Rational Mind, Animal Instincts, And A Vegetarian Lion 

Dear Insighters

A decorated social scientist, who has mined the mind, explains in his award-winning research how humans do not always make the most rational decisions, especially when it pertains to risk or money. 

And then, the expert on decisions takes a decision. 

Last week’s news on Daniel Kahneman shook many like me. Not just because a 90-year-old man decided to give up on life, but because who that man was. And because of what would have transpired in that brilliant mind of his, which had brought in ‘behaviour’ to Economics and lent a human quirk to decision-making.     

A key takeaway from his Nobel Prize-winning work is that people feel the pain of losing money more than the happiness they get when they gain the same amount, which is what makes them risk-averse. 

No, this is not a gloomy kickoff to our newsletter. It’s just a point to ponder. By the way, the decision that investors--domestic and foreign--took this week was quite the opposite. Riding positivity, they poured in money into the Indian financial markets. This was best week for equities in four years, best week for rupee in two years, and best for government bonds in four months. Phew!  

The year 2024 saw global average temperatures 1.55 degrees Celsius above pre-industrial levels. In an all-time high, average temperatures breached the 1.5 degrees above pre-industrial levels, seen as the limit from when Earth starts getting unliveable. The year saw 150 unprecedented climate disasters, including extreme heatwaves, floods, and storms, displacing more than 800,000 people.

This new data from the United Nations’ World Meteorological Organization is surely a wakeup call on the climate change perils confronting us. Climate financing is a critical area for action, even as we hear of top American companies bending to President Donald Trump’s backlash on climate activism by deleting or softening their green vows on their websites. 

In India, conflicts, scepticism, and inadequacy of stress tests impinge upon climate finance as banks hesitate and policy struggles to align with climate risk realities. R Gurumurthy bats for clarity in incentives, consistent policy, better modelling, and a coordinated regulatory approach, else “we are simply asking the lion to turn vegetarian, without providing any alternatives for survival”. 

Talking about decisions, one can’t but bring up US president Donald Trump and his calls, including the ones on tariffs.  Shashi Tharoor delves into the “unknown unknowns” of the tariff war and says India will have little choice but to explore strategic tariff reductions in the coming months. Preserving India’s economic sovereignty while making meaningful concessions will require a delicate balancing act, he says. 

International trade is indeed the flavour of the season. India is holding Free Trade Agreement talks with the EU on medical devices, but they seem asymmetrical, says Ajay Srivastava. While EU demands zero tariffs, the bloc itself maintains high regulatory barriers. For fair play, India must demand reciprocity, he argues. There is another discussion on FTA brewing – with New Zealand. As the two countries restart talks after a decade, dairy access is seen as a hurdle, Srivastava writes.

Beyond the geopolitical and trade wars, there’s another kind of a war brewing in India – the one between North and South on the issue of delimitation and Parliament seats. In a diverse India, fair representation isn’t just about numbers – it is about balancing regional interests, says TK Arun. Thanks to social development, southern states grew smarter, not bigger. Why punish progress?  

And here’s a quiz. What’s common between a George Clooney-looker ice hockey player and a sedate blue-turbaned bespectacled Sikh? A lot, apparently. I found striking similarities in the rise and lives of Canada’s new Prime Minister Mark Carney and India’s Mamohan Singh. Can Carney actually match up?

FINANCIAL SECTOR & MARKETS
SEBI’s overseas investment limits trap Indian investors, exposing them to volatility when FIIs exit and denying them access to global growth, shoots Krishnadevan V, BasisPoint Insights Editorial Director. The visible and hidden costs are stacking up against ordinary Indian investors, he says, pitching for cap hike and educating-empowering investors. 

Over the past several months, interbank liquidity has swung wildly. The RBI’s liquidity strategy has unsettled markets and heightened economic risks. Ex-Financial regulator G Mahalingam pitches for a decisive shift to safeguard growth just as inflation appears contained. 

IndusInd Bank’s accounting lapse is more than a glitch. It is a wake-up call for India’s banks. Weak governance, poor risk oversight, and unqualified boards fuel these crises, says Manoj Rane, who once headed the bank’s rupee treasury. Will banks fix the cracks? 

And here is the pick of insights from Groupthink, BasisPoint’s House View:
The RBI may go in for a prudent rate cut again in April, but the focus will be on liquidity infusion and stronger pressure on banks to transmit cumulative cuts. If all goes well, a decisive rate cut may come only in June or later. 

The sovereign gold bond scheme was meant to curb India's gold hunger. Instead, it turned into a fiscal nightmare, and a cautionary tale in policy misadventures. 

India’s remittances are soaring, with the flow from advanced economies outpacing the Gulf. This signals a skilled diaspora and evolving migration trends. Will this sustain?

And here’s a takeaway that could muddle you. Home prices are skyrocketing in key markets such as Noida and Mumbai Metropolitan Region, but rents aren’t keeping pace. Is real estate turning speculative again?

That’s all for this week from BasisPoint. Do look out for more Insights and Clarity. 

Ranjana Chauhan