A Fiscal Reprieve Is No Free Lunch; The Bill Always Comes Due

RBI’s prudence in surplus transfer might feel like a win, but India’s slow manufacturing pace, remittance risks, and eroding corporate trust signal the bill always comes due.

RBI's First Central Board of Directors

RBI

By Phynix

Phynix is a seasoned journalist who revels in playful, unconventional narration, blending quirky storytelling with measured, precise editing. Her work embodies a dual mastery of creative flair and steadfast rigor.

May 25, 2025 at 7:43 AM IST

Dear Insighter,

If you’ve watched any of the Final Destination franchise movies, you know the playbook. Someone cheats death in a freak accident. Relief floods in. The mood lightens. And then—wham!—a ceiling fan decapitates someone. Or a garbage truck becomes a death-trap. Escaping doom is always temporary.

Real life may not have flying scalpels, but our financial and political storylines are no less twisted. Case in point: India’s fiscal planners welcomed Reserve Bank of India’s record ₹2.69 trillion surplus transfer to the Centre, a seemingly generous windfall. Yet, as Richard Fargose points out, this fell short of street expectations of over ₹3.5 trillion. Why? Because the RBI raised its Contingent Risk Buffer to 7.5%, carving out a potential ₹750 billion to bolster resilience amid uncertainty.

Dhananjay Sinha adds a cautionary voice: these windfalls are espresso shots, not sustained nutrition. He welcomes the tighter buffer framework, which signals a shift from short-lived fiscal relief to building long-term financial stability.

Speaking of evolving frameworks, the Liquidity Adjustment Facility, turning 25, is not celebrating with cake but introspection. R. Gurumurthy shows how tools like the Standing Deposit Facility are morphing into anchors in a liquidity maelstrom, while the call money market plays a fading note in the monetary orchestra, in a three-part series.

Globally, bond vigilantes are back. Yield Scribe charts their resurgence, as rising yields across continents signal rebellion against fiscal excess. Meanwhile, markets are having three-month nervous breakdowns. Convictions crumble; algorithms feast.

Michael Debabrata Patra, in his debut public engagement since superannuation from the RBI, anchors us back with a rallying cry: empower women or forfeit your demographic dividend. The former Deputy Governor reminds us that India’s growth depends not just on youth but on working women. Channeling Shakti isn’t just spiritual; it’s macroeconomic. Michael Patra has a practiced hand with the pen—and plenty to say. Aren’t we in for an intellectual feast, dear Insighter?

Meanwhile, FPIs have returned to India, but as Manoj Rane observes, they’re here more by circumstance than conviction. India is Plan B when the dollar stumbles. The dance is choreographed in Washington, not New Delhi.

Corporate houses sniffing at banking licences? Srinath Sridharan warns: not so fast. Trust, once lost, can’t be restored on paper.

IndusInd Bank is a cautionary tale: a ₹23 billion loss, governance cracks, and a scorched credibility landscape. Its road to redemption is expected to be slow and unforgiving, writes Richard Fargose.

Our industrial dreams are also stuck on pause. Sridharan calls out India’s manufacturing malaise: scale without sovereignty, incentives without depth. It’s a prefab dream with someone else’s blueprints. Even Apple’s factory calculus has become Trump turf. Abheek Barua questions whether productivity, not low wages, will determine who wins the manufacturing game.

A Trump era means no end to drama. A bizarre academic thriller unfolded when the Trump administration tried revoking Harvard’s ability to enrol international students. The backlash was swift. Harvard pushed back in court, citing Constitutional violations. Score one for sanity.

Hoping this sanity follows trade talks, Amit Singh argues India must stand firm, especially on IPR. Innovation cannot be held hostage to imported frameworks. And as Ajay Srivastava observes, India’s curbs on Bangladeshi imports show that geopolitical rebalancing can start with cargo lists.

TK Arun and Ajay Srivastava wave the warning flags on China and Trump’s remittance tax, respectively. TK Arun outlines how India’s China challenge requires deep systemic reform, not just slogans. Beijing is building hardware; we’re still debating hashtags. Srivastava dissects how a US tax on remittances could gut India’s forex resilience. Nearly 28% of our $120 billion remittance pool flows from the US. America’s moves could gut household incomes and strategic space for India alike.

Punjab too hurts at closed borders. Nikita Singla calls for an inland pivot, a future not shackled to neighbouring volatility.

In the corporate world, Asian Paints’ right to premium seems to be fading. Dev Chandrasekhar chronicles its dulling moat: falling revenue, margin squeezes, and strategic missteps.

And finally, a nudge to the Global South: embrace GM crops, argues Amitrajeet A. Batabyal. Higher yields, lower emissions, less land — what’s not to like? Ah, but fear is a pesticide of its own.

As the credits roll this week, remember: you can duck destiny once, maybe twice. But eventually, whether it’s a tax proposal, a trade war, or a court trial, the reckoning arrives. Best to keep your seatbelt on and your buffers high.

Until next week, yours in economic plot armour,
Phynix

P.S. If the economic grim reaper starts knocking at your doorstep, just tell them you’re busy binge-watching RBI policy reruns.