#338 Matsyanyaaya

West Asia War Take #3, Virtue Signalling in International Relations, and new Data Confirms Slow Progress of Semiconductor Projects

India Policy Watch #1: No Indian Summer Ahead

Insights on current policy issues in India

—RSJ

Things have gotten worse for the world in the third week of the Iran war. Israel has assassinated a few more top Iranian leaders and gloated about it while wishing ordinary Iranians a happy Nowruz. Iranian oil wells have been hit, and the US has battered its oil-exporting port of Kharg.

Iran, with whatever firepower it has remaining, is hitting oil and gas sites across the Gulf while it retains control over the movement of ships through the Strait of Hormuz. How long can Iran wage a war on the global economy and make everyone pay a heavy price for it is a question that’s blowing in the wind.

There’s no off-ramp for Iran except the world agreeing to meet the terms it has already placed on the table. There’s no way those will be agreeable to the attacking duo of Israel and America. Israel is hardly bothered about the impact of the war on the world economy or on itself. It is willing to last this out so long as there aren’t too many military or civilian casualties.

The US is largely self-sufficient on energy and doesn’t fear a direct impact of the war on its economy yet. Trump has either given up on or doesn’t care about the midterms. The Republican voter is overwhelmingly behind him (some 85 per cent support the war). So, he can also wait this out for longer. China has built its energy stockpile and tapped into alternate sources of energy that don’t depend on Iran or the Strait of Hormuz, anticipating a scenario of exactly this kind. China also doesn’t mind the US getting embroiled and distracted in never-ending wars of this kind while it continues to invest in technology, defence and green manufacturing. China remembers the decade-long Iraq and Afghanistan wars that kept the US and allies busy, and helped its spectacular below-the-radar rise during that time. It wouldn’t mind a redux. Russia couldn’t be happier for the war with Iran to last longer so that Ukraine receives less attention and ammunition. No one consequential is pushing for a quick end to the war.

Going by everything that I have seen or read, Iran’s ability to hold on to the Strait of Hormuz or inflict damage on critical Gulf infrastructure doesn’t depend on how many of its leaders are assassinated or if there’s a total decimation of the regime's top brass. There will still be actors left in Iran who can and will hold the world economy to ransom through their ability to wage asymmetric warfare for a long time. That’s not their resilience as people seem to view it. In my view, that’s the design principle that they have used to build their state, anticipating a future like this. There will always be someone to step into the shoes of whoever is eliminated by Israel.

That leaves the rest of the world, especially the allies of the US and Israel, to bear the costs of this war, whose immediate consequence is an unprecedented energy crisis with cascading impact on multiple other sectors. India is right in the middle of those impacted, and it is somewhat strange to see the lack of acknowledgement of the possible risks and plans to mitigate them if the war spills over into April. Maybe there is massive mobilisation that’s happening behind the curtains, but no one really knows.

Like I mentioned last week, the most likely scenario after a couple of weeks from now will be for Trump to declare victory. Since he hasn’t defined the goals of their war, he can highlight all the damage they have inflicted on Iran to claim victory. But even after such an announcement, Iran will still be holding Hormuz hostage while sending a steady stream of missiles and drones into the Gulf nations. Till someone sits down and agrees in some kind of a rapprochement. I guess that will be left for the Gulf nations to work out as a group or bilaterally with Iran, with some kind of a promise to wind down their US-Israel tilt in future. That kind of accord could take a quarter or two after the US withdrawal from this war. So, the earliest life could get back to a pre-Feb 28 kind of normal scenario is July or August.

That is a long time. I was looking at the extent of dependency of India across LNG, LPG and Oil and the downstream impact on their shortage. Hormuz accounts for almost 60 per cent of India’s LNG imports, and that’s about 30% of India’s consumption. India typically sits with 5-6 days of LNG inventory. It is no wonder that the LNG shortage has been immediate. Considering the hit that Qatar LNG infrastructure has taken, this shortage is going to last a while. The LNG supply issue is already being felt in India. The downstream impact will range from transport and logistics to the myriad little ways in which LNG is used as a fuel to run machinery and tools in factories.

Similarly, Hormuz accounts for almost 90 per cent of India’s LPG imports and 60 per cent of its consumption. The LPG inventory with India is about three weeks. Again, a 4-5 month disruption will lead to significant outages across restaurants, hotels and factories that use LPG as a fuel. Unless things stabilise and normalcy returns dramatically by next week, the LPG shortage will be felt across the board by April.

For crude, we possibly have another 5-6 weeks before the shortage feels acute. It is not clear what alternatives are being thought of by the policymakers, except for giving assurances to the public that there’s no reason to panic. The lack of congruence between such assurances and the lived experience of long queues for LPG and LNG shortages seen in factories won’t last. Soon, people will react. A more proactive policy of communicating the likely shortage, raising awareness about rationing usage, and encouraging alternatives is needed at this moment. Separately, India needs an optimal allocation and distribution plan on deploying the limited supply over the next few months. This requires a deeper understanding of the first- and second-order impacts of energy and hydrocarbon products on the economy, and some broad planning for where to deploy scarce resources.

If the aftereffects of the war persist till July, it is also long enough to upend the fiscal math for India for this year. Oil at over $100 per barrel for the next four months will have a cascading impact on CAD, forex reserves, inflation and liquidity. A fiscal package or two will have to be offered to select affected sectors, SME exporters and, maybe, even individual borrowers for the year.

Some of the government and central bank’s actions are already on to prevent the fallout of the war on the economy. The RBI has already used about ₹1.8 trillion from its forex reserves to defend the Rupee over the past four weeks. The open market operations through which the central bank purchases government bonds and supports system liquidity, and the fixed income markets have already crossed ₹9 trillion over the past year, which is almost 75 per cent of the net borrowings that the government will do for the coming financial year. There’s not much headroom left there.

Despite the RBI support, the borrowing costs have continued to rise. The equity market has been badly hit, and the flight to safety has meant another $10 bn of foreign funds have moved out of India since the war began. There’s also a significant risk to the $50 bn of inward remittances from the Indians living in the Gulf as the war impacts their livelihoods. Tight liquidity, a weaker Rupee (around 95) and rising inflation could very quickly move us out of the “goldilocks” zone we seemed to have been talking about a quarter ago. We are already in a troubled zone if you ask me.

Given all of these, it is remarkable how sanguine the government seems to be with the business-as-usual mode all around. I guess the lesson they seem to have learnt from the COVID-19 days is that Indians are willing to cope with a lot without adequate planning or support. A bit of jingoism thrown in along with a new acronym from the PM, some ritualistic thaali-banging or its equivalent, IPL as a distraction, and a few state elections to keep political temperature up; and, voila, people will blame you for complaining about shortages instead of holding the government accountable. I still live in hope that things will be different this time around.

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Matsyanyaaya: Why International Relations Defies Our Moral Intuitions

Big fish eating small fish = Foreign Policy in action

—Pranay Kotasthane

We live in the performative age where social media has compressed complex positions into moral binaries. “Speaking up” on everything is an entry ticket to the Moral Highground Club, while nuance is an instant disqualifier. Every event demands a simple, emotionally legible stance that can be liked, shared, and used to slot people into either “my side” or the “dark side.”

This performative instinct has overflowed from our personal lives into international relations. And it is leading us astray because international relations operate by a fundamentally different logic that many otherwise sophisticated commentators don’t internalise.

Two ongoing crises illustrate this perfectly. Each involves a different error, but both stem from the same source of importing concepts from human relationships into a domain where they have no purchase.

Pakistan’s Taliban Problem

The deterioration of Pakistan-Afghanistan ties is an interesting case study. For decades, Pakistan’s Inter-Services Intelligence nurtured, sheltered, and funded the Afghan Taliban. The Haqqani Network was termed no less than the veritable arm of the ISI by the US Admiral Mike Mullen.

So, when the Taliban came back to power in August 2021, Pakistan’s then Prime Minister Imran Khan celebrated that Afghans had “broken the shackles of slavery.” There was triumphalism in Pakistan that its dream of installing an obsequious government in Kabul had come true. The implicit expectation of analysts was that the Taliban owed Pakistan a lot. And debts, in the world of human relationships, are supposed to be repaid. Many Indian analysts worried that Taliban would do Pakistan’s bidding.

But that’s not how things worked out. The “good Taliban” refused to crack down on the “bad Taliban”—the Tehrik-e-Taliban Pakistan (TTP) that wages war against the Pakistani state from Afghan soil. They challenged the Durand Line. They restarted diplomatic engagement with India. And they refused to be cowed down by Pakistan’s aggression. By February 2026, Pakistan’s defence minister was declaring “open war” against the very regime Pakistan had helped install.

What went wrong with Pakistan’s calculation is the application of the logic of obligation that you owe me, therefore you will reciprocate, to a domain where the only currencies that matter are power and survival. The international system is anarchic. There is no sovereign above sovereigns to enforce promises. This is unlike domestic affairs, where we aspire to uphold constitutional morality.

Once the Taliban captured the Afghan state and its resources, the balance of leverage shifted irreversibly. An agent that captures a state ceases to be an agent. It becomes a principal with its own interests, and those interests turned out to be Afghan nationalism, not Pakistani clientelism. Gratitude is a fine thing between friends, but between states, it is a figment of our imagination.

India’s Iran Dilemma

This also applies to India’s response to the US-Israeli strikes on Iran in February 2026. New Delhi’s initial silence has drawn fierce criticism. Opposition leaders called it a betrayal of India’s principles, as “moral cowardice.” Others argued that “speaking up” would be the “courageous” choice.

Notice what is happening here. We are reaching for the vocabulary of personal character—courage, cowardice, betrayal, moral spine—and applying it to the behaviour of a state responsible for 1.4 billion people.

This anthropomorphism is misleading. India’s calculus is not a moral drama, but a constrained optimisation problem. Over 85 per cent of India’s crude oil is imported, with West Asia as a primary source. Nearly nine million Indians live and work in Gulf countries, their remittances sustaining millions of households. Two-thirds of India’s crude transits the Strait of Hormuz. To take sides would jeopardise energy flows and potentially endanger the Indian diaspora, all for the satisfaction of a rhetorical position that would change nothing on the ground.

As Shashi Tharoor put it in an Indian Express column this week, those who demand condemnation “mistake moral absolutism for moral courage” and “forget that foreign policy is not an academic seminar. It is the arena where principles meet power, and where choices have consequences for millions of lives.”

This does not mean India’s execution was flawless. The timing of the Prime Minister’s visit to Israel created optics that even sympathetic observers found difficult to defend. As the PM himself demonstrated in Moscow after Russia’s invasion of Ukraine, when he told Putin this was “not an era of war” without issuing a condemnation, a middle path exists. But the underlying analytical point remains that judging a state’s foreign policy through the lens of personal moral courage is a category error.

These two cases illustrate related but distinct mistakes. The connecting thread is that we instinctively anthropomorphise nation-states. We treat them as persons with emotions, moral duties, and character traits. We expect them to feel grateful, to be brave, to “do the right thing” as if they were individuals making choices at dinner parties. But states are not people. They operate in a system without a referee, without enforceable norms, and without the luxury of consequence-free moral positioning.

This is not an argument for cynicism. States can and do act on principle, but only when principle and interest align, or when the cost of principled action is bearable. The task of foreign policy analysis is to understand when that alignment exists and when it does not, rather than demanding virtue signalling.

India's first priority remains securing its energy access, contingency planning for diaspora evacuation, and preventing the war from coming closer to its shores. The rest is secondary.

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India Policy Watch #2: A Reminder to Stay Focused on Execution

Insights on current policy issues in India

—Pranay Kotasthane

In edition #332, I had analysed the budgetary allocations for all four years under the India Semiconductor Mission 1.0. Earlier this week, the Standing Committee on Communications and Information Technology has since tabled its Twenty-Fourth Report on MeitY's Demands for Grants for 2026-27. Parliamentary committee reports are valuable because they go beyond budget documents. The committee questions officials, extracts explanations for delays, and records the Ministry's own admissions about what went wrong. And this report confirms several points I had raised earlier.

The fab spending gap is real and worse than I suggested. I wrote that “not a single rupee was disbursed” for the Tata-PSMC Dholera fab in FY24 and FY25. The committee data pins it down further. In FY26, the fab sub-scheme had a revised estimate of ₹1,000 crore while the actual spending as of 31st December 2025 was merely ₹33 lakh. This is a signal that the underlying project architecture is facing delays. The Ministry’s own explanation to the committee confirms this. It says that companies are taking “considerable time” to meet conditions for Fiscal Support Agreements and Trust Retention Agreements due to “the complexity of the projects and associated legal implications.” When the government itself is desccribing execution barriers in these terms, it validates the argument that finance is no longer the binding constraint.

SCL Mohali transformation remains a hope than reality. I flagged the persistent pattern of “ambitious announcements followed by tepid execution” at SCL. The committee data is damning. In FY25, ₹900 crore was proposed, ₹11 crore was allocated at RE, and ₹7.79 crore was spent. In FY26, ₹400 crore was proposed, ₹20 crore at RE, and zero was spent. The committee has flagged this directly, noting SCL’s “massive pruning of funds” and the pattern of intangible progress. This is now a multi-year documented failure of execution.

The DLI scheme remains neglected. My piece noted that the Design-Linked Incentive scheme—targeting precisely the segment where India has comparative advantage—saw disbursements of 15% of budget in FY24, 34% in FY25, and 52% in FY26. The committee data confirms the FY27 allocation has been halved to Rs 100 crore. What’s striking is that the committee doesn’t even flag this as a standalone concern. DLI is buried in the aggregate semiconductor programme observation. This silence reveals that the design ecosystem is treated as an afterthought even in parliamentary oversight, despite it being India’s actual geopolitical lever in semiconductors.

The display fab scheme is dead. I called the apparent abandonment of the display fab scheme “a welcome instance of policy pragmatism.” The committee data shows zero allocation for FY27, and zero spending in every prior year. The committee doesn’t celebrate this, but the numbers speak for themselves.

The OSAT segment is the genuine bright spot. The compound semiconductor/OSAT sub-head is the best performer — ₹2,864 crore in actual spending against ₹3,900 crore BE in FY26. That 73 per cent utilisation is exceptional by the standards of this programme.

Moreover, the committee repeatedly flags training deficits and institutional capacity gaps, not just in semiconductors but across MeitY’s mandate. The committee observes that cuts to the Revenue section will hurt MeitY's ability to fund training expenses, equipment procurement, and institutional upkeep. Read in isolation, this sounds like boilerplate. But read alongside the Ministry's own admission that fiscal support agreement negotiations are delayed because of "the complexity of the projects and associated legal implications", it points to a lack of state capacity becoming a major constraint.

This is a point we have made in edition #198:

Given the economy-wide impact of its decisions, MeitY is arguably the third-most important Union ministry after Finance and Defence. The ministry will make policies related to critical issues such as data protection, digital public infrastructure, semiconductors, cybersecurity, and international cooperation [and now AI]. Without a step jump in capacity, we can expect incompetence to show up in the policies.

The bottom line

The committee report is useful because it puts official numbers and Ministry admissions on the record. The overall picture it paints is consistent with what I argued: the assembly segment has genuine momentum, fab construction is behind schedule, SCL modernisation remains aspirational, and the design ecosystem is starved of attention.

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HomeWork

Reading and listening recommendations on public policy matters

1. [Puliyabaazi] In this episode on India’s energy security, we discuss the supply and demand sides of the LPG, LNG, and crude oil used in India.

   भारत की ऊर्जा सुरक्षा को मज़बूत कैसे करें? How to Strengthen India's Energy Security

2. [Paper] This Takshashila discussion document has a framework proposing India’s policy options for securing LPG supplies in the short-, medium-, and long-terms.

3. [Data] Many parliamentary standing committees have released new reports which should be of interest to all India public policy watchers.

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