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GS Paper: Indian Economy – Growth, Development and Employment

  • May services growth halved to under 10%, data suggests

    Why in the News

    India’s services sector growth appears to have more than halved in May 2026, falling to about 9.5% from around 20.5% in April, according to the Ministry of Statistics and Programme Implementation’s (MoSPI) new experimental Index of Services Production (ISP). This is the first official monthly measure of services output, exposing a slowdown that no single earlier indicator could confirm.

    What is the Index of Services Production (ISP)?

    1. Purpose: The ISP is MoSPI’s new experimental monthly measure of output across 19 services sub-sectors, released for the first time this month.
    2. Base year: The index uses 2024-25 as its base year and remains at a trial stage.
    3. Gap it fills: Until the ISP, India had no official monthly measure of the services sector, which makes up more than half of GDP; only the private S&P Global services Purchasing Managers’ Index (PMI) existed.
    4. Counterpart index: The ISP is the services-sector counterpart to the long-existing Index of Industrial Production (IIP), which measures manufacturing and mining output.

    Highlights

    1. Headline decline: Calculations by The Indian Express show services growth fell from around 20.5% in April to approximately 9.5% in May.
    2. Comparison with industry: Even at 9.5%, May services growth remained almost double the 5% expansion recorded by industry under the IIP.
    3. Sub-sector spread: 16 of 19 sub-sectors grew in May, with eight recording double-digit growth, down from 17 growing sub-sectors and 14 in double digits in April.
    4. Leading sub-sector: Accommodation and food led services growth in May at 27.4%, though this was down from 37.2% in April.
    5. IT services slowdown: IT and computer-related services, the highest-weighted sub-sector at 22.47%, saw growth decline to 10.3% in May from 15.2% in April.
    6. Exceptions: Railway transport and air transport were the only sub-sectors that performed better in May than April, though air transport still contracted by 2.8%.

    Why did air transport underperform even as it improved?

    1. War-linked cost pressure: Air transport activity has been hurt by the war in West Asia, which raised fuel costs and pushed airlines to increase fares.
    2. Sequential improvement: Air transport’s May contraction of 2.8% was still an improvement over a 13.9% contraction in April.

    Back2Basics:

    Index of Services Production (ISP)

    • Released by: Ministry of Statistics and Programme Implementation (MoSPI)
    • Nature: Experimental monthly index
    • Base Year: 2024-25
    • Coverage: 19 services sub-sectors
    • Measures: Monthly output of the services sector
    • Purpose: Official high-frequency indicator of services sector performance
    • Counterpart: Index of Industrial Production (IIP)

    Key Facts

    • India’s first official monthly index for measuring services sector output.
    • Covers the largest contributor to India’s economy, accounting for over 55% of GDP.
    • IT & Computer Services has the highest weight (22.47%) in the index.
    • Compiled using actual production/output data, unlike survey-based indicators.

    ISP vs Services PMI

    • ISP
      • Official index compiled by MoSPI.
      • Measures actual services output.
      • Based on administrative and statistical data.
    • Services PMI
      • Published by S&P Global.
      • Measures business activity and sentiment through surveys.
      • Indicates expansion or contraction, not actual output.

    [2012] In India the overall Index of Industrial Production, the Indices of Eighth Core Industries have combined weight of 37.90%. Which of the following are among those Eight Core Industries?
    1. Cement
    2. Fertilizers
    3. Natural Gas
    4. Refinery products
    5. Textiles
    Select the correct answer using the codes given below:

    [A] 1 and 5 only

    [B] 2, 3 and 4 only

    [C] 1, 2, 3 and 4 only

    [D] 1, 2, 3, 4 and 5

  • PLI schemes drive ₹96,000 crore investment

    Why in the News

    The production-linked incentive scheme for large-scale electronics manufacturing (PLI-LSEM) has catalysed Rs 96,000 crore of investment in India’s mobile manufacturing ecosystem, Parliament was informed on 29 July 2026. Electronics production crossed Rs 3.11 lakh crore in FY 2025-26, and the Semicon India Programme has moved from policy announcement to actual commercial output for the first time.

    What is the PLI Scheme for Large-Scale Electronics Manufacturing (PLI-LSEM)?

    1. Launch and purpose: PLI-LSEM was launched in 2020 to boost indigenous production of mobile phones and reduce import dependence.
    2. Mechanism: The scheme pays eligible manufacturers a percentage incentive on incremental sales of India-made goods over a base year, tied to investment and production commitments.
    3. Scope expansion: The government followed it with PLI Scheme 2.0 for IT Hardware in 2023, covering laptops, tablets and servers.
    4. Semicon India Programme: A separate scheme approves fabrication and packaging projects to build domestic semiconductor manufacturing capacity.

    What does the data show about electronics manufacturing growth?

    1. Investment catalysed: PLI-LSEM has catalysed approximately Rs 96,000 crore of investment in the mobile manufacturing ecosystem.
    2. Production growth: Electronics production rose from Rs 1.32 lakh crore in FY 2024-25 to Rs 3.11 lakh crore in FY 2025-26, a year-on-year growth of 15.8%.
    3. Domestic value addition: An external evaluation study found domestic value addition (DVA) under PLI-LSEM increased to 23% in FY 2023-24.
    4. Export ranking: Smartphones, absent from India’s top 100 exported commodities in 2014, became India’s top exported individual commodity in FY 2025-26, surpassing petroleum and gems and jewellery.
    5. IT Hardware scheme: PLI Scheme 2.0 for IT Hardware has generated cumulative production of Rs 24,385.89 crore, cumulative investment of Rs 1,056.36 crore, and 5,216 direct jobs.

    What is the state of the Semicon India Programme?

    1. Projects approved: 12 projects have been approved under the Semicon India Programme, entailing a committed investment of Rs 1.64 lakh crore.
    2. Commercial production: 3 of the 12 approved projects have already started commercial production.
    3. Private follow-on investment: Semiconductor firm Marvell Technology has separately announced a $250 million investment in India, citing the country’s growing role as an engineering hub.

    Challenges to India’s PLI and semiconductor manufacturing push

    1. Import dependence on components: India’s electronics assembly still relies heavily on imported chips and displays, keeping true domestic value addition below finished-goods value.
    2. Technology gap: India’s semiconductor fabrication projects remain at trailing-edge nodes, far behind the sub-10 nanometre technology used by global leaders such as Taiwan.
    3. Fiscal cost of incentives: The PLI outlay across sectors runs into tens of thousands of crores, raising questions about cost per job created against alternative uses of the same fiscal space.
    4. Sunset risk: PLI incentives are time-bound, and companies that scale up during the incentive period face uncertainty about competitiveness once the subsidy period ends.
    5. Tariff exposure: Sharp increases in United States tariffs on electronics exports could squeeze the margins that make India-based assembly viable for global companies.

    Conclusion

    The PLI-LSEM and Semicon India Programme disclosures show incentive-linked manufacturing has moved from policy design to measurable investment and production gains, with smartphones now India’s top exported commodity. The next milestone is whether the remaining nine approved semiconductor projects reach commercial production and whether domestic value addition rises beyond assembly-level gains.

    Back2Basics:

    Production-Linked Incentive (PLI) Scheme

    1. Launch: The PLI framework was launched in 2020 across multiple sectors to boost domestic manufacturing and cut import dependence.
    2. Mechanism: The government pays selected manufacturers a financial incentive, typically 4-6% of incremental sales over a base year, contingent on investment and production commitments.
    3. Nodal ministry: The Ministry of Electronics and Information Technology administers PLI-LSEM and IT Hardware; other sectors are administered by their respective ministries.
    4. Sectoral spread: PLI schemes cover 14 sectors including mobile manufacturing, pharmaceuticals, telecom equipment, textiles, food processing and semiconductors.

    The Semicon India Programme

    1. It is a national initiative backed by financial outlays and implemented through the India Semiconductor Mission to build a complete domestic semiconductor and display manufacturing ecosystem

    Financial Outlay and Phases

    1. Phase 1 (Semicon 1.0): Approved in December 2021 with an initial fiscal outlay of ₹76,000 crore to incentivize silicon fabs, display units, and packaging.
    2. Phase 2 (Semicon 2.0): Approved in July 2026 with an expanded outlay of ₹1,27,500 crore to widen the scope of domestic manufacturing and supply chains.

    Core Focus Pillars

    1. Semiconductor Fabs: Fiscal backing covering up to 50% of project costs for silicon CMOS fabrication units.
    2. ATMP/OSAT: Support for assembly, testing, marking, and packaging facilities.
    3. Design & R&D: Incentives for chip design infrastructure, raw materials, equipment, and talent development.

    PYQ Relevance

    [UPSC 2025] Discuss the rationale of the Production Linked Incentive (PLI) scheme. What are its achievements? In what way can the functioning and outcomes of the scheme be improved?
    Linkage: The PYQ examines government policies to promote manufacturing, industrial growth and global competitiveness. The article evaluates how PLI-LSEM and the Semicon India Programme are strengthening electronics manufacturing, exports and domestic value addition while highlighting the remaining challenges in semiconductor self-reliance.