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GS Paper: Indian Economy

  • When governments disagree with the central bank: the Fed in the US and the RBI in India

    Why in the News?

    US President Donald Trump once threatened to remove Jerome Powell, whom he had appointed as the head of the Federal Reserve in 2018. Such disagreements between leaders and central banks have happened before in both the US and India, but they usually don’t turn into major problems.

    What triggered Trump’s criticism of Fed Chair Jerome Powell?

    • Disagreement Over Interest Rate Policy: Trump criticized Powell for raising interest rates, especially during times of economic uncertainty like the COVID-19 pandemic. He believed higher rates would hurt economic growth and his re-election prospects. Eg: In December 2018, Trump reportedly said Powell would “turn [him] into Hoover,” referencing Herbert Hoover, who led during the Great Depression.
    • Fed’s Caution on Trump’s Tariffs: Powell warned that Trump’s trade tariffs could increase inflation and impact the labour market, which contradicted the President’s economic stance. Trump saw this as “playing politics.” Eg: On April 17, 2025, Trump posted online that Powell’s “termination cannot come fast enough!” and mocked him as “Too Late Jerome Powell.”

    Who in U.S. history challenged the Fed’s independence, and why?

    • Milton Friedman’s Influence (1970s–80s): The Nobel laureate economist argued that the Fed should be less discretionary and more rules-based, believing it often worsened economic cycles. Eg: Arthur Burns told Volcker that Friedman “wants to abolish the Fed (and) replace you with a computer.”
    • Ronald Reagan’s Administration (1980s): Reagan’s advisers questioned the Fed’s independence, urging more accountability and clearer monetary targets due to high inflation and unemployment. Eg: In 1981, Reagan asked Fed Chair Volcker why the U.S. needed the Federal Reserve, reflecting pressure to align with government priorities.
    • Donald Trump (2018–2025): Trump repeatedly attacked Fed Chair Jerome Powell for raising interest rates and criticized the Fed’s caution over his tariff policies, claiming they hindered economic growth. Eg: In December 2018, Trump expressed a desire to fire Powell, blaming him for risking a downturn like the Great Depression.

    When was Section 7(1) of the RBI Act invoked, and why was it significant?

    • Invoked in 2018 during Centre-RBI tensions: The Union Government reportedly invoked Section 7(1) for the first time in independent India amid differences with the RBI over issues like liquidity, lending to MSMEs, and the use of RBI reserves. Eg: The Finance Ministry sent at least three letters to RBI citing Section 7(1), asking the central bank to consult with the government.
    • Significance – Questioned RBI’s autonomy: This move raised concerns about the erosion of the central bank’s independence, as the section allows the government to issue binding directions to the RBI in public interest. Eg: Critics saw it as a way to force the RBI to align with the government’s fiscal agenda, undermining its role as an independent regulator.
    • Led to public fallout and resignation: The conflict led to the resignation of RBI Governor Urjit Patel, who stepped down citing personal reasons amid speculation of pressure from the government. Eg: Patel’s abrupt resignation in December 2018 came soon after Deputy Governor Viral Acharya warned of the dangers of compromising central bank independence.

    How have Indian governments handled RBI conflicts in the past?

    • Through backchannel negotiations and compromise: Successive governments have often resolved tensions with RBI through informal dialogue rather than confrontation. Eg: During the 1991 economic crisis, Finance Minister Manmohan Singh worked closely with RBI Governor S. Venkitaramanan to navigate reforms despite some policy disagreements.
    • Avoiding use of Section 7(1) until 2018: Even in times of serious disagreement, governments historically refrained from invoking Section 7(1) of the RBI Act to respect the central bank’s autonomy. Eg: In 2008–09, during the global financial crisis, the government and RBI had different views on stimulus, but maintained cooperation.
    • Occasional public spats but resolution behind closed doors: Disagreements sometimes came into the public domain but were eventually settled through internal discussions. Eg: In 2013, Raghuram Rajan’s monetary tightening clashed with the Finance Ministry’s push for growth, but no formal confrontation occurred.
    • Appointments as a tool to align RBI’s stance: Governments have sometimes appointed RBI governors who are seen as more aligned with their economic philosophy. Eg: The appointment of Y.V. Reddy and later Raghuram Rajan was seen in part as reflecting the government’s evolving monetary and financial strategy.
    • Post-conflict policy adaptations: After major conflicts, governments have occasionally adjusted policies or created frameworks to reduce future friction. Eg: Following the 2018 rift, the government and RBI set up a framework for the transfer of surplus reserves to avoid ad-hoc confrontations in future.

    Way forward: 

    • Institutionalise a Conflict Resolution Mechanism: Establish a formal consultative framework between the Finance Ministry and RBI to address policy differences before they escalate. This could include regular high-level meetings and joint committees to ensure transparency and trust. Eg: A permanent Finance-RBI Coordination Council with defined terms could pre-empt confrontations like the 2018 episode.
    • Clarify Autonomy Boundaries Through Legislation or Protocols: Amend or supplement existing laws like the RBI Act to define the scope of government intervention (like Section 7) and ensure it is used only under extraordinary circumstances. Eg: Introduce a statutory guideline requiring parliamentary review or expert panel consultation before invoking Section 7.

    Mains PYQ:

    [UPSC 2023] Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism?

    Linkage: Constitutional amendments affecting fiscal matters can have implications for the central bank’s role and its relationship with the government.

  • India’s retail inflation slips to over 5-year low, opens door to more rate cuts

    Why in the News?

    The decline in food prices is seen as a major reason for the drop in inflation. After two rate cuts by the RBI, inflation is expected to stay below 4% in the coming months, which might lead to another rate cut of 50 basis points.

    What was India’s retail inflation rate in March?

    • March 2025 Retail Inflation Rate: India’s retail inflation eased to 3.34% in March 2025, marking the lowest rate since August 2019.
    • Comparison to Previous Month: This rate represents a decrease from February’s 3.61%, indicating a continued downward trend in inflation.
    • Primary Contributors to the Decline: The significant drop in food prices, particularly vegetables, eggs, and pulses, contributed to the decline. Eg, vegetable prices fell by 7.04% year-on-year in March.

    Why have food prices been a major factor in the decline of retail inflation?

    • Sharp Decline in Vegetable Prices: Vegetable prices saw a significant drop of 7.04% year-on-year in March 2025, compared to a small increase of 1.07% in February. This sharp fall in vegetable prices helped lower overall food inflation.
    • Lower Pulses Prices: Pulses prices fell by 2.73% in March, after a smaller 0.35% decrease in February, contributing to reduced food inflation.
    • Moderation in Overall Food Inflation: Food inflation in March 2025 decreased to 2.69% from 3.75% in February. This marked the lowest food inflation since November 2021, indicating a significant reduction in food price pressures.
    • Improved Farm Output: The moderation in food prices is partly due to better farm output, which led to a more stable supply of food items, especially vegetables and pulses, easing inflationary pressures.
    • Government and Central Bank Support: The government’s expectations for above-average monsoon rains in 2025 are likely to boost farm output further, maintaining lower food prices, which will continue to moderate overall inflation.

    How did the Reserve Bank of India respond to the easing inflation trend?

    • Second Consecutive Rate Cut: On April 9, 2025, the RBI reduced the key policy repo rate by 25 basis points to 6.00%, marking its second consecutive rate cut aimed at stimulating economic growth amid moderating inflation.
    • ​Shift to Accommodative Stance: The RBI changed its monetary policy stance from “neutral” to “accommodative,” signaling a more supportive approach to economic growth while maintaining vigilance over inflation.
    • ​Revised Inflation Forecast: The central bank projected the Consumer Price Index (CPI) inflation to average 4% for the fiscal year 2025–26, down from the previous forecast of 4.2%, reflecting improved inflation dynamics.
    • ​Lowered GDP Growth Estimate: The RBI revised its GDP growth forecast for the fiscal year to 6.5%, down from 6.7%, acknowledging the challenges posed by global uncertainties and trade tensions.

    What risks did the RBI highlight that could impact the inflation outlook?

    • Global Market Uncertainties: The RBI noted that ongoing global uncertainties, such as trade tensions (like the U.S.-China trade war), could disrupt supply chains and impact inflationary pressures in India. Eg, any further escalation in global trade disputes could lead to higher import costs.
    • Adverse Weather Conditions: The RBI pointed out that unpredictable weather events, such as unseasonal rains or droughts, could lead to food supply disruptions and push up food prices, affecting overall inflation. Eg, a poor monsoon could lead to shortages in key agricultural products.
    • Rising Global Commodity Prices: The central bank warned that fluctuations in global commodity prices, including oil and metals, could lead to higher domestic prices, contributing to inflation. Eg, a rise in global crude oil prices could increase transportation and fuel costs in India.
    • Supply Chain Disruptions: The RBI highlighted the risk of supply-side bottlenecks, especially due to external factors like geopolitical conflicts or supply chain disruptions caused by the COVID-19 pandemic. These could raise prices for imported goods and affect domestic inflation. Eg, disruptions in global electronics supply chains could lead to higher prices for tech products.
    • Core Inflation Pressures: The RBI also noted that core inflation, which excludes volatile items like food and fuel, remained persistently high at 4.1%, signaling that inflationary pressures could be more entrenched in the economy, which poses a risk to the inflation outlook. Eg, rising demand for services could contribute to sustained core inflation.

    Way forward: 

    • Strengthen Supply Chain Resilience: The government and RBI should work together to improve supply chain infrastructure and reduce vulnerabilities to global disruptions. This includes addressing logistical bottlenecks, improving domestic production capabilities, and diversifying import sources to mitigate the impact of geopolitical tensions and climate events.
    • Focus on Sustainable Agricultural Practices: To ensure stable food prices, long-term investments in sustainable farming techniques, irrigation systems, and better farm management practices are crucial. This will not only help stabilize food prices but also contribute to higher farm output and lower volatility in food inflation.

    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: Food inflation and the RBI’s role in controlling it, which is a key aspect of the scenario described in the article.

  • RBI celebrates 90 years

    Why in the News?

    The first monetary policy of RBI Governor Sanjay Malhotra in 2025 marks 90 years since the Reserve Bank of India (RBI) announced its inaugural monetary policy in 1935.

    RBI’s First Monetary Policy in 1935

    • On July 3, 1935, RBI set the bank rate at 3.5%, reflecting the Imperial Bank’s rate.
    • The CRR was set at 5% of demand liabilities and 2% of time liabilities on July 5, 1935.

    Evolution of RBI’s Monetary Policy

    • Bank Rate in Early RBI History:
      • The bank rate was a key tool introduced by the RBI in 1935 to control credit and liquidity. On July 3, 1935, the RBI set the bank rate at 3.5%, mirroring the rate of its predecessor, the Imperial Bank of India.
      • The RBI Act (1934) mandated its use for buying or re-discounting commercial paper, and it played a crucial role in India’s interest rate structure.
    • Role of Cash Reserve Ratio (CRR):
      • The CRR, introduced by the RBI, required banks to maintain a percentage of their deposits as reserves.
      • Influenced by the Federal Reserve Act of the USA, the CRR helped stabilize the banking system, especially during failures.
      • The CRR was set at 5% for demand liabilities and 2% for time liabilities in 1935, with adjustments made over time.
    • Exchange Rate Management
      • In 1935, the RBI managed the exchange rate of the 1 Indian rupee at 1 shilling and 6 pence.
      • This caused friction between nationalists, who favoured a lower exchange rate to boost exports, and the British, who preferred a higher rate to facilitate cheaper imports.
    • Disputes Between Government and RBI
      • The RBI’s decision to reduce the bank rate in 1935 was opposed by the government, fearing rupee depreciation.
      • This led to a conflict, resulting in the resignation of Osborne Smith, the first RBI Governor.
      • The incident highlighted tensions between the RBI’s monetary autonomy and government priorities.

    About Reserve Bank of India (RBI)

    • The RBI is the central bank and monetary authority of India established on April 1, 1935, under the Reserve Bank of India Act, 1934.
    • Its idea was incepted from the recommendations of the Hilton Young Commission.
    • Sir Osborne Arkell Smith, an Australian, served as the inaugural Governor.
    • He was succeeded by Sir C D Deshmukh, the first Indian to hold the position.
    • It is a centralized institution for India to effectively regulate its monetary and credit policies.
    • RBI had its initial headquarters in Kolkata, later moving permanently to Mumbai in 1937.
    • Initially, the RBI operated as a privately owned entity until its full nationalization in 1949.

    Functions and Initiatives:

    • Monetary Authority: The RBI controls the supply of money in the economy to stabilize exchange rates, maintain a healthy balance of payment, and control inflation.
    • Issuer of Currency: Sole authority to issue currency and combat circulation of counterfeit notes.
    • Banker to the Government: Acts as a banker to both the Central and State governments, providing short-term credit and financial advisory services.
    • Lender of Last Resort: Provides emergency liquidity assistance to banks during crises.
    • Custodian of Foreign Exchange Reserves: Manages foreign exchange reserves and administers the Foreign Exchange Management Act, 1999 (FEMA).
    • Regulator and Supervisor of Payment and Settlement Systems: Oversees payment and settlement systems in the country, ensuring efficiency and security.
    • Credit Control and Developmental Role: Promotes credit availability to productive sectors and fosters financial infrastructure development.

    Dr. Ambedkar’s Role in the Establishment of RBI:

    • Dr. B.R. Ambedkar’s contributions were particularly notable during the Hilton Young Commission discussions in 1926, where he presented his recommendations based on his book “The Problem of the Rupee – Its Origin and Its Solution.”
    • These discussions laid the foundation for establishing the RBI on April 1, 1935.

     

    [UPSC 2004] Consider the following statements:

    1. Reserve Bank of India was nationalized on 26 January 1950.

    2. The borrowing programme of the Government of India is handled by the Department of Expenditure, Ministry of Finance.

    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

     

  • [pib] NITI NCAER States Economic Forum

    Why in the News?

    The Finance Minister is set to launch the “NITI NCAER States Economic Forum” portal.

    About the NITI NCAER States Economic Forum Portal

    • The “NITI NCAER States Economic Forum” portal is a comprehensive digital platform developed by NITI Aayog in collaboration with the National Council of Applied Economic Research (NCAER).
    • It serves as a centralized repository of data, research reports, and expert commentary on state-level finances and social, economic, and fiscal parameters spanning from 1990-91 to 2022-23.
    • The portal aims to facilitate evidence-based policymaking by providing users with easy access to key trends and insights on state performance.

    Features of NITI NCAER: 

      1. State Reports: Summarizes the macro and fiscal landscape of 28 Indian states. Structured around indicators on demography, economic structure, socio-economic, and fiscal parameters.
      2. Data Repository: Access to a comprehensive database categorized into 5 verticals: Demography; Economic Structure; Fiscal Data; Health; Education.
      3. State Fiscal and Economic Dashboard: Provides graphical representations of key economic variables over time; Includes summary tables and raw data for easy reference.
      4. Research and Commentary: Offers in-depth research reports and expert commentary on state finances, fiscal policy, and financial management; Supports long-term academic and policy research.

    Significance:

    • Benchmarking Capabilities: it enables comparison of state performance with national averages, fostering a competitive and cooperative approach to development.
    • Data Accessibility: it bridges data accessibility gaps, ensuring that policymakers, researchers, and academics can make informed decisions based on reliable and comprehensive data.
    • Promotes Transparency: By offering open access to detailed data, the portal enhances fiscal transparency and encourages cooperative federalism.
    [UPSC 2018] Consider the following statements:

    1.The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.

    2.The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.

    3.As per the Constitution of India, it is mandatory for a State to take the Central Government’s consent for raising any loan if the former owes any outstanding liabilities to the latter.

    Which of the statements given above is/are correct?

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

     

  • India BioEconomy Report

    Why in the News?

    The India BioEconomy Report has pegged the value of India’s bioeconomy in 2024 at more than $165 billion, accounting for over 4.2% of the country’s GDP.

    What is Bioeconomy?

    • Bioeconomy refers to the industrial use of biological resources (plants, animals, and microorganisms) and the replication of natural biological processes to produce goods and services.
    • It incorporates sustainable methods to replace traditional, resource-intensive production systems.
    • Applications:
      • Biofuels, bioplastics, medicines, synthetic biology, and agriculture are key sectors where bioeconomy is being applied.
        • Ex. Ethanol produced via microorganisms from crops like sugarcane and corn is a prime example of bioeconomy’s impact on reducing reliance on hydrocarbon-based fuels.

    Key Highlights of the India Bioeconomy Report:

    • Growth in Market Value:
      • India’s bioeconomy has nearly doubled in value from $86 billion in 2020 to $165 billion in 2024.
      • There has been a 90% increase in the number of companies in the bioeconomy sector, from 5,365 in 2021 to 10,075 in 2024, with projections to double again by 2030.
    • Key Sectors:
      • Industrial Sector: Contributes nearly $78 billion, driven by biofuels and bioplastics.
      • Pharmaceuticals: Accounts for 35% of the total bioeconomy value, primarily driven by vaccines.
      • Research and IT: The fastest-growing segment, especially in biotech software development and clinical trials.
    • Regional Contribution:
      • Maharashtra, Karnataka, Telangana, Gujarat, and Andhra Pradesh account for over two-thirds of the bioeconomy value.
      • The Eastern and Northeastern regions contribute less than 6%.
    • Global Comparison:
      • India’s bioeconomy share in GDP (4.2%) is comparable to countries like the US and China.
      • However, countries like Spain and Italy have bioeconomy contributing more than 20% of their GDP.
    • Policy Direction:
      • The BioE3 policy (Biotechnology for Economy, Environment, and Employment), launched in 2024, aims to establish India as a global hub for bio-manufacturing and a major center for biotech R&D.
      • The policy targets growth in areas such as bio-based chemicals, functional foods, precision biotherapeutics, marine and space biotechnology, and climate-resilient agriculture.

    India BioEconomy Report

    [UPSC 2024] Consider the following materials:

    1. Agricultural residues

    2. Corn grain

    3. Wastewater treatment sludge

    4. Wood mill waste

    Which of the above can be used as feedstock for producing Sustainable Aviation Fuel?

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

     

  • Growth in most Southern States is concentrated in a few districts

    Why in the News?

    Economic growth in southern states lagged behind India’s overall growth in 2023-24. Despite a large working population, unemployment rates in these states remain a major concern, as seen in their Budget and Economic Surveys.

    Growth in most southern States is concentrated in a few districts

    What are the key reasons behind the economic growth of southern states lagging behind India’s overall growth in 2023-24?

    • Lower Growth Rates Compared to National Average – While India’s economy grew at 9.2%, southern states like Tamil Nadu (8.2%) and Telangana (7.4%) recorded slower growth, with Karnataka, Kerala, and Andhra Pradesh growing at over 6%.
    • Regional Income Disparities – Economic advantages are concentrated in select districts, limiting broad-based growth. For example, only 8 of 38 districts in Tamil Nadu and 3 of 33 in Telangana had higher per capita income than their state averages.
    • Unemployment and Labour Force Challenges – Despite a significant working population, labour force participation rates (LFPR) in Tamil Nadu (58.8%), Karnataka (56.8%), and Kerala (56.2%) were below the national average of 60.1%, affecting economic output.
    • Shift Towards Self-Employment – There is a decline in casual labour and an increase in self-employment, often in household enterprises, leading to a lack of stable wage employment. Example: In Telangana, self-employment rose by 8% to 55.9%, while casual labour fell by 5.7% to 18.7%.
    • Slower Industrial and Manufacturing Growth – Despite industrial pushes, manufacturing contributes less than 20% of southern states’ economies, limiting their overall economic expansion.

    Which southern state has the most equitable distribution of per capita income across its districts? 

    • More Even Income Spread: Kerala has 7 out of 14 districts with a per capita income above the state average, making it the most balanced among southern states. In contrast, Tamil Nadu (8 out of 38), Telangana (3 out of 33), and Karnataka (4 out of 31) show higher income concentration in a few districts.
    • Unlike Telangana, where Rangareddy district’s per capita income is more than three times the state average, Kerala’s income distribution is less skewed, ensuring better regional development and social welfare across the state.

    Why is this significant?

    • Reduced Regional Disparities: A more balanced income distribution ensures that economic benefits are spread across districts, preventing excessive wealth concentration in urban centers. Example: Unlike Telangana, where Rangareddy dominates income levels, Kerala’s development is more uniform, reducing economic inequalities.
    • Better Social and Human Development Indicators:  Equitable income distribution translates into better education, healthcare, and infrastructure across all districts, improving overall quality of life. Example: Kerala consistently ranks high in Human Development Index (HDI) due to its statewide access to education and healthcare.
    • Sustainable and Inclusive Growth: A well-distributed economy supports long-term stability by ensuring that no district lags significantly behind, leading to lower migration pressures and balanced urbanization. Example: Unlike Tamil Nadu, where Chengalpattu’s income is double the state average, Kerala’s economy avoids overburdening specific urban hubs, leading to sustainable development.

    Why is unemployment still a pressing concern in southern states?

    • Higher Labour Force Participation but Fewer Job Opportunities – While more people are seeking work, the availability of stable, well-paying jobs remains limited. Example: In 2023-24, Tamil Nadu (58.8%), Karnataka (56.8%), and Kerala (56.2%) had labour force participation rates lower than the national average (60.1%), indicating fewer employment opportunities relative to job seekers.
    • Shift from Casual Labour to Self-Employment Without Formal Jobs Growth – More people are moving away from casual labour towards self-employment, but the growth of regular salaried jobs remains stagnant. Example: In Telangana, the self-employed workforce increased by 8% (to 55.9%), while casual labour declined by 5.7%, reflecting a lack of structured employment.
    • Dominance of the Services Sector with Limited Manufacturing Growth – The services sector contributes over 50% of economic output, but it often lacks the capacity to absorb large numbers of workers, especially in lower-income groups. Example: In Tamil Nadu, despite an industrial push, manufacturing has not significantly increased its share in the state economy, limiting job creation in this sector.

    What role does the services sector play in the economies of southern states?

    • Primary Driver of Economic Growth – The services sector contributes over 50% of economic output in most southern states, making it the main engine of economic expansion. Example: In Karnataka and Telangana, the IT and software services industry significantly boosts state GDP, with Bengaluru and Hyderabad being major global tech hubs.
    • Uneven Job Creation Across Skill Levels – While the services sector creates high-value jobs in IT, finance, and healthcare, it does not generate enough employment for lower-skilled workers, contributing to persisting unemployment. Example: Kerala, despite its strong service-driven economy (tourism, healthcare, remittances), struggles with high unemployment rates due to a lack of blue-collar service jobs.

    Way forward: 

    • Diversify Economic Growth Beyond Services – Strengthen manufacturing and industrial sectors to create stable, large-scale employment opportunities, especially for lower-skilled workers. Example: Expanding MSMEs and industrial corridors in Tamil Nadu and Karnataka can boost job creation.
    • Enhance Skill Development and Labour Market Reforms – Improve vocational training and upskilling programs to align with industry demands, ensuring better job-market absorption. Example: Kerala can integrate its educated workforce into high-value sectors like healthcare and renewable energy.

    Mains PYQ:

    Question: What is regional disparity? How does it differ from diversity? How serious is the issue of regional disparity in India? (UPSC 2024)

    Reason: This question’s demand is directly linked with the regional inequality, which explains why economic growth is concentrated in certain parts of a state. Understanding this helps us see why some districts develop faster than others.

  • NPCI Launches BHIM 3.0 with Enhanced Features

    Why in the News?

    NPCI BHIM Services Ltd. (NBSL), a subsidiary of the National Payments Corporation of India (NPCI), launched BHIM 3.0 with new features aimed at enhancing the user experience and providing new offerings for businesses and banks.

    About BHIM (Bharat Interface for Money):

    • BHIM is a mobile payment app developed by NPCI, based on the Unified Payments Interface (UPI), aimed at promoting cashless transactions and digital payments directly through banks.
    • Launched on December 30, 2016, BHIM facilitates instant money transfers between over 170 member banks using IMPS infrastructure.
    • Unlike mobile wallets, BHIM transfers money directly between bank accounts, ensuring quick transactions at any time, including holidays.
    • BHIM now supports Aadhaar-based authentication for easier digital payments.
    • BHIM is available in more than 20 Indian languages and is designed to work effectively in areas with low or unstable internet connectivity.
    • BHIM employs a robust three-factor authentication (3FA) process to ensure the security of transactions:
      1. Device ID and Mobile Number: The app binds with the user’s device ID and mobile number to verify the device.
      2. Bank Account Link: Users must sync their bank account (UPI-enabled or non-UPI-enabled) to the app for transactions.
      3. UPI PIN: A unique UPI PIN is required for completing transactions, which adds an extra layer of security.
    • NPCI does not charge any fee for transactions between ₹1 and ₹100,000.
      • Banks may charge fees for UPI or IMPS transfers, but there is no official information on BHIM-specific charges.

    Key Features of BHIM 3.0

    • Split Expenses: Users can now divide bills for shared expenses (e.g., rent, dining, group purchases) and settle payments instantly.
    • Family Mode: Users can onboard family members, track shared expenses, and assign specific payments for better financial management.
    • Spends Analytics: A new dashboard provides a detailed breakdown of monthly expenses, automatically categorizing them for easier budgeting.
    • Action Needed Alerts: BHIM 3.0 includes reminders for pending bills, activation of UPI Lite, and low Lite balance alerts to help users stay updated.
    • BHIM Vega: This feature allows merchants to accept in-app payments directly within the BHIM app, streamlining transactions without needing third-party apps.
    [UPSC 2018] With reference to digital payments, consider the following statements:

    1.BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.

    2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.

    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

     

  • Sarthi and Pravaah Systems of RBI

    Why in the News?  

    The Reserve Bank of India (RBI) was recently awarded the prestigious Digital Transformation Award 2025 by Central Banking, a recognition of its groundbreaking digital initiatives, Sarthi and Pravaah.

    About Sarthi System

    • The Sarthi system was launched in January 2023 by the RBI with the goal of digitizing all internal workflows within the organization.
    • This initiative aimed to reduce the reliance on paper-based processes and enhance operational efficiency across the RBI.
    • Key features include:
      • It can securely store and share documents among the 13,500 employees spread across 40+ locations.
      • It also improves record management and provides enhanced data analysis capabilities through reports and dashboards.
      • Additionally, Sarthi automates internal processes such as task tracking, approvals, and document management, streamlining operations and improving collaboration between departments.
      • To ensure that employees are proficient in using the system, an online training platform, called Sarthi Pathshala, was launched alongside in-person training.
      • Sarthi Mitras, who are designated experts within RBI offices, assist colleagues in navigating and resolving issues related to the system.

    About Pravaah System

    • Building on the success of Sarthi, the RBI introduced the Pravaah system in May 2024.
    • Its primary purpose is to facilitate external users in submitting regulatory applications digitally to the RBI.
    • This platform has greatly enhanced the efficiency and transparency of the application submission process.
    • Key features include:
      • It integrates seamlessly with the Sarthi database, enabling smooth processing of regulatory documents.
      • It supports more than 70 different regulatory applications, significantly improving the speed and accuracy of submissions.
      • It is equipped with centralized cybersecurity measures and digital tracking capabilities, which provide real-time monitoring of applications for both applicants and RBI managers.
      • It has contributed to an 80% increase in monthly applications, marking a significant achievement in reducing delays associated with traditional, paper-based systems and streamlining the overall process.

    PYQ:

    [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. Which of the statements given above is/are correct?

    (a) Only one (b) Only two (c) All three (d) None

     

  • India’s goods Trade Deficit at a 42-month low 

    Why in the News?

    India’s goods trade deficit has dropped to a 42-month low of $14.05 billion in February 2025, driven by reduced imports of gold, silver, and crude oil, according to the latest data from the Ministry of Commerce and Industry.

    Key Insights from February 2025 Trade Data

    • Exports: Goods exports amounted to $36.9 billion in February 2025.
    • Imports: Merchandise imports fell to a 22-month low of $50.9 billion, primarily due to lower demand for gold, silver, and crude oil.
    • Gold and Silver Imports: The value stood at $2.7 billion, the lowest since June 2024.
    • Crude and Petroleum Imports: Reduced to $11.89 billion, marking the lowest level since July 2023.
    • On a year-on-year basis, exports dipped by 10.84% in February 2025, partially due to the base year effect of a leap month.
      • However, imports shrank by 16.3% compared to February 2024.

    Impact of Lower Trade Deficit on India’s Economy

    • Stronger Currency: A lower trade deficit reduces demand for foreign currencies, leading to an appreciation of the Indian Rupee. This makes imports cheaper, benefiting consumers and businesses.
    • Improved Current Account Balance: The lower trade deficit positively impacts India’s balance of payments, reducing dependence on external borrowing or foreign investments, and contributing to financial stability.
    • Boost to Domestic Production: A decrease in imports encourages local manufacturing and reduces reliance on foreign products, stimulating economic growth and creating jobs.
    • Growth in Exports: The reduced deficit reflects a higher level of exports, improving India’s foreign exchange reserves and supporting industrial output.
    • Reduced Inflation: With fewer imports, particularly of essential goods like crude oil and gold, prices of imported goods stabilize, helping reduce inflationary pressures in the economy.
    • Better Fiscal Health: A lower trade deficit leads to less reliance on external financing, helping the government maintain fiscal stability and potentially improve credit ratings.
    • Positive Investor Sentiment: A smaller trade deficit enhances investor confidence, attracting Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), boosting economic development.
    • Focus on Self-Reliance: Reduced imports drive self-reliance, encouraging domestic production, and decreasing dependency on imports for essential goods and services.

    PYQ:

    [2020] With reference to the international trade of India at present, which of the following statements is/are correct?

    1. India’s merchandise exports are less than its merchandise imports.

    2. India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.

    3. India’s exports of services are more than its imports of services.

    Select the correct answer using the code given below:

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

     

  • What the recent GDP data revisions reveal

    Why in the News?

    The rise in real and nominal growth rates is expected to impact future economic growth plans and long-term strategies.

    Recently, the National Statistical Office (NSO) has provided two types of data.

    • Revised Annual GDP/GVA Estimates: Updated figures for Gross Domestic Product (GDP) and Gross Value Added (GVA) for the financial years 2022-23, 2023-24, and 2024-25, reflecting changes based on the latest economic data.
    • Quarterly and Advance Estimates: GDP and GVA data for the third quarter (Q3) of 2024-25, along with the second advance estimates predicting the overall economic performance for 2024-25.

    Why have the real and nominal growth rates been revised upwards?

    • Improved Sectoral Performance: Significant upward revisions in key sectors like manufacturing (by 2.4 percentage points) and financial, real estate, and related services (by 1.9 percentage points) contributed to higher GDP estimates.
    • Higher Investment Contributions: Increased gross capital formation (GCF) in 2023-24 (10.5% growth) led to stronger economic activity, positively impacting overall GDP figures. Example: Real investment rate (Gross Fixed Capital Formation to GDP ratio) reached 33.4% in 2024-25.
    • Stronger Consumption Demand: A rebound in Private Final Consumption Expenditure (PFCE) contributed to the upward revision, especially in sectors like trade and hospitality. Example: PFCE contribution to GDP increased to 5.3 percentage points in Q4, reflecting stronger consumer spending.

    Which sectors experienced the maximum upward revision in growth?

    • Manufacturing Sector: Revised upward by 2.4 percentage points, reflecting improved industrial production and better capacity utilization. Example: Manufacturing growth increased from 2.1% in Q2 to 3.5% in Q3 of 2024-25, indicating a gradual recovery.
    • Financial, Real Estate, and Related Services: Revised upward by 1.9 percentage points, driven by increased financial activities and a stronger real estate market. Example: The growth in these services contributed significantly to the overall 9.2% GDP growth in 2023-24, up from the previous estimate of 8.2%.

    What are the key challenges in achieving the implied fourth-quarter GDP growth of 7.6% for 2024-25?

    • Weak Private Final Consumption Expenditure (PFCE) Growth: The required PFCE growth for achieving 7.6% GDP growth is 9.9%, which is historically high and challenging to sustain. Example: PFCE contribution fell from 4.3 percentage points in Q1 to 3.3 percentage points in Q2, leading to slower GDP growth of 5.6%.
    • Insufficient Government Capital Expenditure: The government needs to spend ₹2.61 lakh crore in the last two months to meet the revised target of ₹10.18 lakh crore, which is significantly higher than the recent trend. Example: Average government capital expenditure during February-March (2021-24) was ₹1.81 lakh crore, making the target difficult to achieve.
    • Slow Recovery in Manufacturing Sector: Despite some improvement, manufacturing growth remains sluggish at 3.5% in Q3, limiting its contribution to overall GDP. Example: Manufacturing growth in Q2 was only 2.1%, indicating continued structural weaknesses and reduced industrial output.
    • Decline in Investment Contribution: The contribution of investment to GDP growth fell from 2.3 percentage points in Q1 to 1.8 percentage points in Q3, reducing overall economic momentum. Example: Gross capital formation growth dropped from 10.5% in 2023-24 to 5.8% in 2024-25, reflecting lower private sector investments.
    • Global Economic Uncertainty: External factors like geopolitical tensions and fluctuating global demand can negatively impact exports and foreign investments. Example: Persistent global uncertainties in energy markets and supply chains may hinder India’s export-led growth in Q4.

    What are the present policies of the Government in this regard?

    • National Infrastructure Pipeline (NIP): Launched to invest approximately ₹111 lakh crore (US$1.4 trillion) in infrastructure projects from 2020 to 2025, focusing on energy, roads, railways, and urban development to stimulate economic growth.
    • PM Gati Shakti Plan: Introduced to enhance multimodal connectivity by integrating various transportation modes, aiming to improve logistics efficiency and boost industrial productivity.
    • Goods and Services Tax (GST) Rationalization: The government plans to reduce and simplify GST rates to alleviate the tax burden on businesses and consumers, fostering a more business-friendly environment.
    • Energy Sector Reforms: Legislation has been approved to encourage oil and gas exploration. For example, Amendments to the Oilfields (Regulation and Development) Act of 1948: In December 2024, the Rajya Sabha approved amendments aimed at streamlining licensing processes and improving investor confidence.
    • Establishment of a Coal Trading Exchange: India’s Coal Ministry is proposing a coal trading exchange to manage increased domestic coal production and facilitate competitive sales. This initiative aims to shift from a government-controlled sales model to a “many-to-many” platform for efficient price discovery.

    Way forward:

    • Enhance Private Sector Participation: Implement targeted incentives and streamline regulatory processes to boost private investments in critical sectors like manufacturing and infrastructure. Example: Expanding the Production-Linked Incentive (PLI) scheme to emerging industries can drive long-term growth.
    • Strengthen Consumption and Export Demand: Promote domestic consumption through targeted tax relief and social welfare programs while enhancing export competitiveness by supporting value-added manufacturing and reducing trade barriers. Example: Implementing sector-specific export promotion schemes can mitigate global uncertainties.

    Mains PYQ: 

    Q Investment in infrastructure is essential for more rapid and inclusive economic growth.”Discuss in the light of India’s experience. (2021)