Trump- Putin Alaska meet triggers fury amongst Trump's critics

There was no deal, no announcement of ceasefire, no mention of any follow-up talks between the US and Russia. Yet President Trump gave the meeting a rating of 10 on 10 and expressed optimism about what would follow.

Why? Because the meeting helped reaffirm the long-standing personal relationshp between Trump and Putin. 

Trump stood at the mid-point of a red carpet and clapped his hands at Putin walked towards him after alighting from his plane. Trump received Putin with a warm handshake and then escorted him past a guard of honour to a podium. It was roses all the way

The equation between the two Presidents has long been a source of annoyance to neocons in the US and Europe. And, seeing the way the two got along, the neocons and Trump's critics in general are furious.

The Guardian's correspondent caught the mood very well in a priceless piece of reporting, never mind that the report oozes bile:

That was the moment he knew it was true love.

Donald Trump turned to gaze at Vladimir Putin as the Russian president publicly endorsed his view that, had Trump been president instead of Joe Biden, the war in Ukraine would never have happened.

“Today President Trump was saying that if he was president back then, there would be no war, and I’m quite sure that it would indeed be so,” Putin said. “I can confirm that.”

Vladimir, you complete me, Trump might have replied. To hell with all those Democrats, democrats, wokesters, fake news reporters and factcheckers. Here is a man who speaks my authoritarian alternative facts language.

......Trump, 79, purportedly the most powerful man in the world, literally rolled out the red carpet for a Russian dictator indicted for alleged war crimes over the abduction and transfer of thousands of Ukrainian children. Putin’s troops have also been accused of indiscriminate murder, rape and torture on an appalling scale.

In more than 100 countries, the 72-year-old would have been arrested the moment he set foot on the tarmac. In America, he was treated to a spontaneous burst of applause from the waiting Trump, who gave him a long, lingering handshake and a ride in “the Beast”, the presidential limousine.

Putin could be seen cackling on the back seat, looking like the cat who got the cream. As a former KGB man, did he leave behind a bug or two?

The reaction in the US has been hostile. FT reports:

Donald Trump returned to a political backlash in Washington over his handling of Vladimir Putin after failing to follow through on his threat of “severe consequences” if the Russian president refused to agree a ceasefire in Ukraine...

Europe continues to be in denial. The European Council has released a statement that says:

Ukraine must have ironclad security guarantees to effectively defend its sovereignty and territorial integrity. We welcome President Trump’s statement that the US is prepared to give security guarantees. The coalition of the willing is ready to play an active role. No limitations should be placed on Ukraine’s armed forces or on its cooperation with third countries. Russia cannot have a veto against Ukraine’s pathway to EU and Nato.

The latest news is that Zelenskyy will meet Trump on Monday at the White House. If all goes well, Trump, Zelenskyy and Putin will meet. 

Trump-Putin Alaska summit: the remarks the media did not hear

The UK's Sun has a terrific scoop on  the Trump-Putin summit in Alaska. 

The Sun got a forensic lip reader to transcribe what Trump and Putin were telling each other at a couple of places. There was no microphone to catch these remarks for the benefit of the media. Here is the Sun's account:

Putin looked relaxed as he walked down a red carpet towards Trump - giving the US leader a thumbs-up before greeting him with a warm handshake.

Trump begins clapping as Putin approaches and the American says: “Finally,” according to Hickling (the lip reader).

Hickling then said that as the pair shook hands Trump added: “You made it, fantastic to see you and appreciated."

The pair then appear to begin talking about Ukraine and the bringing the fighting to an end with a ceasefire.

Putin responds in English, saying: “Thank you — and you."

He also makes a pledge to Trump: "I am here to help you.”

Trump replies: “I’ll help you.”

Pointing towards Trump, Putin says: “All they need is to ask.”

Trump answers simply: “Okay.”

Putin continues: “I will bring it to a rest.”

Trump responds: “I hope it does.”

Turning towards the vehicle, Hickling said Trump smiles and says: “Come on, let’s get straight into the vehicle. We need to move forward, both giving it attention. I know this is serious, it’s quite long. What a journey it is.”

Trump salutes and says: “Thank you.”

On the podium, Trump says: “Thank you. Let’s shake hands — it gives a good impression.”

Putin nods in agreement, shakes his hand, and says: “Thank you.”

The pair then shared a moment alone in Trump’s presidential limo - known as The Beast - which drove them to the summit venue.

 They were then next seen when they posed for photos in front of the press to record the historic moment.

But the photocall descended into chaos when the journalists started shouting at Trump and the tyrant - who doesn't face that sort of opposition in Russia.

Hickling said that Trump noticed Putin wasn't happy with a question or remark made.

The American leans in to his aide, according to the lipreader, and whispers: “I'm uncomfortable, we need to move them quickly.”

Putin then makes a face after being on the receiving end of the aggressive questioning.

Hickling said the Russian tells a reporter: “You is ignorant.” 

Then, as he cups his hands to his mouth to shout above the chaos, he says again: “You are ignorant.”

The chemistry, as anybody can see, was pretty good. No wonder Trump gave the meeting at 10 on 10.

Why is Alaska the venue for the Trump-Putin Summit this week?

Putin has an ICC arrest warrant against himself. That obliges signatories to the ICC to arrest Putin if he is in their jurisdiction. Alaska is the US territory but the US is not a signatory to the ICC (nor is Russia). So the US is not under any legal obligation to arrest Putin although nothing prevents it from doing so.

But that can't be the whole explanation for the choice of Alaska. Putin does not attend the UNGA meetings in New York, presumably for fear of arrest. One reason given for the choce of Alaska is that it is within easy reach of Russia. At the narrowest point, it is a mere two miles away from Russian territory. At the likely venue for the summit, the distance is 88 kms. Russian subs with special forces will be prowling in the vicinity, ready to swing into action if required. In other words, Alaska is fairly safe for Putin.

The Guardian has a story that suggests mutual inconvenience is a factor in the choice of Alaska. The flying time for Putin is nine hours, for Trump it is eight hours. It is also a considerable distance away from Ukraine and its European allies. Further, Putin can fly directly from Russia into Alaska without having to overfly countries that are members of the ICC. 

Some suggest there is a symbolic significance to Putin's wanting to meet up in Alaska. Alaska was sold by Russia to the US for around $7 million in 1867. Which means that territories can jolly well exchange hands. And that would apply to Ukrainian territory currently under Russian control. 

How Pakistan upstaged India in forging ties with Trump

India's foreign policy establishment is in shock. In a matter of months, Indo-US ties have soured and Pak- US ties have soared. It is not clear how this has happened. 

First, the deterioration in Indo-US ties.

For Mr Trump, the aggravations from India's side are many. India is not willing to make certain concessions on trade, such as allowing entry of American agricultural and dairy products, so a trade deal has proved elusive over several months. India has refused to accept Mr Trump's line that it was he who mediated a ceasefire between India and Pakistan after the skirmish last May. Mr Trump, we are told, is deeply miffed on that account. 

Then there is the business of oil purchases from Russia. Mr Trump and his colleagues say India along with China is financing the Russian war machine. But the point is that the sanctions on Russian oil apply only to the US and the EU. Other nations are not barred from buying Russian oil, they are subject to the price cap of $60. Very recently,  a new formula has been applied which causes the cap to fall to around $47. The US was okay with India's purchase of oil from Russia because it kept global oil prices from shooting up. Mr Trump's turnaround is extraordinary, to say the least.

The Economist notes:

This (a tariff of 50 per cent on Indian exports to the US) marks a striking change from Mr Trump’s first term, when the American president and Indian prime minister filled stadiums from Texas to Gujarat in celebration of a blossoming bond between the two countries. India clinched deals for defence equipment and tech usually reserved for NATO allies and some exemptions from sanctions on its dealings with Russia. A mutual disquiet about China’s rise lent the relationship urgency. As a result, India welcomed Mr Trump’s comeback. According to a poll in 2024 by the European Council on Foreign Relations, a think-tank, 84% of Indians believed Mr Trump was good news for their own country—the highest among all 24 countries polled.

But despite Mr Modi’s outwardly friendly reception at the White House in February, one journalist briefed on the visit describes Indian diplomats as “stunned” by the “lack of respect” America’s president showed India’s prime minister behind closed doors.

Now for the improvement in Pak-US ties. FT has a detailed story on how it turned its relationship with the US around:

The newfound US admiration for Pakistan is partly the fruit of a charm offensive concocted by Pakistan’s senior generals, leveraging counterterrorism co-operation, outreach to business people close to Trump and deals covering energy, critical minerals and cryptocurrencies — all accompanied by a cascade of flattery for the White House.

 ....Pakistan’s turnaround was helped early on by what the US saw as an important arrest. In March Asim Malik, the head of Pakistan’s Inter-Services Intelligence spy agency, delivered a high-value Isis-K operative who the US said was behind a 2021 bombing in Kabul that killed more than 180 people, including 13 US soldiers. His capture earned Pakistan Trump’s praise in his March State of the Union address, when the US president also lambasted India over high tariffs.

......World Liberty Financial, a Trump-backed cryptocurrency venture, signed a letter of intent with Pakistan’s crypto council in April, when its co-founders visited Pakistan. Zach Witkoff, the son of US special envoy Steve Witkoff, said during the trip that Pakistan had “trillions of dollars” of mineral wealth ripe for tokenisation.

....Islamabad also gave credit to Trump for brokering the truce with New Delhi — to the point of nominating the US president for the Nobel Peace Prize. Trading his khakis for a suit and tie this weekend, Munir again heaped praise on the US president when speaking to a group of Pakistani-Americans in Tampa.

Pakistan's stars are clearly on the ascendant.  At least in the immediate future, India has its task cut out in dealing with Mr Trump and the US.

Trump-Putin meet in Alaska: quote of the day

 FT columnist Gideon Rachman has a terrific line on the likely fate of Ukrainian President Zelenskyy at Alaska in his article today:

If you are not at the table, you're on the menu

What Europeans and Ukraine would like is an immediate cease-fire followed by negotiations on territory and other matters. That' a no-no for Putin. Russia has the upper hand in the conflict at the moment although gains in territory are slow in coming. Putin rightly views a cease-fire as an opportunity for Ukraine to recoup and renew the war at its convenience.

Putin has time and again made clear what his expectations are:

• Ukraine to recognise the four areas in the Donbas region over which Russia has substantial control today
• Ukraine to give up aspirations to join NATO 
• "De-nazification" and "de-militarisation" of Ukraine, which seems to mean regime change and a limited size of the military

Reflecting the current thinking in parts of the European establishment, Rachman contends that Ukraine would most likely have to  have make territorial concessions and eschew its goal of becoming a member of NATO:

Kyiv’s position that no territory can be ceded is principled — but also unrealistic as things currently stand. The critical distinction is between de facto and de jure concessions of territory. A legal recognition of Russia’s forcible annexation of Ukrainian territory is rightly unacceptable to Ukraine, the EU and the UK. But a de facto recognition of Russian occupation of some territory as a brutal reality — in the context of a broader peace deal — may be necessary. The Soviet Union’s annexation of the Baltic states after 1940 was never legally recognised by the US and most European countries. But it was a fact of life, until, eventually, the Baltic states regained their independence.

......Ukraine clearly cannot accept any military limits that might damage the country’s ability to defend itself. But if Kyiv is allowed to push on with its drive for EU membership then the question of Nato might be taken off the table for a while — particularly given that the political reality is that Nato membership for Ukraine seems unrealistic in the foreseeable future.

So, Ukraine gives up two out of the four territories claimed by Russia and stays out of NATO. Will that be enough for Putin? Putin has to give Trump a win and Trump would count a cessation of hostilities as one. What about US sanctions on Russia and NATO's push eastwards? Those are important goals for Putin. 

The meeting is happening because Russia found the proposals conveyed by Steve Witkoff acceptable. It is possible to optimistic about the outcome at Alaska. 

What experts don't want you to know: Trump is winning on tariffs

President Donald Trump's actions have truly stumped the pundits. He assumed office last January on a platform of imposing tariffs on goods imports into the US as a means of reducing America's chronic and ever-growing trade deficits. The experts denounced his plans saying it would take the US economy as well as the world economy into an abyss.

Mr Trump has been as good as his word. He first imposed "reciprocal tariffs" and then used these as a negotiating tool with leading trade partners who account for about 60 per cent of America's trade. The EU, UK, Japan and South Korea are among those who have been bludgeoned into submission. Those holding out have been hit with tariffs of up to 50 per cent. China faces a tariff of 30 per cent with a 90-day pause coming to an end in the next few days.

The astonishing thing is that the dire forecasts of experts have simply not come true. So far, Mr Trump has had his way without the world economy or the US economy going into a tailspin. Experts have now gone into overdrive to come up with reasons for why their forecasts have not come true. They are being dishonest. They must simply accept that they have been proved wrong.

More in my BS column, Trump is winning the tariff war hands down. 

FINGER ON THE PULSE
TT RAM MOHAN

Trump is winning the tariff war hands down

India is smarting under the tariff announced by United States President Donald Trump recently. It now faces a tariff of 25 per cent, plus an additional 25 per cent penalty for importing oil from Russia. Coming soon: Punitive tariffs on all pharmaceutical exports to the US, something that will bite Indian pharma companies. 

 Nearly 70 countries have been hit by tariffs on top of the universal 10 per cent levy. The tariffs are not just about reducing America’s current account deficit. Mr Trump has weaponised them to make a political point --- or even a personal one.

After announcing the 25 tariff on India, Mr Trump added insult to injury by calling India a dead economy. He flaunted the deal to explore oil reserves in Pakistan and hinted at Pakistan selling oil to India down the road, clearly a poke in the eye for New Delhi.

   India is not alone in being penalised and humiliated by Mr Trump for reasons other than trade. Canada faces a tariff of 35 per cent for not curbing the flow of fentanyl and other drugs. Mr Trump made it plain that Canada’s plan to recognise Palestine as a state is an aggravation. 

Switzerland has been hit with a tariff of 39 per cent, the highest for any European country. Mr Trump is irritated by the high prices Swiss pharmaceutical companies charge for their drug exports to the US. South African exports face a tariff of 30 per cent for “genocide” against whites. Brazil’s takes the cake. Its exports will be charged a tariff of 50 per cent  the highest for any nation (the same as India’s) because Mr Trump believes that his friend, the former Brazilian President Jair Bolsonaro, is being falsely prosecuted for political reasons. 

People everywhere are outraged by Mr Trump’s whimsical ways. Commentators fulminate against his actions. But here’s the bad news for Mr Trump’s detractors: Mr Trump is winning the tariff war hands down.

When Mr Trump announced “reciprocal” tariffs on April 2, pundits forecast a trade war in which other nations would retaliate by imposing tariffs on US exports to them. Everybody would be worse off as happened with the infamous Smoot-Hawley tariffs in the US of 1930, which led on to the Great Depression.

Nothing of the sort has happened. The United Kingdom, Japan, Vietnam, South Korean, Indonesia and the Philippines have all caved in meekly to Mr Trump’s dictates and signed one-sided trade deals. The European Union (EU), the second-largest economy in the world in terms of gross domestic product (GDP), too capitulated--and how. 

EU chief Ursula von der Leyen, flew to Mr Trump’s golf course in Scotland to work out a trade deal. Mr Trump kept her waiting until he and his son had finished their second round of golf. Thereafter, he took her on a tour of his mansion where he bragged about the magnificence of his ballroom. Ms Leyen sought to flatter the American President. “You’re known as a tough negotiator and dealmaker”, she said. “But fair,” said the US President. “But fair”, the EU head dutifully echoed. 

There followed the announcement of a US-EU trade deal. EU exports to the US would be subject to a 15 per cent tariff while the EU would remove all tariffs on US industrial goods. The tariff of 50 per cent on the EU’s exports of steel, aluminium and copper would stay. Further, the EU has committed to buy $750 billion of US energy over the next three years and to invest $600 billion in the US over President Trump’s term. In the phraseology of the Second World War, it was “unconditional surrender”. 

Mr Trump’s detractors had warned of the dire effects of his brand of protectionism. The US would face higher inflation and lower growth. Equity and bond markets would tumble. The global economy would come crashing down. 

None of these forecasts has come true.  In its July 2025 update for the world economy, the International Monetary Fund (IMF) raised its forecast for 2025 by 0.2 percentage points to 3 per cent, relative to its April 2025 forecast. That’s the rate at which the world economy has grown since 2011. As for the US economy, the IMF has revised its forecast for the US upwards to 1.9 per cent, from 1.5 per cent in its April forecast. That doesn’t look at all as if the US economy is hurting from Mr Trump’s policies.

The American equity market is close to its record levels of the past five years. Yields on government bonds are below those in January 2025 when Mr Trump took over, and broadly in line with bond yields in 2023 and 2024. Inflation rose to 2.7 per cent in June, hardly the terrifying level it was projected to reach.

Analysts are now trying to tell us why things have panned out very differently. Inflation staying low? American importers stockpiled goods in anticipation of higher tariffs, so the tariff increases are yet to translate into higher inflation. That may be true of current inflation, but why have forward-looking bond yields not moved up?    Mr Trump’s critics conveniently ignore the role of oil prices in containing inflation. Brent crude oil prices are at least $8 below those a year ago- and Mr Trump is keen to drive them down even further. 

Financial markets not rattled? That’s because markets had expected much higher levels of tariffs and are relieved at the levels at which these have settled. Well, the present level of tariffs is seven times the level before Mr Trump took office!  Stock prices are sky-high? That’s because of the Artificial Intelligence (AI)  frenzy. But the AI frenzy was known when commentators were warning us that Mr Trump’s tariffs would cause a meltdown in equity prices.

The Economist has been at the forefront of those castigating Mr Trump for his wayward ways and warning of the terrible consequences that will follow. It has now come up with an explanation for why apocalypse hasn’t happened yet. 

The world economy, it contends, has a better capacity to absorb shocks today for a variety of reasons. Supply chains have become more efficient and resilient; changes in oil prices are less unsettling because a more diverse supply of energy is available; firms have become more adept at dealing with shocks; the services economy is less susceptible to shocks than an industrial economy; and governments are quick to take measures to cushion the economy from shocks. Capitalism has produced a “teflon economy”. The analysis begs the question: If the global economy is so resilient, why   has The Economist got  worked up about the disruptive effect of Mr Trump at all? 

As far as Mr Trump is concerned, his tariffs are bringing him higher revenues while protecting American industry and getting foreign firms to invest and manufacture in the US. All this without destabilising the financial markets. It’s no surprise that the torrent of criticism Mr Trump faces has left him unfazed. Mr Trump sees himself as a winner, not a whiner-- and that’s not a minor difference. 

EU- US Trade deal: Unconditional surrender

"Trump ate von der Leyen for breakfast", an irate Hungarian PM Viktor Orban commented after the EU-US trade deal was announced.

It wasn't just the terms of the deal, it was the optics that led up to it. EU chief  Ursula von der Leyen had fly to Trump's golf course in Scotland. She was made to wait until Trump and his son had finished their second round of gold. Then came the "talks" and the announcement.

Under the deal, most EU exports to the US would be subject to a15 per cent tariff. There is a small list of exempted items. The EU, in addition, commits to buying $250 bn worth of American oil and gas over the next three years and will also invest ove $600 bn in the US (the time period for which is not specified). EU car exports will face a lower tariff of 15 per cent compared to the 25 per cent they now face. However, steel and aluminium exports will continue to face a tariff of 50 per cent. Trump has also indicated repeatedly that punitive tariffs on pharmaceutical imports into the US are in the offing. 

What does the EU get in return? Well, it doesn't have to face the 30 per cent tariff that its exports would otherwise have faced. EU exports and growth will be adversely impacted but less so than if Trump had hit EU with the 30 per cent tariff he had threatened in the absence of a deal.

It's hard to think of a more humiliating moment for Europe. The EU's commitment to raise defence spending to 5 per cent of GDP under pressure from Trump was humiliating but at least that could be defended as self-interest. It was meant to protect Europe from the alleged Russian threat. 

The Europeans fear not just for their economy in the face of Trump's determination to effect tariff walls but about the US exiting NATO if they rub Trump the wrong way. It's hard to tell what Trump would do if annoyed. But the Europeans know that he can seriously hurt them.

As WW2 headed towards a finish, the Allies (Europe, the US and the then Soviet Union) framed an objective with respect to Germany: Unconditional Surrender. 

That would be an apt characterisation for the EU- Trump deal

Chandrababu Naidu's ambition for Andhra Pradesh: a "Quantum Valley"

I often wonder how some of the most striking news about India appears in the foreign press. An example is the report in the FT about AP CM Chandrababu Naidu's attempt to create a 'Quantum Valley' in his state: 

Naidu is seeking to build a tech park where developers and scientists can harness the nascent power of quantum computing for applications ranging from research to energy optimisation and manufacturing. 

“Indians are very strong in mathematics and very strong in English,” he said. “These two are a deadly combination for information technology.”

IBM, India’s Tata Consultancy Services and Larsen & Toubro are anchor investors for the Quantum Valley, where the US tech group is in discussions to build what it hopes would be India’s most powerful quantum computer.

The companies have not said how much they will invest in the project. But Scott Crowder, IBM’s vice-president for quantum adoption, described it as “pretty solid”, adding that the US company planned to provide computing power while L&T would build the infrastructure and TCS would find users.

The government of Andhra Pradesh in December also signed a memorandum of understanding with Google to set up an artificial intelligence data centre in Visakhapatnam, known as Vizag. Google says the project is in its early stages.

Naidu is seeking to replicate what he achieved in Hyderabad which he succeeded in turning into an IT hub. The electoral impact, though, was not entirely favourable. Many saw it as favouring the educated elite at the expense of large numbers of relatively uneducated people. Naidu's party was ousted from power in the undivided state. Naidu, one hopes, has learnt his lessons  and will steer Quantum Valley accordingly.

Libor-rigging: acquittal of two bankers

Post the Global Financial Crisis (GFC), the banking sector- and bankers- came under the scanner. The public was outraged that these men and women had laid low the entire global economy. (Never mind that the US Federal Reserve had contributed with its decision to let Lehmann Brothers fail).

The public demanded accountability. "Why are bankers not getting jailed?" was the general clamour.

In the numerous investigations that followed, the authorities discovered that the Libor rate, which was the reference rate for interest rates on various products, was being manipulated. This is how it happened.

Banks were required to submit their borrowing rates in the inter-bank market. The top 25% and the bottom 25% of the submissions would be left out and the rest would be averaged out to get the Libor rate. It turns out that bankers made incorrect submissions in order to benefit their trading positions. This was called the 'Libor-rigging' scandal. Harsh sentences were handed down on several bankers, quite low in the hierarchy but extremely well paid. The Libor rigging had little to do with the GFC but then this was all about throwing a few bankers to the wolves.

Two of the bankers convicted were Tom Hayes and Carlos Palombo. Hayes got a 14-year sentence, which was reduced to 11 years. Inmates his at his jail assumed he was a child sex offender given the severity of his sentence. Five and a half years later, Hayes has been acquitted. So has Palombo.

The Supreme Court of UK overturned their sentences recently on a technicality. The lower court judge, while giving directions to the jury, had said that taking commercial considerations into account while submitting Libor rates was a dishonest thing to do. The Supreme Court ruled that that was a matter for the jury to decide. For the jury to have taken that as a given meant that Hayes had faced an unfair trial.

Mind you, the Supreme Court did not exonerate Hayes of the charges. On the contrary, it said there was "ample evidence" to secure a conviction. However, since the process was flawed, he had to be acquitted. The Serious Fraud Office has said it will not appeal against the judgement. Hayes is now a free man. Other bankers similarly convicted are now planning to appeal.

The case is not about particular individuals. It is the banking sector that was on trial. The manipulation of submissions was widespread in the banking sector. Top management knew about it as did the regulators. It was what is called 'industry practice'. Nobody batted an eyelid when bankers manipulated the rates to suit their trading positions to benefit themselves and their banks. In proceeding after a few bankers, the Serious Fraud Office was seeking to satisfy the public's cry for blood consequent to the GFC. It has now covered itself with mud.

Dodgy practices continue to abound in the banking sector. There is a push once again for 'light touch' regulation instead of the stringent regulations that came about after the GFC. Will bankers, regulators and politicians ever learn? Perhaps not. The power of vested interest triumphs.

Question mark again over Fed chief's continuance

"Numbskull", "fool", "moron", "stupid".... one has lost track of the expletives Trump has used to characterise US Fed chief Jerome Powell. Can you imagine anybody such things about the RBI Governor here? There would be a pretty strong reaction. Partly, I guess Trump's outbursts have to do with the incredible powers vested in the office of President of the United States.

Trump was inclined earlier to send Powell packing for not lowering interest rates. Media reports then said that Scott Bessent, his Treasury Secretary, had stayed his hand, pointing to the possible adverse reaction of the markets. The argument was that it's not done to remove a Fed chief who displays independence.

Trump is now hinting again at the possible removal of Powell. And he seems to be on more solid ground. The issue is the $2.5 billion the Fed has spent on renovation, including a cost overrun of $700 million. Various reports have highlighted details of the extravagance, including private lifts, dining areas, marble finishes etc. What is worse, Powell is said to have misled Congress on the issue by denying features in the renovation that, it turned out, were very much there.

Frankly, Trump is on strong ground this time around. It is wrong for a Fed chief to indulge in extravagance because the Fed is in many ways the custodian of the interests of ordinary people. And going on a spending binge on renovation sends out quite the wrong signals about where the Fed stands in relation ordinary people face. Especially when the Fed is at odds with the administration, it would be appropriate for a Fed chief to be watch his steps very carefully. Powell, it appears, has tripped up. Many will see his conduct as proof of the culture of impunity that pervades the higher echelons of power. 

Trump would, no doubt, be using the renovation issue as a pretext to replace Powell with somebody he finds more pliable and in line with his thinking. What does that say about central bank independence? 

That, I am afraid, is an over-rated idea. Heads of central banks are unelected officials. They cannot afford to be entirely out of line with the preferences of the democratically elected authority. Where the central bank chief does not see eye to eye with the political authority on a range of important matters, either he should step down or the government should have the right to remove him. 

In India, the RBI Governor serves as the pleasure of the government. More than one governor has stepped down after getting suitable signals from the government. The protection given to the Fed chief is misplaced. And ultimately it cannot help. If the President wants to go after a Fed chief, he can always find ways to do so- as the rumpus  over the issue of extravagance at the Fed clearly shows.

BCG in the eye of a storm

This news is a little old but I thought I would flag it because it hasn't received much coverage in India. BCG, the consulting firm, is facing flak for its involvement with the Gaza Humanitarian Foundation, a dubious outfit involved ostensibly in distributing humanitarian aid in Gaza. GFH is an Israel-US initiative that seeks to bypass UN agencies doing good work.

BCG, FT reports, contracted some $4 million of work that includied modelling the costs of relocating an estimated 500,000 people from Gaza. BCG says the work was done by two partners inspite of disapproval from a higher level, the firm never took any payment finally and it also fired the two partners. BCG has now hired an external firm to help it address what it calls "process failures". FT has done a fantastic piece of investigative reporting.

BCG has recognised the reputational damage and done its bit to distance itself from the project. However, many will wonder how a consuting project could go on without the knowledge of top management and after top management had withheld permission for the same. Was any billing done? And, if so, would the accounts department not check what the project was? What does it say about internal controls if a project could go on in secret for months together? 

The BCG controversy follows controversies at other firms, notably McKinsey and PwC. McKinsey, in particular, has taken a terrific beating. The question that arises is: what is the value of advice dished out by top consultants who cannot set their own house in order? For the consulting fraternity, the message is clear enough: Physician, heal thyself.

Indian banking outlook: how real is the improvement in asset quality

 The big surprise in the latest Financial Stability Report of RBI is not the overall improvement in asset quality or the decline in gross NPAs/total loans to 2.3 per cent. It is that the decline is driven by a remarkable improvement in MSME asset quality. Gross NPAs in MSMEs is a 3.6 per cent, astonishing for a segment that was accustomed to seeing NPAs close to double digits. 

One is left wondering what has brought down gross NPAs in SMEs down from 6.8 per cent to 3.6 per cent in the past two years. Better information from MSMEs? A dramatic improvement in underwriting skills at banks? Large write-offs? The report gives no explanation, which is disappointing.

Could it be just the sharp rise in MSMEs loan growth in the past few years or the denominator effect? If so, the improvement in asset quality could be deceptive. We have to wait and see.

More in my latest article in BS, MSME lending a new driver of loan growth?

MSME lending a new driver of credit growth?

 T T Ram  Mohan

India’s banking sector is in rude health. By a variety of measures — capital adequacy, provision coverage ratio, liquidity coverage ratio, return on assets, and gross non-performing assets (GNPAs) as a proportion of loans — the sector demonstrates strengths that would have been unthinkable five years ago.

Capital adequacy in the system as a whole is 17.3 per cent, with public sector banks’ (PSBs’) capital adequacy at 16.2 per cent. Being over five percentage points above the regulatory minimum of  capital is prudent and a source of stability. Return on assets (RoA) for all banks is 1.4 per cent. PSBs have an RoA of 1.1 per cent, which is above the benchmark of 1 per cent in banking. 

When a bank produces an RoA of 1 per cent or more, it can be reasonably sure of access to capital from the market. In other words, PSBs do not have to turn to the government for capital support.  The question is often asked: How do PSBs compete with private banks that produce higher returns? The answer is that they can compete on their own terms as long as they can raise capital from the market. 

The banking sector will walk on two legs. We will have private banks that are focused on maximising returns by catering to the mass affluent. And PSBs that will marry larger social objectives with profitability while catering to the wider market. The model as a whole remains viable as long as the benchmark of profitability is met. 

So far, so reassuring. Banking is safe and sound. That apart, a few points emerge clearly from the latest edition of the Reserve Bank of India’s Financial Stability Report (June 2025). 

Firstly, credit growth slowed noticeably to 11 per cent in 2024-25 from 16 per cent in 2023-24 and 15.4 per cent in 2022-23. In 2024-25, PSBs have shown higher credit growth than private banks, which means their market share has risen after years of decline. 

The slowing down of credit growth was deliberate and engineered by the regulator. The RBI had two concerns. One, credit growth was outstripping deposit growth and that meant it was being financed by high-cost and volatile funds. Two, growth in segments such as personal loans and non-banking financial companies (NBFCs) was too high for comfort. Between April 2022 and March 2024, bank lending to the retail sector grew at 25.2 per cent, and lending to services, which includes bank lending to NBFCs, grew at 22.4 per cent, far exceeding the overall credit growth of 16.4 per cent. The RBI increased risk weights on these two segments. Credit growth in these segments slowed down as a result. 

 

Secondly, the slowdown in credit has not adversely impacted growth in profit or profitability. Profitability of all banks has gone down marginally, but that of PSBs has increased from 0.9 to 1.1 per cent. Profit after tax of all banks rose by 17 per cent with that of PSBs rising by 32 per cent, mainly on account of other operating income. 

Thirdly, in 2024-25, growth in credit to micro, small and medium enterprises (MSMEs) has outpaced growth to all other sectors. Credit to MSMEs grew by 14.1 per cent, compared to growth of 11.2 per cent in services (ex-MSME) credit and 11.7 per cent in retail credit. The share of MSMEs in retail credit has risen from 17 per cent in March 2024 to 17.7 per cent in March 2025.

Fourthly- and this is, perhaps, the most striking feature of the latest FSR- gross NPAs in the system have touched a new low of 2.3 per cent of loans, with a sharp drop in NPAs in MSMEs. Gross NPAs in MSMEs declined from 6.8 per cent in 2022-23 to 4.5 per cent in 2023-24 and further to 3.6 per cent in 2024-25. 

NPAs in the MSME sector have historically been of the order of 9 per cent or more. Until a couple of years ago, senior public sector bankers wondered how on earth they were to crack the MSME lending issue. In 2024-25, PSB credit growth to SMEs has been greater than that of private banks, reversing the earlier trend. Has something changed fundamentally in lending to MSMEs? What has brought about a dramatic decline in NPAs to this segment?

The RBI might have shed light on the issue instead of merely putting out the numbers. True, bankers have found innovative ways, such as the Trade Receivables Discounting System (TReDS), to finance MSMEs. TReDs is an online platform for facilitating financing of trade receivables of MSMEs from corporations, public sector companies and government departments. These exposures are considered low-risk.  

The TReDS book was about ~2.7 trillion, or 10 per cent of the MSME book, in 2023-24. It cannot explain the current NPA level of 3.6 per cent on the entire MSME exposure. The NPA level in the Emergency Credit Line Guarantee Scheme (ECLGS) is 5.6 per cent. Recall that the ECLGS was introduced during the pandemic in May 2020 in order to facilitate additional lending to MSMEs and prevent a secular collapse in the sector on account of a crisis of liquidity. The eligibility conditions were pretty stringent. Only MSMEs that were solvent prior to the onset of pandemic were meant to qualify.  

The loans granted under ECLGS in the period 2021-23 amounted to ~3.68 lakh crore or 12 per cent of loans outstanding to MSMEs in 2024-25. If gross NPAs on the ECLGS loans were 5.6 per cent and NPAs on total MSME loans are 3.6 per cent, that makes the performance on the remaining 88 per cent of MSME loans truly impressive. It certainly needs explaining. Is it explained merely by the spurt in the denominator, namely, the MSME loans in the past few years? If that is so, we should see a rise in NPAs in the years ahead. The RBI’s stress test projections for NPAs may then turn out to be optimistic.

Banks have tended to pursue a risk-averse approach to lending. Loan growth has been driven by working capital loans to industry, retails loans and loans to the services sector, including NBFCs. The year 2024-25 has seen a shift of gears with loans to MSMEs growing faster than loans to other segments. We will need to wait for a year or two to see what the shift implies for asset quality in the system. 

The real test will, however, come when banks step up growth of term loans and project finance whenever private investment picks up. Celebration over the steep fall in NPAs must be low key until banks begin to take greater risk than they have in recent years. 

Court order on Trump tariffs: how much of a setback is it for Trump?

The Court of International Trade has ruled that President Trump wrongly used emergency powers to impose the tariffs he announced on Liberation Day, May 2. 

How big a setback is it for Trump? A column in FT indicates several ways open to Trump:

The so-called section 232 tariffs on cars and steel are unaffected by the ruling. Trump will appeal this decision to the federal circuit court; beyond that he has a pliant Supreme Court waiting for him if need be; there are other obscure pieces of decades-old legislation he can dust off to resume his tariff campaign. 

The American Congress has the legal powers to restrain the President of the United States. Over the years, Congress has progressively ceded these powers so that the President has a free run in most matters. Only Congress has the right to declare war. But American presidents have, for decades, initiated steps that led up to war without Congressional approval. There are numerous articles on the subject. Here is one:

President Ronald Reagan invaded Grenada. President George H.W. Bush invaded Panama and Somalia. President Bill Clinton used military force in Iraq, Haiti, Bosnia, Afghanistan, Sudan and Kosovo all without congressional approval. (President George W. Bush didn’t declare war on Afghanistan or Iraq, but Congress authorized the use of military force for those engagements). President Barack Obama ordered targeted military strikes in Libya in 2011 and dozens of unmanned drone strikes in Pakistan without congressional approval.

The courts have not stepped in either in these matters. So it's a bit of a stretch to think the courts will attempt to interfere in matters of economic policy, such as President Trump's position on tariffs. 

The difficulty for the Trump administration is that clearing the hurdles posed by the judiciary in this matter will prolong uncertainty and create turbulence in the markets. The challenge is not pushing through tariffs per se as ensuring that the markets do not spin out of control in the interim.