💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

GS Paper: Indian Economy

  • Tex-RAMPS Scheme

    Why in the News?

    The Government of India approved a new scheme called Tex-RAMPS to strengthen research, data systems, innovation, and competitiveness in India’s textiles sector.
     The scheme aligns with India’s push to make its textiles ecosystem future-ready, technologically advanced, and globally competitive.

    What is Tex-RAMPS?

    Tex-RAMPS = Textiles Focused Research, Assessment, Monitoring, Planning and Start-up Scheme. It is a Central Sector Scheme, fully funded by the Ministry of Textiles.

    Outlay & Duration

    • Total Outlay: ₹305 crore
    • Period: FY 2025-26 to FY 2030-31
    • Co-terminus with the upcoming Finance Commission cycle

    Objectives

    To future-proof India’s textiles & apparel (T&A) ecosystem by:

    • Strengthening research and innovation
    • Building robust data systems
    • Enhancing global competitiveness
    • Supporting start-ups
    • Improving capacity development across the sector
    Atal Innovation Mission is set up under the (2019)

    (a) Department of Science and Technology 

    (b) Ministry of Employment 

    (c) NITI Aayog 

    (d) Ministry of Skill Development and Entrepreneurship

  • [27th November 2025] Hindu OpED Limited room: On the Indian rupee

    PYQ Relevance

    [UPSC 2018] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India?

    Linkage: Protectionism and currency pressures weaken the rupee, widen the CAD, and raise imported inflation. This directly affects India’s macroeconomic stability, as seen in the article’s emphasis on dollar strength and RBI’s limited room.

    Mentor’s Comment

    India’s recent 7% rupee depreciation has revived an uncomfortable truth, monetary tools alone cannot stabilise the currency when structural vulnerabilities remain unaddressed. The article examined today highlights India’s long-standing dependence on oil imports, the RBI’s limited manoeuvring room, and why external pressures have outweighed domestic macro stability. For UPSC aspirants, this topic offers rich intersections across macroeconomics, external sector management, energy security, inflation dynamics, trade policy, and structural reforms.

    Introduction

    India’s rupee has depreciated about 7% between late November 2024 and now, sliding from ₹83.4/$ to nearly ₹89.2/$. Despite large-scale RBI intervention, including selling nearly $50 billion in forex, the currency continues to weaken amid external pressures. The episode mirrors the 2018 phase of global dollar strength and U.S. interest rate hikes, exposing India’s long-standing vulnerability: heavy dependence on expensive crude oil imports. With crude forming more than one-fifth of total imports, and India transitioning away from Russian supplies, monetary stabilisation alone is insufficient.

    Why in the News 

    The rupee has dropped nearly 7% to ₹89.2 per dollar, even after the RBI sold $50 billion to stabilise it. This mirrors the 2018 downturn when global dollar strength and U.S. rate hikes triggered similar pressure. What makes this episode striking is the contradiction: inflation is low (0.25% in Oct 2025), forex reserves remain comfortable at $693 billion, yet the rupee continues to slide. The rapid fall highlights India’s structural weakness, oil import dependence, which raises the current-account deficit and inflation risks despite favourable domestic conditions.

    What Explains the Recent Rupee Depreciation?

    1. Global Dollar Strength: Mirrors 2018 trends where strong U.S. interest rates and trade tensions pressured emerging market currencies.
    2. Widening Current Account Deficit: Rising bullion imports as a hedge in uncertain times widened the CAD.
    3. Exporter Competitiveness Issues: Exporters struggled to maintain margins due to high U.S. tariffs, increasing pressure on the INR.

    Why Are RBI Tools Proving Insufficient?

    1. Floating-but-Managed Regime: RBI can only “smoothen volatility”, not fix the rate.
    2. Forex Market Intervention: RBI sold nearly $50 billion, yet depreciation continued, signalling strong external headwinds.
    3. Liquidity Supports via Swaps:
      1. 2018: First longer-term currency swap as a systemic liquidity check.
      2. 2019: Completed a $5 billion three-year swap.
      3. Feb 2025: Conducted a $10 billion buy-sell auction to infuse long-term rupee liquidity.

    Why Is This Rupee Slide Concerning Despite Low Inflation?

    1. Exceptionally Low CPI Inflation: Headline CPI at 0.25% (Oct 2025), well below RBI’s 2-6% band, should normally support the rupee.
    2. Transition-Induced Cost Pressures: Shift from cheaper Russian crude toward costlier U.S. imports exerts upward pressure.
    3. Risk of Imported Inflation: Higher oil prices raise logistics, manufacturing, and CPI components.

    Why Must India Reduce Dependence on Oil Imports?

    1. Over One-Fifth of FY25 Imports Are Crude: A single commodity dominates the import basket, creating vulnerability.
    2. Rupee-Oil Linkage: Any crude price rise automatically weakens the rupee by widening CAD.
    3. Limited Monetary Space: Rupee stabilisation cannot rely solely on forex intervention or interest rate changes.

    What Structural Reforms Are Needed?

    1. Faster Transport Electrification: Must be treated as a strategic imperative, not a long-term aspiration.
    2. Holistic Trade Policy: India’s bilateral deals (Japan, UAE, ASEAN) have tilted the trade balance against it, offering limited diversification of energy trade routes.
    3. Reduced Oil Intensity in GDP: Accelerating renewable capacity, green hydrogen, and domestic energy alternatives.

    Conclusion

    The current rupee slide highlights a deeper structural flaw: India’s dependence on oil imports exposes it to global price volatility and external shocks. With RBI intervention offering only temporary relief, sustainable currency stability requires reducing crude dependence, reforming trade strategy, and accelerating energy transition. Unless structural measures address the root vulnerability, India cannot insulate the rupee from future external pressures.

  • Rupee is Asia’s worst performing currency

    Introduction

    The Indian Rupee has depreciated 4.3% against the US Dollar in 2025, making it Asia’s worst-performing currency. Analysts warn that the INR may slide to ₹90 per USD if the India-US trade deal does not materialise soon. The rupee’s movement is now driven more by global dollar strength than by domestic fundamentals. Persistent capital outflows, a rising trade deficit, U.S. tariffs, and a surge in gold imports have intensified pressure on the domestic currency.

    Why This Matters: Rupee Hits Asia’s Lowest Position

    The rupee’s sharp 4.3% calendar-year depreciation marks one of the steepest declines among Asian currencies. This contrasts sharply with the appreciation seen in much of the Asian currency complex, led by the Chinese Yuan through strong intervention by China’s central bank. The situation is aggravated by India’s record $41.7 billion trade deficit, U.S. tariff shocks, and a gold price spike that spurred a 200% rise in ETF investments. The worsening outlook raises concerns of the rupee breaching ₹90 per USD, a level not previously approached in recent years.

    Drivers Behind the Rupee’s Depreciation

    1. Global Dollar Strength: Dollar appreciation of 3.6% over two months increased pressure on most Asian currencies, including the INR.
    2. External Shocks:
      1. U.S. tariffs on Indian goods directly added stress.
      2. High precious metal prices increased import bills.
    3. Capital Outflows: The current account remains “benign”, but the depreciation is driven by capital flight, not trade fundamentals.
    4. Comparative Weakness: INR weakened more than IDR (2.9%) and PHP (1.3%), marking a distinct underperformance.

    Rupee’s Position Relative to Asian Peers

    1. Underperformance vs. China and Indonesia: Specialists note that while Indonesian Rupiah and Chinese Yuan have depreciated, INR weakened further.
    2. Better Than Structurally Weak Majors: INR still fares better than the Japanese Yen and Korean Won, which face domestic policy constraints.
    3. Asian Currency Complex Trend: Most Asian currencies appreciated, driven by Chinese intervention through PBOC/SAFE signalling.

    Market Movements and Recent Lows

    1. New Lows Recorded: Rupee touched 88.8 per USD on 21 November 2025, breaking earlier RBI-supported levels.
    2. Intraday Weakness: Fell further to 89.66, signalling intense currency-market stress.
    3. Partial Recovery: Rupee recovered to 89.22 by Tuesday, though still significantly weaker on a monthly basis.

    Trade Deficit and Macro Pressures Intensifying Rupee Weakness

    1. Record Trade Deficit: October witnessed a $41.7 billion merchandise trade deficit triggered by tariff hikes.
    2. Gold Import Surge:
      1. Gold imports spiked to $14.72 billion in October.
      2. Gold ETF demand rose by 200% due to soaring global prices.
    3. Twin External Shocks: Tariffs + gold price rise combine with geopolitical uncertainty to pressure the currency.

    Impact of the U.S. Tariffs and Policy Changes

    1. 50% Tariff Imposed by U.S.: Direct impact on India’s export competitiveness, worsening the trade deficit.
    2. Cumulative Effect on Rupee: Tariffs + gold imports + dollar strength + capital outflows create a compounding depreciation effect.
    3. Forward Outlook: Without a trade deal with the U.S., the rupee may breach ₹90 per USD.

    Conclusion

    The rupee’s position as Asia’s worst-performing currency signals deeper stresses in India’s external sector. The depreciation stems from global dollar dominance, tariff shocks, capital outflows, and rising import bills. While partial recoveries occur, the broader trajectory depends heavily on the India-US trade negotiations and management of external vulnerabilities. Ensuring macroeconomic stability will require coordinated steps in trade policy, forex management, and domestic economic resilience.

    PYQ Relevance

    [UPSC 2018] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India?

    Linkage: It is directly linked to GS-3: External Sector, as it examines how tariffs and currency moves affect India’s macroeconomic stability. It is relevant for understanding exchange-rate volatility, CAD pressures, and global protectionist trends.

  • Capital Gains Accounts (Second Amendment) Scheme, 2025

    Why in the news? 

    The Ministry of Finance has notified the Capital Gains Accounts (Second Amendment) Scheme, 2025, introducing major changes to the existing Capital Gains Account Scheme (CGAS), 1988. The amendments aim to modernise processes, expand banking access, and increase clarity for taxpayers seeking capital gains exemptions.

    About Capital Gains Account Scheme (CGAS), 1988

    • Launched by the Central Government in 1988.
    • Objective: To help taxpayers claim exemptions on long-term capital gains when reinvestment cannot be completed before the ITR filing due date.
    • Linked mainly to Section 54, 54F, and related provisions of the Income Tax Act.

    Why CGAS is Needed?

    • Exemption requires reinvestment of capital gains within:
      • 2 years (purchase of property)
      • 3 years (construction of property)
    • If this period extends beyond the ITR filing deadline, the taxpayer can temporarily deposit unutilised gains in CGAS to keep the exemption claim valid.

    Important Conditions

    • Deposit must be made before filing Income Tax Return.
    • Money deposited is treated as reinvested for exemption.
    • If the amount is not utilised within the stipulated period, it becomes taxable long-term capital gains in that year.
    • Only long-term capital gains qualify — short-term gains are NOT eligible.

    Who Can Deposit in CGAS?

    • Any person with long-term capital gains, including: Individuals, HUFs, Companies, Firms, Trusts, and Any eligible taxpayer seeking exemption
    • Mainly used by property sellers who need more time to reinvest.

    Capital Gains Accounts (Second Amendment) Scheme, 2025 — Key Changes

    • Expansion of Authorized Banks: Previously limited mostly to Public Sector Banks + IDBI Bank.
      • Now extended to 19 private and small finance banks at all non-rural branches.
    • Non-rural branch condition: Branch must be located in an area with population ≥ 10,000 (2011 Census).
      • Rural branches cannot open CGAS accounts.
    • Wider Definition of Electronic Payments: Electronic deposits can now be made through: Credit cards, Debit cards, Net banking, IMPS, UPI, RTGS, NEFT and BHIM Aadhaar Pay.This modernises the earlier narrow definition of “electronic mode”.
    • Online Closure of CGAS Accounts (From April 1, 2027): Closure requests can be submitted electronically using:
      • Digital Signature (DSC)
      • Electronic Verification Code (EVC)
      • Earlier: Closure only through physical branches.
    • Clarification on Effective Date of Deposit: For cheque/DD/electronic transfers, the date of receipt of the payment instrument along with account application at the Deposit Office is treated as the effective date.Removes ambiguity around last-day deposits for tax exemption.
    • Electronic Statements Permitted: Banks can now issue electronic statements instead of physical passbooks.
      • Aligns CGAS with general digital banking norms.
    •  Extension of CGAS to Section 54GA: CGAS can now be used for exemptions under Section 54GA:

      • Relates to capital gains arising from shifting an industrial undertaking from an urban area to a Special Economic Zone (SEZ).
      • Broadens applicability beyond property-related reinvestments.
    Consider the following statements: (2025)

    I. Capital receipts create a liability or cause a reduction in the assets of the Government. 

    II. Borrowings and disinvestment are capital receipts. 

    III. Interest received on loans creates a liability of the Government. 

    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

  • Urgent update: India needs to revise its CPI urgently

    Introduction

    The October retail inflation data exposed severe inaccuracies in India’s Consumer Price Index (CPI). While headline inflation appeared to fall to just 0.25%, the lowest since January 2012, the decline stemmed from a statistical anomaly, not real deflation. A collapse of 3.7% in the food and beverages index, driven largely by errors in price tracking during a month of actual food inflation (9.7%), dragged the entire CPI downwards. With outdated 2012 weights, GST-era distortions, and wide gaps between measured and perceived inflation, the CPI no longer mirrors reality. The article argues for urgent revision because the index now affects interest rate decisions, welfare planning, and fiscal strategy.

    Why in the news 

    Retail inflation for October collapsed to 0.25%, a 13-year low, appearing at first as a major success. But this fall was driven not by cheaper food but by a historic 3.7% contraction in the food and beverages category, despite actual food inflation touching 9.7%, the highest of the year. This sharp disconnect, caused by outdated weights and flawed price capture, marks one of the most serious statistical discrepancies in India’s CPI since its creation. With RBI’s interest rate decisions tied to CPI, this mismatch between measured inflation and lived inflation has become a significant policy challenge.

    What triggered the inflation anomaly in October 2025?

    1. Historic contraction in food index: The food and beverages category fell 3.7%, the largest drop since the 2012 CPI basket was created.
    2. Actual food inflation 9.7%: Prices in October rose steeply, showing complete divergence between data and reality.
    3. High weightage (46%): Because food accounts for nearly half of CPI, the flawed contraction pulled the entire index downward.
    4. Vegetable prices rising: The fall did not reflect market behaviour; vegetables had been getting costlier.
    5. Statistical anomaly: Not a reflection of cheaper food but a reflection of outdated measurement methods.

    Why is India’s CPI no longer accurate or representative?

    1. Outdated base year (2012): Consumption patterns, e-commerce, GST era changes, lifestyle shifts, none are captured.
    2. Misaligned weights: Household spending patterns have transformed; food no longer holds the same share.
    3. GST impact shows inconsistently: Only clothing and footwear showed inflation lower than last year due to GST cuts, not genuine price movement.
    4. Inconsistent category behaviour: Fuel, housing, tobacco, and miscellaneous inflation was higher than last year, contradicting the headline figure.
    5. Price capture errors: Data is often collected from markets that do not reflect actual consumer behaviour.

    What is the policy significance of this mismatch between CPI and real inflation?

    1. RBI’s rate decisions distorted: RBI surveyed households and found perceived inflation at 7.4%, far above the official CPI.
    2. Risk of wrong interest-rate moves: The RBI Monetary Policy Committee (MPC) uses CPI as its benchmark; incorrect CPI can lead to wrong rate cuts/holds.
    3. Poor signalling to markets: Bond markets, banks, and investors rely on accurate inflation forecasting.
    4. Impact on welfare schemes: Index-linked subsidies, pensions, and poverty estimates become inaccurate.
    5. Misleading economic narrative: Inflation is reported as low while households experience severe price stress.

    Why is a new CPI series urgently required

    1. Mismatch with GST regime: The GST tax cuts have altered category prices but CPI weights do not capture this.
    2. Structural change in Indian consumption: Electronics, services, digital expenses, mobility, none adequately represented.
    3. Incorrect urban-rural representation: Spending patterns in rural India have changed substantially.
    4. Temporary factors skewing data: GST rate cuts temporarily depress inflation readings, masking real trends.
    5. Government acknowledgment: Ministry of Statistics has confirmed work on a new CPI series.

    What is expected from the upcoming CPI revision?

    1. Greater accuracy: The new index will reduce the gap between statistical inflation and lived inflation.
    2. Improved weightages: Food weight may be reduced; services weight may rise.
    3. Better policy coordination: More accurate inflation data for monetary and fiscal decisions.
    4. Alignment with global practices: Frequent re-basing, digital data capture, and dynamic weighting.
    5. Timeline: Expected from the next financial year, improving CPI reliability.

    Conclusion

    India’s inflation measurement system is now at a breaking point. The October anomaly exposes the urgent need to modernize the CPI to reflect contemporary consumption and inflation realities. With monetary policy, welfare spending, and economic narratives relying on CPI, statistical distortions can lead to severe policy missteps. A revised CPI, updated, accurate, and GST-aligned, is essential for credible macroeconomic governance.

    Value Addition

    Consumer Price Index (CPI)

    • Definition: The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by consumers for a representative basket of consumer goods and services. The CPI measures inflation as experienced by consumers in their day-to-day living expenses.
    • Released by: National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI).
    • Frequency of release: Monthly, usually around the 12th of every month for the previous month.
    • What is included in the CPI basket:
      • Food & Beverages, Housing, Fuel & Light, Clothing & Footwear, and Miscellaneous services (education, health, transport, communication, recreation, personal care, etc.).
    • Weightage (CPI Combined, 2012 base year):
      • Food & Beverages: ~46%
      • Housing: ~10%
      • Fuel & Light: ~7%
      • Clothing & Footwear: ~6%
      • Miscellaneous: ~31%.

    PYQ Relevance

    [UPSC 2024] What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.

    Linkage: This PYQ is relevant because food inflation, CPI accuracy, and monetary policy are core GS-III themes repeatedly tested by UPSC. The article shows how flawed CPI weights hid real food inflation, directly weakening RBI’s ability to target inflation.

  • Low taxes spur buying but jobs and incomes will have to grow

    Introduction

    India’s economy is witnessing strong domestic demand supported by lower income tax and GST rates, easing inflation, a healthy monsoon, and lower interest rates. However, external uncertainties, high U.S. tariffs on Indian exports, and weak goods-export momentum pose headwinds. While consumption, services exports, and government capital expenditure show strength, India’s long-term growth will depend on sustained job creation and rising household incomes.

    Why in the News? 

    India’s domestic demand is rebounding strongly due to lower income taxes, GST rationalisation, easing inflation, and a good monsoon, marking a sharp contrast to earlier quarters of weak consumption. The IMF upgrading India’s GDP projection for FY25-26 from 6.4% to 6.6% signals strong resilience despite external headwinds. However, goods exports face pressure from U.S. reciprocal tariffs, and income growth has not kept pace with consumption, making it crucial to assess how India can sustain growth without widening inequalities.

    What is driving the current revival in domestic demand?

    1. Lower income tax & GST rates: Supported domestic demand as rationalisation reduced consumer burden.
    2. Good monsoon: Enabled agricultural stability, boosting rural purchasing power.
    3. Lower inflation & interest rates: Created favourable consumption conditions in the first half of the year.
    4. Higher government capital expenditure: Surged by 40%, strengthening infrastructure demand and pushing growth.
    5. Higher disbursements by Food & Public Distribution: Supported rural consumption and safety nets.

    How is India’s export performance shaping up?

    1. Non-oil goods exports grew 7% in the first half of the year, with overall goods exports rising 10%.
    2. Electronics exports increased 10% in the same period, indicating success of PLI-supported segments.
    3. Items like gems & jewellery, carpets, leather slowed due to global weak demand.
    4. High U.S. tariffs: India’s exports to the U.S. are facing pressure, especially textiles and electronics.
    5. Risk of global consolidation: Export growth may moderate due to volatility in global capital flows.

    What is the role of India’s services exports?

    1. Services remain the big buffer: Annual growth projected at around 10%, providing stability.
    2. IT services: Still robust despite global slowdown.
    3. Travel, transport, logistics, professional services: Showing strong expansion post-pandemic.
    4. CAGR of services exports (FY20-FY25): Strong performance contributed substantially to overall GDP.

    Why is investment activity picking up?

    1. Government capital expenditure +40%: Major driver of infrastructure formation.
    2. Private sector investment: Modest but improving, with pickup in power, cement, construction, pharma, and logistics.
    3. Lower interest rates: Created enabling conditions for investment in the second half of the year.
    4. High forex reserve ($690 billion): A comfort factor for foreign investors.

    Why must jobs and household incomes grow now?

    1. Strong consumption without matching income growth is unsustainable.
    2. Sticky unemployment risks weakening domestic demand.
    3. Labour-intensive sectors (textiles, leather, small manufacturing) face export pressure due to high U.S. tariffs.
    4. Structural reform need: India requires higher household income growth, MSME support, and labour-market reforms to sustain growth.
    5. Long-term challenge: Services-led growth creates fewer jobs, while global slowdown limits export-driven job creation.

    Conclusion

    India’s growth momentum is increasingly anchored in strong domestic demand supported by rationalised taxes, a good monsoon and inflation moderation. However, sustaining this trajectory requires broad-based income growth, job creation, and resilience in export sectors affected by global uncertainty. Without strengthening labour-intensive sectors and expanding household purchasing power, India’s growth revival may lose steam.

    PYQ Relevance

    [UPSC 2015] The nature of economic growth in India in recent times is often described as jobless growth. Do you agree? Give arguments in favour of your answer.

    Linkage: Such articles recur because growth-jobs imbalance is a persistent structural issue in India, making it a favorite UPSC theme. The article directly reflects the GS-3 question on “jobless growth” as consumption rises but employment and incomes lag. It helps analyze why India’s recent growth remains demand-led but not job-led, a core UPSC economic concern.

  • Where states stand on revenue collections, before and after GST

    Introduction

    Introduced in 2017, the Goods and Services Tax (GST) replaced multiple indirect taxes at both Central and State levels, including excise duty, service tax, and VAT, creating a unified national tax framework. The recent data released by the Central Government for October 2025 indicates a 4.6% year-on-year increase in total revenue collection to ₹1,95,936 crore. However, the state-wise analysis has revealed an emerging concern: while some states have achieved strong revenue growth, others are struggling to reach even pre-GST revenue-to-GDP ratios.

    Why in the News

    The latest data on GST revenue collection highlights contrasting fiscal trajectories across Indian states. Despite record-high GST collections nationally, several states’ tax-to-GDP ratios remain lower than before 2017, indicating a possible erosion of state fiscal autonomy. The issue has gained attention because:

    1. Sixteen states and Union Territories now earn a smaller share of revenue from GST than pre-GST taxes.
    2. The aggregate revenue from subsumed taxes has declined from 6.1% of GDP in 2015-16 to 5.5% in 2023-24.
    3. The average GST-to-GDP ratio over the past seven years is 2.6%, below the pre-GST average of 2.8%.
    4. This reversal is significant as it questions the efficacy of India’s largest tax reform and the viability of fiscal federalism under GST.

    How did GST Change the Tax Landscape?

    1. Unified Tax Framework: GST subsumed indirect taxes such as excise duty, VAT, and service tax under a single national structure, simplifying compliance.
    2. Revenue Flow Shift: Revenue previously collected by states under independent taxes now flows through a shared GST mechanism, altering fiscal control.
    3. Increased Central Dependence: States became dependent on GST compensation cess and Centre’s transfers for revenue stability, altering fiscal autonomy.
    4. Short-term Gains: Initially, GST led to better compliance and formalization, resulting in short-term revenue surges.

    How Are States Performing After GST?

    1. Diverse Outcomes: According to PRS Legislative Research, state-level GST revenues continue to trail the pre-GST levels as a share of GSDP.
    2. Declining Tax-to-GDP Ratio: Aggregate revenue from subsumed taxes fell from 6.1% (2015-16) to 5.5% (2023-24).
    3. Below-Average GST Performance: The seven-year average GST-to-GDP ratio (2.6%) is lower than the pre-GST average (2.8%).
    4. Top Performers: Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Haryana have shown robust post-GST growth in tax collection.
    5. Lagging States: J&K, Punjab, Chhattisgarh, Madhya Pradesh, and Odisha recorded revenue decline from subsumed taxes as a percentage of GSDP.

    Which States Have Been Worst Affected?

    1. Northeastern States: Mizoram, Nagaland, Sikkim, Meghalaya, and Manipur saw an improvement in tax-to-GSDP ratios.
    2. Northern and Central States: Jammu & Kashmir, Punjab, Madhya Pradesh, Chhattisgarh, and Odisha saw a decline in subsumed tax revenues.
    3. Urban-Rural Divide: Industrial and service-oriented states benefited, while agrarian and resource-dependent states witnessed fiscal compression.
    4. GST Compensation End: After 2022, when the GST compensation guarantee ended, fiscal stress intensified for states heavily reliant on the compensation mechanism.

    What Does the Data Reveal About Fiscal Federalism?

    1. Centre-State Revenue Imbalance: 20 out of 36 states/UTs now collect less than 40% of their revenue from GST, deepening fiscal asymmetry.
    2. Medium-term Fiscal Impact: The 15th Finance Commission projected a GST-to-GDP ratio of 7%, but current data reflects underperformance.
    3. Long-term Fiscal Risks: Declining state revenue autonomy may affect social spending and capital expenditure, widening regional disparities.
    4. Compliance Inefficiency: Multiple tax slabs, refund delays, and compliance burdens continue to affect smaller states’ GST efficiency.

    Conclusion

    The GST has achieved its unification objective but has not yet ensured revenue equity across states. While high-compliance, industrial states have benefited, smaller and agrarian states remain fiscally strained. The data underscores the need for recalibrating the GST architecture, simplifying slabs, improving IT infrastructure, and enhancing fiscal transfers, to align with the spirit of cooperative federalism and fiscal balance.

    PYQ Relevance

    [UPSC 2019] Enumerate the indirect taxes which have been subsumed in the Goods and Services Tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017.

    Linkage: It evaluates the impact of GST on Centre-State revenue balance and indirect tax structure post-2017.

  • Madras HC calls Cryptocurrency ‘Property’

    Why in the News?

    In a historic first for India, the Madras High Court has recognized cryptocurrency as “property” under Indian law, providing judicial validation to digital assets long trapped in a regulatory grey zone.

    What is Cryptocurrency?

    • Overview: Cryptocurrency is a digital or virtual currency that uses cryptography for security, making it difficult to counterfeit or double-spend.
    • Nature: It is decentralized, operating on blockchain technology — a distributed ledger maintained across a network of computers.
    • Key Features: Pseudonymity, transparency, global accessibility, and independence from central banks.
    • Examples: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and others.
    • Function: Used as a medium of exchange, store of value, or investment asset, depending on its design and acceptance.

    Case Details:

    • Case Title: Rhutikumari vs Zanmai Labs Pvt. Ltd. (WazirX Operator) — Madras High Court, October 25, 2025.
    • Context: WazirX froze the petitioner’s account after a $230 million crypto hack (July 2024), even though her assets (3,532 XRP) were unrelated to the theft.
    • Petitioner’s Argument: Her cryptocurrency holdings constituted private property wrongfully frozen without due process.
    • Respondent’s Defence: The freeze was a security measure, and disputes should be referred to Singapore arbitration.
    • Court’s Decision: Justice N. Anand Venkatesh ruled that cryptocurrencies, though intangible, qualify as property since they can be owned, possessed, transferred, and enjoyed.
    • Order: WazirX directed to deposit ₹9.56 lakh in escrow until arbitration concludes.
    • Precedents Cited:
      • Ruscoe v. Cryptopia Ltd (New Zealand): Crypto assets recognized as property held in trust.
      • AA v. Persons Unknown (UK): Bitcoin acknowledged as an asset capable of ownership and protection.

    Legal Implications of the Ruling:

    • Recognition of Ownership Rights: Establishes that cryptocurrency holders have property rights enforceable under Indian civil law.
    • Investor Protection: Enables crypto investors to seek injunctions, escrow relief, and proprietary claims in disputes with exchanges.
    • Liability of Exchanges: Exchanges can be held accountable for wrongful freezing or security failures; “force majeure” cannot justify loss of investor assets.
    • Insolvency Proceedings: Cryptocurrencies can now be treated as assets of an estate, strengthening recovery mechanisms in bankruptcy or liquidation.
    • Judicial Precedent: First Indian ruling to recognise crypto as legally protectable property, likely to influence future regulatory and tax interpretation.

    Legal Status of Cryptocurrency in India (as of 2025):

    • Legality: Cryptocurrencies are not legal tender but are legal to hold, trade, and invest within a regulated framework.
    • Taxation:
      • Classified as Virtual Digital Assets (VDAs) under the Finance Act, 2022.
      • 30% tax on gains; 1% TDS on trades above threshold limits.
    • Regulatory Oversight:
      • RBI: Monitors systemic risk; does not recognize crypto as currency.
      • SEBI: Supervises investment-related aspects.
      • FIU-IND: Enforces anti–money laundering compliance under PMLA (2023 extension).
    • Judicial Framework: Supreme Court (2020) struck down the 2018 RBI ban, enabling continued operation of exchanges.
    • RBI Policy Direction:
      • Promotes Digital Rupee (CBDC) as a regulated alternative.
      • Allows limited banking access to compliant crypto entities under strict KYC/AML rules.

    Conclusion:

    • Crypto is legal to own and trade, taxable as VDA, non-tender, and subject to compliance norms.
    • The Madras High Court ruling elevates its status from a digital asset to a judicially recognized form of property, filling a key legal gap in India’s crypto regulation.
    [UPSC 2020] Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels?

    [UPSC 2019] What is Cryptocurrency? How does it affect global society? Has it been affecting Indian society also?

     

  • Decoding India’s projected GDP

    Why in the News

    Union Minister Piyush Goyal stated that India will become a $30 trillion economy in 20-25 years, emphasising India’s “strength-to-strength” growth and the vision of matching the US economy in scale. However, an analysis of India’s GDP trajectory and exchange rate trends over the past 25 years suggests that this goal appears overstated unless the rate of economic growth increases substantially. The divergence between nominal GDP growth and exchange rate depreciation is central to understanding why India may fall short of this projection.

    How is the Size of an Economy Measured?

    1. Gross Domestic Product (GDP): Represents the total annual value of goods and services produced within a country.
    2. Nominal GDP: Expressed in current prices and domestic currency (rupees).
    3. Conversion to USD: For global comparison, GDP in rupees is divided by the exchange rate (₹ per $).
    4. Example: India’s nominal GDP in FY 2024 is ₹330 trillion, translating to about $3.9 trillion at an exchange rate of ₹84.6 per USD.
    5. Comparative Context: The US GDP in 2024 is estimated at $41 trillion, nearly 10 times India’s size.

    Where Does the Divergence in GDP Projection Arise?

    1. Historical Growth (25 years):
      • India’s nominal GDP grew at a compound annual growth rate (CAGR) of 10.3%.
      • The rupee depreciated by 3.08% per year.
      • This combination would yield a net dollar GDP growth of around 7.2% CAGR, resulting in a $31.9 trillion economy by 2048.
    2. Recent Growth (past 11 years):
      • India’s nominal GDP CAGR dropped to 8.2%.
      • The rupee’s depreciation averaged 3.08%, giving a dollar GDP CAGR of just 5.1%.
      • Under this trend, India’s GDP would reach only $17.4 trillion by 2048.
    3. Key Finding: The long-term projection is highly sensitive to assumptions. Small changes in growth or currency value lead to large differences in dollar GDP outcomes.

    Why is the $30 Trillion Target Difficult to Achieve?

    1. Slowing Growth Momentum: India’s nominal GDP growth rate has weakened since 2014, reflecting post-pandemic structural and demand-side constraints.
    2. Exchange Rate Depreciation: The rupee has steadily weakened over time, eroding the USD value of India’s output despite growth in rupee terms.
    3. Inflation Differential: India’s higher inflation compared to advanced economies results in faster currency depreciation, reducing the global GDP value.
    4. Projection Assumptions: To achieve $30 trillion, India must sustain a nominal GDP CAGR of ~11% and limit currency depreciation below 2.5%, a historically rare combination.

    Is the $30 Trillion Vision Still Useful?

    1. Aspirational Benchmark: The projection serves as a long-term vision anchor for policy and investment decisions, guiding structural reforms.
    2. Strategic Optimism: Such forecasts reflect confidence in India’s demographics, industrial potential, and service exports.
    3. Policy Implication: Even if unattained, the projection pushes economic governance to focus on productivity, export competitiveness, and rupee stability.

    What Needs to Change for Realising the Vision?

    1. Sustained High Growth: Requires double-digit nominal growth through manufacturing diversification, digital economy expansion, and logistics reforms.
    2. Rupee Stability: Demands foreign investment confidence, fiscal discipline, and stronger current account performance.
    3. Inflation Control: Stable inflation curbs depreciation and maintains global competitiveness.
    4. Structural Reforms: Continued focus on labour, land, and capital market reforms to support long-term productivity.

    Conclusion

    India’s $30 trillion projection embodies the nation’s growth ambition, but economic realism demands higher productivity, policy consistency, and exchange rate stability. Without stronger structural momentum, India may remain well below that figure by mid-century. The aspiration, however, serves as a strategic motivator to deepen reforms and strengthen global competitiveness.

    Value Addition

    Potential vs. Actual GDP

    • Concept: Potential GDP is the highest level of economic output a country can sustain without triggering inflation. Actual GDP is the output the economy is currently producing.
    • Analytical Insight: India’s $30 trillion projection represents potential GDP, based on the assumption of sustained double-digit nominal growth, efficient use of labour, and strong capital formation. However, actual GDP growth depends on real-world constraints such as productivity levels, policy bottlenecks, and infrastructure capacity.
    • Example: Between 2003-08, India’s actual growth (9%) was close to potential, driven by investment and exports. Post-2014, growth averaged ≈6-6.5%, showing an increasing gap due to slowing manufacturing, skill mismatch, and weak private investment.

    Nominal vs. Real Growth Distinction

    • Concept: Nominal GDP measures total output using current prices (includes inflation). Real GDP adjusts for inflation, showing actual growth in production volume.
    • Analytical Insight: A rise in nominal GDP may overstate economic progress if inflation is high or the rupee depreciates. Thus, even with strong nominal growth, India’s dollar GDP may stagnate or fall in global rankings.
    • Example: In FY2023-24, India’s nominal GDP grew by 9.6% in rupee terms, but the rupee’s depreciation from ₹79 to ₹83 per USD meant real GDP in dollar terms grew only 5%. This illustrates how inflation and currency value distort perceptions of “growth.”

    PYQ Relevance

    [UPSC 2020] Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP?

    Linkage: The PYQ tests conceptual clarity on potential GDP, its determinants, and growth constraint. This is a recurring UPSC theme reflecting India’s long-term economic health and reform needs.

     

  • RBI’s Gold Reserve exceeds $100 billion

    Why in the News?

    The Reserve Bank of India (RBI) reported that India’s gold reserves surpassed $100 billion for the first time in history, reaching $102.365 billion in the week ending October 10, 2025.

    India’s Gold Reserves and Composition (2025):

    • Total Holdings: As of March 31, 2025, the Reserve Bank of India (RBI) held approximately 879.58 metric tonnes of gold.
    • Valuation Milestone: In October 2025, the value of India’s gold reserves crossed USD 100 billion, reaching about USD 102.36 billion, the highest in history.
    • Forex Share: Gold’s share in India’s total foreign exchange reserves rose to 14.7 %, the highest since 1996–97, driven by valuation gains and steady accumulation.
    • Yearly Rise: Early in 2025, gold comprised 12.5 % of reserves, indicating a sharp increase through the year amid global market volatility.
    • Repatriation Move: During FY 2024–25, the RBI repatriated 100.32 tonnes of gold from overseas vaults to India, expanding domestic holdings.

    Distribution of Gold Holdings (March 2025):

    • Domestic Holdings: About 200 metric tonnes held within India.
    • Overseas Holdings: Around 367 metric tonnes stored abroad.
    • Deposits with Foreign Institutions: Approximately 19 metric tonnes.
    • Trend Evolution: Gold share in reserves rose from 5.9 % (2021) to 11.7 % (2025) due to strategic diversification and valuation gains.

    What are Gold Reserves?

    • A gold reserve is the gold held by a country’s central bank, acting as a backup for financial promises and a store of value.
    • India, like other nations, stores some of its gold reserves in foreign vaults to spread out risk and facilitate international trading.
    • India’s Gold Reserves:
      • As of the end of March 2024, the RBI held 822.10 tonnes of gold, with 408.31 tonnes stored domestically.
      • The share of gold in the total forex of India is around 7-8% as of 2023.

    Where does the RBI store its gold?

    • India’s gold reserves are primarily stored in the Bank of England, which is known for its stringent security protocols.
    • The RBI also stores a portion of its gold reserves at the:
      1. Bank for International Settlements (BIS) in Basel, Switzerland, and the
      2. Federal Reserve Bank of New York in the United States.
    During India’s foreign exchange crisis in 1990-91, the country pledged some of its gold reserves to the Bank of England to secure a $405 million loan, according to reports.

    Even though the loan was paid back by November 1991, India decided to keep the gold in the UK for convenience.

    Why does the RBI store its gold in foreign banks?

    • Convenience: Storing gold overseas makes it easier for India to trade, engage in swaps and earn returns.
    • Averting Risks: There are risks involved, especially during times of geopolitical tensions and war.
      • The recent freezing of Russian assets by Western nations has raised worries about the safety of assets kept abroad and the RBI decision to shift a portion of the gold reserve to India could be prompted by these concerns.
    • Stable Prices: Unlike fiat currencies, which can be subject to inflation or devaluation due to various economic factors, the value of gold tends to be relatively stable over time, which makes it an attractive asset for central banks to hold as a reserve.

    Benefits Offered by Gold Reserves

    • Control domestic gold prices: With its big stash of gold, the RBI can help control local gold prices by using some of it in India. Last financial year, the RBI added about 27.47 tonnes of gold to the total reserve, bringing it to 794.63 tonnes.
    • Security buffer: The increased gold reserve works as a hedge against any financial crisis and to take measures to control inflation as well as currency devaluation.
    [UPSC 2015] The problem of international liquidity is related to the non-availability of:

    (a) Goods and services

    (b) Gold and silver

    (c) Dollars and other hard currencies *

    (d) Exportable surplus