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GS Paper: Indian Economy

  • Growing pains: On economic performance, Viksit Bharat

    Why in the News?

    India’s economic data for 2024–25 shows a mixed picture: the economy grew strongly by 7.4% in the last quarter, which was better than expected, but the overall yearly growth dropped to 6.5% — the lowest in four years since the pandemic.

    What led to the higher-than-expected GDP growth in Q4 2024-25?

    • Robust Growth in Construction and Agriculture Sectors: The construction sector returned to double-digit growth, and agriculture performed strongly, both of which are key employment generators. Eg: Infrastructure expansion and favourable harvests boosted rural incomes and demand.
    • Strong Performance of Services Sector: The services sector maintained steady and strong growth, contributing significantly to the GDP rise. Eg: IT, finance, and hospitality services saw sustained recovery post-pandemic.
    • Statistical Boost from Higher Net Taxes: A 12.7% increase in net tax collections inflated the GDP figure, even though underlying economic activity was slower. Eg: Higher indirect tax revenues during the quarter pushed headline growth from ~6.8% to 7.4%.

    Why is 6.5% annual GDP growth seen as inadequate despite being the highest globally?

    • Below the Required Rate for ‘Viksit Bharat 2047’ Vision: To achieve the developed nation goal by 2047, India needs sustained annual growth of around 8% or more. Eg: The Economic Survey states that consistent 8% growth is essential to meet infrastructure, employment, and welfare needs by 2047.
    • Mismatch with India’s Domestic Demands and Aspirations: India’s population growth and development needs demand faster economic expansion, regardless of how the rest of the world is performing. Eg: Even though India outpaces global peers, a 6.5% rate may not create enough jobs or uplift per capita incomes sufficiently.
    • Limited Acceleration Potential Under Stable Growth Phase: While 6.5% reflects stability, it also signals a plateau, with low inflation but no signs of rapid acceleration in the near future. Eg: Chief Economic Adviser V. Anantha Nageswaran indicated India may not see major growth spurts soon, making it harder to catch up with long-term development targets.

    How do net taxes affect the true picture of GDP growth?

    • Artificial Boost to Headline GDP: A significant rise in net taxes (taxes minus subsidies) can inflate GDP figures without a corresponding increase in real economic activity. Eg: In Q4 2024–25, GDP growth was 7.4%, but without the 12.7% surge in net taxes, real growth would have been around 6.8%.
    • Distorts Sector-Wise Contribution Assessment: High net tax contributions may overshadow sluggish performance in core sectors like manufacturing or consumption, giving a misleading impression of overall health. Eg: Despite weak private consumption, GDP looked robust due to the statistical impact of increased tax revenue.

    Is stable growth enough for India’s transition?

    • Stability Reduces Risk but Limits Acceleration: While stable growth ensures low inflation and reduced economic volatility, it may not generate the momentum needed to transform India into a developed economy. Eg: As per the Chief Economic Adviser, India has entered a phase of low inflation and stable growth, but such stability might cap faster economic acceleration.
    • Inadequate for Meeting Rising Aspirations: India’s growing population and developmental needs require higher employment, infrastructure, and productivity, which stable but slow growth may not adequately support. Eg: A 6.5% GDP growth may not create enough jobs or income levels to match the goals of schemes like ‘Viksit Bharat 2047’.
    • Missed Opportunity in a Global Slowdown: In a “growth-scarce” global environment, India has the chance to become a key economic engine. Relying on stable growth without pushing for higher gains may lead to missed strategic opportunities. Eg: Despite outperforming other major economies, India’s slow capital investment pace until late FY25 indicates underutilization of its potential.

    Way forward: 

    • Accelerate Structural Reforms and Investments: India must boost productivity by investing in infrastructure, manufacturing, skilling, and digitalisation, while simplifying regulations to attract both domestic and foreign investment. Eg: Fast-tracking initiatives like Gati Shakti and PLI schemes can unlock higher economic momentum.
    • Enhance Domestic Demand and Job Creation: Policies should focus on reviving rural consumption, supporting MSMEs, and expanding labour-intensive sectors to ensure inclusive growth. Eg: Increasing public expenditure on health, education, and affordable housing can stimulate demand and generate employment.

    Mains PYQ:

    [UPSC 2024] Examine the pattern and trend of public expenditure on social services in the post-reforms period in India. To what extent this has been in consonance with achieving the objective of inclusive growth?

    Linkage: Inclusive growth is a core objective for a “transitioning economy” like India aiming for goals such as ‘Viksit Bharat’, and challenges in achieving it represent “growing pains”.

  • Govt. releases Provisional GDP Estimates

    Why in the News?

    The Ministry of Statistics and Programme Implementation (MoSPI) released two important data sets on May 30, 2025 — one for India’s GDP growth in Q4 (January–March) FY25, and another for the provisional estimates for the entire FY25 (2024–25).

    How is Economic Growth measured?

    • Gross Domestic Product (GDP) measures economic growth by adding all expenditures in the economy — including private, government, and business spending. It shows demand-side performance.
    • Gross Value Added (GVA) measures the supply-side. It calculates how much value is added by each sector of the economy.
    • GDP and GVA are related:
      GDP = GVA + (Taxes) – (Subsidies)
    • MoSPI reports both in:
      • Nominal terms: Includes current prices.
      • Real terms: Adjusted for inflation to reflect true growth.

    Why are these Estimates called “Provisional”?

    • GDP estimates are revised in stages:
      • January: First Advance Estimates (FAE)
      • February: Second Advance Estimates (SAE)
      • May: Provisional Estimates (PE)
    • Final figures come later:
      • First Revised Estimate: After 1 year
      • Final Estimate: After 2 years
    • FY25’s final numbers will come in 2026 and 2027.

    Key Takeaways from FY25 Data

    • India’s Economy Size:
      • India’s economy is now worth ₹330.7 lakh crore or $3.87 trillion.
      • GDP grew by 9.8%, which is slower than in previous years.
    • Real GDP Growth:
      • After removing inflation, real GDP grew by 6.5%.
      • This is slower than the 9.2% growth seen last year (as mentioned in the Provisional Estimates). (Disputed: India’s real GDP growth rate was 8.2% in FY 2023-24 as per Economic Survey.)
    • Sector Performance:
      • Agriculture grew well at 4.6%.
      • Manufacturing grew only 4.5%, which is a concern.
      • Construction was strong with 9.4% growth.
      • Services grew by 7.2%.
    • Manufacturing Worry:
      • Manufacturing is growing slower than agriculture.
      • This is affecting urban jobs, especially for youth.
    • Best Growth in Jan–Mar 2025 (Q4):
      • GDP growth was 7.4% in Q4 — the highest for the year.
      • Construction grew fastest at 10.8%.
      • Agriculture and Services also did well.
    • Spending Trends:
      • People spent more — household spending rose 7.2%.
      • Investment in assets grew 7.1%, slower than last year.

     

    [UPSC 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?

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

     

  • [29th May 2025] The Hindu Op-ed: India’s financial sector reforms need a shake-up

    PYQ Relevance:

    [UPSC 2013] The product diversification of financial institutions and insurance companies, resulting in overlapping of products and services strengthens the case for the merger of the two regulatory agencies, namely SEBI and IRDA. Justify.

    Linkage: The structure and efficiency of financial sector regulation by discussing the potential merger of two key regulatory bodies (SEBI for capital markets and IRDA for insurance). In this article, talks about the reforming India’s Financial Sector” calls for a “coherent, forward-looking strategy that harmonises rules across verticals” and mentions the need for regulatory scrutiny and transparency.

     

    Mentor’s Comment:  India’s financial sector is at a critical turning point. Even after years of policy changes, major problems remain — especially in areas like corporate bond markets, retirement savings, nomination rules across banks and financial services, and the growing risks from unregulated shadow banking. These aren’t just small technical issues; they are deep flaws that hurt investor confidence, customer safety, and the country’s economic strength.

    Today’s editorial will talk about the issues related to the Financial sector in India. This content would help in GS Paper III ( Indian Economy).

    _

    Let’s learn!

    Why in the News?

    There must be consistent rules across all financial sectors, support for a strong corporate bond market, active development of retirement savings options, and better regulation to control shadow banking.

    What are the major structural issues plaguing India’s financial sector?

    • Fragmented Nomination Rules Across BFSI Sectors: Inconsistent nomination rules in banks, mutual funds, and insurance create confusion and legal disputes. Eg: A person can nominate multiple people for a mutual fund but only one for a bank account, with different legal interpretations of nominee rights—leading to litigation among family members.
    • Underdeveloped Corporate Bond Market: The bond market remains shallow, illiquid, and lacks transparency, increasing the cost of capital for businesses. Eg: The RBI once directed the NSE to build a secondary bond market, but the exchange prioritized more profitable equity trading instead.
    • Opaque Capital Flows and Weak UBO Disclosures: Lack of transparency in identifying Ultimate Beneficial Owners (UBOs) hinders regulatory oversight. Eg: SEBI struggled to get ownership details from Mauritius-based Elara and Vespera Funds, delaying investigations into their Indian stock market investments.
    • Unregulated Shadow Banking Activities: NBFCs and brokers offer bank-like services without full regulatory supervision, exposing the system to financial risks. Eg: Brokers provide margin funding to retail investors at interest rates over 20%, without clear disclosure—mirroring unregulated lending seen before the 2008 global financial crisis.

    Why is a harmonised nomination framework across BFSI (Banking, Financial Services, and Insurance) verticals necessary?

    • Reduces Legal Ambiguity: Different sectors (banks, mutual funds, insurance) treat nominees differently—causing confusion between nominee rights and legal heirs’ claims. Eg: A nominee in a mutual fund may only act as a trustee, while in a life insurance policy, the nominee may receive full benefits—leading to conflicting court battles.
    • Prevents Exploitation of Loopholes: Inconsistent rules create loopholes that can be exploited by unscrupulous actors to divert funds or delay inheritance. Eg: A person can deliberately name different nominees across instruments to cause confusion or suppress rightful heir claims.
    • Simplifies Compliance for Citizens: A uniform nomination system makes it easier for ordinary people to understand, update, and track their financial nominations. Eg: A senior citizen managing multiple accounts would benefit from a single, standard process rather than navigating different forms and rules for each institution.
    • Reduces Litigation and Administrative Burden: Courts and financial institutions face prolonged legal disputes due to conflicting nominee laws, which could be avoided with uniformity. Eg: Banks and mutual funds spend years contesting claims when legal heirs and nominees disagree—slowing down asset transfer.
    • Increases Trust and Transparency: Harmonisation builds trust in the financial system by making processes predictable and fair, thus encouraging formal savings. Eg: When savers know that nomination rules are clear and uniformly applied, they are more likely to invest in insurance or mutual funds without hesitation.

    How can a well-developed corporate bond market benefit India’s economy?

    • Lowers Cost of Capital for Businesses: A deep bond market enables companies to raise funds at competitive interest rates, reducing their dependence on bank loans. Eg: An efficient bond market could lower borrowing costs by 2–3%, improving viability for sectors like infrastructure and manufacturing.
    • Diversifies Sources of Funding: It provides an alternative to bank financing, thereby reducing systemic risks and enhancing financial stability. Eg: Large firms like NTPC or Reliance can raise capital directly from investors through bonds, easing pressure on public sector banks.
    • Encourages Long-Term Investment: Corporate bonds are ideal for funding long-gestation projects like highways, power plants, and green energy, attracting pension funds and insurance firms. Eg: The National Investment and Infrastructure Fund (NIIF) can tap bond markets to finance long-term infrastructure.
    • Boosts Financial Market Development: A vibrant bond market leads to greater depth, liquidity, and transparency in the financial system. Eg: Countries like South Korea and Malaysia have developed strong bond markets that support efficient capital allocation.
    • Enhances Retail Participation and Savings Mobilization: If made accessible and credible, bond markets can attract retail investors, expanding financial inclusion and mobilizing household savings. Eg: Government-backed platforms could offer secure corporate bonds to middle-class savers as an alternative to fixed deposits.

    Who is responsible for regulating and curbing the risks of shadow banking in India?

    • Reserve Bank of India (RBI): RBI regulates Non-Banking Financial Companies (NBFCs), ensuring they comply with capital adequacy, liquidity norms, and risk management frameworks. Eg: After the IL&FS crisis, RBI tightened norms on NBFCs’ asset-liability management and enhanced their supervision.
    • Securities and Exchange Board of India (SEBI): SEBI oversees brokers, margin lenders, and mutual funds that may engage in shadow banking-like activities, ensuring transparency in trading and lending practices. Eg: SEBI took steps to curb margin funding risks offered by brokers to retail investors under complex lending structures. 
    • Ministry of Finance: The Ministry designs regulatory frameworks and inter-agency coordination, enabling RBI and SEBI to monitor and respond to emerging risks in shadow banking. Eg: The government supported RBI’s proposal to bring large NBFCs under bank-like regulations and backed a risk-based supervision model.

    Way forward: 

    • Unified and Risk-Based Regulatory Framework: Adopt a harmonised, activity-based regulation where entities performing similar financial functions are subjected to similar oversight, regardless of their institutional form. Eg: Apply the same capital, disclosure, and consumer protection standards to both NBFCs and banks offering credit, ensuring no regulatory arbitrage.
    • Enhanced Supervisory Capacity and Real-Time Monitoring: Strengthen inter-agency coordination (RBI, SEBI, Ministry of Finance) and invest in AI-powered data analyticsto track complex transactions and hidden risks. Eg: Use advanced analytics to monitor NBFC balance sheets and digital lending platforms in real time, enabling early warning systems and prompt corrective action.

  • Why India is the 3rd-largest Economy, NOT 4th or 5th?

    Why in the News?

    Recently, the CEO of NITI Aayog announced that India has moved ahead of Japan to become the world’s fourth-largest economy.

    What is the key difference between nominal GDP and PPP-based GDP?

    • Nominal GDP: Measured using current market exchange rates in US dollars. Eg: If India’s GDP is ₹270 lakh crore and $1 = ₹75, then nominal GDP = ₹270 lakh crore ÷ 75 = $3.6 trillion.
    • PPP-Based GDP: Adjusted for differences in the cost of living and price levels between countries. Eg: If goods and services are cheaper in India, PPP adjusts the GDP upward to reflect greater actual consumption — India’s GDP could be $12 trillion in PPP terms, even though nominal GDP is lower.

    When did India become the third-largest economy by PPP estimates?

    In 2009, India overtook Japan in PPP-based GDP. This milestone occurred during the tenure of the Manmohan Singh-led UPA government. India has retained the 3rd position ever since, behind only China and the United States. The PPP-based ranking reflects India’s large population and lower cost of living, which boosts its effective domestic consumption.

    How do exchange rates affect nominal GDP rankings?

    • Conversion Dependency: Nominal GDP is calculated in US dollars, so a country’s GDP in local currency must be converted using the exchange rate. Eg: If India’s GDP is ₹300 lakh crore and $1 = ₹75, its dollar GDP would be $4 trillion; but if $1 = ₹85, the same GDP becomes $3.5 trillion.
    • Exchange Rate Fluctuations Can Distort Rankings: A country’s global GDP rank can change without any real economic growth or decline, simply due to currency appreciation or depreciation. Eg: If the Japanese yen strengthens against the dollar, Japan’s nominal GDP in dollars rises—even if its actual output hasn’t changed.
    • Unfair Comparison Across Countries: Countries with volatile or weakening currencies may appear smaller in nominal terms than they are in real domestic terms. Eg: India’s GDP may seem lower than the UK’s in nominal terms due to a weaker rupee, even if India produces more goods and services overall.

    Why is per capita GDP more reflective of individual prosperity?

    • Accounts for Population Size: Per capita GDP divides total GDP by the population, showing the average income per person, unlike aggregate GDP which may hide disparities. Eg: India’s GDP is higher than the UK’s in total, but because India has over 20 times the population, its per capita GDP is much lower.
    • Better Indicator of Living Standards: It reflects the average economic well-being and purchasing power of citizens, making it more relevant for assessing prosperity. Eg: A country with $50,000 per capita GDP (like the UK) offers far better public services, infrastructure, and living conditions than one with $2,800 (like India), even if total GDPs are comparable.
    • Highlights Income Distribution and Development Needs: Low per capita GDP suggests widespread poverty or unequal wealth distribution, even if overall GDP is growing. Eg: Despite being the world’s 5th largest economy, India’s low per capita GDP shows most individuals have limited incomes and access to economic benefits.

    What does India’s per capita GDP reveal compared to the UK’s?

    Aspect India UK Example 
    Per Capita GDP (2025) 10,020 PPP dollars 58,140 PPP dollars UK’s per capita income is ~6 times higher than India’s.
    Living Standards & Services Lower access to quality services Higher standard of living, social welfare Indians have limited access to healthcare, education, and housing
    Economic Inequality & Prosperity Aggregate GDP is growing, but benefits are not evenly distributed Prosperity is more widely shared Despite India’s growth, individual prosperity remains low on average.

    Way forward: 

    • Invest in Human Capital and Social Infrastructure: India must enhance spending on education, healthcare, and skill development to improve productivity and raise per capita incomes. Improved human capital directly boosts innovation, employability, and long-term economic growth.
    • Focus on Inclusive and Equitable Growth: Policies should ensure that economic gains are widely distributed, especially through rural development, MSME support, and targeted welfare schemes. This will reduce income disparities and lift more people into the formal, productive economy, improving per capita prosperity.

    Mains PYQ:

    [UPSC 2022]  Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.

    Linkage: India’s high aggregate economic rank alongside low per capita income, raises questions about how India’s economic growth model is translating into shared prosperity, a central theme of inclusive growth. This question explicitly asks about the possibility and mechanisms (like financial inclusion) of achieving “inclusive growth” within a market economy.

  • RBI’s Transfer of ‘Surplus’ to the Government

    Why in the News?

    The RBI may transfer a record ₹2.5–₹3 lakh crore surplus for 2024–25 after its recent review of its Economic Capital Framework (ECF).

    About Surplus Transfer by RBI:

    • Legal Basis: Under Section 47 of the RBI Act, 1934, the RBI must transfer its net surplus from its income to the central government.
    • Tax Exemption: As per Section 48, the RBI is exempt from income tax and direct taxes.
    • Timeline: RBI has recently changed its accounting year from June-July to April-May.
    • Recent Transfers: In 2023–24, RBI transferred a record ₹2.11 lakh crore; estimates for 2024–25 range between ₹2.5 and 3 lakh crore.
    • Reserve Allocation: Some surplus may be set aside for contingency or asset development funds.
    • Policy Debate: The government often seeks higher transfers, while the RBI stresses on maintaining financial stability and autonomy.
    • Past Disagreements: Tensions have occurred but are usually resolved through mutual agreement.

    How does the RBI generate its surplus?

    • Foreign Investments: RBI earns returns from investing in foreign government bonds, treasury bills, and deposits with other central banks.
    • Domestic Bonds: It receives interest on Indian government securities (G-secs) held in its portfolio.
    • Bank Lending: Income is earned by lending short-term funds to commercial banks via repo operations.
    • Commission Services: The RBI charges commissions for managing borrowings and public debt for the central and state governments.
    • Main Expenditure: Costs include printing currency, staff salaries and pensions, bank commissions, and dealer fees.
    • Net Surplus: The surplus is what remains after expenses, provisions, and reserves are accounted for.

    Back2Basics: Economic Capital Framework (ECF)

    • Purpose: The ECF guides how much capital RBI must retain and how much surplus can be transferred.
    • Y.H. Malegam Committee (2013): It reviewed the adequacy of reserves and surplus distribution policy in 2013, recommended a higher transfer to the government.
    • Introduction: Finalised in 2019, based on a committee led by Bimal Jalan.
    • Goal: Seeks to balance government funding needs with RBI’s financial resilience.
    • Reserve Components: Defines key buffers like the Contingency Risk Buffer (CRB), Revaluation Reserves, and Asset Development Fund.
    • Minimum CRB: Requires at least 5.5% of RBI’s balance sheet to be held as contingency reserve.
    • Transfer Stability: Allows for more consistent surplus transfers when RBI’s earnings are strong.

     

    [UPSC 2021] In India, the central bank’s function as the ‘lender of last resort’ usually refers to which of the following:

    1.Lending to trade and industry bodies when they fail to borrow from other sources.

    2.Providing liquidity to the banks having a temporary crisis.

    3.Lending to governments to finance budgetary deficits.

    Select the correct answer using the code given below:

    Options: (a) 1 and 2 (b)  2 only * (c) 2 and 3 (d) 3 only

     

  • Under control: On the latest inflation data 

    Why in the News?

    Retail inflation dropped to 3.16% in April, marking its lowest level in nearly six years. This shows that prices are rising more slowly, bringing relief to consumers and policymakers.

    What caused the recent fall in retail and wholesale inflation in April?

    • Sharp Drop in Vegetable Prices: Retail inflation was driven down by a nearly 11% drop in vegetable prices. Eg: Wholesale potato prices fell by 24.3% compared to April last year.
    • Falling Crude Oil and Fuel Prices: Crude oil and natural gas inflation hit a 22-month low of -15.55%. Eg: Petrol prices contracted by 7.7%, and diesel by 5.04% at the wholesale level.
    • Government Measures to Control Prices: Actions like open market foodgrain releases, buffer stock management, and eased imports helped stabilize supply. Eg: These steps helped prevent food shortages and kept overall food inflation at 2.55%, a 22-month low.

    Why is the contraction in vegetable prices considered partly due to the base effect?

    • High Inflation Last Year (Base Effect): In April last year, vegetable inflation was very high, in the range of 27%-30%. Eg: A sharp rise last year creates a high base, making even stable or slightly falling prices this year appear like a large drop.
    • Statistical Comparison Distortion: Inflation is measured year-on-year, so a high base can exaggerate the percentage fall in the current period.Eg: If tomato prices were ₹100 last year and are ₹90 now, it shows a 10% fall—but last year’s ₹100 was unusually high.
    • Not Solely Due to Supply Improvement: The large fall in prices this year is not only because of better supply or government action but also due to last year’s spike. Eg: Last year’s shortages due to unseasonal rains had led to higher prices, inflating the base.

    How have government actions helped in easing inflation?

    • Strengthening Buffer Stocks: The government has maintained adequate buffer stocks of food items like rice, wheat, and pulses to manage supply shocks. Eg: Releasing pulses from buffer stocks during price spikes helped stabilise market supply and reduce inflationary pressure.
    • Open Market Sales to Regulate Prices: Through open market operations, the government released surplus food items into the market to control prices. Eg: Open sale of onions and tomatoes by agencies like NAFED helped bring down retail prices during seasonal spikes.
    • Relaxation of Import Restrictions:  The government eased import norms and reduced import duties on key commodities during shortages. Eg: Reduction in import duties on edible oils and pulses led to higher supply and reduced food inflation.

    What policy actions are expected from the RBI and the government based on the latest inflation data? (Way forward)

    • Likely Cut in Interest Rates by RBI: With inflation easing, especially retail inflation falling for six consecutive months, the RBI’s Monetary Policy Committee (MPC) may cut policy rates to support growth. Eg: The RBI might reduce the repo rate in the upcoming June review to boost borrowing and investment.
    • Reduction in Fuel Prices by Oil Marketing Companies: With crude oil inflation hitting a 22-month low, the government is expected to direct public sector oil companies to cut petrol, diesel, and LPG prices. Eg: Despite a 42% fall in global crude prices over three years, retail fuel prices remained almost unchanged; a correction is now anticipated.

    Mains PYQ:

    [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: “India’s Easing Inflation and Policy Implications” discusses the latest inflation data, noting the easing of both retail and wholesale inflation, largely driven by a contraction in vegetable and pulse prices.

  • What are Digital Banking Units (DBU)?

    Why in the News?

    In October 2022, 75 Digital Banking Units were launched across remote districts to commemorate India’s 75th Independence Day, but their momentum has declined from past 2 years.

    About Digital Banking Units (DBUs):

    • DBUs are specialized, fixed-location banking hubs designed to deliver a wide range of digital financial services using modern infrastructure.
    • They operate in both self-service and assisted modes, offering customers 24/7 access to banking in a paperless, secure, and cost-effective environment.
    • The RBI permits commercial banks with digital banking experience to establish DBUs in Tier I to Tier VI cities, without prior approval unless restricted.
      • RRBs, payment banks, and local area banks are not eligible.
    • In October 2022, as part of India’s 75th independence anniversary, 75 DBUs were launched across 75 remote districts to promote financial inclusion and bring banking services closer to citizens in semi-urban and rural areas.

    Services and Features:

    • DBUs offer digital services such as account opening, internet and mobile banking kits, debit and credit card applications, and UPI QR-based merchant solutions.
    • Customers can apply online for retail loans, MSME loans, and government-sponsored schemes, with the entire process—from application to disbursal—handled digitally.
    • Each DBU operates independently from existing branches and must follow RBI guidelines, including housing in separate premises with automated-only cash services.
    • They are equipped with interactive teller machines, cash recyclers, document upload systems, and video KYC facilities.
    • A senior bank executive is appointed as Chief Operating Officer (COO) to manage each unit.

    Benefits Offered:

    • DBUs offer a convenient, paperless banking experience, reducing the need to visit traditional branches.
    • They support inclusive banking by expanding access to financial services in underserved regions.
    • Customers in remote areas benefit from both automated and assisted service options.
    • For banks, DBUs help optimize costs while improving service delivery and outreach.
    [UPSC 2024] Consider the following statements in respect of the digital rupee:

    1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy. 2. It appears as a liability on the RBI’s balance sheet. 3. It is insured against inflation by its very design. 4. It is freely convertible against commercial bank money and cash.

    Which of the statements given above are correct?

    Options: (a) 1 and 2 only (b) 1 and 3 only (c) 2 and 4 only (d) 1, 2 and 4*

     

  • Temporary respite: on GST, India’s manufacturing 

    Why in the News?

    Since the Goods and Services Tax (GST) system started in 2017, India’s GST collections every April have regularly reached new record highs.

    What was the GST collection in April and its year-on-year growth?

    • Record High Collection: In April 2025, India collected ₹2.37 lakh crore in gross GST, marking the highest ever monthly collection since the GST regime began in 2017. Example: This was up from ₹2.10 lakh crore in April 2024.
    • Strong Year-on-Year Growth: This represented a 12.6% growth over the previous year’s April figures, showing improved compliance and economic activity. Example: After refunds, the net collection for the Centre rose by 9.1% compared to April 2024.

    How has GST compliance and fintech adoption boosted tax collection?

    • Higher Tax Filing Discipline: Increased awareness and digital tracking have improved GST compliance among businesses. Eg: The consistent rise in GST collections every April since 2018 from ₹1.03 lakh crore to ₹2.37 lakh crore indicates better adherence to filing norms.
    • Faster Refunds Encourage Participation: Swift processing of refunds, especially for small businesses, has encouraged timely and accurate GST filing. Eg: Refunds to exporters rose by 86% in April 2025, indicating improved trust in the system.
    • Fintech Integration Supports MSMEs: With 87% fintech adoption in India, MSMEs have better access to formal banking and invoicing systems, helping them meet compliance requirements. Eg: Digital invoicing apps and GST-ready accounting tools have simplified filings for small traders and manufacturers.
    • Digital Audit Trails Enhance Enforcement: Fintech tools enable real-time tracking of transactions, reducing scope for tax evasion. Eg: E-invoicing and auto-generated returns allow tax authorities to detect discrepancies quickly.
    • COVID-19 Accelerated Formalization: The pandemic years pushed many informal businesses into the digital and formal economy, making tax compliance a necessity. Eg: Many first-time filers from the MSME sector were onboarded via digital platforms during 2020–21, increasing the taxpayer base.

    What led to the 86% rise in refunds to exporters?

    • Improved GST Processing Systems: The government has streamlined refund procedures with faster digital approvals and reduced delays. Eg: Automation of refund claims has enabled quicker credit settlements to exporters within defined timelines.
    • Higher Volume of Export Orders: A surge in international demand led to increased export activity, resulting in more refund claims under GST. Eg: Orders from regions like Africa, Asia, and the Americas rose significantly in April 2025, boosting GST refund outflow.
    • Greater GST Compliance by Exporters: Better record-keeping and digital documentation encouraged more businesses to file refund claims accurately and on time. Eg: Exporters using fintech platforms for e-invoicing were able to submit error-free refund claims swiftly.

    What is HSBC India PMI? 

    The HSBC India PMI refers to the Purchasing Managers’ Index compiled by HSBC in partnership with S&P Global to track the economic health of India’s manufacturing and services sectors.

    What is Purchasing Managers’ Index (PMI)? 

    • Purchasing Managers’ Index (PMI) is an economic indicator that measures the health and performance of a country’s manufacturing and services sectors. It is based on surveys of purchasing managers across various industries.
    • Index Scale:
      • Above 50: Indicates expansion in economic activity
      • Below 50: Indicates contraction
      • Exactly 50: No change

    Why did the HSBC India PMI show a 10-month high in April?

    • Surge in New Business Orders: Domestic and international demand for Indian-manufactured goods increased, boosting factory activity. Eg: Indian companies saw the largest increase in overseas orders in over 14 years.
    • Export Growth from Global Demand: Strong demand from key regions like Africa, Asia, Europe, West Asia, and the Americas fueled export-oriented production. Eg: Exporters rushed to fulfill orders before the U.S. tariff pause on Chinese goods ends in July.
    • Positive Business Sentiment: Companies expanded production and hiring in response to growing order books and market optimism. Eg: Firms ramped up manufacturing capacity to take advantage of global supply chain shifts toward India.

    How has the U.S. tariff pause on China affected India’s manufacturing sector?

    • Increased Export Orders to India: Global buyers are shifting orders from China to India to avoid potential U.S. tariffs. Eg: Indian manufacturers received a surge in foreign orders, especially from the U.S., ahead of the July 9 tariff deadline.
    • Realignment of Supply Chains: India is emerging as an alternative manufacturing base due to U.S.–China trade tensions. Eg: Apple announced plans to source ‘most of its iPhones’ for the U.S. market from India.
    • Short-Term Boost in Manufacturing Activity: Anticipated U.S. tariffs on Chinese goods have created temporary opportunities for Indian exporters. Eg: India’s manufacturing sector saw a sharp rise in April output, contributing to a 10-month high in the HSBC PMI.

    Way forward: 

    • ​​Strengthen Fintech-GST Integration: Deepen digital infrastructure and incentivize e-invoicing adoption among small businesses to sustain high compliance and broaden the tax base.
    • Enhance Export Ecosystem: Build long-term trade resilience through export incentives, logistics upgrades, and faster refund systems to capitalize on shifting global supply chains.

    Mains PYQ:

    [UPSC 2019] Explain the salient features of the constitution(One Hundred and First Amendment) Act, 2016. Do you think it is efficacious enough ‘to remove cascading effect of taxes and provide for common national market for goods and services’?

    Linkage:  The article shares the latest information on how much money the government collected through GST and how well people are following GST rules. The question is asking about which earlier taxes were included under GST and how GST has affected government income.

  • RBI Launches ‘.bank.in’ Domain to Combat Digital Payment Frauds

    Why in the News?

    To tackle the increasing number of digital payment frauds, the Reserve Bank of India (RBI) has introduced the exclusive ‘.bank.in’ domain for Indian banks.

    About the ‘.bank.in’ Domain

    • The ‘.bank.in’ domain was introduced in February 2025 to provide Indian banks with a unique online address, reducing the risk of fraudulent websites mimicking bank domains.
    • It will be operationalised by the Institute for Development and Research in Banking Technology (IDRBT), under National Internet Exchange of India (NIXI) oversight.
    • The ‘.in’ Code Top-Level Domain (ccTLD) is India’s national identifier on the internet.
    • This domain adds an extra layer of trust, distinguishing legitimate banks from fraudulent entities.
    • The IDRBT, operating under MeitY, has been authorised as the exclusive registrar for this domain.
    • All banks in India must transition to this by October 31, 2025, with both old and new domains likely in use during the transition period.
    [UPSC 2019] Consider the following statements: The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat, command the payment system providers that

    1. they shall ensure that entire data relating to payment systems operated by them are stored in a system only in India

    2. they shall ensure that the systems are owned and operated by public sector enterprises

    3. they shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar

    Which of the statements given above is/are correct?

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

     

  • New pathways for India’s creative economy 

    Why in the news?

    India has a rich history of creativity across fields like art, science, and medicine. To achieve its $5 trillion goal, it must refresh its innovation approach by encouraging creativity everywhere.

    What is the creative economy?

    The creative economy includes industries driven by creativity, culture, knowledge, and innovation, like art, design, media, software, and research, generating income, jobs, and exports through intellectual and cultural capital.

    What is the situation of the Global creative Economy? 

    • Global Creative Economy (2022): Creative services exports reached $1.4 trillion (29% rise since 2017), goods at $713 billion, together generating over $2 trillion annually and supporting 50 million jobs.
    • Key Sectors (UNCTAD 2024): Software services (41.3%), research and development (30.7%), and advertising, market research, and architecture (15.5%) are major contributors to the global creative economy.
    • India’s Contribution: In 2019, India’s creative exports totaled $121 billion, with services making up $100 billion. As of 2024, the sector is valued at $30 billion, employs 8% of the workforce, and saw a 20% growth in exports.

    What factors drive India’s growing creative economy and its $5 trillion ambition?

    • Diverse Creative Sectors: India has a rich tradition of creativity across various fields such as arts, design, science, medicine, and technology. This diverse pool of creativity serves as a foundation for innovation. Eg: The design sector, accounting for 87.5% of India’s creative goods exports, showcases India’s global leadership in design innovation.
    • Increasing Global Demand for Creative Goods and Services: The global market for creative services has surged, and India’s growing export of creative goods and services is capitalizing on this demand. Eg: In 2022, India’s creative exports grew by 20%, reaching over $11 billion, indicating the sector’s expanding international reach.
    • Technological Advancements: Investment in technology and software services is one of the primary contributors to India’s creative economy. As technology integrates into creative fields, it opens up new possibilities for innovation. Eg: Software services make up 41.3% of the global creative economy, positioning India as a leader in IT and creative technological services.
    • Grassroots Innovations: India’s grassroots innovations, often solving local challenges, are a significant driver of the creative economy. These innovations have the potential to scale up and contribute to economic growth. Eg: Innovations like the “mitti cool clay refrigerator” and pedal-operated washing machines showcase India’s strength in developing frugal, sustainable innovations that can be scaled.
    • Government Initiatives and Investments: The Indian government’s support for creative industries, such as through initiatives like “One District One Innovation,” helps nurture local creativity and turn it into large-scale economic impact. Eg: The government’s focus on intellectual property protection and encouraging local creative ideas through programs like GIAN (Grassroots Innovations Augmentation Network) enables broader commercialization of grassroots innovations.

    Why is bridging the gap between creativity and innovation essential in India?

    • Ideas to Scalable Products: Creativity generates ideas, but innovation turns them into products. Bridging the gap ensures ideas are transformed into commercially viable solutions. Eg: The “mitti cool clay refrigerator” needs innovation for mass production.
    • Maximizing Economic Impact: Bridging the gap helps scale innovations, creating jobs and boosting economic growth. Eg: The pedal-operated washing machine requires innovation to reach larger markets.
    • Enhancing Global Competitiveness: Converting creative ideas into innovative products boosts India’s global market presence. Eg: India’s design sector can thrive by innovating creative concepts into market-ready products.

    What are the steps taken by the Indian government? 

    • One District One Product (ODOP) & One District One Innovation (ODOI): Promotes unique local products and innovations from each district to boost local economies and generate employment. Eg: ODOP has helped districts like Bhadohi in Uttar Pradesh gain recognition for carpet weaving, integrating traditional creativity with global markets.
    • Startup India and Atal Innovation Mission (AIM): These initiatives foster innovation by supporting startups with funding, mentorship, and infrastructure. Eg: AIM’s Atal Tinkering Labs in schools promote problem-solving and innovation from a young age, nurturing future innovators.
    • Support for Intellectual Property Rights (IPR): Government has simplified patent filing, reduced fees for startups, and launched awareness programs to protect grassroots innovations. Eg: The National IPR Policy 2016 encourages creators, especially in rural India, to safeguard and monetise their innovations.

     

    How can grassroots innovations be scaled up for commercial success? (Way forward)

    • Improved Manufacturing Processes: To scale grassroots innovations, cost-effective and efficient manufacturing processes must be developed to meet larger market demands. Eg: The “mitti cool clay refrigerator” needs affordable mass production techniques to reduce costs and increase accessibility.
    • Protection of Intellectual Property: Innovators need intellectual property (IP) protection to prevent replication and ensure fair returns from their ideas. Eg: IP protection for local innovations like the “amphibious bicycle” ensures exclusive market rights and encourages investment.
    • Market Research and Consumer Feedback: Conducting market research and incorporating consumer feedback helps tailor grassroots innovations to meet the needs of a broader audience. Eg: The “mitti cool” refrigerator could be adapted to different regional needs based on customer feedback.
    • Government Support and Policy Frameworks: Government policies and initiatives can help create an ecosystem for scaling grassroots innovations by providing infrastructure, legal support, and incentives for innovation. Eg: Programs like “One District One Innovation” could support scaling local innovations like sustainable farming tools across regions.

    Mains PYQ: 

    [UPSC 2018] What is the significance of Industrial Corridors in India? Identify industrial corridors, explain their main characteristics.

    Linkage: The concept of industrial corridors emphasizes infrastructure development and sector-specific growth. Similarly, developing robust ecosystems and infrastructure for creative industries is a crucial pathway for the growth of India’s creative economy, aligning with the need for support and formalization discussed in the article.