#323 Emotional IntegrationA Commentary on the Emotional Integration Committee Report, China's Weaponisation of Antitrust, An Analysis of Public Sector Bank Consolidation, and Rare Earth Firms Picking up Pace in the US
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India Policy Watch #1: The Emotional Integration of IndiaInsights on current policy issues in India—Pranay KotasthaneA Sixth Of Humanity: Independent India’s Development Odyssey, a book we discussed in an earlier edition, is a treasure trove of references to several hundred crucial government documents. One such document briefly mentioned in the book is the Report of the Committee on Emotional Integration (1962). The title is obviously intriguing, and so we at Puliyabaazi decided to dive deeper. Government reports are a window into the thinking of the Indian State. And because the State took upon itself the task of being the primary troubleshooter in all aspects of society, such documents are also indicative of the firmly held belief in State action. They are often filled with immense confidence in the ability of the State to measure, plan, and orchestrate great things, while the role of markets beyond the State is conspicuous by its absence. The Emotional Integration Committee (EIC) report is no exception. Formed by the Union Ministry of Education in 1961 under Dr Sampurnanand and with a past Congress President (Indira Gandhi) as one of its members, the high-level committee was tasked with identifying how education could ‘promote emotional integration in national life’. This is a high-quality report—erudite, extensive, and methodical. And yet one can’t help but notice that some of its recommendations didn’t see the light of day even after sixty years of its publication. What follows is a commentary on the report. The report emphasises that physical integration alone is insufficient for nation-building. It needs to be backed by another intentional process that takes into account the emotions of ordinary people. And to this end, it wants to suggest the role education can play. The report begins by allaying fears of cultural imposition, by stating that ‘unity is not uniformity.’ And that integration doesn’t mean bringing about a ‘dull, colourness sameness in all respects’. It appreciates that Indians can hold several loyalties that reinforce each other—towards their language, state, religion, and the nation. It goes on to emphasise that integration is not a mere response to colonial subjugation, but that a certain sense of civilisational unity, characterised by tolerance and assimilation, existed well before British rule. Amongst the impediments to integration, it highlights caste, communalism, regionalism, provincialism, linguism, lack of employment opportunities for youth, and the ‘complete absence of idealism.’ The discussion on caste-based reservations in education is fascinating. The Committee calls Caste an indefensible institution and wants to reject it in all forms. Equally, it finds that reservations are no solution to this problem. It says:
The report foresaw the dangers of relying on reservations as the only means to support the backward classes. It instead recommended ‘an extended programme of financial assistance to students on considerations of means and merit’ and special tuition and assistance to bring students from disadvantaged backgrounds at par with other students. With regards to teacher appointments, it warned that the selection of teachers solely on caste-based appointments has led to the deterioration of standards and adversely affected the morale of universities. It says:
Despite the report’s prescient diagnosis, it speaks poorly of India’s governance that we haven’t been able to change course even after sixty years. The Indian State continues to bend to the demands of the educated elite of all castes by expanding reservations. Another particularly relevant chapter in the report is on Language and Script. Written in the immediate aftermath of the linguistic reorganisation of states and the secessionist demand for a Dravida Nadu, language was a core concern for the Committee members. It observes that the barrier to a common instruction in India was not just the diversity in our languages but also in our scripts:
The Committee came up with its own detailed formula on the question of Hindi, English, and regional languages, which was different from the three-language formula that’s discussed frequently today:
With the benefit of hindsight, we know that language in schools has only become a much more contentious issue. Among other things, the potential to learn a mother tongue in a state with a different regional language has only declined. My parents studied in Marathi schools in Madhya Pradesh; such options are virtually non-existent today. What the report didn’t foresee was that emotional integration through languages would occur outside the realm of the school; through Bollywood, regional cinema, television, and commerce. Finally, the report does discuss making primary education free and compulsory. There are even targets listed for educational enrollment to be achieved by 1975. However, there is no mention of policies to encourage budget schools to be run outside the State. It’s as if the State didn’t think of regulation as a legitimate option—it only believed in either producing education or financing it. There are other interesting sections on Youth Programmes, Adult Education, Teachers, and Textbooks that I haven’t covered here. But it was reassuring to note that many of the Committee’s concerns about emotional integration have been addressed, even if not in the way it envisaged. India Policy Watch #1: Are Mega Public Sector Banks Desirable?Insights on current policy issues in India—RSJBetween 2017 and 2020, Indian public sector banks (PSBs) underwent a period of consolidation. The five associate banks of State Bank of India (SBI) merged with the parent bank, and a total of ten other PSBs were consolidated into four large banks. In total, India transitioned from 27 PSBs to 12 large PSBs during that round of mergers. Those were different times. The Indian banking system was sitting on a large pile of bad loans after throwing caution to the wind in the early part of the decade and lending to unviable infrastructure projects helmed by notoriously bad promoters. The Raghuram Rajan-led banking reforms meant much stronger provisioning and recognition norms for slippages on loan repayment and more transparent disclosures. By the close of that decade, almost every PSB was put under RBI’s prompt and corrective action (PCA) framework, which prohibited any lending till the balance sheet strengthened. One of the lessons learnt from that episode was that the smaller PSBs could be prone to mismanagement and weaker governance, which the size of their balance sheet could ill-afford. The amount of capital that the exchequer had to infuse into PSBs during that period was a wake-up call for the government. A round of consolidation could mean stronger balance sheets and a more easily governable count of banks. Almost five years later, I’d say that the consolidation move worked out well for everyone. Not a spectacular success, but we made modest gains in having a smaller but stronger set of banks. Over the past month, there have been multiple news reports on the government contemplating another round of consolidation among PSBs. This week, the FM confirmed it during a banking conclave (from the Hindu):
There’s no distress in the banking system at this time, unlike the previous occasion, which is driving this intent. In contrast, PSBs are in possibly the best health they have ever been in their history. This time, the reasons appear to be different. One, there is a view that’s had currency for a while that bigger banks are more resilient. That a larger balance sheet allows for easier absorption of cyclical shocks and one-off events. Also, there’s this view that a larger balance sheet will allow the PSBs to compete more effectively with their large private peers in supporting the diverse needs of customers, unlocking scale efficiencies and increasing productivity of the workforce. Two, as the FM mentioned in her speech, infrastructure creation is a big area of focus in the medium-term future, and there’s a view that larger balance sheets of PSBs will be able to support long-gestation infrastructure projects more easily. That apart, larger banks will have more risk appetite, which will allow them to go easy on credit flow to end customers, knowing they can absorb losses in case a lot of those loans go bad. For the government, increasing credit flow is a supply-side issue, and any structural measure that unblocks it is welcome. For the state, consolidation appears to be a structural solution to this problem. Three, there is also some kind of China comparison and envy at play here. Since China has four of its state-run banks among the top 20 largest banks in the world in terms of balance sheet size, there’s a view that India should also aspire to have a couple of them as we plan to become a $10 trillion economy whenever. Large bank balance sheets will allow such banks to support India’s aspirations and also deal with other global banks on equal footing. So, the thinking goes. There is no evidence around the world that bigger banks are run better. Some big banks do well, others don’t. And so is the case with smaller banks. The success of the last round of PSB consolidation in India isn’t because the banks became bigger. Banking is cyclical, and the PSBs have come through a tough cycle with significant capital support from the state. The provisioning norms have been strengthened, information sharing about stressed assets has improved through the Central Repository of Information on Large Credits (CRILC), and corporates have been waiting on the sidelines on capex. This has meant new bad loan formation across the banking system has been lower than previous cycles. This is true for all banks, not just those who consolidated. Further, PSB banks are still recovering their written-off loans from their clients, which is reflected in their historic low net credit costs. There’s no clinching argument that consolidation has led to improved productivity or lower cost ratios. So, to attribute macro and sectoral tailwinds to consolidation and arrive at the conclusion that we should do more isn’t exactly sound. Also, the idea of using large PSBs to fund infrastructure projects is fraught with temporal balance sheet risks. Banks take money from ordinary depositors who value the safety and liquidity (the ability to withdraw their funds anytime) offered by them. These liabilities of banks have a short duration because of the nature of the depositors. Banks aren’t the best vehicle to support infrastructure projects that have by their very nature long gestation periods and uneven chances of commercial success. That’s the reason on multiple occasions, there’s been support for the idea of a long-term infrastructure funding institution that raised deposits from long-term institutional customers without the risk of an asset-liability duration mismatch. Actively creating larger banks with the intent of supporting such projects could increase the systemic risk quite substantially. Also, the idea of supporting credit flow by taking more calibrated risks on the back of a larger balance sheet is a misplaced notion. As we have seen on multiple occasions in the past few years, India isn’t constrained on the supply side of credit flow (barring when the RBI intentionally ran a very tight liquidity regime in 2024). We have to unblock the demand end of credit through more jobs, real wage growth and improved sentiments among consumers about the future. This assumption that the supply is the problem and going about solving it is a classic case of not confronting where the real and more difficult problem lies on the demand side. China is a good example of this. Even with four really large banks that rank among the biggest banks globally, they haven’t been able to stimulate domestic demand. The size of Chinese banks shouldn’t blind us to the health of those banks that have funded multiple long gestation ‘projects to nowhere’. Lastly, there is a need for reforms in PSBs management, governance and ownership structure. The short-term nature of the appointment of its CEO (typically a 2-3 year term), the composition of its board that’s hardly independent, the task of “nation building” that they often get saddled with that belies commercial sense, and the hierarchy and tenure-driven talent management approach are areas that need urgent change. The PSBs have become better managed in the recent past despite these constraints. Notwithstanding their recent uptick in performance, the PSBs have continued to lose market share, fallen behind on technology and digital adoption, and (most) still run a sub-one per cent RoA (return on assets). Consolidation isn’t going to help with these metrics. It can be an eventual outcome determined by these PSBs independently as they become more efficient, professional and well-managed through such reforms. Otherwise, we might end up with large, lugubrious banks that find it difficult to change and adapt in a sector where there’s significant patient foreign capital coming and where nimbleness and speed are of the essence. There’s a greater risk here in consolidation than the likely gains that are being assumed. Matsyanyaaya: China Doubles Down on Weaponising Antitrust RegulationsBig fish eating small fish = Foreign Policy in action—Pranay Kotasthane(This post first appeared on the new and shiny Blogs section of the Takshashila website) October 2025 was all about another twist-and-turn in US-China relations. Specifically, the slew of export restrictions announced by China on October 9, and the subsequent climbdown by the US, mark a significant milestone in this dyadic competition. While these export restrictions garnered much attention, little has been said about another instrument China has repeatedly deployed in recent years. And that instrument is the State Administration for Market Regulation (SAMR), which delays or conditionally approves merger and acquisition deals, even when both parties are foreign entities. SAMR’s authority is triggered to review any M&A deal if the companies involved meet certain revenue thresholds in China, even if the companies are not Chinese. It allows Beijing to claim jurisdiction over a deal between, say, two American tech giants if they both sell a significant amount of products or services in China. Punishment for non-compliance can range from hefty fines to a complete ban on operating in the Chinese market. SAMR has repeatedly used its merger review process to extract concessions, protect domestic industries, force technology transfers to a third-party Chinese player, or signal political displeasure. In the latest instance, just a day after the export restrictions, SAMR announced that it had launched investigations into Qualcomm’s acquisition of Autotalks, an Israeli firm. This small transaction, which was announced in 2023, fell below the deal threshold that triggers SAMR approvals. Nevertheless, SAMR announced this investigation just ahead of the Trump-Xi meeting. Next, we can expect Qualcomm to be fined when the next round of US-China tussle heats up. The Economist carried a good review of these actions:
The information about these investigations is selectively released by SAMR, and only in Mandarin. I couldn’t find all the investigations in one place on the Mandarin version of its official website. Information is selectively released as news reports. However, from what I could find, nearly 30 per cent of the cases concluded by SAMR were where both parties are foreign players. The recent list of notable investigations that it has taken up is here:
The extensive list suggests that China is deploying antitrust regulations as a geopolitical tool. Many countries have such extra-territorial anti-monopoly rules, but what makes China’s leverage powerful is its market size. No company wants to lose out on the Chinese market even if it means agreeing to SAMR’s unreasonable demands. This is another instance of China’s unfair exploitation of a global system. Further reading:
Global Policy Watch: Rare Earth Industry Build-up in the USGlobal issues relevant to India—Pranay KotasthaneSmitten by China’s rare earth export controls, new projects and techniques are being approved and productised in the US at a rapid pace. Every new week comes with new project announcements. This post compiles a few developments.
These developments suggest that the US industry is well-positioned to develop alternatives to Chinese rare earth elements and products. I foresee that with these alternatives emerging, China’s strategic leverage for light rare earths will erode pretty quickly. Especially because these elements are extensively used across industries in permanent magnets that go into motors used in commercial appliances. However, reducing the dependence on heavy rare earths such as Dysprosium and Terbium, which are used mainly for defence applications in small quantities, will be far tougher. Defence firms will have to find other pathways. HomeWorkReading and listening recommendations on public policy matters
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