France burns, the IMF meets, and the rupee holds its ground

France's protests are a visible sign of what happens when real wages, the amount workers can actually buy with their pay after prices rise, fall behind the cost of essentials for long enough. Inflation in energy and food hits lower-income households hardest because those goods take up a bigger share of their spending. When the squeeze lasts long enough, the political system stops absorbing the anger and it moves into the streets. That is not a moral judgement; it is a fairly reliable pattern across modern economies.

The economic risk now is what the French government does next. One option is a large subsidy or price-control package, which would add to public spending at a time when France's deficit is already under scrutiny from the EU's fiscal rules, the limits on borrowing that euro-zone members are supposed to respect. The other option is to hold the line, which risks more disorder. Neither path is clean. I'd argue the more interesting question is not whether France can afford to act, but whether acting now would actually fix the underlying problem, because subsidies lower the price people see without changing the supply conditions that pushed prices up in the first place.

The IMF's phrase 'defying gravity' points at a genuine puzzle. Standard economic models predict that a sustained oil price shock, combined with geopolitical disruption to trade, should slow growth and raise inflation sharply. That combination, slow growth with high inflation, is called stagflation, and it is one of the hardest situations for a central bank to manage, because cutting rates to support growth risks making inflation worse, while raising rates to fight inflation risks making the slowdown worse. The fact that most economies have avoided the worst of that trap so far is partly explained by large government subsidies and partly by labour markets that stayed tighter than expected.

The IMF's warning is really about the second half of that story. Subsidies are funded by borrowing, and borrowing has a cost. Several large economies are now running deficits, the annual gap between what a government spends and what it collects in tax, that are historically large outside of wartime or a deep recession. The Fund is essentially saying that the bill for avoiding the worst of the shock is accumulating quietly in public debt, and that at some point the arithmetic stops working. One month of resilient data is not proof the danger has passed; it may just mean the reckoning is deferred.

Every time the RBI sells dollars to buy rupees, it is doing something specific: it is increasing the supply of dollars in the market and reducing the supply of rupees, which pushes the rupee's price up. This is called sterilised intervention when the RBI also takes steps to prevent the reduction in rupees from tightening domestic credit conditions too sharply. The question is how long it can keep doing this. India's foreign exchange reserves are large, but using them to defend the currency means they are not available for other purposes, like paying for imports if a bigger shock hits.

The two forces capping the rupee's recovery are worth separating. High oil prices create a structural demand for dollars: Indian refiners and importers need them every month regardless of what the RBI does. Foreign fund outflows are different: they reflect investors choosing to move money out of Indian assets, often because US interest rates make dollar-denominated assets more attractive by comparison. If US rates stay high and oil stays elevated, the RBI faces both pressures at once. The Sensex's two-day rise, driven by IT stocks whose earnings come partly in dollars, is a small offset: stronger IT earnings bring dollars into India and ease the pressure slightly.

A trade deal works through a mechanism called comparative advantage: each country agrees to lower tariffs on goods the other produces more efficiently, so both end up consuming more at lower prices than if they tried to make everything themselves. The US-India negotiation is stuck because both sides have industries they want to protect. India shields its farmers and some manufacturers from cheaper imports; the US wants better access for its agricultural goods and digital services. Neither side has yet found the combination of concessions that makes the deal politically survivable at home.

Rubio's choice of Mumbai and Jamnagar over New Delhi is worth reading carefully. Mumbai is India's financial capital; Jamnagar is home to Reliance Industries' refinery complex, the largest in the world. Visiting those two locations signals that the immediate US priority is investment and energy, not the broader trade architecture. That is a narrower agenda than a full trade deal, and it may be the realistic one for now. The pushback from Indian opposition politicians about the visit being humiliating is partly domestic politics, but it also reflects a real sensitivity: India does not want to be seen as a junior partner in a relationship it considers strategic. That sensitivity makes concessions harder to sell at home, which is exactly why the deal keeps stalling.