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GS Paper: Indian Economy

  • West Asia War May Hit India’s Gem and Jewellery Industry

    Why in the News

    The ongoing conflict involving Iran, Israel and the United States in West Asia is expected to disrupt supply chains and trade for India’s gem and jewellery sector, according to the Gem and Jewellery Export Promotion Council (GJEPC).

    Why the Industry is Vulnerable

    • Heavy Dependence on GCC Region
      • India’s gem and jewellery trade relies strongly on the Gulf Cooperation Council (GCC) countries.
      • GCC share in India’s exports increased from 14% in FY22 to about 22% in FY25.
      • During April–December 2025, the share rose to 36%.
    • Major markets include: United Arab Emirates and Saudi Arabia
    • UAE as a Key Trade Hub
      • The UAE plays a crucial role in India’s jewellery trade.
      • Supplies rough diamonds and bullion to India.
      • Major centre for diamond trade in Dubai.
      • Accounts for a large share of gold bar imports to India.

    Trade Data Highlights

    • India’s gem and jewellery exports to GCC grew from $5.1 billion (FY22) to $8.3 billion (FY25).
    • Imports from GCC rose from $16 billion to $28 billion during the same period.
    • GCC countries supply over 30% of India’s jewellery imports.
    [2016] Which of the following is not a member of ‘Gulf Cooperation Council’? 
    (a) Iran 
    (b) Saudi Arabia 
    (c) Oman 
    (d) Kuwait

  • Why India’s rice production and export strategy requires a rethink

    Why in the News?

    India has retained its position as the world’s largest rice exporter, accounting for over 40% of global rice exports, but recent data reveals a structural imbalance between production, irrigation patterns, and export strategy. While basmati rice earns far higher export value, most irrigation and policy support remains concentrated in water-intensive non-basmati cultivation in Punjab and Haryana. Also there is an intensified debate on climate stress and declining water tables that expose the long-term ecological and economic risks of India’s current rice policy.

    Why is India the world’s largest rice exporter?

    1. Global export dominance: India accounted for 21.69 million tonnes of rice exports in 2024-25, representing over 40% of global rice trade.
    2. Comparative advantage: India produces both basmati and non-basmati rice varieties, allowing access to multiple international markets.
    3. Competitive pricing: Large-scale production and government support through Minimum Support Price (MSP) and procurement policies reduce export costs.
    4. Production scale: India produced around 152 million tonnes of rice, ensuring a large exportable surplus.
    5. Regional specialization:
      1. Basmati rice: Cultivated mainly in Punjab, Haryana, Western Uttar Pradesh, and parts of Jammu & Kashmir.
      2. Non-basmati rice: Produced widely across eastern and southern India.

    Why does rice cultivation create severe environmental stress in India?

    1. Water-intensive crop: Rice cultivation requires 3,000-5,000 litres of water per kilogram of rice produced.
    2. Groundwater depletion: Paddy cultivation in Punjab and Haryana relies heavily on tube wells, causing rapid decline in groundwater levels.
    3. Flood irrigation practices: Traditional transplantation method keeps fields submerged for long periods, increasing water consumption
    4. Monoculture cropping pattern: Government procurement encourages rice-wheat cycles, reducing crop diversification.
    5. Energy consumption: Extensive pumping of groundwater increases electricity consumption and subsidy burden.

    How does India’s rice export composition reveal policy imbalance?

    1. High-value basmati exports: Basmati rice generates higher export value per tonne, mainly exported to West Asia, Europe, and North America.
    2. Lower-value non-basmati exports: Non-basmati rice contributes large volumes but lower revenue.
    3. Export value trends:
      1. Basmati exports: Around $5.8-$6.9 billion annually.
      2. Non-basmati exports: Around $4.5-$6.5 billion annually.
    4. Policy paradox: Most irrigation subsidies and procurement incentives favour non-basmati rice production in water-stressed regions, rather than high-value basmati.

    Why are irrigation and cropping patterns considered inefficient?

    1. Concentration in water-stressed regions: Major rice cultivation occurs in Punjab and Haryana, regions with limited natural rainfall.
    2. Delayed monsoon alignment: Rice transplantation often begins before monsoon arrival, increasing reliance on groundwater.
    3. Procurement bias: Government agencies procure large quantities of rice from north-west India, reinforcing unsustainable cropping patterns.
    4. Limited crop diversification: Farmers hesitate to shift to pulses, maize, or oilseeds due to assured rice procurement.

    What reforms are necessary to ensure sustainable rice production?

    1. Crop diversification: Encourages shift from paddy to maize, pulses, oilseeds, and millets in water-stressed regions.
    2. Promotion of direct seeded rice (DSR): Reduces water usage by 20-30% and lowers labour demand.
    3. Expansion of basmati cultivation: Higher-value exports generate greater income per hectare with comparatively lower water intensity.
    4. Irrigation efficiency: Adoption of micro-irrigation and precision farming reduces water consumption.
    5. Regional redistribution: Promotes rice cultivation in eastern states such as Bihar, West Bengal, Odisha, and Assam, which have higher rainfall.

    Conclusion

    India’s rice export success masks underlying ecological and economic vulnerabilities. Continued expansion of water-intensive rice cultivation in groundwater-stressed regions threatens long-term agricultural sustainability. Reforms must prioritize water-efficient cultivation, crop diversification, and expansion of high-value basmati exports. Aligning agricultural incentives with resource sustainability and market efficiency is essential to ensure that India remains a global rice leader without compromising environmental security.

    PYQ Relevance

    [UPSC 2020] What are the major factors responsible for making the rice-wheat system a success? In spite of this success, how has this system become a bane in India?

    Linkage: This PYQ directly relates to the issue of rice-wheat monoculture driven by MSP, procurement, and irrigation policies, which boosted food security after the Green Revolution. However, the same system has led to groundwater depletion, soil degradation, and unsustainable cropping patterns, highlighting the need to rethink India’s rice production and export strategy.

  • Morbi Ceramic Industry Faces Shutdown Risk

    Why in the News

    The ceramic industry in Morbi, Gujarat may face a shutdown due to disruptions in natural gas and propane supplies following escalating conflict in West Asia and the closure of the Strait of Hormuz.

    Importance of Morbi Ceramic Cluster

    • Morbi is India’s largest ceramic manufacturing hub.
    • Around 600 ceramic units operate in the region.
    • The industry employs 2–4 lakh workers directly and indirectly.
    • Produces tiles, sanitaryware and vitrified products exported globally.

    Why the Industry is Affected

    • Dependence on Gas-Based Fuel
      • Ceramic units rely heavily on propane and natural gas for: Firing kilns and Drying processes. About 80% of units use propane as the main fuel.
    • Disruption of Energy Supplies
      • Gas shipments from Gulf countries are stuck due to tensions involving Iran, Israel, and the United States. Closure or disruption in the Strait of Hormuz, a critical global shipping route, has interrupted supplies.
    • Limited Fuel Stocks
      • Propane stocks: 2–4 days.
      • Natural gas (CNG) supplies: about one week.
      • If supplies do not resume soon, the industry may suspend operations within 7–10 days.
    [2024] Consider the following statements: Statement-I: Sumed pipeline is a strategic route for Persian Gulf oil and natural gas shipments to Europe. Statement-II: Sumed pipeline connects the Red Sea with the Mediterranean Sea. Which one of the following is correct in respect of the above statements? (a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I (b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I (c) Statement-I is correct, but Statement-II is incorrect (d) Statement-I is incorrect, but Statement-II is correct

  • New GDP Series: Why Fiscal Targets and $4 Trillion Goal Get Harder

    Why in the News

    The Ministry of Statistics and Programme Implementation released the new GDP series with 2022-23 as base year, lowering nominal GDP by about 3 to 4 percent. This affects fiscal deficit ratios, debt calculations and India’s timeline to become a 4 trillion dollar economy.

    What Changed in the New GDP Series

    • 2023-24 growth revised down from 9.2% to 7.2%.
    • Nominal GDP for 2025-26 reduced by about 3.3%.
    • Real GDP now calculated using double deflation method.
    • Better data sources such as GST, ASUSE, PLFS integrated.
    • Lower nominal GDP means the economy is slightly smaller in rupee terms than previously estimated.

    Impact on Fiscal Deficit

    Fiscal deficit is calculated as a percentage of GDP.

    1. Current Year Impact

    • 2025-26 fiscal deficit moves from 4.4% to 4.5%.
    • Past years’ ratios also rise slightly due to smaller GDP base.

    2. FY27 Target Problem

    • Target: 4.3% of GDP
      Absolute deficit: Rs 16.96 lakh crore
    • To achieve this ratio:
      • Nominal GDP must grow 13 to 14% next year.
      • Budget assumption was only 10% nominal growth.
    • This implies either: Higher growth, or Lower borrowing, or Expenditure compression.

    Impact on Debt to GDP Ratio

    • Debt ratio projected to rise to about 58% in 2025-26.
    • Target is 55.6%.
    • Lower GDP denominator pushes ratio upward.
    • New GDP series makes fiscal consolidation slightly tougher mathematically.

    Impact on $4 Trillion Economy Goal

    • At exchange rate of about Rs 90.98 per dollar: 2025-26 GDP is around 3.8 trillion dollars.
    • If nominal growth is 10% and rupee remains stable: India can cross 4 trillion dollars in 2026-27.
    • However:
      • Rupee depreciation can delay milestone.
      • Dollar GDP depends on both growth and exchange rate.
    • Nigeria example shows how currency depreciation can shrink dollar GDP even if domestic output rises.

    Broader Implications

    • Ratios worsen even without policy slippage.
    • Government may need borrowing recalibration.
    • Fiscal arithmetic becomes tighter.
    • Market expectations on growth become crucial.

    Prelims Pointers

    • GDP can be measured by production, income and expenditure methods.
    • Nominal GDP uses current prices.
    • Real GDP adjusts for inflation.
    • Fiscal deficit equals total expenditure minus total receipts excluding borrowings.
    • Debt to GDP ratio indicates sustainability of public debt.
    [2015] With reference to Indian economy, consider the following statements: 

    1. The rate of growth of Real Gross Domestic product has steadily increased in the last decade. 
    2. The Gross Domestic product at market prices (in rupees) has steadily increased in the last decade. 

    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

  • GST Collections Rise 8.1% to ₹1.83 Lakh Crore in February

    Why in the News

    Gross Goods and Services Tax collections rose 8.1% year on year to over ₹1.83 lakh crore in February 2026, indicating steady consumption and import activity.

    Key Figures

    • Gross GST: ₹1.83 lakh crore
    • Net GST: ₹1.61 lakh crore up 7.9%
    • Gross domestic revenue: ₹1.36 lakh crore up 5.3%
    • Import revenue: ₹47,837 crore up 17.2%
    • Refunds: ₹22,595 crore up 10.2%
    • Cumulative GST collection so far this fiscal: ₹20.27 lakh crore up 8.3%.

    Policy Context

    • GST slabs merged into two major rates: 5% and 18%
    • 40% slab retained for ultra luxury goods and tobacco
    • Around 375 items saw rate cuts from September 2025
    • Initial dip in November after tax cuts followed by recovery in December, January and February.

    State Level Trends

    Negative growth observed in:

    • Tamil Nadu
    • Madhya Pradesh
    • Rajasthan

    Below national average growth in:

    • West Bengal
    • Haryana
    • Uttar Pradesh
    • Maharashtra

    Significance

    • Reflects resilience of consumption demand
    • Strong import growth suggests trade momentum
    • Stable revenue trend despite rate rationalisation
    • Indicates structural maturity of GST ecosystem
    [2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’? 

    1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India. 
    2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves. 
    3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future. 

    Select the correct answer using the code given below: 

    (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

  • SEBI to Leverage AI and Tech to Crack Down on Market Manipulators

    Why in the News

    SEBI Chairman Tuhin Kanta Pandey said the regulator will strengthen surveillance using Artificial Intelligence and technology to curb market manipulation and cyber fraud.

    Key Announcements

    • Tech Driven Surveillance

      • Use of AI to detect market manipulation and suspicious trading patterns.
      • Stronger enforcement against fraudulent brokers and cyber criminals.

    • SEBI Check Tool

      • Integrated within UPI interface.
      • Helps investors verify registered intermediaries before making payments.
      • Aimed at curbing fake brokers promising unrealistic returns.
      • SEBI has partnered with Bengaluru based AI firm SARVAM for multilingual awareness campaigns.

    • Investor Awareness Push

      • AI based outreach pilot contacted 3.85 lakh people.
      • Campaigns to caution against financial influencers promising “astronomical” returns.
      • Emphasis on disciplined and long term investing.

    • Derivatives & Market Stability

      • Measures introduced to cool speculation in equity derivatives.
      • Focus on short duration options segment.
      • SEBI says no signs of systemic instability.

    • Enforcement Record

      • Action against unregistered advisors and alleged market manipulators.
      • High success rate in tribunal and Supreme Court cases.
      • Regulator defends combined legislative, executive and quasi judicial role.

    • Future Focus Areas

      • Revitalising agricultural commodity markets.
      • Deepening corporate bond market.
      • More scientific policy making with impact assessment.

    Significance

    • Strengthens investor protection.
    • Improves trust and transparency in capital markets.
    • Reflects shift toward data driven regulation.
    • Aligns with digital public infrastructure ecosystem including UPI.
    [2025] Consider the following statements: I. India accounts for a very large portion of all equity option contracts traded globally, thus exhibiting a great boom. 

    II. India’s stock market has grown rapidly in the recent past, even overtaking Hong Kong’s at some point in time. 

    III. There is no regulatory body either to warn small investors about the risks of options trading or to act on unregistered financial advisors in this regard. 

    Which of the statements given above are correct? 

    (a) I and II only (b) II and III only (c) I and III only (d) I, II and III

  • [27th February 2026] The Hindu OpED: The shift of critical minerals to India’s strategic centre

    PYQ Relevance

    [UPSC 2022] Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify your answer. How will the shift of subsidies from fossil fuels to renewables help achieve the above objective? Explain.

    Linkage: Renewable energy expansion depends on critical minerals like lithium and rare earths used in solar, wind, and EVs. Achieving 50% renewable capacity by 2030 requires secure mineral supply chains and shifting subsidies from fossil fuels to clean energy.

    Mentor’s Comment

    Critical minerals are now central to India’s industrial and geopolitical strategy. The Union Budget 2026 marks a shift from policy intent to implementation, focusing on processing capacity, domestic value addition, and secure supply chains. With 30 minerals identified and ₹16,300 crore allocated under the National Critical Minerals Mission, India is prioritising strategic autonomy amid global supply disruptions.

    Why is the shift to critical minerals a strategic turning point for India?

    1. Policy Mainstreaming: Moves critical minerals from peripheral policy concern to core industrial and geopolitical agenda. Budget speech shifts focus from identification to execution
    2. Institutional Framework: Establishes National Critical Minerals Mission (NCMM) with ₹16,300 crore outlay to coordinate exploration, mining, and processing.
    3. Strategic Context: Responds to global weaponisation of rare earth magnets and battery supply chains in 2025, exposing industrial vulnerabilities
    4. Global Concentration Risk: China controls up to 90% of global processing capacity for several critical minerals, creating supply asymmetry.
    5. Implementation Phase: Shifts discourse from “Does India need a policy?” to “Can India execute at scale, speed, and depth?”

    How does governance architecture address exploration and processing gaps?

    1. Mineral Identification: Notifies 30 critical minerals to guide regulatory and fiscal prioritisation
    2. Exploration Reform: Eases mineral exploration norms for junior miners and rationalises royalty rates.
    3. Project Pipeline: Targets 1,200 exploration projects by FY2031 under NCMM.
    4. Fiscal Incentives: Enables tax deductions for exploration expenditure for nine critical minerals.
    5. Processing Capability: Leverages existing capacity in copper, graphite, rare earth oxides, tin, and titanium, often exceeding 99.9% purity.
    6. Technological Upgradation: Recognises need for deeper refining and advanced processing for clean energy and defence applications.

    Does demand creation remain the missing link in mineral security?

    1. Capital Goods Rationalisation: Removes import duties on capital goods used in processing of critical minerals
    2. Domestic Manufacturing Push: Links mineral processing to batteries, solar modules, wind turbines, and electric vehicles.
    3. Demand Constraint: Identifies lack of assured domestic demand as a barrier to private investment in refining capacity.
    4. Industrial Multiplier: Expands electric mobility and renewable energy deployment to generate downstream mineral demand.
    5. Backward Integration: Addresses delays in domestic value chain integration that create uncertainty for midstream processors.

    Can technology and AI-driven governance enhance mineral discovery and efficiency?

    1. AI-First Exploration: Mandates Artificial Intelligence integration in mineral exploration to de-risk investments.
    2. Institutional Convergence: Aligns IndiaAI Mission, National Geospatial Policy, and Mission Anveshan for data-driven exploration.
    3. Hydrocarbon Model Extension: Expands seismic and geospatial analytics used in hydrocarbon discovery to mineral exploration.
    4. Geoscience Data Repository: Improves prospectivity analysis and site discovery through centralised digital data systems.
    5. Tax Support: Extends tax deductions for exploration expenditure to reduce risk premium.

    How does geopolitical disruption reshape India’s strategic mineral policy?

    1. Rare Earth Corridors: Announces development of rare earth corridors across coastal States.
    2. Import Substitution: Reduces import duties on monazite sands to secure feedstock.
    3. Technological Sovereignty: Uses supply chain disruption as leverage to build domestic magnet and battery ecosystems.
    4. State Role: Encourages States to upgrade port infrastructure and manpower to serve global demand.
    5. Regional Growth: Links mineral processing clusters to job creation and industrial diversification.

    Are international partnerships aligned with domestic capacity building?

    1. Strategic Partnerships: Expands cooperation with Australia, European Union, Japan, United Kingdom, and United States.
    2. Technology Transfer Challenge: Addresses reluctance of advanced economies in sharing high-end processing technologies.
    3. Regulatory Certainty: Strengthens legal frameworks to attract foreign mineral processing investment.
    4. Sintered Magnet Scheme: Allocates ₹7,280 crore for permanent magnet manufacturing ecosystem.
    5. Trade Integration: Aligns mineral strategy with India-EU Free Trade Agreement and global supply chain networks.
    6. Research Collaboration: Enhances academic and industrial linkages through UK-India Critical Minerals Supply Chain Observatory.

    Conclusion

    Critical mineral security is no longer a sectoral concern but a strategic imperative linking energy transition, manufacturing growth, and geopolitical autonomy. Budget 2026 signals a shift from ambition to execution, with emphasis on processing, technology, and global partnerships. Sustained coordination between the Union, States, and industry will determine whether India can convert mineral potential into long-term industrial and strategic strength.

  • SEBI Revamps Mutual Fund Rulebook

    Why in the News

    The Securities and Exchange Board of India introduced major reforms for the ₹81 lakh crore mutual fund industry to ensure schemes remain true to their stated objectives.

    Key Changes

    1. Solution-Oriented Schemes Discontinued

    • No fresh inflows allowed in retirement and children funds.
    • Existing schemes to be merged with similar asset allocation schemes.
    • Aim: Remove redundant category and improve clarity.

    2. Introduction of Life Cycle Funds

    • Goal-based, open-ended schemes.
    • Asset allocation shifts automatically over time via glide path.
    • Designed around target maturity dates.

    3. Higher Exposure Limits

    • Up to 35% investment allowed in:
      • Gold
      • Silver
      • Infrastructure Investment Trusts
    • Provides equity funds greater flexibility and diversification.

    4. Restriction on Portfolio Overlap

    • Less than 50% overlap required:
      • Between sectoral and thematic funds
      • Between equity and sectoral or thematic funds
    • Objective: Reduce duplication and ensure differentiated strategies.

    5. Relaxation for Contra and Value Funds

    • Earlier: Only one of the two allowed per fund house.
    • Now: Both can be offered.

    Prelims Pointers

    • SEBI regulates securities market and mutual funds in India.
    • InvITs pool funds for infrastructure projects.
    • Life cycle funds follow glide path asset allocation.
    • Portfolio overlap norms aim to prevent excessive duplication across schemes.
    [2023] Consider the following statements: Statement-I: Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable. 

    Statement-II: InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’. 

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

    (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I 

    (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I 

    (c) Statement-I is correct but Statement-II is incorrect 

    (d) Statement-I is incorrect but Statement-II is correct

  • New GDP Series to Better Capture Economy

    Why in the News

    The Ministry of Statistics and Programme Implementation will release a new GDP series on February 27, 2026, updating the base year to 2022-23 and introducing major data and methodological improvements.

    Key Changes

    1. Base Year Updated

    • From 2011-12 to 2022-23
    • Reflects current economic structure including digitalisation and formalisation

    2. Better Corporate & Government Data

    • Sector-wise allocation based on actual activity share
    • Inclusion of government housing services
    • Expanded coverage of autonomous and local bodies

    3. Stronger Household & Informal Sector Estimates

    • Annual use of ASUSE and PLFS data
    • More granular measurement of private consumption

    4. New Data Sources

    • Wider use of GST data for output estimation
    • Banking data from Reserve Bank of India
    • Actual NBFC data instead of proxy estimates

    5. Technical Upgrade

    • Use of double deflator method for better real GDP estimation

    Prelims Takeaway

    • GDP and GVA series now aligned to 2022-23 base year
    • GST integrated more deeply in estimation
    • Informal and unincorporated sector measurement improved
    • Double deflation enhances accuracy of real growth calculation
    [2013] The national income of a country for a given period is equal to the (a) total value of goods and services produced by the nationals 

    (b) sum of total consumption and investment expenditure 

    (c) sum of personal income of all individuals 

    (d) money value of final goods and services produced

  • New GDP Series Will Not Use UPI Data

    Why in the News

    The Ministry of Statistics and Programme Implementation has decided not to use Unified Payments Interface transaction data in India’s new GDP series with base year 2022 to 23, citing instability and classification limitations.

    Why Was UPI Data Considered?

    • UPI transaction data from the National Payments Corporation of India provides:
    • Value of transactions in rupees
    • Volume of transactions
    • Merchant category codes
    • It was proposed as a non traditional indicator to estimate Private Final Consumption Expenditure (PFCE), a key component of GDP from the expenditure side.

    Why Was It Rejected?

    • Overlapping Merchant Categories: Merchant codes such as 5411 for supermarkets cover multiple product types, making it difficult to classify transactions under specific PFCE consumption heads.
    • Non Consumption Transactions Included: Certain categories like debt collection agencies do not represent household consumption but account for notable transaction value.
    • Unstable and Incomplete Data Coverage: Continued reliance on cash and ongoing digital transition mean UPI trends do not yet fully capture overall consumption patterns. The Advisory Committee suggested reconsideration once data stabilises.

    About GDP Estimation in India

    • India calculates GDP using:
      • Production or Income Approach
      • Expenditure Approach
      • PFCE forms more than half of India’s GDP.
    • Under the new series:
      • Base year updated from 2011 to 12 to 2022 to 23
      • PFCE items expanded from 46 to 128
      • Published data will cover 49 items across 13 categories

    Alternative Data Sources Being Used

    • Goods and Services Tax data
    • Vahan vehicle registration data
    • Sector specific indicators
    [2013] The national income of a country for a given period is equal to the (a) total value of goods and services produced by the nationals 

    (b) sum of total consumption and investment expenditure 

    (c) sum of personal income of all individuals 

    (d) money value of final goods and services produced