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

  • Women MSMEs still struggle for credit despite schemes

    Why in the News?

    Women-led MSMEs are a key part of India’s economic growth, but they still remain underserved. Even though they make up 20% of all registered MSMEs, they contribute only 10% of the total income and receive disproportionate credit and lack of support.

    Why do women-led MSMEs face persistent credit gaps?

    • Discriminatory Credit Disbursement: Women face a higher credit gap (35%) compared to men (20%), as per SIDBI reports. Eg: Despite applying for ₹10 lakhs in business loans, many women entrepreneurs receive only ₹6.5 lakhs, limiting their operational expansion.
    • Lack of Collateral and Property Ownership: Many women lack land or asset ownership, making it difficult to meet banks’ collateral requirements. Eg: A rural woman running a tailoring unit may not own property, so her loan request is denied despite good business potential.
    • Lower Financial Literacy: Many first-generation women entrepreneurs, especially in rural areas, lack awareness of financial schemes and documentation processes. Eg: Women in small towns often don’t know how to access PMMY or Stand-Up India loans, resulting in underutilisation of available credit.
    • Gender Bias in Credit Risk Assessment: Financial institutions often perceive women as risky borrowers, especially if they operate in informal sectors.
    • Overdependence on Informal Credit Sources: Due to a lack of formal access, many women rely on moneylenders, who charge high interest rates and offer no legal protection. Eg: In the absence of bank loans, women-led microenterprises may borrow from informal lenders at 24% interest, leading to debt traps.

    What limits the effectiveness of schemes like PMMY?

    • Low Sanction-to-Application Ratio: While a high number of women open loan accounts, the actual sanctioned amount is disproportionately lower. Eg: In 2024, women held 64% of PMMY accounts, but received only 41% of the total disbursed amount, reflecting a gap in meaningful financial access.
    • Administrative Inefficiencies: Delays and inconsistencies in processing applications, verification, and disbursal reduce scheme impact.
    • Lack of Awareness: Many potential beneficiaries, especially in rural or semi-urban areas, are unaware of PMMY’s features or how to apply. Eg: Women entrepreneurs with informal businesses often fail to access collateral-free loans due to absence of facilitation from banks or local agencies.

    How does low financial literacy hinder women entrepreneurs?

    • Inability to Navigate Formal Banking Systems: Lack of knowledge in budgeting, credit scores, or interest rates discourages women from applying for loans. Eg: First-generation entrepreneurs in rural areas avoid formal credit channels and depend on informal moneylenders with high-interest rates.
    • Limited Confidence in Business Decision-Making: Low financial skills reduce confidence in investment planning, profit calculation, and risk management, hampering business growth. Women running micro-enterprises often hesitate to expand operations or apply for working capital loans, fearing repayment complexities.

    What is the role of the Udyam Assist Portal in women’s empowerment?

    • Formal Recognition of Informal Enterprises: The portal helps register Informal Micro Enterprises (IMEs), especially women-led ones, bringing them into the formal financial ecosystem. Eg: In 2024, 70.5% of IMEs registered on the portal were women-owned, enabling access to priority sector lending.
    • Improved Access to Formal Credit: By assigning a Udyam Registration Number, it enables collateral-free loans and better eligibility under various government credit schemes. Eg: Registered women entrepreneurs can now avail benefits under schemes like PMMY and Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
    • Boost to Employment and Income Generation: The portal supports women in starting and scaling up their enterprises, thus enhancing livelihood security and job creation. Eg: Women-led IMEs contributed over 70.8% to employment generation in the informal micro-business segment.

    Which reforms can improve credit access for women-led IMEs? (Way forward)

    • Expand Collateral-Free Credit Schemes: Widen the reach of schemes like PMMY and CGTMSE with targeted provisions for first-generation women entrepreneurs and flexible documentation norms. Eg: Lower the threshold for loan amounts and simplify eligibility for Udyam-registered IMEs.
    • Strengthen Financial Literacy and Credit Counselling: Launch grassroots training programmes in regional languages to raise awareness about credit products, budgeting, and digital banking. Eg: Tie-up with SHGs and local NGOs to educate women in rural and semi-urban areas.
    • Mandate Gender-Sensitive Banking Practices: Instruct public and private banks to set quotas for women-led MSME lending, and monitor disbursal with gender-segregated data. Eg: Introduce incentive-based targets for bank branches lending to women-run enterprises.

    Mains PYQ:

    [UPSC 2021] Can the vicious cycle of gender inequality, poverty and malnutrition be broken through microfinancing of women SHGs? Explain with examples.

    Linkage: The article explicitly highlight the how government schemes like the Pradhan Mantri MUDRA Yojana (PMMY) aim to support self-employment and financial independence for women, which aligns with microfinancing efforts. This question is highly relevant as it directly addresses the effectiveness of “microfinancing of women” as a tool for empowerment and breaking negative societal cycles.

     

  • Invisible Exports of India

    Why in the News?

    As of 2024–25, India’s “invisibles” trade—comprising services exports and private money transfers—has not only surpassed its merchandise exports but also emerged as a key stabiliser of the current account deficit.

    What are Invisible Exports (in India’s context)?

    • What is it: Invisible exports refer to international trade in services and income flows that do not involve physical goods crossing borders. These transactions are digital or financial, rather than visible at ports or airports.
    • Types of Services Included: They comprise a wide range of service-based exports such as IT services, financial consulting, legal and accounting services, R&D, and BPO operations.
    • Inclusion of Remittances: Private remittances—money sent home by Indians working abroad—are counted as part of invisibles in India’s Balance of Payments (BoP).
    • BoP Classification: These transactions are recorded under the “Current Account” of the BoP, specifically in the sub-categories of services, primary income, and secondary income.
    • Characteristics: Unlike physical exports, invisible exports do not require shipping, face fewer trade barriers, and rely heavily on skilled human capital.
    • Leading Examples: India’s key invisible exports include software and IT-enabled services (by firms like Infosys, TCS, Wipro), Global Capability Centers, financial and legal services, and education, tourism, and medical services.
    • Role of Migrant Remittances: Remittances from NRIs and migrant workers play a crucial role and are one of the largest components of India’s invisible receipts.

    Their Contribution in Trade

    • Higher Value than Goods Exports: In 2024–25, India’s gross invisible receipts reached $576.5 billion, surpassing merchandise exports of $441.8 billion. Services alone brought in $387.5 billion, a major leap from $26.9 billion in 2003–04, while remittances added $135.4 billion.
    • Buffer Against Trade Deficits: While the merchandise trade deficit stood at $287.2 billion, a net invisible surplus of $263.8 billion helped reduce the overall current account deficit to just $23.4 billion, providing crucial stability.
    • Resilience Across Global Crises: Invisible exports remained strong during major disruptions like the 2008 financial crisis, COVID-19 pandemic, and ongoing geopolitical tensions, showcasing greater resilience than merchandise trade.
    • Human Capital-Driven Growth: Services exports are powered by India’s skilled workforce, not physical infrastructure. India thrives as the “office of the world”, moving beyond the traditional “back office” label.
    • Less Policy Dependence: Growth in invisible exports occurred largely without heavy government incentives or trade agreements. India still lacks strong service-sector provisions in its major trade deals.
    [UPSC 2006] Assertion (A): Balance of Payments represents a better picture of a country’s economic transactions with the rest of the world than the Balance of Trade.

    Reason (R): Balance of Payments takes into account the exchange of both visible and invisible items whereas Balance of Trade does not.

    Options: (a) Both A and R are individually true and R is the correct explanation of A **  (b) Both A and R are individually true and R is not the correct explanation of A (c) A is true but R is false (d) A is false but R is true

     

  • WTO Agreement on Safeguards (AoS)

    Why in the News?

    Invoking the Agreement on Safeguards (AoS), India has notified the WTO of its plan to impose $724 million in retaliatory tariffs on the U.S. for breaching trade commitments through unilateral auto import duties.

    What is the Agreement on Safeguards (AoS)?

    • Overview: It is a World Trade Organization (WTO) treaty that allows countries to apply temporary trade barriers—called safeguard measures—when a domestic industry is harmed by a surge in imports.
    • Purpose in Practice: The agreement maintains global trade discipline, offering legal protection tools but with checks to avoid abuse.
    • Conditions for Use: Safeguards can only be used when there is clear evidence of serious injury or threat to domestic producers due to increased imports.
    • Rules-Based System: The agreement ensures safeguard actions are transparent, time-bound, and non-discriminatory, preventing misuse for permanent protectionism.
    • Key Rules:
      • Article 12.3: Before acting, a country must notify and consult with other WTO members who may be affected by the safeguard.
      • Article 8: If consultation fails, the affected country can retaliate by suspending trade benefits equal to the loss it suffered.
      • Ban on Informal Restrictions: AoS strictly prohibits voluntary export restraints or informal quotas that evade WTO rules, ensuring fairness.

    India’s Use of the AoS – The 2025 U.S. Tariff Case:

    • Trigger: The U.S. had imposed 25% tariffs on Indian-origin vehicles and parts in March 2025, which India claims are safeguard measures disguised as unilateral tariffs.
    • Violation of Rules: India alleges that the U.S. did not follow Article 12.3 (mandatory consultations) and thus violated both AoS and GATT 1994 rules.
    • Impact on Indian Exports: India estimates that $2.89 billion worth of exports have been affected and that the U.S. collected nearly $723.75 million in duties, matching India’s proposed retaliation.
    • India’s Justification: India asserts that this move is legal under WTO rules, not protectionist, and aims to defend its export interests while continuing trade talks with the U.S.

    India’s Changing Role in WTO Safeguard Policy:

    • Early Strategy (1995–2010): India was initially cautious at the WTO, accepting tough terms under TRIPS, GATS, and AoA, and rarely used legal tools like retaliation, focusing more on diplomatic solutions.
    • Recent Assertiveness (Post-2010): India now actively invokes WTO rules like AoS to protect its interests and has won key disputes—such as:
      • The solar panel case against the U.S.
      • Legal challenges to EU’s export restrictions on food.
    • Global Leadership Role: India has taken the lead among developing countries to protect food security rights and push for fairer global trade terms, especially at Bali (2013) and Nairobi (2015) WTO summits.

    Back2Basics: 

    TRIPS (Trade-Related Aspects of Intellectual Property Rights)

    • WTO agreement (1995) setting minimum standards for IPR protection (patents, copyrights, etc.).
    • Enforced 20-year patent protection; India amended its Patent Act in 2005 to comply.
    • Allows compulsory licensing in emergencies (e.g., for medicines).

    GATS (General Agreement on Trade in Services)

    • WTO treaty covering international trade in services like IT, banking, and tourism.
    • Operates through 4 Modes of Supply:
      1. Mode 1 – Cross-border supply (e.g., online consulting)
      2. Mode 2 – Consumption abroad (e.g., medical tourism)
      3. Mode 3 – Commercial presence (e.g., foreign bank branch in India)
      4. Mode 4 – Movement of natural persons (e.g., Indian professionals working overseas)
    • India strongly supports Mode 4 for its skilled labour force.

     

    [UPSC 2015] The terms ‘Agreement on Agriculture’, ‘Agreement on the application of Sanitary and Phytosanitary Measures’ and ‘Peace Clause’ appear in the news frequently in the context of the affairs of the:

    Options: (a) Food and Agricultural Organization (b) United Nations Framework Conference on Climate Change (c) World Trade Organization* (d) United Nations Environment Programme

     

  • What is Reverse-Flipping?

    Why in the News?

    SEBI has introduced key regulatory relaxations to ease IPO norms and incentivize startups to shift their legal base back to India through reverse-flipping.

    About Reverse-Flipping:

    • Reverse-flipping refers to the process by which Indian startups that were earlier incorporated abroad shift their domicile back to India, making India their legal and operational headquarters.
    • It allows Indian companies to access domestic capital markets, reduce compliance complexity, and align with the evolving global tax and regulatory environment.
    • This shift helps startups tap Indian stock exchanges, reduce reliance on foreign jurisdictions, and benefit from a favorable Indian regulatory ecosystem.

    Types of Reverse-Flipping

    1. Share Swap Arrangement:
      • In this structure, shareholders of the foreign parent company exchange their shares for shares in the Indian subsidiary.
      • This process may trigger capital gains tax under the Income Tax Act, 1961, especially for Indian shareholders.
    1. Inbound Merger (Cross-Border Merger):
      • The foreign parent company merges with its Indian subsidiary, with the Indian entity becoming the surviving legal structure.
      • If all conditions under the Foreign Exchange Management Act (FEMA), the Companies Act, 2013, and National Company Law Tribunal (NCLT) are met, this merger route can be tax-neutral.

    Key Features:

    • Domestic Listing Access: Startups gain access to Indian IPO markets and valuations.
    • Simplified Compliance: Reduced legal and regulatory complications from operating across jurisdictions.
    • Investor Incentives: SEBI now allows foreign venture funds and AIFs to be counted towards minimum promoter contribution in public issues.
    • ESOP Relaxation: SEBI has allowed promoters/founders to retain Employee Stock Option Plans (ESOPs) granted one year prior to the filing of the Draft Red Herring Prospectus (DRHP).
    • Capital Market Boost: The move supports India’s goal to become a global startup and financial hub by encouraging reverse-flipping.
    • Tax & Legal Alignment: Shifting domicile can help startups comply better with Indian tax and business laws.

    Note:

    Employee Stock Option Plans (ESOPs) are structured benefit schemes that grant employees the right to purchase shares of their company at a predetermined price—known as the exercise price—after completing a specific period.

     

    [UPSC 2025] Consider the following statements:

    Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders.

    Statement II: Bondholders are lenders to a company whereas stockholders are its owners.

    Statement III: For repayment purpose, bondholders are prioritized over stockholders by a company.

    Which one of the following is correct in respect of the above statements?

    (a) Both Statement II and Statement III are correct and both of them explain Statement I *

    (b) Both Statement I and Statement II are correct and Statement I explains Statement II

    (c) Only one of the Statements II and III is correct and that explains Statement I

    (d) Neither Statement II nor Statement III is correct

     

  • Consultative regulation-making that should go further

    Why in the News?

    India’s main financial regulators — the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) — have, for the first time, created clear step-by-step procedures for how they will create and update their rules.

    What procedural reforms have the RBI and SEBI recently introduced in regulation-making?

    • Mandatory Public Consultation: Both RBI and SEBI now require a 21-day window for public feedback before finalizing regulations. Eg: When SEBI proposes changes to investment guidelines, stakeholders can submit suggestions during this consultation period.
    • Introduction of Impact Analysis and Regulatory Objectives: RBI must conduct an impact analysis to assess the effect of new regulations. SEBI must state the regulatory intent and objectives behind any proposed rule. Eg: Before introducing digital lending norms, RBI must assess how it affects NBFCs and consumers.
    • Periodic Review of Existing Regulations: Both regulators are now required to periodically review existing laws to ensure relevance and effectiveness. E.g.: SEBI may revisit earlier mutual fund rules to assess if they align with current market dynamics.

    Why is identifying economic rationale important for regulatory interventions?

    • Targets Actual Market Failures: Ensures that regulations are introduced to solve real economic issues, not just perceived ones. Eg: RBI introducing regulations on digital lending platforms to tackle predatory lending practices.
    • Improves Resource Allocation: Helps in the efficient use of regulatory capacity and government resources by focusing only where intervention is necessary. Eg: SEBI focusing surveillance on high-risk investment products rather than low-risk ones.
    • Enables Evidence-Based Policy Making: Economic rationale demands data-backed decision-making, leading to more robust and defensible policies. Eg: Mandating minimum capital buffers after analysing risk exposure in banks post-2008 crisis.
    • Strengthens Cost-Benefit Analysis: Clarifies whether the expected benefits outweigh the compliance and administrative costs. Eg: Before enforcing stricter disclosure norms, SEBI can evaluate if the benefits to investors justify the burden on companies.
    • Increases Public and Stakeholder Trust: When the rationale is transparent, it builds confidence in the regulator’s objectivity and fairness. Eg: Clearly stating economic reasoning behind banning front-running in trading enhances credibility.

    How do international practices like those in the US and EU guide regulatory impact assessment?

    • Mandatory Cost-Benefit Analysis: US regulators must evaluate the economic impact of any regulation before adoption to ensure benefits outweigh costs. Eg: The Office of Information and Regulatory Affairs (OIRA) reviews federal regulations to minimize economic burdens.
    • Problem Identification and Alternatives Assessment: The EU’s Better Regulation Framework requires identifying the core problem, evaluating alternative policy options, and selecting the most effective one. Eg: EU energy efficiency regulations involved assessing multiple alternatives before finalizing appliance labeling norms.
    • Monitoring and Evaluation Frameworks: Both the US and EU emphasize post-implementation reviews to check if regulations achieve intended goals. Eg: The EU conducts ex-post evaluations as part of its regulatory cycle to ensure continuous improvement.

    When should regulations be reviewed and why?

    • At Pre-defined and Regular Intervals: Regulations should be reviewed periodically (e.g., every 3 years) to assess continued relevance. Eg: The IFSCA mandates review of its regulations every 3 years to align with changing market needs.
    • After Significant Economic or Sectoral Changes: Major changes like market failures, technological advancements, or crises should trigger a regulatory review. Eg: The COVID-19 pandemic led to a re-evaluation of financial sector norms to support liquidity and credit flow.
    • To Evaluate Effectiveness and Stakeholder Impact: Reviews help assess whether regulations have achieved their intended goals and consider public feedback. Eg: SEBI may review listing regulations based on feedback from companies and investors to enhance market transparency.

    Who can ensure uniform regulatory standards in India?

    • Parliament through Enactment of a Common Law: Parliament can introduce a standardised law (similar to the U.S. Administrative Procedure Act) to ensure consistent regulatory practices like impact assessments, public consultations, and periodic reviews across all regulators. Eg: A central Regulation-Making Procedure Act could mandate that all financial regulators follow uniform protocols.
    • Government Agencies Issuing Common Guidelines: The Central Government or NITI Aayog can issue model guidelines or frameworks to harmonise regulation-making procedures among regulators. Eg: Like the UK and Canada, India can adopt unified regulatory guidelines to promote transparency and accountability across SEBI, RBI, IFSCA, etc.

    Way forward: 

    • Enact a Unified Regulatory Procedure Law: Parliament should legislate a comprehensive framework for regulation-making that mandates impact analysis, public consultation, and periodic review across all regulators to ensure transparency and consistency.
    • Strengthen Institutional Capacity and Oversight: Build the capacity of regulatory bodies through training, digital tools, and staffing, and set up an independent oversight mechanism to monitor compliance with procedural norms and ensure accountability.

    Mains PYQ:

    [UPSC 2018] “Citizens’ Charter is an ideal instrument of organizational transparency and accountability, but it has its own limitations. Identify the limitations and suggest measures for greater effectiveness or the Citizens Charter.”

    Linkage: The theme of “consultative regulation-making that should go further” as discussed in “Crafting India’s Regulatory Future”. In the article primarily discusses financial regulators and the PYQ addresses the Citizens’ Charter, both embody the fundamental principle of existing governance mechanisms needing to evolve and be strengthened to achieve their stated objectives of transparency, accountability, and more effective public engagement, moving beyond a “nascent stage” or “welcome start” to truly “go further.”

  • [6th June 2025] The Hindu Op-ed: Is IBC an effective resolution tool? | Explained

    PYQ Relevance:

    [UPSC 2018] How far do you agree with the view that tribunals curtail the jurisdiction of ordinary courts? In view of the above, discuss the constitutional validity and competency of the tribunals in India.

    Linkage: The Insolvency and Bankruptcy Code (IBC), India’s first comprehensive bankruptcy law enacted in 2016, fundamentally relies on a specialized tribunal system for its implementation. This system includes the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The effectiveness of the IBC as a resolution tool is intrinsically linked to the efficiency, competency, and operational challenges faced by these tribunals.

     

    Mentor’s Comment:  India’s Insolvency and Bankruptcy Code (IBC), started in 2016, has been running for over eight years now. It has helped recover ₹3.89 lakh crore with a recovery rate of 32.8%, changing how companies deal with unpaid debts. But delays in courts, problems after settlements, and a recent Supreme Court decision on Bhushan Steel have created new worries.

    Today’s editorial will talk about the effectiveness of the Insolvency and Bankruptcy Code (IBC) in India. It will help with GS Paper II (Policy Making) and GS Paper III (Banking).

    _

    Let’s learn!

    Why in the News?

    As India works towards becoming a $5 trillion economy, there is growing discussion about whether the IBC is ready for the future, whether its decisions are respected, and how efficient the courts are in handling cases.

    Why was the Insolvency and Bankruptcy Code (IBC) enacted in India in 2016?

    • To Establish a Time-bound Resolution Mechanism: The IBC aimed to replace India’s slow and fragmented insolvency system with a fast-track process for resolving distressed assets within a maximum of 330 days. Eg: Earlier, recovery through legal channels often took years; under IBC, cases like Essar Steel were resolved with clear timelines.
    • To Shift Control from Debtors to Creditors: It empowered creditors by giving them control over the insolvency process and discouraging willful default. Eg: In the case of Bhushan Steel, creditors approved Tata Steel’s resolution plan, overriding promoter control.
    • To Improve Recovery Rates and Credit Culture: IBC sought to improve debt recovery rates and create a culture of responsible borrowing and repayment. Eg: As per IBBI data, creditors have recovered over ₹3.89 lakh crore with an average recovery rate of 32.8%, much higher than earlier systems.

    What makes IBC the preferred route for debt recovery according to the RBI and IBBI data?

    • Highest Share in Total Recoveries: According to the RBI’s 2024 report, the IBC accounted for 48% of all recoveries made by banks in FY 2023-24, making it the dominant recovery mechanism. Eg: Compared to other channels like DRTs and SARFAESI, IBC recovered nearly half of total dues in just one financial year.
    • Better Realisation Than Liquidation: As per IBBI, resolution plans under IBC are yielding 93.41% of the fair value and 170.1% of liquidation value, showing greater efficiency. Eg: In the case of Electrosteel Steels, creditors recovered more than they would have in a liquidation scenario.
    • Timely Resolution and Settlement: The IBC’s time-bound process has led to early settlements, with 30,310 cases settled before admission, involving defaults worth ₹13.78 lakh crore. Eg: Companies facing insolvency threats often clear dues or settle quickly, improving the overall credit discipline.

    How has the IBC impacted the credit culture and corporate governance in India?

    • Improved Credit Discipline: The IBC has fostered a repayment-oriented credit culture by creating a credible threat of insolvency, discouraging willful defaults. Eg: The Supreme Court observed that “the defaulter’s paradise is lost,” reflecting a clear shift in borrower behavior post-IBC.
    • Reduction in NPAs: The IBC has contributed to a sharp fall in Gross Non-Performing Assets (NPAs), which declined from 11.2% in 2018 to 2.8% in 2024 for scheduled commercial banks. Eg: Many firms have restructured or repaid loans early to avoid IBC proceedings, improving asset quality in the banking sector.
    • Boosted Corporate Governance Standards: Firms resolved under IBC show better board practices, including a rise in the number of independent directors, enhancing transparency and accountability. Eg: A study by IIM Bangalore showed firms post-resolution had more professionalised management and stronger compliance norms.

    What are the key challenges currently affecting the effectiveness of the IBC framework?

    • Judicial Delays and Backlogs: Delays in approvals by the National Company Law Tribunal (NCLT) and prolonged litigation undermine the IBC’s goal of time-bound resolution. Eg: Even after creditor approval, resolution plans like that of Jaypee Infratech have been stuck for years due to legal battles, leading to erosion in asset value.
    • Post-resolution Uncertainty: Lack of legal finality and frequent challenges after plan approval create investor hesitation and risk derailment of settled cases. Eg: In the Bhushan Power and Steel case, a previously approved resolution plan was reopened, shaking confidence in the system.
    • Inadequate Framework for Emerging Assets: The IBC lacks clear mechanisms to deal with issues like intellectual property valuation, employee dues, and tech continuity, making it unfit for resolving non-traditional businesses. Eg: Tech start-ups and IP-heavy firms may not be efficiently resolved under current provisions, leading to value destruction.

    Why is the Bhushan verdict seen as a setback?

    • Erodes Commercial Certainty: The verdict questioned a resolution plan that had already been approved and operational for years, undermining the finality of the IBC process. Eg: The reopening of the Bhushan Power and Steel Ltd. case raised fears that even completed transactions are not immune from future legal scrutiny.
    • Deters Investor Confidence: If resolution applicants fear judicial reversal after making large investments, they may hesitate to participate, weakening the IBC’s appeal. Eg: A successful bidder may now think twice before committing to a resolution plan if legal sanctity isn’t guaranteed.
    • Delays in Execution and Recovery: Continuous litigation post-approval increases the risk of liquidation for otherwise viable firms due to delayed implementation. Eg: In the Bhushan case, years of uncertainty stalled asset utilisation, resulting in a loss of economic value.

    Way forward: 

    • Strengthen Tribunal Infrastructure and Capacity: Expand the capacity of NCLT and NCLAT by appointing more judges, improving case management systems, and digitising proceedings to reduce delays and ensure time-bound resolutions.
    • Ensure Legal Finality and Commercial Certainty: Introduce clear jurisprudential safeguards to prevent post-resolution litigations and uphold the sanctity of approved resolution plans, thereby boosting investor confidence and preserving the IBC’s credibility

  • The seeds of sustainability for India’s textile leadership

    Why in the News?

    India is one of the world’s top textile exporters and a major manufacturing center, but its textile industry is now at a critical stage.

    What challenges affect India’s textile industry globally?

    • Geopolitical Tensions: Rising global conflicts and trade restrictions disrupt export routes and reduce India’s textile market access. Eg: The U.S.-China trade war shifted demand to countries like Vietnam, affecting Indian exporters’ global share.
    • Fragmented Supply Chains: Lack of coordination between suppliers, weavers, and exporters leads to production delays and higher costs. Eg: During the COVID-19 pandemic, uncoordinated lockdowns at different supply chain points delayed delivery timelines.
    • Price Volatility: Unpredictable fluctuations in raw material prices reduce planning efficiency and shrink profit margins. Eg: In 2022, cotton prices spiked globally, affecting the cost structure of Indian textile firms and making exports less competitive.
    • Sustainability Compliance: Global markets demand eco-friendly and traceable textile products, which Indian firms may struggle to provide without investing in green technology. Eg: The EU’s push for traceability and environmental standards may restrict access for non-compliant Indian products.
    • Changing Consumer Preferences: International buyers now prioritize ethically sourced, durable, and sustainably certified products. Eg: Brands like H&M and Levi’s require sustainability certifications, posing challenges for uncertified Indian manufacturers.

    ​​What is Regenerative Farming?

    Regenerative farming is an agricultural practice focused on restoring and enhancing soil health, increasing biodiversity, and improving ecosystem resilience. It goes beyond sustainable farming by actively repairing environmental damage caused by conventional agriculture.

    Why is regenerative farming vital for textiles?

    • Sustainable Raw Material Sourcing: Regenerative farming ensures a steady and eco-friendly supply of natural fibres like cotton, reducing environmental impact. Eg: In Aurangabad, Maharashtra, over 6,000 farmers under the Regenerative Cotton Program reported higher yields and soil health improvement.
    • Climate Resilience: It improves soil health and enhances resistance to climate shocks, ensuring consistent fibre quality. Eg: Regen farms showed better crop survival during erratic rainfall and drought periods, supporting uninterrupted textile production.
    • Cost-Effective Production: Reduced dependence on chemical inputs lowers input costs, making raw materials more affordable for textile producers. Eg: Farmers using regen methods observed less fertilizer usage, lowering their overall production cost.
    • Enhanced Traceability: Regen farming enables real-time data and certification, ensuring supply chain transparency demanded by global brands. Eg: Cotton grown under traceable regenerative systems is preferred by brands like Patagonia for its verified originand sustainability.
    • Rural Livelihood and Inclusion: It creates inclusive rural economies by empowering smallholders, supporting gender equity, and connecting farmers with global markets. Eg: Regen cotton initiatives have led to higher incomes and women participation in farming across India’s cotton belts.

    Where is regenerative cotton farming showing success?

    Aurangabad, Maharashtra: A notable hub for regenerative cotton farming, where farmers have adopted climate-friendly agricultural practices. Eg: Over 6,000 farmers are part of the Regenerative Cotton Program, resulting in higher yields, reduced use of chemical fertilisers, and more stable incomes.

    How does traceability boost textile exports?

    • Product Authenticity: Traceability ensures transparency from raw material to final product, building consumer trust in international markets. Eg: Kasturi Cotton branding enhances India’s image by assuring authentic, high-quality cotton to global buyers.
    • Sustainability Compliance: Export destinations demand eco-conscious sourcing. Traceable supply chains show alignment with sustainability standards. Eg: The EU and U.K. emphasize environmentally responsible production under FTAs and Digital Product Passports (DPPs).
    • Market Access & Expansion: Traceability helps Indian textiles meet foreign regulatory standards, easing entry into eco-sensitive markets. Eg: India-U.K. Free Trade Agreement (FTA) can boost exports by leveraging traceability credentials.
    • Brand Accountability: It shifts perception from just a supplier to a responsible brand, enhancing global brand equity. Eg: Tech-based tracking systems help Indian brands share sustainability stories, increasing appeal in premium markets.
    • Competitive Differentiation: Traceable products stand out in global markets with rising demand for ethical fashion. Eg: As per the 2023 Consumer Circularity Survey, over 37% consumers consider traceability a key purchase factor.
    Note: Traceability refers to the ability to track the origin, movement, and history of a product through every stage of the supply chain — from raw material sourcing to manufacturing, distribution, and final sale.

    What are the steps taken by the Indian government? 

    • PM MITRA Scheme: Establishes Mega Integrated Textile Regions and Apparel Parks to integrate the entire textile value chain, reduce logistics costs, boost competitiveness, and create jobs.
    • Promotion of Regenerative Cotton Farming: Supports sustainable farming practices to improve soil health, reduce chemical use, and enhance cotton qualitythrough collaborative platforms.
    • Support for Technical Textiles and Innovation: Launches initiatives like the National Technical Textiles Mission to promote R&D and commercialization of high-value technical textiles for sectors like healthcare and defense.

    Way forward: 

    • Adopt Sustainable Practices: Promote widespread use of regenerative farming, traceability technologies, and product circularity to enhance environmental responsibility and global competitiveness.
    • Strengthen Innovation and Collaboration: Invest in R&D, encourage public-private partnerships, and leverage trade agreements to boost technological advancement and expand export markets.

    Mains PYQ:

    [UPSC 2023] 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.

    Linkage: Indian textile industry is “one of the world’s largest manufacturing hubs” and projects its growth to $350 billion by 2030, with the potential to add 35 million new jobs. This PYQ directly addresses the importance of the manufacturing sector for economic growth and government policies supporting it, which are crucial for the textile industry to realize its leadership vision and achieve an “economic competitive edge”.

  • Falling short India must ensure technology transfer in the EV segment

    Why in the News?

    India has announced a major cut in import duty — 15% off on fully built electric cars — but only if the makers promise to invest locally and add value within the country. This is part of a new plan called the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI).

    What is the SPMEPCI scheme?

    The SPMEPCI scheme (Scheme to Promote Manufacturing of Electric Passenger Cars in India) launched in 2024 offers a 15% concessional import duty on electric cars. It requires manufacturers to invest ₹4,150 crore and achieve 25–50% domestic value addition within five years, promoting local EV production and reducing imports.

    How does it aim to promote EV manufacturing in India?

    • Investment-Linked Incentives: Offers a 15% concessional import duty on completely built-up (CBU) EVs. Manufacturers must invest at least ₹4,150 crore over 3 years. Eg: A global EV company like Tesla or BYD can benefit from lower import taxes if it sets up a manufacturing plant or R&D unit in India.
    • Mandatory Localisation of Production: Companies must achieve 25% Domestic Value Addition (DVA) within 3 years, increasing to 50% in 5 years. Encourages use of local auto components, reduces import dependency, and builds domestic manufacturing capacity. Eg: EV makers could partner with Indian auto component suppliers like Motherson Sumi or Bosch India to meet DVA targets.
    • Cap on Imports to Push Local Production: Only 8,000 CBUs annually per manufacturer are allowed under concessional duty for 5 years. Companies must move quickly to set up local production to scale beyond this limit. Eg: After hitting the import cap, a company like Volkswagen may be compelled to start local assembly to meet rising demand and avoid higher duties.

    Why is technology transfer critical for India’s EV transition?

    • Late Start Requires Catching Up Quickly: India began its EV journey in 2015, about 5 years later than major players like China and the U.S. Without technology transfer, India risks falling behind in innovation and manufacturing capabilities. Eg: China’s early joint ventures helped it quickly develop advanced EV technology, something India needs to replicate.
    • Lack of Indigenous Battery Technology: Batteries are the core component of EVs, and India currently lacks the technology to produce advanced batteriesdomestically. Technology transfer will help India build expertise in battery design, manufacturing, and supply chain integration. Eg: China’s vertical integration from mining to battery assembly gave it a competitive edge in pricing and scale.
    • Building a Localised EV Ecosystem: Transferring technology via partnerships or joint ventures helps develop local suppliers and skilled workforce. This reduces dependency on imports and supports long-term sustainability of the EV industry. Eg: India’s success in ICE vehicles came through mandated joint ventures which facilitated tech and skill transfer; the same model can be applied to EVs.

    How has China’s strategy helped it lead in global EV adoption?

    • Early and Ambitious Subsidy Program: Launched the New Energy Vehicle subsidy programme in 2009, much earlier than many countries. This long-term financial support boosted EV production and adoption. Eg: Subsidies encouraged companies like BYD and NIO to rapidly scale EV manufacturing.
    • Mandatory Joint Ventures for Technology Transfer: Required foreign EV manufacturers to form joint ventures with Chinese firms until 2022. This ensured technology transfer and domestic capability building. Eg: Tesla initially partnered with local companies to set up manufacturing in China.
    • Massive Financial Incentives: China invested around $230 billion over 15 years on EV subsidies, infrastructure, and research—the largest globally. This comprehensive support accelerated industry growth. Eg: Government funding helped develop a vast EV charging network nationwide.
    • Gradual Reduction of Import Duties: Reduced import duties on EVs from 25% in 2010 to 15% in 2018. Lower duties made EVs more affordable, increasing domestic demand. Eg: More affordable imports boosted consumer adoption alongside local manufacturing.
    • Vertical Integration of Battery Manufacturing: Controls entire battery value chain: mining, processing, manufacturing, and assembly. This integration reduced costs and improved competitiveness against conventional vehicles. Eg: Chinese battery giants like CATL dominate global markets due to this vertical setup.

    What are the steps taken by the Indian government? 

    • Expansion of FAME Scheme: The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme initially launched in 2015 with ₹895 crore outlay, expanded to ₹10,000 crore in 2019. Supports EV adoption through subsidies and incentives for manufacturers and buyers.
    • Encouraging Localisation and Investment: Caps on imported EVs to encourage domestic production (maximum 8,000 completely built units annually per manufacturer under SPMEPCI). Push for localisation of components and assembly to build a robust domestic EV ecosystem.

    Way forward:

    • Promote Strategic Partnerships for Technology Transfer: Encourage and mandate joint ventures between foreign EV firms and Indian manufacturers to ensure effective technology sharing and skill development.
    • Build a Comprehensive Domestic Battery Ecosystem: Invest in creating end-to-end battery manufacturing capabilities, including raw material sourcing, processing, and cell production, to reduce import reliance and lower costs.

    Mains PYQ:

    [UPSC 2023} How do electric vehicles contribute to reducing carbon emissions and what are the key benefits they offer compared to traditional combustion engine vehicles?

    Linkage:  India’s journey to decarbonize and transform mobility, which includes the adoption of EVs, is currently hampered because policies “fall short of addressing a pressing issue… technology transfer”. This question directly addresses the core subject of electric vehicles (EVs) and their benefits, particularly in reducing carbon emissions.

  • Steep decline: On the Index of Industrial Production

    Why in the News?

    India’s industrial output grew by only 2.7% in April 2025, the slowest pace in 8 months, showing a clear slowdown at the start of the new financial year (FY26).

    What are the key reasons behind the slowdown in India’s factory output and IIP growth in April 2026?

    • Weak Performance of Core Sectors: The eight core industries, which have a 40% weight in the IIP, grew by just 0.5% in April 2026, the lowest in eight months. Eg: Refinery products, steel, and cement showed subdued output, dragging overall industrial growth.
    • Contraction in Mining Activity: Mining output shrank by 0.2%, marking its first contraction since August 2024, adversely affecting raw material availability for other industries. Eg: Reduced coal and mineral extraction hit electricity generation and steel production.
    • Slowdown in Manufacturing and Electricity Generation: Manufacturing grew only by 3.4% (down from 4.2%) and power generation by 1.1% (down from 10.2%). Eg: Weak electricity demand and reduced industrial usage reflected sluggish overall economic activity.
    • Trade and Tariff-Related Uncertainties: Global trade volatility, tariffs, and supply chain disruptions have reduced demand for export-oriented goods. Eg: Decline in orders from U.S. and EU markets affected electronics and textile manufacturing.
    • Persistently Low Rural Demand: Consumer non-durables contracted for the third consecutive month, indicating weak rural consumption despite low inflation. Eg: Low sales of food and hygiene products in rural markets signal demand compression in the FMCG sector.

    Why is the contraction in consumer non-durables output a concern for rural consumption trends?

    • Indicates Weak Rural Demand: Consumer non-durables, such as food and hygiene products, form a major part of rural consumption. A contraction suggests low purchasing power and reduced rural spending. Eg: Declining sales of items like cooking oil, soap, and packaged food in rural areas reflect demand stagnation.
    • Signals Broader Economic Distress in Agriculture-Dependent Households: Despite low inflation, rural incomes haven’t risen due to falling crop prices and below-MSP realizations. This affects demand for basic goods. Eg: Farmers selling wheat and pulses below MSP in mandis earn less, reducing their ability to buy essential goods.
    • Affects Industrial and FMCG Sector Recovery: Sustained low rural consumption weakens demand for consumer non-durables, impacting production and profits in the FMCG and small-scale industries. Eg: Companies like Hindustan Unilever or Dabur see lower rural sales, leading to reduced factory output and job cuts.

    How can implementing MSPs more systematically help boost rural incomes and demand?

    • Ensures Price Stability and Income Security for Farmers: A guaranteed MSP reduces the risk of distress sales and provides a stable income floor for farmers, encouraging spending. Eg: If paddy is procured at the MSP instead of below-market rates, farmers are assured of fair returns, enabling them to spend on consumption and inputs.
    • Enhances Rural Purchasing Power and Consumption Demand: Higher farm incomes lead to greater spending on goods and services, especially consumer non-durables, which form a bulk of rural consumption. Eg: A farmer earning better returns on wheat is more likely to purchase goods like clothing, packaged food, and household items.
    • Stimulates Local Economies and Industrial Output: With higher rural demand, local businesses and FMCG industries see increased sales, encouraging higher production and employment. Eg: Higher MSP-based procurement leads to better incomes in Punjab, increasing demand for tractors, fertilizers, and daily-use goods, boosting factory output.

    Who should drive capital expenditure to revive demand?

    • Private Sector as the Primary Driver: The private sector must lead CapEx to create productive assets, jobs, and income, especially in manufacturing and infrastructure. Eg: Large firms investing in semiconductor plants or logistics hubs generate employment and boost demand for allied sectors.
    • Government as a Catalyst through Public Investment: The government should maintain strong capital spending on infrastructure, rural development, and connectivity to crowd in private investment. Eg: Projects like Bharatmala or PM Gati Shakti improve transport networks, encouraging private factories and warehousing units to set up nearby.
    • Public-Private Partnerships (PPPs) to Leverage Resources and Efficiency: PPPs can combine government support with private expertise and funding, especially in sectors like renewable energy, urban transport, and health. Eg: Hybrid Annuity Model (HAM) in road construction allows private players to build highways with shared investment risk, boosting economic activity.

    Way forward: 

    • Boost Rural Demand through Targeted MSP Implementation and Welfare Schemes: Ensure systematic MSP procurement and expand rural employment and income support to revive consumption of consumer non-durables and support FMCG growth.
    • Accelerate CapEx through Private Investment and Strategic Public Spending: Encourage private sector-led capital expenditure in manufacturing and infrastructure, complemented by government investments in connectivity and logistics to stimulate industrial output and job creation.

    Mains PYQ:

    [UPSC 2016] The nature of economic growth in India in recent times is often described as a jobless growth. Do you agree with this view? Give arguments in favour of your answer.

    Linkage: The concept of “jobless growth” is highly relevant in a scenario where economic expansion, or lack thereof, is debated in relation to employment generation. A slowdown in industrial output could exacerbate concerns about job creation.

  • Quality Council of India (QCI)

    Why in the News?

    The Minister of State for Commerce and Industry inaugurated the new unified headquarters of the Quality Council of India (QCI) at the World Trade Centre in New Delhi.

    About Quality Council of India (QCI):

    • Establishment: QCI was set up in 1997 as an autonomous, non-profit body through a public-private partnership between the GoI and industry associations ASSOCHAM, CII, and FICCI.
    • Legal Status: It is registered under the Societies Registration Act, 1860.
    • Leadership: Ratan Tata was QCI’s first Chairman; the current chairman is appointed by Prime Minister.
    • Parent Department: QCI works under the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
    • Role: Acts as India’s national accreditation body, offering independent assessments of products, services, and processes.
    • Mission: To improve quality standards in key areas like education, healthcare, environment, governance, and infrastructure.
    • Financial Model: It is a self-sustaining organisation, generating its own revenue without regular government funding.

    Structure, Divisions, and Key Functions:

    • Governing Council: A 38-member council with equal representation from government, industry, and stakeholders oversees QCI.
    • Key Divisions: QCI operates through 5 major boards, each focusing on a different sector:
      1. National Accreditation Board for Testing and Calibration Laboratories
      2. National Accreditation Board for Hospitals and Healthcare Providers
      3. National Accreditation Board for Education and Training
      4. National Accreditation Board for Certification Bodies
      5. National Board for Quality Promotion
    • Core Activities:
      • Develops accreditation systems and quality frameworks.
      • Conducts third-party audits for schemes like Swachh Bharat Abhiyan and Pradhan Mantri Kaushal Vikas Yojana.
      • Runs the National Quality Campaign to build a culture of quality across sectors.
      • Helps boost India’s global competitiveness through quality certification and awareness initiatives.
    [UPSC 2017] With reference to Quality Council of India (QCI), consider the following statements:

    1. QCI was set up jointly by the Government of India and the Indian Industry.

    2. Chairman of QCI is appointed by the Prime Minister on the recommendations of the industry to the Government.

    Which of the above statements is/are correct?

    Options: (a) 1 only (b) 2 only (c) Both 1 and 2* (d) Neither 1 nor 2