The thing that puzzles me is that the damage is done quickly and severely, only once the seedlings have germinated and the cotyledon are well above the soil (maybe 1.5 - 2 cm). I have not been able to catch a culprit in the act. My understanding is that the gnat larva live under the soil surface and can damage young roots. There is nothing I can find that says they will climb to the top of a seedling to eat the leaves. There is also nothing I can find that points to the adult fly causing the damage but there is no other pest I have been able to find. The adult fly and larva are both tiny and the volume of vegetation disappearing is vastly greater than you'd expect a tiny bug to eat.
It is also odd that the same few varieties appear to be targeted while others are left unscathed. So far I have only lost the Kashmiri Mirch, Rajah and Red Cayenne. Other chilli varieties and a range of capsicum are not touched.
Aside from pest damage, I'll be very interested to see if the seeds I bought as Kashmiri Mirch are the same as the seeds I collected from the Indian Grocery whole dried Kashmiri chillis. Germination success rate from the latter is very low (only 1 so far) but if I can nurse it through then just the 1 will be a pleasing result. Hopefully I can harvest a few protected pods from it or even do some cloning. There is a degree of uncertainty about the actual variety sold as Kashmiri and the shape of the pods appears to be quite wrong in some advertisements and information sites. As with many things Indian sometimes is is just down to regional naming and translation. Kashmiri Red Chilli translates to Kashmiri Laal Mirch so who really knows?
I'm trying a few other Indian varieties as well. I've also planted Byadgi, Pusa Jwala, Lal Mirch and Mettupalayam.