PM’s Principal Secretary Names Four Risks — Weaponised Supply Chains, Import Dependence, Fickle Capital and AI

The news

Mumbai. India must prepare its economy to manage the risks of geopolitical upheaval, Pramod Kumar Mishra, Principal Secretary to the Prime Minister, said on Wednesday, September 23, at the State Bank of India Banking & Economics Conclave, The Economic Times and The Hindu report. He named four risks: fragmented global alliances, dependence on imports, pressure on the external accounts, and artificial intelligence (AI). “Alliances are fragmented, supply chains are being used as weapons. Capital can be switched on and off. Trade barriers, both tariff and non-tariff, are rising again. We cannot count on friendly tailwinds,” he said. Import dependence is not about energy alone: “we have a significant merchandise trade deficit. We must make things at home and competitively.” “In a world where capital is fickle, we need to focus on foreign direct investment,” he said, which calls for stable tax policy and contracts, reliable logistics and “clearances that actually clear”. Of AI: “We do not yet know its full shape. We need to prepare for it.” The financial system, he said, must move “from accommodating growth to enabling growth”, mobilising very large capital over two decades: long-tenure capital for long-gestation assets, risk capital for innovation, equity for high-growth firms, patient capital — money willing to wait years for returns — for infrastructure, and new financial structures for cities. The Hindu reports that he cautioned banks against reviving aggressive lending driven by short-term optimism, noting that the gross non-performing asset (NPA) ratio fell below 1% in the first quarter of 2026-27. At an SBI event in Mumbai, RBI Deputy Governor Poonam Gupta noted balance-of-payments deficits of $5 billion in 2024-25 and $23.6 billion in 2025-26, as the capital account surplus fell short of the current account deficit. The AI risk is already visible in jobs: ET reports that Global Capability Centres (GCCs) — offshore units that multinationals run in India — could cut 25,000-30,000 jobs this fiscal, about 1% of their 2.6 million workforce, even as some 150,000 new roles are created; Pareekh Jain of EIIRTrend attributes two-thirds of the cuts to global headcount reductions and leaner AI-enabled models and one-third to weaker demand. Meanwhile S&P Global Ratings, Fitch Ratings, the OECD and the Asian Development Bank all raised India’s 2026-27 growth forecasts on Wednesday, the OECD to 7.1% from 6.3%. The syllabus link is GS3 on growth, investment and employment.

Static syllabus linkage

1. The current account shows how India pays its way in the world. The current account records trade in goods (the merchandise balance), trade in services, primary income such as interest and dividends, and secondary income, chiefly remittances. India runs a large merchandise trade deficit that is partly offset by a surplus on services and by remittances, leaving a current account deficit (CAD). The CAD must be financed through the capital and financial account — foreign direct investment, portfolio flows, external commercial borrowings and NRI deposits. When those inflows fall short, the overall balance of payments is in deficit and the RBI’s foreign exchange reserves fall, which is what the 2024-25 and 2025-26 figures describe.
2. FDI and FPI differ in threshold, in control and in how fast they can leave. Under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, an investment by a person resident outside India of 10% or more of the post-issue paid-up equity of a listed Indian company is foreign direct investment, while a holding below 10% is foreign portfolio investment. The 10% line follows the recommendation of the Arvind Mayaram Committee of 2014. FDI usually brings management involvement, technology and a long horizon, while portfolio holdings can be sold on a stock exchange in a day — the ‘capital switched on and off’ Mr. Mishra described. That is why economists regard FDI as the more stable way to finance a current account deficit.
3. Long-gestation assets need long-tenure money that banks cannot safely supply. Banks fund themselves largely with deposits that can be withdrawn at short notice, so lending for 15-to-20-year infrastructure projects creates an asset-liability mismatch. When that mismatch combined with over-optimistic project appraisal in the 2000s boom, the result was the ‘twin balance sheet problem’ — stressed corporate borrowers and weakened banks at once — highlighted in the Economic Survey 2016-17. The response included the Insolvency and Bankruptcy Code, 2016, bank recapitalisation and mergers, and the National Bank for Financing Infrastructure and Development (NaBFID), set up under a 2021 Act as a development finance institution. The natural holders of patient capital are pension funds, insurers and infrastructure investment trusts, which is why a deeper corporate bond market matters.
4. GCCs are captive units, not outsourcing firms. A Global Capability Centre is an offshore unit owned by a multinational that performs work for its parent, from IT support and finance operations to engineering, analytics and research and development. Unlike an IT services company, it does not sell to outside clients, so its fortunes track the parent’s global strategy. GCC earnings count as services exports in the balance of payments and help offset the merchandise deficit. Economic security, in the sense Mr. Mishra used, means reducing exposure to deliberate disruption of supply, capital or technology by others, a condition scholars have called ‘weaponised interdependence’.

Why UPSC loves this

1. GS3 is built around exactly these words. The syllabus covers growth, development and employment, mobilisation of resources, investment models and infrastructure. Mains questions have repeatedly asked about the causes and financing of India’s current account deficit, the merits of FDI over portfolio flows and the need for long-term infrastructure finance; a senior official’s four risks form a ready structure for such answers.
2. AI and jobs is an Essay and GS3 favourite. Questions on automation, the future of work and the demographic dividend recur in Mains and in the Essay paper. The GCC data supply a rare Indian number — 25,000-30,000 cuts against 150,000 new roles — to anchor an otherwise abstract debate.
3. Prelims tests the balance-of-payments vocabulary. UPSC has often asked which items belong to the current account and which to the capital account, and what separates FDI from FPI. The 10% threshold, the treatment of remittances and the definition of a non-performing asset are the kind of facts that appear.

Analysis

1. The four risks are one risk seen from four sides: the cost of depending on others. Weaponised supply chains, import dependence, fickle capital and AI share a structure — each is a channel through which decisions taken abroad can hurt India at short notice. AI belongs on the list because the frontier models, chips and cloud capacity on which Indian firms increasingly rely are controlled by a handful of foreign companies and governments. Read this way, the answer is resilience — diversified sources, buffers and domestic capability — rather than self-sufficiency. Mr. Mishra’s own qualifier, “make things at home and competitively”, is the crucial part: import substitution behind high walls would raise costs, as today’s evidence on input Quality Control Orders shows on a small scale.
2. Preferring FDI is sound, but FDI follows predictability, not appeals. Balance-of-payments deficits of $5 billion in 2024-25 and $23.6 billion in 2025-26 show that other inflows have not reliably covered the CAD. FDI is stickier, but investors price policy risk, and India’s record — the retrospective tax amendment of 2012 after the Vodafone judgment, withdrawn only by the Taxation Laws (Amendment) Act, 2021, and frequent changes in tariffs and product rules — is what Mr. Mishra implicitly addresses when he asks for stable tax policy, contracts and “clearances that actually clear”. The counter-view is that FDI is not costless: profits are repatriated, and net FDI can shrink even when gross inflows are healthy. The goal should be a larger share of export-oriented FDI that earns the foreign exchange it later remits.
3. The warning on aggressive lending is the speech’s most concrete instruction. A gross NPA ratio below 1% and banks flush with liquidity are exactly the conditions in which the lending boom of the 2000s began. Mr. Mishra’s line that credit must be appraised against “the economics of the project rather than the enthusiasm of the moment” applies above all to the infrastructure push he also calls for. There is a tension in wanting the financial system to ‘enable’ growth and to lend cautiously at once. The resolution is a division of labour — banks for working capital and shorter loans, and bond markets, NaBFID, pension funds and insurers for long-gestation projects — which makes his call for patient capital and new financial structures for cities the more important half of the speech.
4. The GCC numbers are small, but they show where AI bites first. Cuts of 25,000-30,000 against about 150,000 new roles leave the GCC sector a net creator of jobs this year. The more revealing figure is that centres once planned for 5,000 employees are now being designed for about 3,000, a 40% reduction in hiring per new centre, according to ANSR’s Vikram Ahuja. The pressure falls on small GCCs doing routine, commoditised work — Hy-Vee and Opendoor have shut their Indian centres, affecting about 400 people between them — and these are the entry points for graduates from smaller colleges. The counter-view is that productivity gains may draw more multinationals to India, so total employment could still grow; but the skill mix will shift towards fewer, more specialised roles, and training has to adjust faster than it has so far.
5. Upgraded forecasts are a reason for ambition, not complacency. Four agencies raised India’s 2026-27 growth forecasts on the same day, the OECD to 7.1% from 6.3%. Yet the rupee depreciated 13.1% between March 31, 2025 and September 16, 2026, and Deputy Governor Poonam Gupta spoke of a disconnect between the real economy and parts of the financial markets. That gap is the point of Mr. Mishra’s warning: a one-year forecast says little about structural exposure over two decades. Growth makes reform easier to fund, but past cycles show that good years are when vulnerabilities are quietly built.

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