via the stock market does not translate into household prosperity.

An Economy Measured with Old Tools

India continues to measure GDP using a 2011–12 base year, an era before UPI (Unified Payments Interface), before fintech credit, before e-commerce, before gig workforces, before the pandemic rewired supply chains and consumption patterns. India is living in a digital economy, but measuring activity with analog instruments.

A shift to a 2022–23 base year, plus replacing WPI with a Producer Price Index, may finally align the numbers realistically. But until then, headlines are running ahead of bona-fide measurements.

India’s 8.2% print is impressive, but growth estimates that don’t reflect grounded realities produce illusionary optics rather than useful insights. For India to strengthen fiscal and economic credibility, measurements must capture households, labor markets, and productivity, not solely corporate outputs. Policy cannot be shaped by statistical ambiguity, it requires transparency and trusted data.

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India Insider: Why a Deep Corporate Bond Market is Needed

by with No Comment AMT MarketsAssetsFeatured Highlights

India Insider: Why a Deep Corporate Bond Market is Needed

India’s corporate bond market remains small relative to the size and ambitions of its economy. This is often described as a regulatory shortcoming. In reality, it reflects a deeper structural choice: India’s financial system was built to channel savings through banks, not markets. That choice now imposes visible constraints on capital formation, governance, and risk pricing.

During the Covid-19 pandemic, several Indian companies including firms such as Arvind Fashions were forced to raise capital by diluting their equity in public markets. Equity issuance is not inherently wrong, especially during a crisis. However, businesses built on consumer brands, distribution networks, and long gestation cycles require patient, long term capital. Financing such models primarily through short term bank loans or repeated equity dilution creates a mismatch between the nature of the business and the nature of the capital supporting it.

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India Corporate Bond Comparison to the U.S 2024-25 Approximated Totals

In countries like the U.S, this gap is filled by intermediate forms of capital. Private equity firms often provide long duration funding through instruments such as mezzanine debt, while deep corporate bond markets allow companies to raise long term money aligned with their operating horizons. In India, the absence of such markets make corporate choose to either raise capital via short term debt that strains cash flows or equity dilution at unfavorable points in the cycle.

A corporate bond market also serves a broader purpose: governance and accountability. A Parliamentary Standing Committee report in 2022 noted that nearly ₹10 lakh crore ($110 Billion USD) of corporate bank loans were written off over the preceding five years. While write-offs do not automatically imply wrongdoing, they highlight a system in which credit losses are repeatedly absorbed by public sector balance sheets where the capital is often infused by taxpayers money. In bank dominated systems, credit assessment is periodic and opaque. Market discipline remains weak.

Traded securities impose a different standard. Michael Milken once observed that bond markets re-evaluate credit daily, not every six months. Prices respond immediately to new information. If sellers suddenly outnumber buyers, the market forces a reassessment of risk in real time. In effect, every trading day becomes a fresh credit decision.

This discipline is missing when loans remain locked within banks. A vibrant corporate bond market which is supported by securitization, secondary-market liquidity, and institutional investors would allow credit risk to be priced, transferred, and monitored continuously. It would expose stress early, rather than after losses have already been socialized.

Today, banks account for nearly 70 percent of financial intermediation in India. Fintech has begun to challenge this dominance, but largely in consumer and personal finance. For corporate and MSME (Micro, Small and Medium Enterprises) financing, long-term capital cannot come from apps or short duration loans, it must come from markets designed to price risk over time.

India’s corporate bond market will not look like America’s, nor does it need to. But without deeper liquidity, institutional participation, and price discovery, India will continue to build long term businesses on short-term money ,and bear the consequences when cycles turn.

(Notes: 1 USD = 90.58)

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Fed Today, Tmrw and Mid-Term with Changing of Guard

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Fed Today, Tmrw and Mid-Term with Changing of Guard

The Federal Reserve will cut its Federal Funds Rate by 25 basis points in a handful of hours, that is unless they want to cause a major selling attack on Wall Street and pandemonium in Forex and gold. The Fed which spoke about uncertainty in last month’s FOMC Statement and utterly refused to give guidance about today’s decision, has had the ignition regarding an interest rate cut delivered with nearly 100% certainty because inflation for the moment remains tame.

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U.S Dollar Index One Year Chart as of 12th December 2025

Fed Chairman Jerome Powell will leave the Fed in May of 2026. This isn’t a subjective opinion, he is leaving because he is not going to be reappointed by the White House. President Trump has made it clear he wants a lower interest rate and that he believes the Fed has failed to be proactive. Given Trump’s propensity for saying outlandish things, he is not wrong about Powell’s overtly cautious posture. The Fed could have cut the Federal Funds Rate in the early summer and refused to initiate.

Financial institutions have factored the 25 basis point interest rate cut into Forex already. Again, unless if for some reason they want to initiate a massive selloff in the equity indices and cause the 10 Year Treasuries yields to rise like a wildfire, the Fed needs to cut today. Day traders need to understand the first couple of reactions following the FOMC Statement tonight should not be wagered upon without deep pockets and steel stomachs.

There are three more FOMC meetings scheduled for the Fed after today’s decision while Fed Chairman Jerome Powell remains in office. The 28th of January, the 18th of March and 29th of April are the listed FOMC Statement announcement dates, this before the June meeting which Jerome Powell will not helm. While some analysts strongly believe the Fed will find it difficult to cut interest rates early in 2026, the potential for a shift in sentiment and open disagreement regarding the Federal Funds Rate could turn intriguing in late January. If inflation remains steady via the Core PCE Price Index it would not be a shock to see another interest rate cut next month.

Caution has prevailed in Forex the past couple of months. Major currencies like the EUR and GBP have lingered within known ranges. Yes, the JPY has incrementally lost value due to BoJ policy. President Trump cannot make the Fed decide what to do, but he can certainly keep appointing folks who agree with his policies and approach to enterprise. If Powell does not outright say an interest rate cut is impossible for next month’s FOMC decision, U.S economic data that will be generated over the next handful of weeks could deliver enough impetus. Let’s keep in mind ladies and gentlemen that holiday trading will come into full force after next week’s price action.

The Fed’s borrowing rate essentially stands at 4.00% for the moment. After today’s rate decision the Fed Fund Rate should be at 3.75%. And for the moment there is little justification to not make the borrowing rate 3.50% in late January. As economic data presents itself now via the PCE Price index and CPI and PPI statistics, there is reason to believe a more proactive Fed is on the horizon as the pressure is turned up on Jerome Powell.

Perhaps nothing will happen in January, but if inflation remains tame not only will Jerome Powell be criticized by the White House, but he may also face a rather public debate from Fed members who do not agree with his cautious approach to interest rate policy. A weaker USD in Forex against many major currencies mid-term appears to be a real possibility. The ability of the EUR/USD to linger within a cautious middling range may be an indicator that financial institutions have built a mechanism which will allow them to become stronger buyers. Dangerous as it is to predict a timetable, the EUR/USD over 1.17000 would not be a surprise in the weeks to come – at least to me. Let’s see where behavioral sentiment takes us.

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India Insider: Why Russian Oil Should Be Treated Skeptically

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India Insider: Why Russian Oil Should Be Treated Skeptically

As Russian President Vladimir Putin arrives in New Delhi for a bilateral summit, the mood in India’s capital is one of profound strategic tension. The core of the problem is India’s massive appetite for discounted Russian Crude Oil, which has shielded the economy from high energy prices but is now causing significant financial and geopolitical risks. This move comes at a time when India’s most important trade surpluses lies with the West, raising anxieties about U.S sanctions and shrinking strategic space.

Trapped Rupee Problem

Since the Ukraine war, Russia’s share of India’s Crude Oil imports has surged from under 2% to nearly 40%. This has simultaneously inflated India’s trade deficit with Russia to nearly $59 billion.

The transactions are largely settled in Indian Rupees (INR). Moscow has accumulated billions of Rupees in Indian banks. However, because the Rupee is not fully convertible on the global market, Russia has very limited ways to use this huge surplus within India. These billions of Rupees are essentially ‘trapped liquidity’ – a problem neither country can easily solve.

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India – Russia Bilateral Merchandise Trade Chart from 2017 – 2024

The Kremlin, meanwhile, is shifting its financial allegiance. It is preparing to issue Yuan denominated sovereign bonds, a decisive step that deepens its reliance on Beijing’s financial system amid a cut off from the Western financial system. This financial trajectory clearly signals the next logical step: Russia will inevitably demand that India begin paying for its oil shipments in Chinese Yuan (CNY).

Structural Risk of Holding Chinese Yuan

India has never been comfortable holding Chinese Yuan or settling trades in the currency. That’s partly strategic as New Delhi wants to protect its geopolitical autonomy and position itself as the democratic anchor of the Global South while staying closely aligned with the West.

But Russia’s financial plumbing is now increasingly routed through China. As the Kremlin becomes more deeply integrated into China’s banking and payments system, its dependence on the Yuan becomes structural. Moscow needs Yuan not only to service Chinese creditors, but also to pay for its expanding list of manufactured imports from China. The Ruble, being a largely non-convertible currency, simply cannot support this scale of trade.

For now, Russia-China trade is balanced enough because Beijing still buys large quantities of Russian energy. But this equilibrium can shift quickly. As the Ukraine war drags on and Moscow’s defense spending rises, the Kremlin will be forced to rely even more heavily on Chinese financing, Chinese goods, and ultimately the Yuan itself, tightening its economic dependency on Beijing.

When that moment arrives, the Reserve Bank of India (RBI) will be forced to accumulate Yuan as part of its Forex reserves to ensure the continued flow of oil. This decision, born of necessity, introduces a structural vulnerability into India’s financial system as the adoption of Yuan as a reserve currency subject to China’s capital controls.

Risks of Holding the Yuan

China may have both the onshore (CNY) and offshore (CNH) Yuan, but the currency is ultimately controlled by the PBOC, which makes it a risky reserve asset for India. In a crisis, Beijing’s capital controls could restrict liquidity and prevent the RBI from freely converting yuan into hard currency like the USD, effectively trapping India’s capital.

Beyond this financial rigidity, large Yuan holdings also expose India to CCP driven political risk, tying its external stability to China’s domestic decisions. And unlike the Dollar which can be deployed anywhere, Yuan reserves are usable mainly for transactions with China or countries in its financial orbit, sharply limiting India’s strategic and financial flexibility.

Strategic Win for Beijing

For Beijing, this shift delivers a double strategic win, cementing the Yuan as the dominant settlement currency across Eurasia especially among countries squeezed by Western sanctions and it allows the yuan to slip into India’s financial system indirectly, not through Chinese pressure but through Russia’s growing dependence on Chinese finance and India’s reliance on discounted Russian oil.

For Moscow, this is a reluctant compromise: giving up some monetary autonomy in exchange for necessary financial support from China.

For India, however, it introduces a new long term structural risk with a slow but steady Yuan encroachment into its trade and reserve system, operating alongside the dominant U.S Dollar. The oil corridor that was meant to offer an independent strategic opportunity for India is now becoming a channel which Beijing can strengthen its monetary footprint. In this complex triangle, India risks paying a dangerous tactical long-term price for its energy security.