AI bubble, economic incentive measures, AYUSH growth Vs public health | Bidishanomics Ep 31

Finance and Economic Takeaways

AI Investment and Possible Spillovers to India

• India is exposed, but not without buffers, according to Bidisha Bhattacharya. She compares a possible AI-related downturn more closely with the dot-com crash than with the 2008 financial crisis. In her account, much of the current AI funding comes from companies rather than banks, so a downturn might not cause the same kind of banking freeze seen in 2008.
• She describes AI’s potential as real, but warns that investment and borrowing may be outrunning the revenue generated so far:
  • The four largest US tech companies planned to spend more than $700 billion on AI this year.
  • Meta and Alphabet reportedly spent more than their cash generation in the previous quarter.
  • Alphabet’s share price fell 12% in one day.
  • A cited S&P Global report put borrowing by these companies at about $326 billion this year, roughly three times the prior year’s amount.
• A key warning sign would be borrowing continuing to rise without enough revenue to repay it. She also notes that smaller AI start-ups borrowing to fund projects could add to the risk.
• Potential channels of impact on India include:
  1. IT services: India earned $221 billion from software-services exports in the previous year; 54% came from the US. The sector supports about 5.8 million jobs, while software and business services together account for about 8.5% of Indian output. If US firms cut costs, Indian contracts, hiring and household consumption could be affected.
  2. Global capability centres (GCCs): India has about 2,100 GCCs, employing around 2.4 million people. Cost-cutting could mean layoffs, but companies might also shift more work to India to save money.
  3. Markets and the rupee: A sharp market fall could prompt further foreign portfolio outflows, weakening the rupee and raising the rupee cost of imports, especially oil.
  4. Bank lending and NPAs: Indian bank non-performing assets were cited at 1.8%, with the RBI projecting 1.9% by March 2028. Bhattacharya presents this low level as a buffer, while cautioning that defaults should be watched if borrowing increases.
• After the dot-com crash, Indian software exports grew 26% to $9.5 billion in the year to March 2003, partly as US companies outsourced work to cut costs. She cautions that today’s Indian IT sector is much larger and that AI could replace jobs, unlike the earlier episode.
• Resilience measures suggested: Monitor bad loans, expand AI skills among workers, and diversify Indian IT clients beyond the US.
• As a hiring counterpoint, she says the five largest firms had added about 16,000 people in the first quarter of 2026, versus about 3,000 a year earlier. She also cites supply-side inflation and geopolitical pressures as reasons the outlook remains uncertain.

Oil Shocks, Inflation and Central-Bank Policy

• Bhattacharya distinguishes the 1973 and 1979 oil shocks:
  • Before the 1973 shock, the Fed had raised rates from 4.8% to 10.8% between 1972 and 1973. After the oil embargo began in October 1973, it cut rates amid growth concerns. Inflation subsequently reached 12.3% in December 1974; the US recession ran from November 1973 to March 1975, with unemployment around 9–10%.
  • The 1979 oil shock followed the Iranian Revolution. Oil prices more than doubled; under Paul Volcker, the Fed raised rates to roughly 19–20%. The tightening was followed by recessions in 1980 and 1982 and unemployment of about 10.8–11%.
• She agrees that monetary policy cannot directly reduce the price of an oil barrel, but argues that central banks can influence demand and inflation expectations. Her policy framework includes:
  • Do not ease too early while inflation is still rising; she says the 1973 rate cuts, motivated by growth concerns, worsened the inflation problem.
  • Stay consistent and communicate clearly about the intended policy stance and how long it may persist.
  • Target the right problem: Distinguish the direct supply shock from second-round effects, such as inflation expectations becoming entrenched.
  • Factor in markets, fiscal choices and public debt when assessing the broader policy setting.
• She notes the current Fed rate as 3.7% in the discussion and says it should not be directly compared with the much higher rates of the 1970s.

Incentives, Penalties and Measurement

• The discussion applies Goodhart’s law: when a metric becomes a target, people may optimize the metric rather than the outcome it was meant to measure. Bhattacharya says no measure is fully corruption-proof and that very large penalties alone do not ensure compliance.
• Her proposed framework for designing incentives includes:
  • Prefer a modest but reliably enforced penalty over a severe penalty that is rarely applied.
  • Avoid having the party being assessed also control the measurement.
  • Use multiple indicators, rather than relying on one metric. She cites the Finance Commission’s distribution of central taxes among states, where states’ share is about 41%, as an example of using several parameters.
  • Avoid rewarding only what is easy to measure, since that can lead people to neglect harder-to-measure goals.
• She links this issue to India’s developing carbon market and the India–EU agreement’s CBAM provisions. A carbon fee of $10 was discussed, compared with an EU charge of about €80; she argues that certainty of payment matters, not just the fee’s size.

AYUSH, Healthcare and Economic Activity

• Bhattacharya says job creation and economic activity do not justify harm to patients. She cautions that sales and employment figures measure activity, not whether health spending produces effective care.
• Figures cited in the discussion:
  • About 750,000 registered AYUSH practitioners, compared with 1.39 million registered modern-medicine doctors.
  • The AYUSH market reportedly grew from $2.85 billion in 2014 to $43.4 billion in 2023, with exports of $2.16 billion.
  • The government has invested about $250 million in the WHO Global Centre for Traditional Medicine in Jamnagar, established in 2023, with the stated aim of building evidence on traditional medicine.
• She cites an Australian National Health and Medical Research Council review concluding that there is no reliable evidence that homeopathy works for any health condition. She also mentions research on sarpagandha, an Ayurvedic treatment used for high blood pressure, as an example of a traditional remedy that has been studied.
• Product safety and treatment delays are key risks. She cites studies finding lead, mercury or arsenic in one in five Ayurvedic products, and warns that relying on unproven remedies can delay effective treatment, particularly for cancer patients.
• Her stated priority is qualified practitioners, evidence-based remedies and proper research, rather than treating employment or market growth as proof of health benefit.

Assets, Sectors and Instruments Mentioned

• Equities/companies: Alphabet, Meta, Microsoft; US technology companies and start-ups.
• Sectors: Artificial intelligence, US technology, Indian IT and business services, GCCs, AYUSH/traditional medicine.
• Markets/instruments: US and Indian stock markets, foreign portfolio flows, the rupee, oil, interest rates, bank loans and non-performing assets, carbon-market fees and the EU CBAM.
• No specific stock ticker symbols or investment allocation recommendations were given.

Disclosures and Cautions

• The opening includes the mutual-fund disclaimer: “Investments are subject to market risks. Read all scheme-related documents carefully.”
• No explicit “not financial advice” statement appears in the subtitles. The figures and forecasts above are those cited in the discussion; some source details and time references are unclear in the auto-generated subtitles.

Presenters and Sources Mentioned

• Presenters: Apoorva Mandhani and Dr Bidisha Bhattacharya.
• Sources and authorities cited: Reserve Bank of India; S&P Global; a banking-sector study whose publisher is unclear in the subtitles; Kansas City Fed researchers; the Finance Commission; World Health Organization; India’s Ministry of AYUSH and Rajya Sabha reports; Australia’s National Health and Medical Research Council; and research by Dr Rustam Vakil at Mumbai’s King Edward Memorial Hospital.
• Other economists, historians and works referenced: Charles Kindleberger and Hyman Minsky; Milton Friedman; Ben Bernanke; Simon Kuznets; historian Michael Vann; Manias, Panics, and Crashes; The Prize; The Tyranny of Metrics; Poor Economics; and The Emperor of All Maladies.