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GS Paper: GS3

  • Taking heart from the GDP story, behind the headline number

    Why in the News

    The Chairman of the Economic Advisory Council to the Prime Minister and the Secretary, Ministry of Statistics and Programme Implementation have defended the 7.8 per cent real Gross Domestic Product (GDP) growth estimate for the first quarter of 2026-27. They argue that the estimate is corroborated by high frequency indicators across investment, consumption, credit and goods movement. The defence answers academic scepticism about the reliability of India’s national accounts methodology, raised after the first quarter release. The specific charge concerns the GDP deflator, the price index used to convert output measured at current prices into output measured at constant prices. Manufacturing recorded a negative implicit deflator for Gross Value Added (GVA), meaning the accounts imply falling prices in a sector at a time when consumer prices are rising. The dispute is therefore not about the growth rate. It is about whether the price correction behind that rate can be read at all.

    How does double deflation work?

    1. Single deflation, the discontinued method: Nominal Gross Value Added was divided by a single output price index to arrive at real Gross Value Added.
    2. Double deflation, the current method: Output and intermediate consumption are deflated separately, each by its own price index.
    3. The residual: Real Gross Value Added is then taken as the difference between real output and real intermediate consumption.
    4. Why it is the accepted practice: Input prices and output prices move differently, so deflating each by its own prices is the global standard in national accounting.

    What do the high frequency indicators show about the first quarter expansion?

    1. Freight and business demand: Commercial vehicle sales grew 18.3 per cent, as firms expanded fleets in anticipation of higher demand.
    2. The investment cycle: Capital goods production grew 15.2 per cent. Machinery and equipment imports grew 51.5 per cent.
    3. Construction inputs: Cement production, finished steel consumption and infrastructure and construction goods all expanded strongly in the quarter.
    4. Goods movement and tax collection: Electronic way bill generation stayed in double digit growth. Gross Goods and Services Tax collections rose 8.4 per cent despite substantial rate rationalisation.
    5. Consumption: Household vehicle registrations and three wheeler registrations point to firming discretionary demand.
    6. Credit: Non-food bank credit grew 18.3 per cent year on year at end June, up from 15.9 per cent in March, with growth across agriculture, industry and services.

    Why did the GDP deflator become hard to read?

    1. The price database changed: The revised National Accounts moved from the Wholesale Price Index (WPI) to the new Output Producer Price Index (PPI), which measures prices received by producers at the factory gate rather than prices struck in wholesale markets.
    2. The deflation method changed: The February 2026 revision discontinued single deflation. It adopted double deflation wherever feasible and volume based extrapolation otherwise.
    3. The two changes landed together: Simultaneous change in method and in price database made recent movements in the deflator less readily interpretable.
    4. The index switch itself was minor: Revisions arising from the move from WPI to PPI were relatively small, which supports the position that WPI had introduced no material anomaly. The two indices are conceptually close.
    5. The deflator is not a single index: Constant price GVA is built using over 300 producer prices and price indices across a disaggregated set of inputs and outputs, not from a headline price index.

    Why can a negative implicit manufacturing GVA deflator be statistically sound?

    1. The arithmetic: Nominal GVA growth falls below real GVA growth when input prices rise faster than output prices. The implicit deflator then turns negative even though input and output prices are both rising.
    2. What happened in the quarter: Higher raw material inflation relative to output inflation lowered the GVA deflator. Weak price growth in some services widened the gap from headline consumer and wholesale inflation.
    3. The leverage inside manufacturing: Intermediate consumption is roughly 81 per cent of manufacturing output, leaving 19 per cent as GVA. A small divergence between input and output prices therefore produces a disproportionate movement in real GVA.
    4. The domestic precedent: 2024-25 recorded the same outcome, with input price inflation exceeding output price inflation.
    5. Not unique to India: Advanced economies using double deflation have encountered similar outcomes.

    What is the appropriate comparison for manufacturing activity?

    1. The mismatch in the criticism: Commentaries have set manufacturing Index of Industrial Production (IIP) growth, a volume index of factory output, against real manufacturing GVA growth.
    2. The correct counterpart: A volume index should be compared with manufacturing Gross Value of Output at constant prices, which is also a measure of output rather than of value added.
    3. What the correct comparison shows: Real Gross Value of Output averaged 6.7 per cent growth over 2023-24 and 2024-25, against 6.6 per cent for IIP.
    4. When the loose comparison still holds: Comparing manufacturing IIP with manufacturing GVA yields defensible short term results only where input and output prices move together.
    5. A separate reading of the same ratio: The ratio of intermediate consumption to Gross Value of Output at constant prices has been declining gradually, which indicates improving efficiency in the use of inputs.

    What is contested about the synthetic comparison country study?

    1. The method: A recent study builds a comparison country by combining economies whose performance moved closely with India’s before 2014. It uses that historical co-movement to estimate how India’s per capita GDP might have evolved after 2014.
    2. The objection: The study treats its estimated performance gap as a lower bound on the assumption that Indian growth is overstated, without demonstrating the methodological flaw it assumes.
    3. The stated position on scrutiny: Specific, focused and actionable scrutiny of the GDP methodology is welcomed. Inferences drawn by quoting aggregate and disparate numbers together are rejected.

    Challenges to the revised GDP deflation framework

    1. The deflators cannot be independently reproduced: The disaggregated producer price series that enter the constant price estimates are not published for outside users, so an external researcher cannot rebuild the sectoral deflators. Eg. Delays in the national accounts Sources and Methods publication have repeatedly held up independent verification of official estimates.
      The Fix: Release the sectoral deflators used, along with the underlying producer price series, alongside each quarterly estimate.
    2. Services deflation remains the weakest link: India has no producer price index covering the range of services, so services output is deflated using consumer price components and dedicated indices. Eg. Financial, real estate and professional services drove roughly 45 per cent of services value added growth in 2024-25, and their prices are proxied rather than directly observed.
      The Fix: Extend the producer price framework to services, starting with the sub-sectors that contribute most to value added.
    3. The unincorporated sector is estimated rather than observed within the quarter: Quarterly manufacturing estimates for small unregistered enterprises rest on survey benchmarks carried forward by indicators. Eg. The Annual Survey of Unincorporated Sector Enterprises replaced proxy indicators for this segment only with the 2022-23 base year series.
      The Fix: Publish the unincorporated enterprises survey on a fixed calendar and use it to benchmark each year’s quarterly manufacturing estimates.
    4. A base revision breaks comparability across the join: The series was rebased from 2011-12 to 2022-23, so growth rates on either side of the break are not directly comparable. Eg. Construction of a back series after the previous rebasing became a prolonged dispute over pre-2011 growth rates.
      The Fix: Publish a fully reconciled back series at the same sectoral detail as the new series with every base revision.
    5. Confidence rests on the standing of the producing body: A statistical estimate is accepted on the credibility of the institution that releases it, and that credibility has been contested. Eg. Two members resigned from the National Statistical Commission in 2019 over the withholding of survey results.
      The Fix: Give the National Statistical Commission a statutory basis, as an independent statistical commission was recommended in 2001.

    Conclusion

    The argument between the statistical system and its critics is not about whether the economy grew. It is about whether an outside user can see inside the price correction that turns nominal output into real output. A revision that changed the price database and the deflation method in the same round has raised the burden of explanation on the agency, not lowered it. The marker to watch is whether the producer price series used inside the estimates are released as a public series, and whether the methodology volume for the revised base year appears alongside the next annual release rather than after it.

    What is national income accounting?

    1. About: National income accounting is the set of methods used to measure economic activity for an economy as a whole, yielding aggregates such as GDP, Gross National Product and National Income.
    2. Rationale: It supplies the aggregates that fiscal and monetary policy design, welfare planning, sectoral resource allocation and cross country comparison all rest on.
    3. The three methods it rests on:
    4. Income method: sums factor incomes, meaning rent, wages, interest, profit, mixed income and net income from abroad.
    5. Expenditure method: totals final spending on consumption, investment, government spending and net exports.
    6. Production method: sums value added at each stage across agriculture, industry and services.
    7. Why the production method matters here: India’s quarterly estimates are built up as sectoral value added, so every sector needs a price deflator of its own.

    Key Concerns Regarding National Income Accounting

    1. Separating final from intermediate goods: Value added can be double counted where the same good is both an input and a final product. Eg. Flour bought by a bakery is an input, while flour bought by a household is a final good.
    2. Undisclosed income: Parallel transactions kept off records are not captured, which understates measured output.
    3. Environmental blind spot: Resource extraction is counted as income while the depletion of natural capital is not deducted.
    4. Non-monetised and non-market activity: Subsistence farming, barter, volunteer work and the care economy go uncounted, understating true output.

    Key Facts about National Income Accounting

    1. New base year: The GDP base was revised from 2011-12 to 2022-23, with the new series released on 27 February 2026.
    2. Companion rebasing: The Consumer Price Index base was updated to 2024 and the Index of Industrial Production base to 2022-23 alongside the GDP revision.
    3. New data sources: Goods and Services Tax returns, the Public Financial Management System, e-Vahan vehicle registration data and the unincorporated enterprise and labour force surveys replaced earlier proxy indicators.
    4. International alignment: The series follows the System of National Accounts 2008, with transition to the 2025 standard planned by 2029-30.

    [2019, GS3, 10 marks] Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.

  • Beyond GDP, brace for turbulence ahead

    Why in the News

    Long term government bond yields in the advanced economies have risen sharply, raising the risk free return foreign capital can earn without entering India. Official growth estimates for April to June, together with car, two wheeler and tractor sales and Goods and Services Tax (GST) collections, show the economy absorbing the energy supply shock caused by the West Asia war. Strong output data does not settle the financing question, since capital compares India’s expected return against an assured dollar return. The dollars India did attract came through Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, priced at rates Indian banks could offer only because the Reserve Bank of India (RBI) carried the hedging cost.

    How does the FCNR(B) deposit and swap arrangement work?

    1. The deposit: An FCNR(B) deposit is a term deposit placed with an Indian bank by a non-resident Indian, held and repayable in foreign currency.
    2. The bank’s exposure: The bank owes repayment in that foreign currency, so a fall in the rupee raises what the deposit costs it in rupee terms.
    3. The swap facility: The RBI bore the hedging cost against currency fluctuation through a special dollar rupee swap facility.
    4. Where the risk now sits: The banks transferred the risk of rupee depreciation to the central bank, which is what allowed them to pay a high rate in foreign currency.

    What do bond yields in Japan, the United States and the United Kingdom demonstrate about the cost of capital?

    1. Japan: The ten year government bond yield crossed 3 per cent for the first time since 1996, and the thirty year yield stands at 4.1 per cent.
    2. The United States: The ten year Treasury yield is at 4.8 per cent and the thirty year at 5.3 per cent.
    3. The United Kingdom: The ten year yield is at 5.2 per cent and the thirty year at 5.9 per cent.
    4. Why these set the benchmark: These instruments are virtually risk free, issued by governments that have never defaulted on their debts, so an assured 4.8 per cent dollar return is the floor any Indian asset has to beat.

    What did India have to pay to bring in dollars?

    1. The deposit rate: Indian banks offered 6 to 6.5 per cent interest on FCNR(B) deposits.
    2. The volume raised: The window mobilised $127.2 billion.
    3. The direction of travel: Foreign money no longer comes cheap, and the path of global bond yields points to it turning more expensive.

    Why does a strong growth number not settle the external financing question?

    1. The two measures test different things: Output and consumption data measure domestic demand. The financing question is whether a foreign investor’s expected return here beats a risk free alternative abroad.
    2. Equity returns are the transmission channel: Long term foreign capital enters on growth prospects that translate into equity market returns, and those prospects must be compelling against elevated yields.
    3. A window is not a policy: A special forex swap window is a one time reprieve for the external sector and cannot substitute for durable intervention.

    What would durable resilience require?

    1. Fiscal consolidation: In a rising interest rate environment a government cannot run high fiscal deficits, which crowd out private sector and other productive borrowing.
    2. Keeping the external account financeable: Those deficits must not spill into current account deficits, which are difficult to finance when global capital flows turn volatile.
    3. Export promotion: Exports are to be raised through increased access to global markets.
    4. Cheaper inputs for exporters: Duties on imported raw materials and components are to be eliminated.
    5. Predictability: Policy stability for foreign investors is the fourth durable intervention, alongside consolidation, exports and input duty removal.

    Challenges to relying on the FCNR(B) swap route

    1. The liability matures: A term deposit has to be repaid or rolled over on a fixed date, so an inflow raised in months becomes an outflow risk on a known one. Eg. The 2013 FCNR(B) swap window raised about $26 billion, and its redemption was concentrated in late 2016.
      The Fix: Stagger maturities across the deposit book and pre-announce the redemption profile, so repayment does not bunch into a single quarter.
    2. The central bank absorbs the currency loss: A hedging cost carried by the RBI becomes a loss on its own books if the rupee falls further than the swap rate assumed. Eg. The rupee’s record low against the dollar has been reset repeatedly since 2022.
      The Fix: Disclose the swap facility’s cost to the central bank’s balance sheet, so the public subsidy inside the scheme is visible.
    3. Debt creating inflows substitute for equity: A deposit is a repayable liability while direct investment is not, so the same headline inflow leaves a different obligation behind. Eg. Non-resident Indian deposits are counted within India’s external debt, and foreign direct investment is not.
      The Fix: Cap the share of external financing met through deposit schemes, so a reserve build is not increasingly borrowed.
    4. The inflow is rate sensitive and reversible: Money that arrives for an interest differential leaves when that differential narrows. Eg. Foreign investors withdrew from Indian debt in 2013 once United States yields rose after the taper announcement.
      The Fix: Build the buffer through current account improvement and equity inflows, so the stock of reserves does not depend on a rate spread.
    5. A headline reserves figure hides its composition: Reserves assembled through a swap window signal less resilience than the same figure built from a trade surplus. Eg. India’s reserves crossed $700 billion while the current account remained in deficit.
      The Fix: Report the hedged and unhedged components of reserves separately in the weekly statistical supplement.

    Conclusion

    India’s external position looks strongest at the moment it is most borrowed. A large stock of foreign currency has been assembled by paying for it, and part of that bill sits on the central bank’s own books rather than on the banking system’s. The tension left unresolved is one of timing: the measures that would make foreign capital cheap again work over years, and the rate environment that made it expensive changed in months. What to watch is whether a second window is opened when the first one matures.

    “[2013] Which one of the following groups of items is included in India’s foreign-exchange reserves?

    (a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries

    (b) Foreign-currency assets, gold holdings of the RBI and SDRs

    (c) Foreign-currency assets, loans from the World Bank and SDRs

    (d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank

  • Thermal sector grapples with coal stock management

    Why in the News

    Thermal power generators that hold adequate coal inventories are disadvantaged when limited domestic supply is redirected to plants that have fallen below their prescribed stock norms. Those norms are plant specific and have run under the Central Electricity Authority (CEA) framework that took effect on 6 December 2021. The revised Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) policy, approved by the Central Government in May 2025, streamlined coal linkage allocation into two windows. Emergency redistribution keeps a low stock plant running and protects grid reliability. Repeating it removes the reason for any generator to carry stock at or above its norm, since the surplus is what gets moved.

    How is coal allocated to a thermal power plant?

    1. The linkage: A coal linkage is a long term assurance of supply from a specified source to a specified plant.
    2. The contract: A Fuel Supply Agreement (FSA) gives that linkage contractual form, fixing the quantity the coal company owes the generator.
    3. Window I: Central government owned generating companies and State utilities receive linkages at notified prices.
    4. Window II: Other eligible producers, including plants running on imported coal, procure coal through auctions at a premium over the notified price.

    Why does redistribution penalise the generator that stocked adequately?

    1. Compliance is measured plant by plant: The revised norms set a stocking level for each plant, so a generator is judged against its own requirement rather than a common one.
    2. Scarce coal moves toward the shortfall: When domestic supply is limited, deliveries are redirected to plants below their norms, and the generator that planned surrenders tonnage it had secured.
    3. The incentive runs backwards: Repeated redistribution removes any reason to carry stock above the norm, because the surplus is precisely what is taken.
    4. The proposed correction: A former Managing Director of PTC India, earlier the Power Trading Corporation of India, argued that coal inventory should be recognised as a system reliability service. Generators holding adequate or higher than normative stocks would be incentivised, and repeated shortfalls without genuine external cause would carry consequences.

    When is emergency redistribution justified?

    1. Grid stability and consumer supply: Assistance to plants at critically low stocks is defensible where consumer interests and grid stability are at risk.
    2. The distinction that decides it: Support must separate a genuine supply chain disruption from a persistent shortage caused by inventory mismanagement.
    3. The causes that qualify: Mine side constraints, railway bottlenecks, force majeure events and unexpected spikes in electricity demand are the genuine disruptions for which redistribution is meant.
    4. Where the framework came from: The Ministries of Coal, Power and Railways coordinate to monitor supplies and move coal, and the revised supply framework followed the COVID-19 pandemic, when all modes of transport came to a standstill.

    Is the problem a shortage of coal or a failure of logistics?

    1. Production has crossed a billion tonnes twice: Output reached 1,047.52 million tonnes in 2024-25 and 1,040.08 million tonnes in 2025-26.
    2. The current year’s run rate: Cumulative production through July stood at 302.04 million tonnes, and dispatches rose about 6 percent year on year to 354.7 million tonnes.
    3. Stock exists but sits in the wrong place: Thermal power plants held 34.55 million tonnes, with another 113 million tonnes at pitheads or in transit, a combined stock of about 148 million tonnes.
    4. Availability at the mine is not availability at the plant: Fuel security depends on the whole chain of production, loading, railway availability, transit, unloading and stockyard management.
    5. The binding constraint: The difficulty is how supplies are allocated, transported and converted into plant level inventories, not the national quantity of coal.

    Challenges to coal stock management in the thermal sector

    1. Rail capacity sets the replenishment ceiling: Coal moves mainly by rail, so rake availability decides how quickly a plant below its norm can be refilled. Eg. Passenger services were cancelled in 2022 to free rakes for coal movement to power stations.
      The Fix: Expand corridor capacity on the mine to plant routes and publish rake allocation in advance, so a generator can plan against a known schedule.
    2. Distance from the pithead is not priced into the norm: A plant far from its linked mine carries a longer transit and needs a larger buffer to hold the same days of cover. Eg. Plants in the western and southern States drawing from the Talcher and Mahanadi coalfields run multi day rail transits.
      The Fix: Set stocking levels by transit distance rather than by a uniform days of cover, so a distant plant is not judged on a pithead plant’s buffer.
    3. Grade slippage erodes the stock that is counted: A gap between the declared grade and the delivered grade means a tonne in the yard carries less heat than the norm assumes. Eg. Third party sampling of coal supplies was introduced after persistent grade slippage complaints from generators.
      The Fix: Express stocking norms in days of energy rather than days of tonnage, so quality shortfalls appear in the compliance number itself.
    4. Imported coal blending is abandoned when landed costs rise: Plants designed to blend imported coal cut back when the rupee weakens, which increases their draw on domestic supply. Eg. Blending directions issued to State generators in 2022 were resisted on cost grounds.
      The Fix: Allow the incremental fuel cost of a directed import to pass through in tariff automatically, so a blending direction does not sit on the generator’s balance sheet.
    5. Payment stress travels back up the chain: A generator owed money by distribution companies delays its own coal payments and cannot fund a larger inventory. Eg. Accumulated dues from State distribution companies prompted the Late Payment Surcharge Rules, 2022.
      The Fix: Enforce the existing payment security mechanism strictly, so working capital is not the reason a plant slips below its norm.

    Conclusion

    The dispute is not about how much coal the country digs out. It is about who absorbs the cost when a scarce delivery is moved from a plant that planned to one that did not. The tension is unresolved, because the authority that must keep a low stock plant running has no instrument to compensate the generator whose coal is diverted to it. Until a stocking norm carries a payment on one side and a consequence on the other, redistribution will keep shifting the cost of poor planning onto the generators that planned.

    Back2Basics: Central Electricity Authority

    1. What it is: The Central Electricity Authority is the technical advisory body of the Ministry of Power.
    2. Statutory basis: It functions under the Electricity Act, 2003, continuing the body first constituted under the Electricity (Supply) Act, 1948.
    3. Advisory role: It advises the Central Government on national electricity policy and prepares the National Electricity Plan.
    4. Technical role: It sets technical standards for the construction and operation of electrical plants and lines, and monitors daily coal stock positions at thermal stations.

    [2019] Consider the following statements:

    1. Coal sector was nationalized by the Government of India under Indira Gandhi.

    2. Now, coal blocks are allocated on lottery basis.

    3. Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

  • No takers for govt’s ₹37,500-crore coal gasification scheme

    Why in the News

    The coal ministry’s ₹37,500 crore financial incentive scheme for surface coal and lignite gasification has drawn no application from any private or public player. The last date for submission is 7 September 2026, fixed by a Request for Proposal issued on 7 July 2026. The Union Cabinet had approved the scheme to gasify 75 million tonnes of coal and lignite and to cut imports of liquefied natural gas, urea and methanol. The ministry attributes the absence of bids to the time a project proposal of this scale takes to prepare. An incentive of this size drawing nothing at its first deadline points at the economics of a gasification project rather than at the paperwork.

    How does coal gasification work?

    1. From solid fuel to gas: Dry fuel is converted into synthetic gas, known as syngas.
    2. What syngas is used for: Syngas serves as an alternative fuel and as the feedstock for methanol, fertilisers, hydrogen and chemicals.
    3. The stated emissions gain: Converting coal into gas rather than burning it directly is counted as a reduction in carbon emissions.

    What was the scheme designed to achieve?

    1. A volume target: The programme is built around gasifying 75 million tonnes of coal and lignite.
    2. Import substitution: The scheme is aimed at reducing dependence on imports of liquefied natural gas, urea and methanol.
    3. Insulation from external shocks: Domestic production of these inputs is intended to shield the country from global price volatility and supply chain disruption.
    4. The instrument: A financial outlay of ₹37,500 crore was approved for surface coal and lignite gasification projects.

    How has the coal ministry explained the empty first round?

    1. Proposal preparation takes time: Given the scale of funds each project involves, the preparation of pre-feasibility reports and project proposals runs long.
    2. Interest without applications: Several industries have communicated their interest in participating, and none has filed.
    3. The count is not final: The number of applications cannot be stated before the deadline passes, since submission is entirely online.
    4. The window reopens: Application rounds are envisaged every two months, giving industry repeated opportunities to enter.

    Challenges to the coal gasification incentive scheme

    1. High ash domestic coal raises the cost: Indian coal carries a high ash content, which lowers gas yield per tonne and raises the capital cost of the gasifier. Eg. Gasifier designs proven on low ash imported coal need modification before they run on Indian coal.
      The Fix: Tie the incentive to a gasifier configuration demonstrated on high ash domestic coal, rather than to project cost alone.
    2. The output price is set by policy, not by the market: Urea sold to farmers carries a maximum retail price fixed by the Centre, so a coal based producer’s revenue depends on the subsidy regime. Eg. Urea remains outside the Nutrient Based Subsidy regime and continues to be sold at a controlled price.
      The Fix: Offer a long term offtake price for coal based urea and methanol, so a project’s revenue is known before financial closure.
    3. No assured buyer for the other outputs: Lenders fund a plant only where a committed purchaser exists for its methanol or hydrogen. Eg. India has no binding methanol blending obligation comparable to the dated targets under the ethanol blending programme.
      The Fix: Notify a methanol blending obligation with dated targets, so demand exists independently of the capital subsidy.
    4. A coal based route to a fuel sold as clean: The process begins with coal, so the emissions case rests on capturing the carbon dioxide the process concentrates. Eg. Coal to methanol carries higher lifecycle emissions than natural gas based methanol.
      The Fix: Make carbon capture capability a condition of the incentive rather than an optional addition.
    5. Clearances have to be assembled before a bid: A promoter needs a coal linkage, land and water in place before a proposal is fileable, and the incentive supplies none of them. Eg. The Talcher Fertilizers coal to urea project in Odisha has run well past its original commissioning timeline.
      The Fix: Bundle a coal linkage and a land allotment with the incentive award, so a bidder is not chasing clearances and funding at the same time.

    Conclusion

    The obstacle here is not the size of the incentive but the absence of a price and a buyer for what a gasification plant would make. A capital subsidy lowers the cost of building the plant. It does not tell the promoter what the output will sell for, or who is obliged to buy it. The marker to watch is whether the next round is paired with an assured offtake price or a blending obligation, and whether a public sector energy company files before any private promoter does.

    Back2Basics: Lignite

    1. What it is: Lignite is the lowest rank of coal, high in moisture and low in fixed carbon, also called brown coal.
    2. Why it is used near the mine: Its calorific value is lower than that of bituminous coal, so transporting it long distances is uneconomic and it is burned or gasified close to the pithead.
    3. Where India’s reserves lie: The bulk of the country’s lignite sits in Tamil Nadu, with further deposits in Rajasthan, Gujarat and Jammu and Kashmir.
    4. Who mines it: NLC India Limited, a central public sector enterprise under the Ministry of Coal, is the largest lignite producer in the country.

    [2025] Consider the following substances:

    I. Ethanol

    II. Nitroglycerine

    III. Urea

    Coal gasification technology can be used in the production of how many of them?

    (a) Only one

    (b) Only two

    (c) All three

    (d) None

  • Norms allowing e-comm cos to keep inventory notified by govt

    Why in the News

    The Department of Economic Affairs, in the Ministry of Finance, has amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 to let e-commerce entities hold inventory. The permission is confined to goods meant for export. Those goods must be manufactured or produced in India. Foreign Direct Investment (FDI) in inventory based e-commerce retailing remains barred, so a foreign funded platform still cannot own the stock it sells to Indian consumers. The change separates a platform’s right to own goods from its right to sell them in India.

    What is inventory based e-commerce, and how does it differ from the marketplace model?

    1. Inventory based model: The platform owns the goods it lists and sells them directly to the buyer.
    2. Marketplace model: The platform runs a digital facility connecting independent sellers to buyers. It does not own the stock it displays.
    3. The investment line between them: Foreign investment up to 100 percent under the automatic route is permitted in the marketplace model. Foreign investment in the inventory based model is not permitted.

    What has the amendment changed?

    1. A permission tied to export: An e-commerce entity may now maintain inventory where the goods are meant for export.
    2. A domestic origin condition: The goods so held must be manufactured or produced in India.
    3. The retail bar is untouched: Foreign investment in inventory based e-commerce retailing has not been permitted.
    4. The route taken: The Department of Economic Affairs inserted the provision into the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, which is the instrument that carries India’s foreign investment conditions in law.

    Why does an export only carve out change what a foreign funded platform can do?

    1. Ownership of stock becomes lawful for one purpose: A foreign funded platform may buy, own and warehouse Indian made goods, provided the buyer sits outside India.
    2. The domestic retail rationale survives: The bar exists to stop a platform holding foreign capital from selling its own stock to Indian consumers at prices small retailers cannot match. An export sale does not enter that market.
    3. Exports gain an aggregator: A small manufacturer without overseas logistics can sell to a platform that takes title to the consignment and ships it out.
    4. The test shifts from ownership to destination: Compliance now turns on where a consignment ends up, which is a harder thing to observe than who owns it.

    Challenges to the export only inventory permission

    1. Diversion into the domestic market: Stock held under the export permission can be sold at home unless each consignment is matched to a foreign buyer. Eg. Duty free inputs meant for export production have repeatedly been the subject of Directorate of Revenue Intelligence cases over domestic diversion.
      The Fix: Require the platform to reconcile inventory held under this permission against shipping bills filed with Customs, and treat an unreconciled balance as a contravention.
    2. No stated threshold for what counts as made in India: The condition turns on goods manufactured or produced in India, and a low value assembly operation meets that description. Eg. Domestic value addition has been a running dispute under the Production Linked Incentive scheme for electronics, where imported kits are assembled locally.
      The Fix: Attach a stated domestic value addition threshold to the permission, as the Production Linked Incentive schemes already do.
    3. Enforcement acts long after the sale: Contraventions under the Foreign Exchange Management Act, 1999 are penalised or compounded after the fact, so a breach is corrected once the goods have already moved. Eg. Proceedings against large foreign funded e-commerce platforms over foreign investment conditions have run for years without a settled outcome.
      The Fix: Require an annual statutory auditor’s certificate on compliance with the export condition, filed with the Reserve Bank of India.
    4. The marketplace disputes are left where they were: The standing complaints of small retailers concern preferential seller arrangements inside the marketplace model, which this permission does not touch. Eg. The Competition Commission of India’s investigation into preferred sellers and deep discounting on major platforms began in 2020.
      The Fix: Conclude the pending competition proceedings on preferential seller arrangements, so the marketplace conditions are enforced on their own terms.

    Conclusion

    India’s foreign investment rules now treat ownership of goods and sale of goods as two separate permissions. The carve out is drawn narrowly, so its practical worth depends entirely on how the export destination is verified rather than on the width of the wording. The marker to watch is whether operating conditions specifying that verification follow, and whether foreign funded platforms build export volumes large enough to make the permission material.

    Back2Basics: Foreign Exchange Management (Non-debt Instruments) Rules, 2019

    1. What they are: Rules made under the Foreign Exchange Management Act, 1999 governing investment by a person resident outside India in equity and other non-debt instruments.
    2. Who issues them: The Department of Economic Affairs in the Ministry of Finance notifies them.
    3. What they carry: Sectoral caps, entry routes and the specific conditions attached to foreign investment in each sector.
    4. Why they matter: A change announced as foreign investment policy takes legal effect only when these Rules are amended.

    Matching Previous Year Question

    “[2020] With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic? (a) It is the investment through capital instruments essentially in a listed company. (b) It is a largely non-debt creating capital flow. (c) It is the investment which involves debt-servicing. (d) It is the investment made by foreign institutional investors in the Government securities. ANSWER: (b)”

  • Inside Jharkhand & Bihar’s 25-year Sone river dispute

    Inside Jharkhand & Bihar’s 25-year Sone river dispute

    Why in the News

    Bihar and Jharkhand have signed an inter State memorandum of understanding dividing Sone river water, with 5.75 million acre feet (MAF, the volume that would cover a million acres to a depth of one foot) going to Bihar and 2 MAF to Jharkhand.

    Why did a 1973 allocation stop working after 2000?

    1. The river’s course: The Sone flows generally northward from its upper catchments in Madhya Pradesh, passes through Uttar Pradesh, runs along the Jharkhand Bihar boundary and joins the Ganga in Bihar.
    2. The original entitlement: The Bansagar Agreement of 1973, a tripartite agreement involving Madhya Pradesh and Uttar Pradesh, allocated 7.75 MAF of Sone water to undivided Bihar out of the total basin yield.
    3. Bifurcation split the basin unevenly: Jharkhand inherited the major upper catchment areas and the tributaries, and the lower riparian agricultural hubs stayed with Bihar.
    4. No formula followed the division: After the State was divided, no binding formula existed to apportion that allocation between the two successor States.
    5. Two decades of stalled mediation: Committees attempted mediation over the last two decades, and talks repeatedly broke down over reservoir height, land submergence and volumetric splits.

    What does the new agreement actually settle?

    1. Jharkhand’s concession: Jharkhand agreed to specified reservoir water levels to minimise land submergence, backed by clear rehabilitation provisions.
    2. Bihar’s gain: Bihar receives additional water from the Indrapuri Barrage to irrigate farmland in its existing command.
    3. Jharkhand’s return: The pact enables new canal networks in the drought prone Palamu and Garhwa districts.
    4. What it unblocks: Long delayed irrigation, reservoir and river linking projects in the drought prone regions of both States are expected to move forward.

    What does the pact unlock on the ground?

    1. The diversion structure: The Indrapuri Barrage across the Sone in Rohtas district, built in the late 1960s, is the primary structure diverting water into the canal system.
    2. The canal command: The Sone canal network irrigates the Shahabad agricultural belt of Rohtas, Bhojpur, Buxar and Kaimur districts.
    3. The southern belt: The agreement guarantees critical irrigation supplies to the Magadh belt of south Bihar, including Aurangabad.
    4. The constraint was legal, not physical: The barrage and its canals already existed, so what was holding back their full use was the missing share rather than any limit of the structure.

    Why did the dispute stay politically live?

    1. No formal confrontation: The two States never reached a major State level confrontation over the water.
    2. An election season issue in Bihar: Leaders across party lines in the Shahabad and Magadh belts targeted the State government over water shortages in the Sone canal system during the summer sowing season.
    3. A displacement issue in Jharkhand: Leaders from Palamu and Garhwa raised the fear that raising the Indrapuri Dam’s height would submerge agricultural land and displace thousands without fair compensation.

    Challenges to the Sone water sharing arrangement

    1. A memorandum is not an award: The States have signed an administrative understanding rather than obtained a tribunal award under the Inter-State River Water Disputes Act, 1956, so no adjudicated instrument stands behind it. Eg. The Punjab Termination of Agreements Act, 2004 showed that a State legislature can move to repudiate water sharing agreements it had signed.
      The Fix: Constitute a joint control board with gauged and publicly reported releases at the barrage, so compliance is a matter of record rather than of assertion.
    2. A fixed volumetric split against a variable yield: The shares are stated in absolute volume even though the Sone is rain fed and its annual yield swings with the monsoon. Eg. The parent entitlement was itself fixed on basin yield estimates made in the early 1970s.
      The Fix: Convert the split into proportional shares of the actual annual yield, with a stated rule for how a deficit year is shared.
    3. Canal efficiency decides who receives water: An allocation at the barrage does not survive conveyance losses, so tail end farmers get less than the head reach whatever the agreement says. Eg. The Sone canal system dates from the 1870s and still delivers through long unlined earthen channels.
      The Fix: Line and modernise the main and distributary canals and meter deliveries at outlet level before the new water is credited to the command area.
    4. Rehabilitation commitments outrun delivery: Submergence limits rest on rehabilitation provisions whose record in Indian reservoir projects is poor. Eg. Families displaced by the Sardar Sarovar project on the Narmada were still contesting resettlement decades after the dam was cleared.
      The Fix: Publish a dated rehabilitation schedule with land for land entitlements settled before reservoir levels are raised.
    5. Groundwater has filled the gap: Farmers in the command have substituted diesel pumped groundwater for unreliable canal supply, and the pact says nothing about that substitution. Eg. Water tables across south Bihar fall sharply in the summer months when canal supply is weakest.
      The Fix: Sequence canal restoration with conjunctive use planning so surface deliveries replace pumping instead of adding to it.

    Conclusion

    An administrative understanding has closed a gap that two decades of mediation could not, and it has done so without creating any body able to enforce it. Compliance now rests on the continued willingness of two State governments, which is the same condition under which the previous arrangement failed. The marker to watch is whether releases are gauged and published, since an unmeasured share is what allows a settled formula to unravel quietly.

    Back2Basics: Sone river

    1. Source and course: The Sone rises on the Amarkantak plateau in Madhya Pradesh, close to the source of the Narmada, and flows north east to meet the Ganga.
    2. Its rank: It is the second largest of the Ganga’s southern tributaries after the Yamuna.
    3. Its regime: The river is rain fed, so it carries heavy monsoon flow and shrinks sharply through the dry season.
    4. Its tributaries: The North Koel, the Rihand and the Kanhar are among its principal tributaries.

    [2024, GS3, 15 marks] What are the major challenges faced by Indian irrigation system in recent times? State the measures taken by the government for efficient irrigation management.

  • New Delhi to quantify ocean wealth, climate risks in new accounting push

    New Delhi to quantify ocean wealth, climate risks in new accounting push

    Why in the News

    The Ministry of Statistics and Programme Implementation (MoSPI) has issued a concept paper proposing to put a monetary value on India’s marine fish stocks and record them as a national asset.

    What is the System of Environmental Economic Accounting?

    1. About: SEEA is a United Nations statistical framework that records a country’s natural resources inside the same accounting structure used for its economy.
    2. The core idea: A natural resource is treated as a capital asset, and what is taken from it in a year is treated as a flow of economic benefit from that asset.
    3. Coverage in India: India has compiled environmental accounts since 2018 through the EnviStats India programme, covering assets such as land, water, forests, minerals and pollination.

    What do India’s current fisheries figures capture?

    1. Global standing: India is the world’s second largest fish producing country and accounts for 8 percent of global production.
    2. The inland and marine split: Total fish production in FY25 was 19.77 million metric tonnes, 77 percent of it from inland sources and 23 percent from the marine sector.
    3. Marine output has expanded: Marine fish production reached 46.15 lakh tonnes in 2024-25, against 34.43 lakh tonnes in 2013-14.
    4. Contribution to the economy: The sector contributed an estimated Rs 1.76 lakh crore in 2023-24, or 1.09 percent of national gross value added.
    5. Export volume and value: Marine product exports in FY25 were 1.7 million metric tonnes valued at Rs 62,408.45 crore, growing 3.11 percent a year in volume.
    6. Reach of the export basket: More than 350 varieties, including frozen fish, squid, cuttlefish and dried items, reach 130 international markets.

    Why do those figures not answer the sustainability question?

    1. Output says nothing about the stock: Aggregate production records how much was landed, not whether commercially important stocks can sustain similar production in future.
    2. Species and regions vanish into the total: A national tonnage figure hides the changing value of individual species and the condition of regional fish stocks.
    3. Fishing pressure leaves no trace: The long term effect of fishing pressure and environmental change does not register in an annual catch series.
    4. No blue economy series exists: India has no regular, comprehensive blue economy GDP series comparable with the series available for agriculture or manufacturing.
    5. Known potential carries a known risk: NITI Aayog puts the exclusive economic zone’s resource potential at about 7.16 million metric tonnes and warns that some deep sea resources are vulnerable to overexploitation.

    How far has this been attempted elsewhere?

    1. Only a handful of countries: The Organisation for Economic Cooperation and Development (OECD) notes that only a handful of countries currently compile monetary asset accounts for aquatic resources.
    2. The group India would join: Australia, the Netherlands, Norway, Canada, the United Kingdom, France, the United States and New Zealand are attempting to bring blue natural capital into national accounts.
    3. The contrast with land based assets: Valuation methods for forests and minerals are mature, and the aquatic equivalent remains at an experimental and pilot stage.
    4. The international guidance is dated: The SEEA-Fisheries conceptual guidance is outdated, so India is building on an incomplete standard rather than a settled one.

    How would a marine fish asset account be built?

    1. Define the accounting units: The first step selects the commercially, economically or ecologically important marine species the account will cover.
    2. Classify each stock: Species wise landing data for the preceding ten years serves as the initial proxy, and current landings are compared with historical peaks to mark a stock as regenerating, stable or depleting.
    3. Estimate the asset life: Each resource is assigned an asset life, which is the bridge between the fisheries science on the stock and its economic treatment.
    4. Calculate the resource rent: Resource rent is the income attributable to the natural resource after deducting labour, operating expenses, depreciation and a normal return on fishing vessels and other capital.
    5. Discount the future rents: Expected future resource rents are projected over the estimated asset life and discounted at a proposed 2 percent real rate to give a present value.
    6. The output: The result is a marine fish asset account, a statistical record carrying both the physical condition of a stock and its estimated economic value.

    What is riding on the outcome?

    1. Livelihoods: Fishing supports nearly 30 million livelihoods and is a cornerstone of the blue economy.
    2. Geography: India’s coastline runs about 11,100 km and carries rich marine biodiversity.
    3. The stated target: Available numbers put the blue economy at about 4 percent of GDP against a target of a $100 billion blue economy by 2030.
    4. Budget support: The latest Union Budget earmarked a record Rs 2,761.8 crore in total annual support, with the Pradhan Mantri Matsya Sampada Yojana (PMMSY) carrying Rs 2,500 crore in 2026-27.
    5. Competing claims on sea space: Fisheries compete with ports, tourism, offshore energy and coastal development for marine space. Integrated accounts give those trade offs one economic and environmental database.
    6. Investment decisions: A valuation would indicate whether to put money into additional fishing capacity, stock restoration or deep sea fisheries. It would also allow the economic cost of climate induced changes in marine resources to be estimated.

    Challenges to valuing marine fish stocks

    1. The asset is living and mobile: A fish stock changes in size and location continuously, which makes it harder to value at a point in time than a forest or a mineral deposit. Eg. Oil sardine landings along the Kerala coast collapsed through the 2010s and then partially recovered, moving the stock’s value within a single decade.
      The Fix: Anchor the account to periodic scientific biomass surveys by the Central Marine Fisheries Research Institute rather than to landing data alone.
    2. Landings measure effort as much as abundance: What boats bring ashore reflects fleet capacity, fuel prices and market demand alongside the size of the stock. Eg. Landings can rise as vessels mechanise and trips lengthen even as the underlying stock thins.
      The Fix: Report effort adjusted catch per unit effort alongside raw landings, so a rise in output is separated from a rise in fishing pressure.
    3. The discount rate decides the answer: A present value calculation is highly sensitive to the rate chosen, so the 2 percent assumption fixes how much weight future stocks carry. Eg. A higher rate values a stock mainly by what it yields in the next few years and makes long term depletion look cheap.
      The Fix: Publish the account across a range of discount rates so the valuation’s dependence on that single assumption is visible to the user.
    4. An account does not restrain a catch: Recording depletion changes no rule about who may fish, since marine fishing within territorial waters is regulated by coastal States under their own legislation. Eg. Monsoon fishing bans and mesh size rules are notified State by State along the coastline.
      The Fix: Require stock classifications from the account to feed directly into the fisheries management plans and catch limits of coastal States.

    Conclusion

    Valuing a fish stock changes what the national accounts can show, not what the fishing fleet is allowed to take. The account will report depletion only as accurately as the biological data underneath it, and that data is the weakest part of the exercise. The test is whether the numbers reach harvesting rules and coastal livelihood decisions rather than stopping at a statistical publication.

    Back2Basics: Exclusive Economic Zone

    1. Legal basis: The exclusive economic zone is established by the United Nations Convention on the Law of the Sea, 1982.
    2. Extent: It reaches up to 200 nautical miles from the baseline from which the territorial sea is measured.
    3. Rights it confers: The coastal State holds sovereign rights to explore, exploit, conserve and manage the living and non living resources of the zone.
    4. India’s zone: India’s exclusive economic zone covers over 2 million square km, which is larger than its land area.

    [2026] At the United Nations Ocean Conference (UNOC) held in June, 2025 in France, the Food and Agricultural Organization (FAO) of the United Nations demonstrated its leading voice on marine and ocean issues, especially on sustainable fisheries and aquaculture for resilient livelihood and ‘Blue Transformation’. Which of the following combinations about the ‘Four Betters’ proposed by FAO for ‘Blue Transformation’ is correct?

    (a) Better production, better nutrition, better environment and better ocean

    (b) Better production, better nutrition, better environment and better life

    (c) Better coral reefs, better nutrition, better environment and better life

    (d) Better estuaries, better nutrition, better environment and better mangrove vegetation

  • Air quality panel holding talks with Punjab govt. and ISRO over tracking of stubble fires

    Air quality panel holding talks with Punjab govt. and ISRO over tracking of stubble fires

    Why in the News

    The Commission for Air Quality Management in the National Capital Region and Adjoining Areas (CAQM), the statutory body that directs anti-pollution action across Delhi and the States around it, has said it is in talks with Punjab, Haryana and the Indian Space Research Organisation (ISRO) to improve how stubble fires are measured.

    How does satellite fire counting work?

    1. Detection by heat signature: Two satellites passing over India during the day register the thermal signature of an active fire and log it as a fire count.
    2. A fixed overpass window: A polar orbiting satellite crosses a given location at roughly the same local time each day, so it sees only the fires burning at that moment.
    3. A count is not a quantity: The record shows that a field was alight. It does not show how much particulate matter the burning released.

    Why has the reported decline in farm fires come under doubt?

    1. The peak moved by three and a half hours: The Space Applications Centre recorded peak fire activity at about 1.30 p.m. in 2020 and at about 5 p.m. in 2024.
    2. The shift tracks the enforcement window: Farmers face fines for being caught setting fire to their fields, and burning after the daytime satellite passes leaves no entry in the record.
    3. Evidence has accumulated since 2024: Doubt over the Punjab government’s claim of a 90 percent reduction in farm fires since 2021 has been mounting since 2024.
    4. A decline that may be an artefact: A fall produced by unrecorded burning leaves the actual acreage burnt unknown, so the reported improvement cannot be checked.

    Why does the measurement matter for the capital’s winter air?

    1. Farm fires are a spike, not the base load: Over a whole winter farm fires contribute no more than 15 percent of particulate matter pollution. In certain weeks that share rises to almost 44 percent.
    2. The weather closes the escape route: Stalled monsoon withdrawal weakens the westerly winds that flush particulate matter out of the region through October and November.
    3. Several sources load the same air: Vehicles, industry, road dust, agricultural waste and Deepavali crackers add to the load in the same weeks.
    4. Paddy residue has a disposal logic: Stubble left after the paddy harvest is burnt to clear the field for wheat sowing, since burning is the quickest and cheapest method available.
    5. The response is calibrated to the number: The winter air quality response for the Delhi National Capital Region is built on this dataset, so a wrong count misdirects the measures taken.

    Why is a replacement protocol difficult to define?

    1. Burnt area measures land, not emissions: Mapping singed acreage gives a better estimate of how much land was burnt. The CAQM Chairman noted it is still not an accurate measure of the particulate matter emitted.
    2. Ground truthing needs the States: Verification on the ground requires Punjab and Haryana to run field checks against the satellite record, which is what the Commission is negotiating with both.
    3. A first protocol has been sought this year: ISRO has been asked to supply a basic protocol this year so that the estimate improves on fire counts.

    Challenges to stubble fire measurement

    1. A single daytime overpass: One pass at a fixed hour cannot capture a fire lit after it. Eg. The Terra and Aqua satellites carrying the Moderate Resolution Imaging Spectroradiometer (MODIS) cross northwest India around the middle of the day.
      The Fix: Pair the polar orbiting record with geostationary imaging from INSAT-3D and INSAT-3DR, which observe the same area every fifteen minutes, and with night time detections from the Visible Infrared Imaging Radiometer Suite.
    2. Cloud and haze block an optical sensor: Smoke and cloud hide active fires at exactly the point in the season when burning peaks. Eg. Detection weakens during the late October haze episodes that trigger emergency curbs in the capital.
      The Fix: Add radar based burnt area mapping from Sentinel-1, which images through cloud, as an independent cross check on the count.
    3. Penalties fall on the cultivator, not on the residue: Environmental compensation and red entries in land records punish the act of burning without funding an alternative to it. Eg. Punjab has recovered environmental compensation from farmers recorded as burning paddy stubble.
      The Fix: Pay a verified per acre amount for residue actually managed, so the incentive attaches to disposal rather than to concealment.
    4. The window between two crops is too short: Roughly two to three weeks separate the paddy harvest from wheat sowing, which makes burning the only method that fits. Eg. The Punjab Preservation of Subsoil Water Act, 2009 pushes paddy transplanting into late June and shortens the gap at the other end.
      The Fix: Expand shorter duration paddy varieties such as PR-126 and guarantee machinery through custom hiring centres so the window becomes workable.
    5. The airshed is governed in pieces: Punjab, Haryana, Rajasthan, Uttar Pradesh and Delhi each report and act separately on pollution that is common to one airshed. Eg. The Graded Response Action Plan is triggered by the air quality index recorded in Delhi.
      The Fix: Build one airshed level emission inventory on a common reporting standard, so source shares are settled by an agreed method rather than disputed each winter.

    Conclusion

    The argument here is not about whether stubble is burnt but about whether the instrument that counts it still works. A performance claim measured by a tool that a farmer can time his way around cannot settle how much of the capital’s winter air the fields are answerable for. The marker to watch is whether a verification protocol is in place before the burning window opens rather than after it closes.

    Back2Basics: Commission for Air Quality Management

    1. Statutory basis: The Commission was established under the Commission for Air Quality Management in National Capital Region and Adjoining Areas Act, 2021.
    2. Jurisdiction: It covers Delhi and the adjoining areas of Haryana, Punjab, Rajasthan and Uttar Pradesh that affect the capital’s air quality.
    3. Powers: It issues directions binding on State governments and State pollution control boards, and its directions prevail where they conflict with a State board’s.
    4. Enforcement: Non-compliance with its directions is punishable with imprisonment of up to five years or a fine of up to one crore rupees.

    [2020, GS3, 15 marks] What are the key features of the National Clean Air Programme (NCAP) initiated by the Government of India?

  • Govt. to spend Rs 24,000 crore to modernise police force

    Govt. to spend Rs 24,000 crore to modernise police force

    Why in the News

    The Union government has told the Supreme Court that it has begun implementing an umbrella Police Modernisation Mission worth Rs 24,000 crore over the next five years.

    What is the Police Modernisation Mission?

    1. Its form: It is an umbrella scheme, meaning several police modernisation components are funded through a single mission rather than as separate schemes.
    2. Its size and horizon: The outlay is Rs 24,000 crore, to be spent over five years.
    3. Who it covers: It targets the internal security capabilities of both State police forces and the Central Armed Police Forces.
    4. Its stated route: The capability gain is to come through greater use of technology, which is the only delivery mechanism named in the submission.

    Why was the disclosure made in a court proceeding?

    1. The proceeding was begun by the Court itself: The suo motu case was initiated in 2025 after the Court took note of a media report on non functional CCTV cameras at Udaipur police stations.
    2. The Court widened it into a compliance review: It sought compliance reports from the Centre, the States and the Union Territories on the installation and functioning of cameras.
    3. The Bench: The matter is before a Bench of Justices Vikram Nath and Sandeep Mehta, with the Centre represented by an Additional Solicitor-General.
    4. The mission answers the compliance question with an outlay: The Centre’s response to a record of equipment not working is a larger programme to buy equipment, and no separate maintenance or functioning guarantee was placed before the Court.

    What did Paramvir Singh Saini versus Baljit Singh require?

    1. Cameras at specified locations: The 2021 judgment mandated CCTV cameras at key locations in police stations, including lock ups and the rooms of inspectors and sub-inspectors.
    2. Cameras of a specified capability: The directions required night vision and audio recording, so that an interrogation is recorded and not merely observed.
    3. Footage retention: Recordings were to be preserved for a stated minimum period, so that a complaint filed months later can still be tested against the record.
    4. Oversight bodies: State level and district level oversight committees were to be constituted to purchase, maintain and monitor the systems and to review footage.
    5. Notice to the public: Police stations were to display notices telling visitors that the premises are under camera cover and that a complaint of human rights violation may be made.

    Challenges to the Police Modernisation Mission

    1. Modernisation money has historically gone unspent: Releases under police modernisation schemes stall on State matching shares and pending utilisation certificates. Eg. Successive Comptroller and Auditor General audits have flagged underutilisation of police modernisation grants by States.
      The Fix: Release tranches against verified physical milestones, meaning equipment installed and functioning, rather than against expenditure statements.
    2. Central money buys equipment, not reform: Police is a State subject under Entry 2 of the State List, so a central mission can fund hardware without touching recruitment, tenure or accountability. Eg. Directions in Prakash Singh versus Union of India (2006) on fixed tenure and a State Security Commission remain only partly implemented across States.
      The Fix: Condition a share of each State’s mission grant on enactment of the police board and fixed tenure directions.
    3. Technology fails at the point of maintenance: Installed systems stop working for want of annual maintenance contracts, spares and power backup, and the capital grant does not cover them. Eg. Audits have found Crime and Criminal Tracking Network and Systems terminals installed but not in use at a large number of police stations.
      The Fix: Fund a five year maintenance and consumables line inside each equipment sanction, instead of leaving it as a separate State liability.
    4. Manpower shortfall caps what technology can deliver: A camera or a database still needs an officer to operate, review and act on it, and State forces run well below sanctioned strength. Eg. Bureau of Police Research and Development data records an actual police strength close to 150 personnel per lakh population, against the United Nations recommended figure of 222.
      The Fix: Tie mission approval to a State recruitment schedule closing sanctioned vacancies across the same five years.
    5. Surveillance capacity grows faster than the oversight around it: Equipment installed for accountability also expands the force’s own recording and identification capability, with no independent auditor of its use. Eg. Access logs for police station footage are held and reviewed by the same force whose conduct the footage records.
      The Fix: Place footage access logs and retention compliance under an independent State level oversight body publishing an annual report.

    Conclusion

    The mission has moved from announcement to implementation, and it was disclosed in a proceeding about equipment already mandated and not functioning. Buying capability and sustaining it are different problems, and only the first has an outlay attached to it. The next point to watch is the compliance reports the Court has sought from the Centre, the States and the Union Territories, which is where the gap between equipment sanctioned and equipment working becomes visible.

    Back2Basics: Central Armed Police Forces

    1. What they are: Seven armed forces of the Union under the Ministry of Home Affairs, distinct both from the armed forces under the Ministry of Defence and from State police.
    2. The seven forces: Central Reserve Police Force, Border Security Force, Central Industrial Security Force, Indo-Tibetan Border Police, Sashastra Seema Bal, Assam Rifles and the National Security Guard.
    3. How they are used: They are deployed to States on requisition for internal security duty, election duty and disaster response, and guard specified international border sectors.
    4. Command and recruitment: Each is headed by a Director General, with officer recruitment through the Union Public Service Commission and other ranks through the Staff Selection Commission.

    [2023, GS3, 15 marks] What are the internal security challenges being faced by India? Give out the role of Central Intelligence and Investigative Agencies tasked to counter such threats.

  • Needed: More stable foreign capital

    Why in the News

    Inflows through the Reserve Bank of India’s (RBI) forex swap facility reached $136.3 billion by 31 August. The facility was part of a set of measures announced in June to draw capital into the country, and it was opened against doubts about how much could be raised in tight global financial conditions. Foreign exchange reserves have touched a record $729 billion and the rupee’s slide has been arrested. The same inflow has pushed the banking system’s liquidity surplus to Rs 6.7 lakh crore, at a point when inflation is edging up and the Monetary Policy Committee (MPC) may need to raise rates. Most of the money arrived as Foreign Currency Non Resident Bank, or FCNR(B), deposits, which are repayable debt rather than the stable equity investment a current account deficit requires.

    What is the FCNR(B) and swap route?

    1. The deposit is a foreign currency liability of the bank: An FCNR(B) deposit is a term deposit placed by a non resident Indian in foreign currency with an Indian bank. The bank repays principal and interest in that same currency, so the depositor carries no rupee exchange risk.
    2. The swap converts those dollars into rupees at a fixed cost: Under a swap facility the bank sells the mobilised dollars to the RBI for rupees, with an agreement to reverse the transaction at a pre agreed rate on a fixed future date.
    3. A concessional swap rate is what makes the route attractive: The central bank absorbs part of the hedging cost, which lifts the effective return the bank can offer a depositor without taking currency risk itself.
    4. Two borrowing channels run alongside: External Commercial Borrowings (ECB), meaning foreign currency loans raised abroad by Indian companies, and Overseas Foreign Currency Borrowings (OFCB) raised by banks, carry the balance of the flows.

    How large were the inflows, and what did they buy?

    1. The response exceeded expectations: $136.3 billion came in by 31 August, of which $63.5 billion arrived in the last ten days alone.
    2. The deposit route dominated: $127 billion came through FCNR(B), with the balance through the ECB and OFCB channels.
    3. Reserves hit a record: Foreign exchange reserves reached $729 billion on 21 August, which strengthens the buffer for external stability.
    4. The currency stabilised: The rupee’s fall was stemmed and it touched a two month high of Rs 94.60 to the dollar on 3 September.
    5. The window is not exhausted: About $9 billion more remains available through an ECB and OFCB swap window that stays open till December.

    Why does the same inflow complicate monetary management?

    1. Every dollar swapped injects rupees: The liquidity surplus in the banking system rose from over Rs 3 lakh crore at the beginning of August to Rs 6.7 lakh crore by the end of it.
    2. Independent estimates put the overhang higher: Surplus liquidity stood at Rs 9.71 lakh crore on 2 September, against a preferred level of about Rs 2.7 lakh crore.
    3. One absorption tool is doing all the work: The central bank has responded with variable rate reverse repo auctions, in which banks bid to park surplus funds with it for a fixed term. More tools will be needed at this scale.
    4. The timing runs against the policy stance: Inflation is edging upwards and the MPC may need to tighten, and a large surplus pushes short term rates below the policy rate in the opposite direction.
    5. Growth gives the committee room: Robust first quarter growth provides the space and comfort to tighten if the inflation trajectory demands it.

    Why is debt type inflow not a substitute for stable capital?

    1. The underlying deficit is unaddressed: India runs a current account deficit, which has to be financed every year regardless of what a one time window raises.
    2. Equity flows remain thin against the need: Foreign portfolio investors have been net equity buyers over recent months and net foreign direct investment is inching upwards, neither at a scale that finances the deficit on its own.
    3. Deposits are dated money: FCNR(B) deposits are repayable on maturity, so a large single vintage creates a redemption cliff for the central bank to plan around.
    4. The external environment governs the next round: Tighter global financial conditions will influence flows, so a window that worked this year cannot be assumed to work again.

    Challenges to the FCNR(B) and swap route

    1. Redemption bunches at a single future date: A large tranche raised in one window matures together, so the central bank has to arrange dollars for repayment in one narrow period. Eg. The $26 billion raised through the 2013 FCNR(B) swap window came up for redemption together in 2016 and had to be managed through forward market operations.
      The Fix: Stagger maturities across tenors at the point of mobilisation rather than offering a single uniform term.
    2. The subsidy sits on the central bank’s books: A concessional swap rate transfers hedging cost from the banking system to the central bank, which bears the loss if the currency moves against it. Eg. The 2013 window was priced at a concessional swap rate well below the prevailing market forward premium.
      The Fix: Publish the fiscal and balance sheet cost of the concession alongside the inflow figure, so the instrument is judged on net terms.
    3. It raises the debt share of external financing: Deposits and borrowings add to external debt, and equity investment does not. The composition of external financing worsens as the headline reserve number improves. Eg. Short term external debt on residual maturity has repeatedly been flagged in the RBI’s own external debt statistics as a vulnerability indicator.
      The Fix: Tie the window to a parallel timetable for the sectoral foreign direct investment reforms that have been pending, so the debt raised buys time for an equity fix.
    4. Sterilisation of the rupee injection is costly: Absorbing the liquidity created requires paying interest to banks on funds parked with the central bank, which erodes its income. Eg. The surplus is currently being drained through variable rate reverse repo auctions at rates close to the policy rate.
      The Fix: Use longer tenor absorption instruments, including open market sales of government securities, so the drain matches the maturity of the inflow.
    5. The instrument is used as a currency defence rather than a funding decision: A window opened when the rupee is under pressure attracts money for the concession rather than for the economy’s return profile. Eg. Both the 2013 and the current windows followed a sharp depreciation episode.
      The Fix: Keep a standing, non concessional deposit and borrowing framework open through the cycle, so mobilisation does not depend on a crisis trigger.

    Conclusion

    The window has bought external stability and has handed the central bank a domestic liquidity problem in exchange. Neither outcome changes the structural position: a deficit country that finances itself with borrowed money stays exposed to the next tightening in global conditions. What to watch is the composition of financing over the coming quarters rather than the reserve headline, and specifically whether net foreign direct investment rises fast enough to reduce dependence on windows of this kind before the deposits fall due.

    Matching Previous Year Question

    “[2020] If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India? (1) Not depending on short-term foreign borrowings (2) Opening up to more foreign banks (3) Maintaining full capital account convertibility Select the correct answer using the code given below: (a) 1 only (b) 1 and 2 only (c) 3 only (d) 1, 2 and 3 ANSWER: (a)”