Heat oil over medium-low heat in a heavy bottomed-pot until it begins to shimmer. Add onions and fry until translucent, about 5 to 7 minutes.
Add crushed garlic and ginger, and bird's eye chiles. Stir until they stop smelling raw, about 1 minute.
Increase heat to medium-high, and fold in the mutton and half of the salt. Fry until evenly browned, about 5 minutes.
Add red chili, turmeric, coriander and cumin powder, and stir until the mutton is well-coated in the spices. Keep stirring until the oil begins to separate from the masala. Add a splash of water to deglaze the pan if needed.
Add 1 to 1 ½ cups of water until the mutton is covered ⅓rd of the way. Bring to a gentle simmer and cover with a tight-fitting lid. Let the mutton cook on medium-low heat until tender, about 1 to 1 ½ hour (it will depend on the quality of the meat). Add water, ¼ cup at a time, if it’s getting too dry, stirring occasionally to make sure the meat is not sticking to the pot.
Once the meat breaks easily with a fork, remove lid and bring heat to medium-high to boil out excess water. Stir frequently until the oil separates from the spices.
Fold in the chopped potatoes and stir until well-mixed with the rest of the ingredients.
Add 2 cups of water and bring to a gentle simmer. Lower heat to medium-low and cover with a tight-fitting lid. Let the curry cook until the potatoes break easily with a fork, 20 to 30 minutes. Check for salt and adjust as needed. Remove from heat and transfer to serving dish. Dust with garam masala powder (if using).