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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • In a 5-4 ruling, Supreme Court for tweaking the definition of industry, exempts pending matters

    Why in the News

    A nine-judge Bench of the Supreme Court held on 20 August 2026, by a 5:4 margin, that the expansive 1978 interpretation of the term industry will not govern the Industrial Relations Code, 2020. The ruling preserves that interpretation for disputes already pending under the Industrial Disputes Act, 1947 and withdraws it from every case that follows.

    What is the ‘triple test’ laid down in Bangalore Water Supply (1978)?

    1. Origin: A seven-judge Constitution Bench in Bangalore Water Supply and Sewerage Board v. A. Rajappa (1978), authored by Justice V.R. Krishna Iyer, read Section 2(j) of the Industrial Disputes Act, 1947 expansively.
    2. The three conditions: An undertaking qualifies as an industry where there is systematic activity, organised by cooperation between employer and employee, for the production or distribution of goods or services calculated to satisfy human wants and wishes.
    3. What the test ignores: Profit motive is irrelevant to the classification. Purely spiritual or religious activity stays outside the definition.
    4. Reach: The test brought hospitals, educational institutions and municipalities within the fold of industry, exempting only core sovereign activities such as the judiciary, law and order and defence, in order to protect the state’s functional autonomy.

    What is the Industrial Relations Code, 2020?

    1. About: The Industrial Relations Code, 2020 consolidates the law on trade unions, standing orders and the settlement of industrial disputes into a single statute, and came into force in November 2025.
    2. The operative provision: Section 2(p) of the Code carries its own definition of industry, taking over the function that Section 2(j) of the 1947 Act performed for 48 years.

    What did the Supreme Court actually hold on the reach of the 1978 definition?

    1. A clean slate for the new Code: The majority held that industry under Section 2(p) of the Industrial Relations Code, 2020 would not be burdened by the 1978 interpretation of Section 2(j) of the 1947 Act.
    2. No sheet anchor: The Chief Justice of India stated that the 1978 judgment and its conclusion would not act as the sheet anchor or the foundation for any future interpretation of Section 2(p).
    3. A refinement, not a reversal: The majority found that the essential framework of the 1978 interpretation had withstood the test of time, and that some of its constituent elements could have been articulated differently to better reflect the scope and contours of Section 2(j).
    4. Prospective operation: The refined triple test evolved in the opinion of the Chief Justice of India will operate prospectively, and the modified definition will not apply to pending cases.
    5. Pending disputes protected: All matters presently pending before courts, tribunals and labour authorities under the Industrial Disputes Act, 1947 are to be adjudicated in accordance with the triple test as laid down in Bangalore Water Supply.
    6. Maintainability settled: The majority held that the reference questioning the correctness of the 1978 ruling was maintainable.
    7. Text still awaited: The fine print of the ruling prescribing the new formulation of the definition has not yet been released.

    Why was the 1978 definition sent to a nine-judge Bench at all?

    1. Docket explosion: Later Benches found that the 1978 definition produced what they called a docket explosion, bringing far more cases to the labour courts.
    2. A failed legislative narrowing: Parliament attempted to narrow the definition through the Industrial Disputes (Amendment) Act, 1982, excluding several organisations from its scope.
    3. The 2005 admission: The Centre told the Court in 2005 that no alternative dispute resolution mechanism existed for employees who would fall outside the amended definition, so the 1978 position continued to hold.
    4. Divergent readings: Subsequent rulings interpreted the 1978 judgment differently, and the case was referred to a nine-judge Bench for reconsideration.

    What three questions did the reference place before the Bench?

    1. Correctness of the test: Whether the test laid down in Bangalore Water Supply remains the correct interpretation of industry, and whether later legislative developments have any bearing on it.
    2. Welfare schemes: Whether welfare schemes run by the government count as an industrial activity.
    3. Sovereign function: What constitutes a sovereign function of the state, and whether such functions fall outside the ambit of labour law altogether.
    4. When framed: The Court identified these three broad questions for consideration in February 2026.

    Why does preserving the 1978 test only for pending cases divide the workforce in two?

    1. Two regimes running side by side: A dispute already filed under the 1947 Act is decided on the wide 1978 definition. An identical dispute arising under the Code is decided on a definition that has not yet been written out.
    2. The Court’s own reason: The majority stated that it did not intend to displace the governing legal position on pending proceedings, since doing so would create artificial discrimination.
    3. What the wide net secured: The 1978 definition enabled workers across a wide range of jobs to obtain legal recourse on wages, working hours, strikes, collective bargaining and protection against arbitrary dismissal.
    4. What the clean slate removes: Workers whose disputes arise after the Code’s commencement lose the settled presumption that their workplace is an industry, and must establish it afresh under Section 2(p).

    What does the dissent argue about the State as an employer?

    1. Reference itself questioned: Justice B.V. Nagarathna found the reference against the 1978 verdict unwarranted and not maintainable, and held that the ruling required no interference or modification.
    2. Identity of the employer is irrelevant: The dissent held that merely because a function is performed by the State, it cannot be exempted from the definition of industry, so the test of who carries out the activity is not relevant.
    3. Nature of the activity governs: Social welfare activities and schemes undertaken by government departments or their instrumentalities can be construed as industrial activities for the purpose of Section 2(j), depending on the nature of the activity and all other relevant factors.
    4. Why it matters now: The dissent held that it was important, now more than ever, to retain the inclusive definition of industry to safeguard workers’ rights.
    5. Split within the majority side: Justice Joymalya Bagchi recorded disagreement with the majority on the reformulation of the triple test, and Justices Dipankar Dutta and Ujjal Bhuyan wrote dissenting opinions.

    What challenges follow from redefining ‘industry’ under the new Code?

    1. Coverage uncertainty until the operative text arrives: The modified formulation was pronounced without the wording that prescribes it being available, so adjudicating authorities have no text to apply. Eg. The hour-long pronouncement on 20 August 2026 ended with the fine print of the new formulation still awaited.
    2. Identical workplaces treated differently by filing date: The cut-off is the date of the proceeding, not the nature of the work, so two workers in the same undertaking can face different definitions. Eg. A dispute in a municipal water supply undertaking filed under the 1947 Act is decided on the triple test, and one arising afterwards is not.
    3. No fallback forum for excluded categories: Narrowing the definition removes workers from the industrial adjudication machinery without putting anything in its place. Eg. The Centre itself told the Court in 2005 that no alternative dispute resolution mechanism existed for employees who would fall outside a narrowed definition.
    4. Threshold effects that discourage firms from growing: The Code applies its stricter obligations only above stated headcounts, which gives firms a reason to stop hiring below the line. Eg. Standing orders now apply at 300 employees and prior approval for layoff, retrenchment and closure applies at 300 workers, both raised from far lower thresholds.
    5. The sovereign function boundary left to case-by-case litigation: The Court has framed the question of what a sovereign function is without settling a workable test for it. Eg. Whether a government-run welfare scheme is an industrial activity was one of the three questions placed before the Bench in February 2026.
    6. A definition built for a standard employment relation: The triple test turns on cooperation between employer and employee, which platform-mediated work does not fit. Eg. Gig and platform workers are addressed through the Code on Social Security, 2020 rather than through the industrial dispute machinery.

    Conclusion

    The Court has separated the past from the future of a single statutory term, keeping Justice Krishna Iyer’s wide definition alive for disputes already in the system and denying it any authority over the Code that now governs Indian industrial relations. The substantive contest has therefore moved from the judiciary to the text of Section 2(p) and to whoever interprets it first. The Industrial Relations Code, 2020 has been in force since November 2025, and the next milestone is the release of the full text of the judgment carrying the refined formulation of the triple test.

    “[2024, GS3, 15] Discuss the merits and demerits of the four ‘Labour Codes’ in the context of labour market reforms in India. What has been the progress so far in this regard?”

  • Steel mills face margin squeeze as global coking coal prices rise

    Why in the News

    Premium hard coking coal has averaged $236 per metric ton freight on board Australia in the first seven months of 2026, a jump of 25 percent over last year. Indian steelmakers import 95 percent of their coking coal and face competition from cheap Chinese steel at the selling end, so the input shock cannot be passed on to buyers.

    What is coking coal and why does it decide steelmaking costs?

    1. Definition: Coking coal is a low ash, low sulphur coal that is baked into coke, the carbon source that both fuels the blast furnace and chemically strips oxygen from iron ore. It is not interchangeable with the thermal coal used in power stations.
    2. Share of cost: Coking coal accounts for nearly 40 percent of steel production costs, which makes its price the single largest swing factor in a mill’s margin.
    3. Import dependence: India meets 95 percent of its coking coal needs through imports, with at least half shipped from Australia.
    4. Cost transmission: For blast furnace based steelmakers, every $10 a ton increase in coking coal prices adds approximately $7 to $9 per metric ton to steelmaking costs.

    What does freight on board (FOB) Australia mean?

    1. Price basis: Freight on board (FOB) is the price of the cargo at the loading port, before ocean freight and insurance are added. The $236 per metric ton benchmark is therefore the Australian port price, not the delivered Indian cost.

    Why have global coking coal prices risen this year?

    1. Australian supply disruptions: Output interruptions at Australian mines removed tonnage from a market where India sources at least half its requirement.
    2. Slower ramp up at new mines: New Australian capacity has come on stream more slowly than expected, so the supply gap was not filled.
    3. Middle East conflict: The conflict in the Middle East provided price support across the seaborne coal complex.
    4. Shanxi accident: A large accident at a coal mine in Shanxi, China removed further tonnage from the market in the most recent phase of the price rise.
    5. Benchmark movement: Premium hard coking coal averaged $236 per metric ton FOB Australia over the first seven months of 2026, 25 percent above the previous year, on the metallurgical coal and coke market assessment of the consultancy CRU.
    6. Outlook for the rest of the year: Costs are likely to remain high in the second half of 2026, partly due to the loss of supply following the Shanxi coal mine disaster, on the assessment of BMI, a unit of Fitch Solutions.

    How does the price rise transmit into Indian mills’ balance sheets?

    1. Direct cost pass through: Each $10 a ton rise in coking coal adds $7 to $9 per metric ton to blast furnace steelmaking cost, on the estimate of an executive at a large steel mill.
    2. Volume exposure widens the hit: Coking coal imports are expected to rise by 2 million to 3 million tons in 2026-27, from 64 million tons a year earlier, on the estimate of the commodities consultancy BigMint, so the higher price applies to a larger tonnage.
    3. Freight adds on top of the cargo price: Trade flows have tightened with high demand from India and higher diesel, freight and insurance costs, on the assessment of Moody’s Ratings, raising the delivered cost above the FOB benchmark.
    4. Margin compression is already reported: Executives at three leading steelmakers report squeezed margins with little headroom to raise steel prices.

    Why can Indian mills not pass the cost on to buyers?

    1. Cheap Chinese steel sets the ceiling: Competition from cheap Chinese steel leaves little headroom to raise domestic steel prices even as input costs rise.
    2. Tariffs have not stopped the inflow: Shipments from China have increased despite import tariffs on some grades, so the trade remedy has not restored pricing power.
    3. Demand is strong but price inelastic: Domestic demand is buoyant on the back of infrastructure spending and strong economic growth, and that demand is being served at prices anchored by imports.
    4. Cost push and price ceiling combine: The squeeze operates from both ends at once, on the input side by coking coal and on the output side by import competition.

    What does the squeeze mean for India’s steel capacity expansion?

    1. Capital expenditure at risk: Squeezed margins could impede investment and delay capacity expansion at a time when Indian steelmakers are stepping up spending.
    2. Demand case remains intact: The expansion plans are driven by infrastructure led domestic demand and strong economic growth, so a delay is a supply side failure rather than a demand failure.
    3. Import bill widens: Rising coking coal import volumes alongside rising prices widen the trade exposure of a sector already dependent on a single dominant supplier.

    What do the source geographies of India’s coking coal reveal about its exposure?

    1. Australia, the anchor supplier: Australia ships at least half of India’s coking coal and is expected to continue doing so, which makes an Australian supply interruption an Indian cost event.
    2. China, both a supply and a competition risk: The Shanxi mine accident tightened coking coal supply, and rising Chinese steel shipments simultaneously cap Indian mills’ selling prices.
    3. Russia, a discount that has faded: Russian coal accounted for 24 percent of India’s coking coal imports in recent years, and the discounts on it have diminished over the past two years.
    4. Mozambique and the United States, the diversification margin: Imports from Russia, Mozambique and the United States are all set to rise as India spreads its sourcing.
    5. The Middle East, a freight channel rather than a supply channel: The United States and Iran war raises diesel, freight and insurance costs on seaborne routes rather than removing coal tonnage.

    Challenges to India’s coking coal supply security

    1. Extreme import concentration: A 95 percent import share with at least half from one country leaves no domestic buffer against a single supplier’s disruption. e.g. Australian supply disruptions in 2026 alone lifted the premium hard coking coal benchmark to an average of $236 per metric ton.
    2. Domestic coking coal is largely unusable raw: Indian coking coal carries high ash content and needs washing and blending with imported low ash coal before it can enter a blast furnace. e.g. the Jharia coalfield in Jharkhand holds India’s only significant prime coking coal deposits and still cannot substitute imports without beneficiation.
    3. No pricing power at the selling end: Import competition caps steel prices, so cost shocks are absorbed in the margin rather than recovered from the customer. e.g. Chinese shipments into India rose in 2026 despite import tariffs on some grades.
    4. Freight and insurance are a second, uncorrelated shock: Shipping cost spikes hit the delivered price even when the cargo price is stable. e.g. the United States and Iran war raised diesel, freight and insurance costs on the routes carrying Indian bound coal.
    5. Capacity expansion is the first casualty: Compressed margins delay the capital expenditure cycle rather than current output, so the damage appears years later. e.g. Indian mills stepping up spending to serve infrastructure driven demand now face investment decisions taken under a squeezed margin.
    6. The scrap based alternative route is supply constrained: Electric arc and induction furnace steelmaking avoids coking coal but depends on scrap that India does not generate in sufficient volume. e.g. India continues to import ferrous scrap despite the Steel Scrap Recycling Policy, 2019.

    Conclusion

    India’s steel sector faces a cost shock it cannot pass on, because a 95 percent import dependence on coking coal sits alongside a domestic price ceiling set by cheap Chinese steel. Coking coal is set to remain expensive through the second half of 2026 following the Shanxi supply loss, and import volumes are projected to rise by 2 million to 3 million tons in 2026-27. The immediate risk is not to current production but to the capacity expansion India needs to meet infrastructure led demand. Reducing the exposure requires domestic beneficiation capacity and a wider supplier base, neither of which can be built within a single price cycle.

    Steel Sector in India

    1. Global standing: India is the world’s largest crude steel producer after China and the world’s largest producer of direct reduced iron, also called sponge iron.
    2. Two production routes: The blast furnace and basic oxygen furnace route depends on coking coal and iron ore, and the electric arc furnace, induction furnace and direct reduced iron route depends on scrap, natural gas or non coking coal.
    3. Policy target: The National Steel Policy, 2017 targets 300 million tonnes of crude steel capacity and per capita finished steel consumption of 158 kg by 2030-31.
    4. Structural dependence: India holds large thermal coal reserves but very limited prime coking coal, so the raw material constraint is qualitative rather than quantitative.
    5. Trade position: India moved to being a net importer of finished steel in recent years, which is why import competition now shapes domestic pricing.

    Government Initiatives for the Steel Sector

    1. Production Linked Incentive Scheme for Specialty Steel: Approved in 2021 to incentivise domestic manufacture of value added grades such as coated steel, high strength steel and electrical steel that India otherwise imports.
    2. Mission Purvodaya: Launched in 2020 to build an integrated steel hub in eastern India, drawing on the iron ore and coal belt of Odisha, Jharkhand, West Bengal, Chhattisgarh and Andhra Pradesh.
    3. Steel Scrap Recycling Policy, 2019: Sets up a framework of registered scrapping centres to raise domestic scrap availability and reduce reliance on imported scrap and on coking coal based production.
    4. Domestically Manufactured Iron and Steel Products Policy: Provides preference to domestically manufactured iron and steel in government procurement, to anchor demand for local mills.
    5. Steel Import Monitoring System: Requires advance registration of steel imports so that the government has near real time visibility of import volumes, grades and prices.
    6. Mission Coking Coal: A Ministry of Coal initiative to raise domestic raw coking coal production and washing capacity so that the import share falls over time.
    7. Green Steel Taxonomy: Notified in 2024 to define and star rate low emission steel, creating a domestic standard ahead of carbon border measures in export markets.

    Key Facts about Coking Coal and Indian Steel

    1. Jharia coalfield: Located in Jharkhand, it holds India’s only significant reserves of prime coking coal and has been affected by long running underground mine fires.
    2. Ash content problem: Indian coking coal typically carries ash levels well above the imported grades, which is why it must be washed and blended rather than used directly.
    3. Coke, not coal, enters the furnace: Coking coal is converted to metallurgical coke in coke ovens before charging into the blast furnace.
    4. Administering ministry: The steel sector is administered by the Ministry of Steel and coal by the Ministry of Coal, which is why coking coal policy sits across two ministries.
    5. Non coking coal use: The sponge iron route uses non coking coal, which India produces domestically in large volumes, and is the reason India leads the world in direct reduced iron.

    “[2020, GS1, 15 marks] Account for the present location of iron and steel industries away from the source of raw material, by giving examples.”

  • Socialism as the shackle: revisiting the four decades before the 1991 reforms

    Why in the News

    India holds foreign exchange reserves of $700 billion, including 880 tonnes of gold, on its 80th Independence Day. In early 1991 the same reserves had fallen below $1 billion, and the escape required a Prime Minister formed in socialist politics to pledge the country’s gold to foreign banks.

    What was the licence permit quota system?

    1. About: The administrative regime under which a private firm needed a government licence to set up capacity, expand output, change product mix or import inputs.
    2. Legal basis: The Industries (Development and Regulation) Act, 1951 reserved industrial licensing to the Centre and listed the industries requiring approval.
    3. Delivery vehicle: Investment was allocated through five year plans, which placed the public sector first in the commanding heights of the economy.
    4. Effect on entry: Capacity was fixed by the licence rather than by demand, so a firm could not expand even when the market grew.
    5. Effect on competition: New entrants competed for approvals rather than for customers, which made the licence itself the scarce asset.

    What is a balance of payments crisis?

    1. Definition: A country cannot meet payments for imports and external obligations because its foreign exchange earnings and reserves fall short of what it owes.
    2. The operative measure: Severity is read in import cover, that is the number of weeks of imports the reserves can finance, not in the absolute size of the reserves.

    What was the socialist pattern of society resolution?

    1. Adoption: The Congress session at Avadi in Tamil Nadu in 1955 passed a resolution declaring a socialist pattern of society to be the goal of government policy.
    2. Content: It committed the government to state ownership and state direction of the principal means of production.

    What is the Bank for International Settlements (BIS)?

    1. Definition: A Basel based institution owned by central banks that functions as a bank to central banks, with operations that made it one of the two lenders against India’s gold in 1991.
    2. Function: It accepts deposits and gold from member central banks and extends short term credit against that collateral.

    What was the 42nd Constitutional Amendment Act, 1976?

    1. Preamble change: It inserted the words socialist, secular and integrity into the Preamble of the Constitution.
    2. Wider effect: It also expanded the protection given to laws implementing Directive Principles and curtailed the scope of judicial review, and much of it was reversed by the 44th Amendment.

    Why did the 1991 crisis force India to pledge its gold?

    1. Reserve collapse: Foreign exchange reserves fell below $1 billion in early 1991, producing a full balance of payments crisis.
    2. Import cover: The remaining reserves covered only about two weeks of imports.
    3. The only option left: The Reserve Bank Governor advised that India’s gold be mortgaged to the Bank of England and the Bank for International Settlements in Switzerland, and dollars borrowed against it.
    4. Quantum pledged: About 67 tonnes of gold moved out in two consignments during 1991.
    5. Closed markets: A downgrade below investment grade had shut India out of ordinary commercial borrowing, which left collateralised lending as the only route.

    How did socialism become the organising idea of Indian economic policy?

    1. 1927: A visit to Moscow for the decennial celebration of the October Revolution converted Jawaharlal Nehru to socialism.
    2. 1929: As president of the Indian National Congress he declared that India will have to go the socialist way.
    3. 1936: A revolt in the Congress Working Committee followed, in which seven senior leaders including Sardar Patel, Rajendra Prasad, C Rajagopalachari, J B Kripalani and Jamnalal Bajaj resigned.
    4. Gandhi’s condition: Mahatma Gandhi extracted a commitment that socialism would not become the Congress’s official policy, and it was honoured as long as Gandhi and Patel were alive.
    5. After 1950: The theme returned, and the 1955 Avadi resolution made a socialist pattern of society the declared goal of government.
    6. Instrumentation: The goal was executed through five year plans and the licence permit quota system, which emphasised state led growth and discouraged individual entrepreneurship.

    What did four decades of state led growth actually deliver?

    1. Poverty rose: Decadal data published in 1965 showed the poverty rate had risen from 52.66 per cent to 58.60 per cent.
    2. Food rationing persisted: India was the only country still running food rationing two decades after the Second World War.
    3. Agriculture stagnated: Agricultural productivity remained among the lowest in the world.
    4. The income floor: In Parliament in 1963 it was asserted that 270 million Indians lived on three annas, that is 19 paise, a day while the Prime Minister’s pet dog cost nearly three rupees a day.
    5. Enterprise discouraged: Licensing made official approval rather than consumer demand the binding constraint on production.

    Where did ideological commitment collide with fiscal solvency?

    1. The formation: The Prime Minister of 1990 to 1991 had begun his political life under the socialist leaders Acharya Narendra Dev and Ram Manohar Lohia.
    2. The dilemma: Pledging national gold to foreign banks contradicted the economic doctrine he had held throughout that political life.
    3. The counter argument: The Reserve Bank Governor’s case was that the country ranked above the doctrine, and it prevailed.
    4. Who acted: A lame duck government running on a thin majority took the decision that kept India solvent until a reform government could be formed.
    5. Who is credited: The turnaround is attributed to the Prime Minister and Finance Minister who followed, not to the government that pledged the gold.

    How much of the 1991 collapse can be attributed to socialism alone?

    1. Oil shock: The Gulf conflict of 1990 raised crude prices and cut worker remittances from West Asia at the same time.
    2. Deposit flight: Non resident deposits were withdrawn rapidly as confidence in repayment fell.
    3. Fiscal position: The fiscal deficit had reached about 8.4 per cent of gross domestic product in 1990 to 1991, financed by borrowing.
    4. Political instability: Three governments in two years delayed every corrective decision.
    5. Model exhaustion: The licensing system had already produced four decades of low growth, so an external shock met an economy with no buffer.

    What did other countries do when the same model failed?

    1. China: The Four Modernisations introduced by Deng Xiaoping in 1978 opened agriculture, industry, defence and science and technology to market incentives, with special economic zones as the entry point for foreign capital.
    2. Soviet Union: The planned economy did not reform in time and collapsed along with the state itself in the early 1990s.
    3. Vietnam: The Doi Moi programme from 1986 replaced collective farming with household production and legalised private enterprise.
    4. Poland: The stabilisation programme of 1990 freed prices and made the currency convertible in a single step rather than in stages.

    Challenges to the post 1991 reform model

    1. Manufacturing share stagnation: Industry has not absorbed labour at the expected scale, e.g. manufacturing has remained near 17 per cent of gross value added against the 25 per cent target set under Make in India.
    2. Factor market reform stalled: Land and agricultural marketing reform remain politically blocked, e.g. the three farm laws enacted in 2020 were repealed in 2021 after a year of protest.
    3. Labour codes unimplemented: Consolidation of labour law has not translated into uniform practice, e.g. the four labour codes passed by 2020 waited years for States to notify matching rules.
    4. Disinvestment slippage: Public sector exits are announced faster than they are completed, e.g. the sale of Air India concluded in 2022 after two decades of failed attempts.
    5. Credit cycle damage: Directed and concentrated lending has repeatedly produced stress, e.g. the asset quality review of 2015 exposed non performing assets built up in infrastructure and power lending.
    6. Policy predictability: Retrospective changes deter long term capital, e.g. the retrospective tax amendment of 2012 triggered the Vodafone and Cairn arbitrations and was withdrawn only in 2021.

    Conclusion

    The crisis of 1991 was the terminal cost of a model in which official approval, not consumer demand, set the limit on production. The decisive moment came when a Prime Minister formed in socialist politics accepted that solvency outranked doctrine. Liberalisation removed the licence, but factor markets, manufacturing scale and policy predictability remain unresolved three decades later.

    What is Economic Liberalisation?

    1. About: Economic liberalisation is the removal of state controls on entry, capacity, prices and trade so that market signals rather than administrative permission allocate resources.
    2. Rationale: It addresses the shortages, rent seeking and low productivity that follow when output is capped by licence rather than by demand.
    3. Liberalisation: The first element removes industrial licensing, price controls and import restrictions on domestic producers.
    4. Privatisation: The second element transfers ownership or management of state enterprises to private hands and opens reserved sectors to private entry.
    5. Globalisation: The third element integrates the domestic economy with world markets through trade, investment and currency convertibility.

    Key Concerns Regarding Economic Liberalisation

    1. Jobless growth: Output growth has not produced proportionate formal employment, leaving a large workforce in low productivity informal work.
    2. Regional divergence: Investment concentrates in States with existing infrastructure, widening the gap with lagging States.
    3. Concentration of market power: Deregulation without strong competition enforcement allows dominant firms to entrench themselves.
    4. External vulnerability: Open capital accounts transmit global shocks quickly through portfolio flows and the exchange rate.
    5. Weak social protection: Removal of administered prices raises the burden on households where targeted transfers are incomplete.

    Constitutional Framework Governing Economic Policy in India

    1. Preamble: The word socialist, inserted by the 42nd Amendment in 1976, declares a normative economic orientation without prescribing a specific model.
    2. Article 19(1)(g): Guarantees the freedom to practise any profession or carry on any occupation, trade or business.
    3. Article 19(6): Permits reasonable restrictions on that freedom, including the creation of a complete or partial state monopoly in any trade.
    4. Article 39(b): Directs that ownership and control of material resources be distributed to best subserve the common good.
    5. Article 39(c): Directs that the operation of the economic system not result in concentration of wealth to the common detriment.
    6. Article 31C: Protects laws made to give effect to Articles 39(b) and 39(c) from challenge on specified fundamental rights grounds.
    7. Article 246 with Union List Entry 52: Places industries whose control by the Union is declared expedient in the public interest within Parliament’s exclusive competence, which is the basis of central industrial licensing.
    8. Article 301: Guarantees freedom of trade, commerce and intercourse throughout the territory of India.

    Laws and Rules Governing Industrial Policy in India

    1. Industries (Development and Regulation) Act, 1951: Created the licensing system for industrial capacity; it remains in force but licensing now applies to only four industries.
    2. Industrial Policy Resolution, 1956: Classified industries into three schedules and reserved the commanding heights for the public sector.
    3. Monopolies and Restrictive Trade Practices Act, 1969: Restricted expansion by large firms above an asset threshold, and was repealed and replaced by the Competition Act, 2002.
    4. Foreign Exchange Regulation Act, 1973: Capped foreign equity and criminalised exchange violations, and was replaced by the Foreign Exchange Management Act, 1999, which shifted violations from crime to civil penalty.
    5. New Industrial Policy, 1991: Abolished industrial licensing except for a short list, opened reserved sectors and raised the automatic route for foreign investment.
    6. Competition Act, 2002: Shifted regulation from restricting size to prohibiting anti competitive agreements and abuse of dominance.
    7. Insolvency and Bankruptcy Code, 2016: Created a time bound resolution process, which supplied the exit mechanism the licence era economy never had.

    Back2Basics: The 1991 New Economic Policy

    1. Trigger: Foreign exchange reserves below $1 billion and import cover of about two weeks.
    2. Gold pledge: About 67 tonnes of gold were pledged to the Bank of England and to a Swiss bank across two consignments in 1991.
    3. Devaluation: The rupee was devalued in two steps on 1 and 3 July 1991, by roughly 9 per cent and 11 per cent.
    4. External support: India drew on an International Monetary Fund standby arrangement, conditioned on fiscal correction and structural reform.
    5. Industrial delicensing: Licensing was abolished for all but 18 industries, a list since reduced to four.
    6. Trade and investment: Import tariffs were cut sharply and foreign direct investment up to 51 per cent was permitted through an automatic route in listed industries.

    Government Initiatives for Industrial Growth

    1. Make in India: Launched to raise manufacturing’s share of output and employment through sector specific facilitation.
    2. Production Linked Incentive schemes: Pay incentives on incremental sales in named sectors such as electronics, pharmaceuticals and solar modules.
    3. National Single Window System: Consolidates central and State approvals for a new industrial project into one application portal.
    4. PM GatiShakti National Master Plan: Coordinates infrastructure planning across ministries to reduce logistics cost for industry.
    5. Jan Vishwas (Amendment of Provisions) Act, 2023: Decriminalised a large number of minor business offences to reduce compliance risk.
    6. Startup India: Provides tax benefits, a fund of funds and simplified compliance for recognised new enterprises.

    Key Facts about the 1991 Reforms

    1. The Budget of 1991: The reform Budget was presented in July 1991 and paired fiscal correction with trade liberalisation.
    2. Licensing today: Only four industries still require an industrial licence, including alcoholic drinks, tobacco products, defence and aerospace equipment, and industrial explosives.
    3. Reserve position now: Foreign exchange reserves stand at about $700 billion, with gold holdings of 880 tonnes.
    4. Rate of change: Reserves more than doubled over the last twelve years.
    5. Preamble litigation: The presence of the word socialist in the Preamble has been repeatedly challenged, and the Supreme Court has declined to read it as mandating a specific economic model.

    Challenges in India’s Industrial Economy

    1. Scale deficit in manufacturing: Firms stay small to retain benefits tied to size, e.g. the majority of registered manufacturing units remain micro enterprises with fewer than ten workers.
    2. Import dependence in key inputs: Assembly has grown faster than component making, e.g. India still imports the bulk of active pharmaceutical ingredients and advanced electronic components from China.
    3. Logistics cost: Freight moves disproportionately by road, e.g. rail’s share of freight traffic has fallen steadily since the 1950s, raising delivered cost for bulk industry.
    4. Land acquisition friction: Project land remains slow and contested to assemble, e.g. the Nandigram and Singur episodes in West Bengal ended two large industrial projects outright.
    5. Skills mismatch: Formal training does not match employer requirements, e.g. employability surveys repeatedly report that a minority of engineering graduates are job ready without retraining.
    6. Power reliability and cost: Industrial tariffs cross subsidise other consumers, e.g. energy intensive units in several States run captive diesel or solar capacity to avoid grid interruption.

    Way Forward

    1. Complete factor market reform: Move on land assembly, tenancy and labour rule notification instead of amending statute without implementation.
    2. Tie incentives to competitiveness: Structure production incentives to expire on a fixed schedule so that supported sectors face world prices.
    3. Deepen component ecosystems: Extend support beyond final assembly to component, material and capital goods manufacturing.
    4. Cut logistics cost: Shift bulk freight to rail and coastal shipping through dedicated corridors and multimodal terminals.
    5. Stabilise tax and regulatory expectations: Rule out retrospective taxation by statute and publish advance rulings to reduce litigation.
    6. Align skilling with employers: Fund apprenticeships tied to firm level hiring rather than to enrolment targets.

    “[2017, GS3, 15 marks] “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far the recent changes is Industrial Policy are capable of increasing the industrial growth rate?”

  • Govt extends PM E-DRIVE scheme timeline, sop halved

    Why in the news?

    The Centre has extended the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme for electric two wheelers till 31 March 2028 and halved the per unit incentive to Rs 2,500 per kilowatt hour from Rs 5,000 earlier. The move signals a planned tapering of demand support as electric two wheeler costs fall and the market matures.

    What is the PM E-DRIVE Scheme?

    1. What it is: PM E-DRIVE is the central scheme providing demand incentives and support infrastructure for electric mobility, administered by the Ministry of Heavy Industries. It succeeds the earlier FAME programme as the main demand side push for electric vehicles.
    2. Outlay and duration: It carries an outlay of Rs 11,900 crore and is implemented from 1 April 2024 till 31 March 2028.
    3. Two wheeler support: For electric two wheelers, the scheme sets a total fund support of Rs 2,767 crore from the Ministry of Heavy Industries.

    What has changed?

    1. Timeline extended: The electric two wheeler segment has been extended till 31 March 2028.
    2. Incentive halved: The per unit incentive is cut to Rs 2,500 per kilowatt hour from Rs 5,000 per kilowatt hour earlier.
    3. Per vehicle cap lowered: The incentive is capped at Rs 5,000 per vehicle, down from Rs 10,000 per vehicle in FY 2024-25.
    4. Eligibility window: Registered electric two wheelers can avail the Rs 2,500 per kilowatt hour incentive for the period between 1 April 2025 and 31 March 2028.
    5. Price ceiling: The maximum ex factory price for an electric two wheeler to qualify is Rs 1.5 lakh.
    6. Lower of two limits: The incentive is limited to the specified cap or 15 per cent of the ex factory price of the electric two or three wheeler, whichever is lower, and is subject to periodic review as vehicle costs fall.

    Back2Basics: PM E-DRIVE Scheme

    1. Ministry: Ministry of Heavy Industries.
    2. Launch year: 2024, implemented from 1 April 2024 to 31 March 2028.
    3. Outlay: Rs 11,900 crore.
    4. Aim: Accelerate adoption of electric vehicles and build charging and testing infrastructure.
    5. Beneficiaries: Buyers of electric two, three, and heavier vehicles, state transport undertakings, and charging infrastructure providers.

    Government Initiatives for Electric Mobility

    1. FAME India (Phase I and II): Earlier demand incentive scheme for electric and hybrid vehicles.
    2. PLI Auto Scheme: Production Linked Incentive for advanced automotive technology products.
    3. PLI ACC Battery Scheme: Incentive for domestic advanced chemistry cell battery manufacturing.
    4. Vehicle Scrappage Policy: Phasing out unfit vehicles to spur cleaner replacements.
    5. e-AMRIT portal: A one stop information platform on electric vehicles.

    Key Facts about PM E-DRIVE

    1. Successor scheme: PM E-DRIVE succeeds FAME II as the flagship electric mobility scheme.
    2. Incentive metric: Support is calculated per kilowatt hour of battery capacity.
    3. Segment coverage: Covers electric two wheelers, three wheelers, buses, trucks, and ambulances, plus charging infrastructure.

    Challenges to Electric Vehicle Adoption

    1. Charging infrastructure gap: Public charging networks remain thin outside major cities.
    2. Battery import dependence: Reliance on imported cells and critical minerals raises cost and supply risk.
    3. High upfront cost: Purchase prices stay above comparable petrol vehicles despite incentives.
    4. Range and grid strain: Range anxiety and grid readiness limit uptake in some segments.
    5. Recycling burden: End of life battery disposal needs robust recycling systems.
    6. Incentive dependence: Demand remains sensitive to the level and continuity of subsidies.

    “[2023, GS3, 15 marks] The adoption of electric vehicles is rapidly growing worldwide. How do electric vehicles contribute to reducing carbon emissions and what are the key benefits they offer compared to traditional combustion engine vehicles?”

    [2025] With reference to India, consider the following pairs: Organization Union Ministry
    1. The National Automotive BoardMinistry of Commerce and Industry
    2. The Coir BoardMinistry of Heavy Industries
    3. The National Centre for Trade
    InformationMinistry of Micro, Small and Medium Enterprises
    How many of the above pairs are correctly matched?

    [A] Only one

    [B] Only two

    [C] All the three

    [D] None

  • PIB Backgrounder Charts India’s Electric Vehicle Ecosystem

    Why in the News

    A PIB Backgrounder has highlighted the rapid growth of India’s Electric Vehicle (EV) ecosystem, showcasing significant progress in EV adoption, charging infrastructure, battery manufacturing, and government support.

    What does the Backgrounder Highlight?

    • EV Penetration: Increased from 0.08% in 2016 to 8.26% in 2026.
    • EV Sales: Rose from about 50,000 units in 2016 to 2.3 million units in 2025.
    • Charging Infrastructure: India had 52,718 public charging stations by July 2026, with a target of about 1.32 million stations by 2030.
    • National Goal: Achieve a 30% share of electric vehicles in new vehicle sales by 2030 under the EV30@30 initiative.

    PM E-DRIVE Scheme

    • Full Form: PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE).
    • Launched: 2024, replacing the FAME scheme.
    • Outlay: ₹10,900 crore.
    • Coverage: Electric two-wheelers. Electric three wheelers. Electric trucks. Electric buses. Electric ambulances.
    • Objective: Accelerate EV adoption through demand incentives and supporting infrastructure.

    Battery Manufacturing Push

    Production Linked Incentive (PLI) Scheme for Advanced Chemistry Cell (ACC)

    • Outlay: ₹18,100 crore.
    • Manufacturing Target: 50 GWh of Advanced Chemistry Cell battery capacity.
    • Objective: Promote domestic battery manufacturing and reduce import dependence.

    Earlier Initiative: FAME Scheme

    • Full Form: Faster Adoption and Manufacturing of Electric Vehicles (FAME).
    • Launched: 2015.
    • Phase II: Implemented until 2024.
    • Replaced by: PM E-DRIVE in 2024.

    [2025] In the context of electric vehicle batteries, consider the following elements:

    I. Cobalt

    II. Graphite

    III. Lithium

    IV. Nickel

    How many of the above usually make up battery cathodes?

    (a) Only one (b) Only two (c) Only three (d) All the four

  • Rising private R&D spending should be channelled into manufacturing

    Why in the News

    For the first time, private industry has overtaken the government as the largest source of Research and Development (R&D) spending in India, marking a significant shift in the country’s innovation ecosystem. However, India’s overall R&D investment remains low compared to major economies.

    What does the R&D data show?

    • Private sector leads: Private industry contributed 51.8% of India’s total R&D expenditure in 2023 to 2024.
    • Low R&D intensity: India’s Gross Expenditure on R&D (GERD) is only 0.84% of GDP.
      • Global comparison: China: 2.58%, United States: 3.45%, South Korea: 4.94%
    • Limited research workforce: India has only 354 researchers per million population, much lower than leading innovation economies.

    Why should R&D focus on manufacturing?

    • Higher value addition: Promotes movement from low-end assembly to high-technology manufacturing.
    • Import substitution: Reduces dependence on imported technologies and critical components.
    • Employment generation: Encourages advanced manufacturing, creating skilled jobs and strengthening industrial competitiveness.
    • Global competitiveness: Supports initiatives such as Make in India and Atmanirbhar Bharat.

    What institutional support exists?

    Anusandhan National Research Foundation (ANRF)

    • Established under: ANRF Act, 2023.
    • Corpus: ₹50,000 crore over five years.
    • Objective: Promote research, innovation and collaboration among academia, industry and government.
    • Key role:
      • Mobilise private sector investment in research.
      • Coordinate research funding across institutions.
      • Strengthen India’s innovation ecosystem.

    Prelims Pointers

    • GERD (Gross Expenditure on Research and Development): Total national expenditure on R&D as a percentage of GDP.
    • Private industry is now India’s largest R&D spender.
    • ANRF replaced the Science and Engineering Research Board (SERB) as the apex research funding body.
    • India spends less than 1% of GDP on R&D.

    [2015] Which of the following statements is/are correct regarding National Innovation Foundation-India (NIF)?
    1. NIF is an autonomous body of the Department of Science and Technology under the Central Government
    2.NIF is an initiative to strengthen the highly advanced scientific research in India’s premier scientific institutions in collaboration with highly advanced foreign scientific institutions.
    Select the correct answer using the code given below.

    [A] 1 only

    [B] 2 only

    [C] Both 1 and 2

    [D] Neither 1 nor 2

  • Rajya Sabha passes the MSME Development (Amendment) Bill 2026

    Why in the News?

    The Rajya Sabha passed the Micro, Small and Medium Enterprises (MSME) Development (Amendment) Bill, 2026, replacing the MSME Development Act, 2006. It aims to improve formalisation and liquidity by introducing a digital registration platform and mandatory invoice settlement through Trade Receivables Discounting System (TReDS).

    Key Provisions

    • National Digital Registration: Free, voluntary online registration for MSMEs.
    • Mandatory TReDS: Central Public Sector Enterprises (CPSEs) must settle MSME invoices through the Trade Receivables Discounting System (TReDS).
    • Updated Framework: Replaces the 2006 Act governing MSME classification, credit and delayed payments.
    • Objective: Improve timely payments while balancing business interests.

    What is TReDS?

    • Trade Receivables Discounting System (TReDS) is a Reserve Bank of India (RBI) regulated electronic platform where MSMEs sell approved invoices to financiers for immediate cash.
    • Process: MSME uploads invoice → financiers bid → MSME gets upfront payment → buyer pays financier on the due date.

    Why is the Amendment Needed?

    • Delayed payments reduce MSME working capital.
    • Easier registration promotes formalisation and access to credit.
    • Institutional credit has grown, but access remains uneven.

    Importance of MSMEs

    • Contribute 31% of Gross Domestic Product (GDP).
    • Account for 36% of manufacturing output.
    • Contribute 41% of exports.
    • Second largest employer after agriculture.

    Challenges

    • Voluntary registration may exclude many firms.
    • TReDS mandate covers only CPSEs.
    • Smaller firms may struggle to attract financiers.
    • Weak enforcement and digital literacy remain concerns.

    MSME Classification

    • Micro: Investment ≤ ₹2.5 crore; Turnover ≤ ₹10 crore
    • Small: Investment ≤ ₹25 crore; Turnover ≤ ₹100 crore
    • Medium: Investment ≤ ₹125 crore; Turnover ≤ ₹500 crore

    Key Initiatives

    • Udyam Registration Portal
    • MSME Samadhaan
    • Trade Receivables Discounting System (TReDS)
    • Priority Sector Lending (PSL)

    “[2023] Consider the following statements with reference to India:

    1. According to the ‘Micro, Small and Medium Enterprises Development (MSMED) Act, 2006’, the ‘medium enterprises’ are those with investments in plant and machinery between Rs. 15 crore and Rs. 25 crore.

    2. All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2.

  • Govt. brings ₹3,030-cr. plan to set up three chemical parks

    Why in News?

    The Union Cabinet approved the BHAVYA-Rasayan Scheme to establish three chemical parks, aiming to boost domestic chemical manufacturing and attract private investment.

    Key Highlights

    • Cabinet approved the Bharat Audyogik Vikas Yojana Rasayan (BHAVYA-Rasayan).
    • Three chemical parks of at least 2,000 acres each.
    • Total outlay: ₹3,030 crore.
    • Each park is expected to attract ₹20,000 crore to ₹50,000 crore in private investment.
    • Parks will provide common infrastructure such as CETPs, hazardous waste management, utilities, and logistics.

    Value Addition

    • India is the 6th largest chemical producer globally and 3rd largest in Asia.
    • The sector contributes about 7% of GDP, 14% of industrial output, and 11% of merchandise exports.
    • Chemical parks promote cluster-based manufacturing, reduce logistics costs, improve environmental compliance, and enhance export competitiveness.

    BHAVYA-Rasayan Scheme

    • Union Government scheme approved in July 2026.
    • Outlay: ₹3,030 crore.
    • Objective: Develop integrated chemical manufacturing hubs, attract investment, reduce import dependence, and strengthen Make in India.

    PYQ (2023, GS3, 10 Marks) Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard.

    [2020] With reference to the international trade of India at present, which of the following statements is/are correct?

    1.India’s merchandise exports are less than its merchandise imports.
    2.India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
    3.India’s exports of services are more than its imports of services.
    4.India suffers from an overall trade/current account deficit.
    Select the correct answer using the code given below:
    a) 1 and 2 only
    b) 2 and 4 only
    c) 3 only
    d) 1, 3 and 4 only

  • AAROH: Annual Report on Mine Closure

    Why in News?

    The Ministry of Coal will release AAROH (Annual Report on Mine Closure) on 22 July 2026, highlighting India’s progress in scientific mine closure. The event will also witness the signing of the India-Germany Implementation Agreement on mine closure, inauguration of Coal NEER Plants, and MoUs under the Revised Jharia Master Plan.

    Key Highlights

    • AAROH is the first comprehensive annual report documenting India’s scientific mine closure efforts.
    • For the first time since Independence, 42 coal mines have been scientifically closed according to approved mine closure plans.
    • The report showcases:
      • Scientific land reclamation.
      • Ecological restoration.
      • Sustainable post-mining land use.
      • Community-centric rehabilitation and livelihood generation.

    Frameworks for Scientific Mine Closure

    The Ministry of Coal has developed dedicated frameworks and digital tools to ensure scientific and sustainable mine closure:

    • RECLAIM (Resourceful Engagement and Community-Led Action in Integrated Mine Closure) Framework promotes community participation and stakeholder engagement during mine closure.
    • L.I.V.E.S. (Livelihood, Inclusion, Value, Environment and Sustainability) Framework provides guidelines for sustainable mine closure and productive post-mining land use.
    • SUVIKALP (Sustainable Utilisation of Vast Land Resources through Intelligent Planning) is an interactive decision-support tool for identifying suitable post-mining land-use options.

    International Cooperation

    • The Ministry of Coal will sign an Implementation Agreement with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Germany.
    • The partnership aims to:
      • Build institutional capacity.
      • Facilitate knowledge sharing.
      • Adopt international best practices in scientific mine closure and post-mining development.

    Community Development Initiatives

    • Coal NEER Plants will be inaugurated to provide safe and sustainable drinking water in coal-bearing regions.
    • Tripartite MoUs will be signed among BCCL, JRDA, and private industries for establishing vocational training centres under the Revised Jharia Master Plan.

    Significance

    • Promotes environmentally responsible mining practices.
    • Restores degraded mining landscapes and biodiversity.
    • Converts abandoned mines into productive assets for agriculture, tourism, forestry, renewable energy, or industrial use.
    • Enhances livelihood opportunities through skill development and community participation.

    [2022] In India, what is the role of the Coal Controller’s Organization (CCO)?
    1.CCO is the major source of coal Statistics in Government of India.
    2.It monitors progress of development of Captive Coal/ Lignite blocks.
    3.It hears any objection to the Government’s notification relating to acquisition of coal-bearing areas.
    4.It ensures that coal mining companies deliver the coal to end users in the prescribed time.
    Select the correct answer using the code given below:

    [A] 1, 2 and 3

    [B] 3 and 4 only

    [C] 1 and 2 only

    [D] 1, 2 and 4

  • Core Industries Index (ICI) Revised Series

    Why in News?

    The Index of Core Industries (ICI) grew by 5% in June 2026, the highest growth in the last five months. The government also released a new ICI series with base year 2022–23, replacing the 2011–12 series.

    Key Highlights

    • Growth: ICI increased by 5% (YoY) in June 2026, up from 3.2% in May 2026.
    • Base Year Revised: Updated from 2011–12 to 2022–23.
    • Coverage Expanded: Iron ore has been added as the 9th core industry.
    • Methodology Updated: Sectoral weights and estimation methods have been revised.
    • Fastest Growing Sector: Iron ore (43.9% growth), largely due to a low statistical base.
    • Other sectors recording positive growth: Electricity: 9.8%, Cement: 9.8%, Steel: 4.6%, Coal: 1.4%
    • Sectors recording contraction: Crude Oil: –4.2%, Natural Gas: –7.4%, Refinery Products: –4.7%, Fertilisers: –3.3%

    About the Index of Core Industries (ICI)

    • Published by the Office of the Economic Adviser (OEA) under the Department for Promotion of Industry and Internal Trade (DPIIT).
    • Measures the performance of core industrial sectors.
    • Serves as a leading indicator of the Index of Industrial Production (IIP).
    • Accounts for about 40% of the weight in the IIP.
    • Nine Core Industries (Base Year 2022–23): Coal, Crude Oil, Natural Gas, Refinery Products, Fertilisers, Steel, Cement, Electricity, and Iron Ore (newly added)

      [2016] In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

      (a) Coal Production

      (b) Electricity generation

      (c) Fertilizer production

      (d) Steel production.