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GS Paper: GS3

  • GREAT Scheme

    Why in the News?

    As of February 4, 2025, 4 startups have been approved under the ‘Grant for Research & Entrepreneurship across Aspiring Innovators in Technical Textiles (GREAT)’ Scheme.

    About GREAT Scheme:

    • The GREAT Scheme is a government initiative under the National Technical Textiles Mission (NTTM).
    • Launched by the Ministry of Textiles, it provides financial support to startups working in technical textiles.
    • The scheme focuses on Medical Textiles, Industrial Textiles, and Protective Textiles, fostering innovation, research, and entrepreneurship.
    • It aims to promote entrepreneurship in technical textiles by funding early-stage innovations.
    • Provisions and Features:
      • Financial Support: Startups receive grants of up to ₹50 lakh for up to a period of 18 months.
      • No Royalty Requirement: Unlike private funding, the government does not take a share of the startup’s profits.
      • Upfront Contribution: Startups must deposit 10% of the allocated grant (e.g., ₹5 lakh for a ₹50 lakh grant).
      • Sector Focus: Covers Medical, Industrial, and Protective Technical Textiles.
      • Budget Allocation: Part of the ₹375 crore funding for FY 2025 under NTTM.

    Back2Basics: National Technical Textiles Mission (NTTM) 

    • Launched in 2020 to make India a global leader in technical textiles through research and innovation.
    • Budget of ₹1,480 crore, focusing on medical, industrial, protective, and geo-textiles.
    • Supports R&D, skill development, and investment in high-performance textiles for defense, healthcare, and infrastructure.
    • Includes Production-Linked Incentives (PLI), PM MITRA Parks, and quality control regulations to boost manufacturing.
    • Aims to increase India’s technical textiles market to $40-50 billion with 15-20% annual growth.

     

    PYQ:

    [2013] Analyse the factors for highly decentralized cotton textile industry in India.

  • New Makhana Board and Food Institute to be opened in Bihar

    Why in the News?

    The Union Budget 2025 has announced the establishment of a Makhana Board in Bihar to improve production, processing, value addition, and marketing of makhana (fox nut).

    What is Makhana? 

    makhana

    • Makhana, also known as fox nut, is the edible seed of the prickly water lily (Euryale ferox), grown in freshwater ponds across India and South Asia.
    • Bihar produces 90% of India’s makhana, with major hubs in Darbhanga, Madhubani, Purnea, and Katihar.
    • It is nutrient-rich, low-fat, and considered a superfood, gaining popularity in domestic and international markets.
    • Traditionally used in religious rituals, makhana is now promoted for its health benefits and commercial potential.

    About the Makhana Board 

    • The Makhana Board will train farmers, ensure market access, regulate pricing, and promote exports.
    • The Food Processing Institute will focus on value addition, quality control, research, and global trade facilitation.
    • Aims & Objectives:
      • Increase production by promoting high-yield varieties like Swarna Vaidehi and Sabour Makhana-1.
      • Improve processing infrastructure to reduce wastage and enhance product quality.
      • Support exports through cargo infrastructure, trade partnerships, and branding initiatives.
    • Structural Mandate:
      • Governing body led by government officials, farmer representatives, and industry experts.
      • Regional centers in key makhana-producing districts to assist farmers.
      • Partnerships with ICAR, NABARD, and agricultural universities for research and financial support.
      • ₹100 crore initial funding for infrastructure, training, and market expansion.
    • Powers & Functions: Regulate production, enforce quality standards, provide subsidies, promote research, develop export infrastructure, and launch branding campaigns.

  • [6th February 2025] The Hindu Op-ed: A Budget that is mostly good but with one wrong move

    PYQ Relevance:

    Q) Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (UPSC CSE 2021)

     

    Mentor’s Comment: UPSC mains have always focused on the Capital Budget and Revenue Budget (2021), and the objectives of Union-Budget (2017).

    The Union Budget’s forecast of 10.1% nominal GDP growth for 2025-26 seems reasonable, based on the Economic Survey’s prediction of 6.3%-6.8% real GDP growth. Although capital spending has gone up, it’s similar to last year’s budget. The Budget aims to drive growth towards becoming a developed nation, though some measures, like tax relief, could have come sooner.

    Today’s editorial talks about the measures taken in the Budget. This content would help in GS paper 3 in the economy section.

    _

    Let’s learn!

    Why in the News?

    Some measures in the Budget should have been introduced earlier and replacing ‘fiscal deficit’ as a key indicator is a wrong decision.

    How realistic are the government’s tax revenue growth assumptions?

    • Gross Tax Revenue (GTR) Trends: The growth in the Government of India’s GTR has been trending downwards in recent years. The buoyancy of GTR has fallen for three successive years from 1.4 in 2023-24 to 1.15 in 2024-25 (RE) and then to 1.07 in 2025-26 (BE). As a result, growth in the Government of India’s GTR has kept falling from 13.5% in 2023-24 to 11.2% in 2024-25 (RE), and to 10.8% in 2025-26 (BE). Within the government’s tax revenues, the growth rate of Goods and Services Tax (GST) has also fallen from 12.7% in 2023-24 to 10.9% in 2025-26 (BE).
    • Shift to Direct Taxes: The structure of the government’s taxation has moved from indirect to direct taxes, with the share of direct taxes in the government’s GTR increasing from 52% in 2021-22 to 59% in 2025-26 (BE).
    • Personal Income Tax: There has been a fall in growth from 25.4% in 2023-24 to 20.3% in 2024-25 (RE) and 14.4% in 2025-26 (BE). This fall in growth in 2025-26 (BE) is partly due to the announced income-tax concessions.
    • Corporate Income Tax: The growth in 2024-25 (RE) is quite low at 7.6%. This growth has been raised to 10.4% in 2025-26 (BE).

    Is the level of government expenditure appropriate, and is its composition efficient?

    • Overall Expenditure: The government is estimated to spend Rs 50,65,345 crore in 2025-26, 7.4% higher than the revised estimate of 2024-25. The size of government expenditure as a percentage of GDP has been reduced from 14.6% in 2024-25 (RE) to 14.2% in 2025-26 (BE). Growth in total expenditure, at 7.6% in 2025-26 (BE), is lower than the budgeted nominal GDP growth at 10.1%.
    • Capital Expenditure: Capital expenditure has been raised from 11.11 lakh crore rupees in the current fiscal year to 11.21 lakh crore rupees for the oncoming fiscal year1. There has been a steady improvement in the quality of government expenditure as the share of capital expenditure in total expenditure has been improving. This share has improved by 10% points over the period from 2020-21 to 2025-26 (BE).
    • Investment in Key Areas: Investment remains a central theme in the Budget, categorized into three key areas—people, economy, and innovation.
      • Investment in people: Includes the establishment of Atal Tinkering Labs, broadband connectivity for schools and health centers, Centers of Excellence for Skilling, and initiatives for Gig workers.
      • Investment in the economy: Focuses on infrastructure projects, interest-free loans to states for capital expenditure, asset monetization, and urban redevelopment projects.
      • Investment in innovation: Allocates funds to private sector-driven R&D initiatives and missions to support urban planning and knowledge systems.
    • AI Infrastructure: The Government of India has to build up large-scale Artificial Intelligence (AI) infrastructure in order to facilitate the adoption of emerging technologies.

    ⁠Is the shift away from using fiscal deficit as a primary indicator of fiscal prudence a positive step?

    • Change in Indicator: One measure introduced in the Budget is to move away from fiscal deficit as an indicator of fiscal prudence. The practice of giving a glide path in terms of fiscal deficit is being discontinued. It has been stated that from now on, the focus will be on reducing the debt-GDP ratio annually.
    • New Target: The central government aims to reduce its outstanding liabilities to around 50% of GDP by March 2031.
    • Debt-GDP Ratio: In the 2025-26 Budget, the practice of giving a glide path in terms of fiscal deficit is being discontinued. Alternative paths of the debt-GDP ratio with nominal GDP growth assumptions of 10.0%, 10.5% and 11.0% are given.
      • The glide paths are indicated in terms of alternative growth assumptions and alternative assumptions regarding mild, moderate, and high degrees of fiscal consolidation. This makes the whole exercise vague and non-transparent.
    • Fiscal Deficit Target: The fiscal deficit target for FY26 is set at 4.4% of GDP, revised down from 4.8% in the current financial year.

    Way forward: 

    • Restore Fiscal Deficit Transparency: Reintroduce clear fiscal deficit targets with specific timelines, instead of focusing solely on the debt-GDP ratio. This would ensure greater clarity and accountability in fiscal management.
    • Enhance Investment Efficiency: Prioritize strategic investments in key areas like AI infrastructure, R&D, and innovation, while ensuring these investments align with long-term growth goals and contribute to overall economic resilience.

  • What is the SC directive on sacred groves?

    Why in the News?

    On December 18, 2024, the Supreme Court ordered Rajasthan’s Forest Department to map all sacred groves using satellite and ground surveys based on their cultural and ecological importance, regardless of their size.

    Note: In Rajasthan, sacred groves, locally known as ‘orans’, are estimated to number around 25,000, covering approximately 6 lakh hectares across the state.

    What are the implications of the December 18 order? 

    • Conflict with the Forest Rights Act (FRA), 2006 – The order contradicts the FRA, which was enacted to recognize and vest forest rights with gram sabhas. Instead, the decision shifts control from communities to the Forest Department.
    • Loss of Community Autonomy – Sacred groves, which have been traditionally protected by local communities, will now be governed by state authorities, potentially disrupting cultural conservation practices.
    • Potential Erosion of Traditional Governance Systems – The transfer of management could weaken customary laws and traditional conservation practices that have preserved these groves for generations.
    • Legal Precedence for Future Cases – By prioritizing the Wildlife Protection Act (WLPA), 1972, over the FRA, this order may set a precedent for other community-managed lands to be taken over by the Forest Department.
    • Impact on Livelihoods and Religious Practices – Communities that depend on sacred groves for religious, medicinal, and cultural purposes may face restrictions under the new classification as ‘community reserves’.

    What did T.N. Godavarman v. Union of India establish about the definition of ‘forest land’? 

    • Broad Definition: The Supreme Court established that ‘forest land’ includes not only areas understood as forests in the dictionary sense but also any area recorded as forest in government records, regardless of ownership.
    • Expert Committees: The ruling directed state governments to form expert committees to identify areas that fit this definition of ‘forest land’.

    How are sacred groves traditionally conserved by communities?

    • Watershed & Ecological Functions: Many sacred groves protect natural water sources, prevent soil erosion, and regulate local climate. Example: Orans (Rajasthan) – These groves support perennial water streams and serve as critical grazing lands for livestock.
    • Strict Protection through Customary Laws & Taboos: Communities impose strict prohibitions on tree felling, hunting, or resource extraction in sacred groves. Example: Sarpa Kavu (Kerala) – These groves are dedicated to serpent deities, and cutting trees is considered a bad omen.
    • Religious & Cultural Practices for Conservation: Rituals, festivals, and community prayers reinforce the spiritual importance of these groves. Example: Devara Kadu (Karnataka) – Annual worship ceremonies maintain local participation in conservation efforts.
    • Community Governance & Management: Local elders, priests, or village councils oversee the maintenance and enforcement of protection norms. Example: Jahera (Odisha, Chhattisgarh) – Tribal communities like the Gonds and Santhals manage these groves as sacred spaces.
    • Role in Biodiversity Preservation: The groves act as biodiversity hotspots, protecting endemic flora, fauna, and medicinal plants. Example: Law Kyntang (Meghalaya) – Khasi communities conserve these forests, which shelter rare orchids and medicinal herbs.

    Way forward:

    • Harmonizing Legal Frameworks – Amend policies to ensure the Forest Rights Act (FRA), 2006, and Wildlife Protection Act (WLPA), 1972, work in tandem, recognizing gram sabhas’ authority in managing sacred groves while ensuring ecological conservation.
    • Community-Centric Conservation – Strengthen traditional governance systems by legally empowering local communities to manage sacred groves, integrating scientific conservation methods with cultural practices.

    Mains PYQ:

    Q Examine the status of forest resources in India and its resultant impact on climate change. (UPSC IAS/2020)

  • Union Budget 2025-26 has increased financial support for the PM Surya Ghar scheme

    Why in the News?

    The Union Budget 2025 has significantly increased the allocation for the PM Surya Ghar Muft Bijli Yojana (SGMBY) to ₹20,000 crore, up from ₹11,100 crore in the FY25 Revised Estimates (RE) and ₹6,250 crore in the FY25 Budget Estimates (BE).

    About PM Surya Ghar Muft Bijli Yojana:

    • It is a flagship initiative launched by Prime Minister on February 15, 2024, under the Ministry of New and Renewable Energy (MNRE).
    • It aims to provide free electricity up to 300 units per month by facilitating the installation of rooftop solar panels in 1 crore households across India.
    • The scheme has a budget outlay of ₹75,021 crore and is planned for implementation until FY 2026-27.
    • The initiative is part of India’s clean energy transition, reducing dependency on fossil fuels and promoting sustainable energy solutions.
    • Key Features:
      • 40% subsidy on installation costs through Central Financial Assistance (CFA).
        1. 1 kilowatt: 30,000 rupees
        2. 2 kilowatts: 60,000 rupees
        3. 3 kilowatts: 48,000 rupees
        4. 3 kilowatts or more: 78,000 rupees
      • National Programme Implementation Agency (NPIA) at the national level and State Implementation Agencies (SIAs) at the state level.
      • Two Solar Installation Models:
        1. RESCO Model – Third-party ownership, with consumers paying only for electricity used.
        2. Utility-Led Aggregation (ULA) Model – DISCOMs or state agencies install solar panels for households.
      • Model Solar Village: ₹1 crore incentive for the top-performing village in each district.
      • Payment Security Mechanism (PSM): ₹100 crore fund to encourage private investment in solar energy.

    Significance

    • Reduces Electricity Bills: Households can save ₹15,000 to ₹1,80,000 annually.
    • Boosts Renewable Energy: Helps achieve 40 GW of rooftop solar capacity, bridging the gap from 10.4 GW (as of November 2023).
    • Strengthens Energy Security: Expands access to sustainable and decentralized power.
    • Environmental Impact: Reduces carbon emissions and reliance on fossil fuels.
    • Empowers Rural India: 50% of projects are expected in Tier-2 and Tier-3 cities, promoting economic growth and electrification.

    PYQ:

    [2020] India has immense potential for solar energy though there are regional variations in its developments. Elaborate.

  • Ocean Coordination Mechanism (OCM)

    Why in the News?

    The Ocean Coordination Mechanism (OCM) was recently announced by the Intergovernmental Oceanographic Commission (IOC) of UNESCO on January 14, 2025.

    What is Ocean Coordination Mechanism (OCM)?

    • The OCM, launched by the Intergovernmental Oceanographic Commission (IOC) of UNESCO, aims to enhance marine conservation and resource management.
    • It focuses on the Caribbean and North Brazil Shelf, regions with rich biodiversity, coral reefs, and fisheries generating $610 million annually.
    • The OCM promotes Blue Carbon Projects, using coastal ecosystems for carbon storage, benefiting both climate resilience and local communities.
    • It has secured $15 million in funding from the Global Environment Facility (GEF) under the UNDP/GEF PROCARIBE+ Project, with an additional $126.02 million in co-financing.

    Intergovernmental Oceanographic Commission (IOC) of UNESCO

    • Established in 1961, the IOC/UNESCO promotes marine science cooperation for sustainable ocean governance.
    • It operates in key areas:
      • Ocean science research:  Supports studies on climate change, biodiversity, and sustainability.
      • Tsunami warning systems:  Maintains early warning mechanisms to mitigate risks.
      • Ocean observations:  Collects and analyzes oceanographic data for policy-making.
    • The IOC leads the UN Decade of Ocean Science for Sustainable Development (2021-2030), known as the “Ocean Decade”, advancing global marine conservation efforts.

     

    Ocean Coordination Mechanism (OCM)

    About the Caribbean Sea

    • The Caribbean Sea is part of the North Atlantic Ocean, located south of the Gulf of Mexico and southwest of the Sargasso Sea.
    • Bordering Nations:
      • Greater Antilles – Cuba, Jamaica, Hispaniola (Haiti & Dominican Republic), Puerto Rico.
      • Lesser Antilles – Includes islands from Virgin Islands to Trinidad & Tobago.
      • South America – Borders Venezuela & Colombia.
      • Central America – Includes Panama, Costa Rica, Nicaragua, Honduras, Guatemala, Belize.
    • Key Features:
      • Deepest Point – The Cayman Trough, at 7,686 meters below sea level.
      • Mesoamerican Barrier Reef – Second-largest barrier reef globally, stretching 1,000 km.
      • Major Gulfs and Bays – Includes Gulf of Venezuela, Gulf of Honduras, and Gulf of Darién.
    • The Caribbean Sea supports rich biodiversity but faces threats from climate change, pollution, and overfishing, making conservation efforts like OCM essential for sustainability.

    PYQ:

    [2021] Consider the following statements :​

    1. The Global Ocean Commission grants licences for seabed exploration and mining in international waters.​

    2. India has received licences for seabed mineral exploration in international waters.​

    3. ‘Rare earth minerals’ are present on seafloor in international waters.​

    Which of the statements given above are correct?

    (a) 1 and 2 only ​

    (b) 2 and 3 only​

    (c) 1 and 3 only ​

    (d) 1, 2 and 3​

  • What is the ‘Nuclear Energy Mission’?

    Why in the News?

    The Union Budget 2025-26 introduced the Nuclear Energy Mission, aiming to develop at least 5 indigenous Small Modular Reactors (SMRs) by 2033.

    About Nuclear Energy Mission (NEM):

    Details
    • A flagship initiative announced in Union Budget 2025-26 to accelerate India’s nuclear power capacity towards the target of 100 GW by 2047.
    • It focuses on Small Modular Reactors (SMRs), expansion of Bharat Small Reactors (BSRs), and policy reforms to attract private and foreign investment in nuclear energy.
    Key Highlights  of the NEM
    • 100 GW Nuclear Target by 2047 as part of India’s clean energy transition.
    • ₹20,000 crore allocated for R&D and deployment of Small Modular Reactors (SMRs).
    • Public-Private Collaboration for setting up Bharat Small Reactors (BSRs) and advanced nuclear technologies.
    • Amendments to Atomic Energy Act, 1962 to allow private sector participation.
    • Changes to Civil Liability for Nuclear Damage Act, 2010 to attract foreign investment.
    • Deployment of BSRs (220 MWe) and SMRs (30-300 MWe) to replace coal plants and power remote regions.
    Other Initiatives for Enhancing India’s Nuclear Capacity Expansion of Nuclear Power Capacity:

    • Current capacity: 8,180 MW → Target by 2031-32: 22,480 MW.
    • 10 reactors under construction (8,000 MW) across Gujarat, Rajasthan, Tamil Nadu, Haryana, Karnataka, and Madhya Pradesh.
    • Approval for 6 x 1208 MW AP1000 reactors (USA collaboration) at Kovvada, Andhra Pradesh.

    Deployment of Advanced Nuclear Reactors:

      • Bharat Small Reactors (BSRs): 220 MWe PHWRs for industrial decarbonization.
      • Prototype Fast Breeder Reactor (500 MWe) at Kalpakkam achieved milestones in 2024.
    • High-Temperature Gas-Cooled Reactors (HTGRs) & Molten Salt Reactors (MSRs) under development using India’s thorium reserves.

    Recent Developments: 

    • New uranium deposit discovered at Jaduguda Mines (extends mine life by 50+ years).
    • Operationalization of first two 700 MWe PHWR units at Kakrapar, Gujarat (KAPS-3 & 4).
    • NPCIL-NTPC Joint Venture (ASHVINI) launched to build nuclear plants.
    • Rajasthan Atomic Power Project-7 (RAPP-7) reached criticality in 2024.

     

    PYQ:

    [2018] With growing energy needs should India keep on expanding its nuclear energy programme? Discuss the facts and fears associated with nuclear energy. (250 Words, 15 Marks)

    [2011] The function of heavy water in a nuclear reactor is to:

    (a) Slow down the speed of neutrons

    (b) Increase the speed of neutrons

    (c) Stop the nuclear reaction

    (d) None of the above

  • The financial toxicity of cancer care in India

    Why in the News?

    The financial strain of cancer is often ignored but can be the most harmful. It not only impacts the patient but also their family and future generations.

    What is the extent of financial toxicity faced by cancer patients in India?

    • High Treatment Costs: Cancer treatments, especially advanced options like immunotherapy, can be prohibitively expensive. For instance, a patient with oral cancer may face annual costs of approximately ₹10 lakh, adding to previous expenses that can total ₹25 lakh over several years. This financial strain often forces families to deplete savings or sell assets to afford care.
    • Impact on Families: Financial toxicity extends beyond the patient to their families, leading to severe economic consequences. Families may resort to selling properties or skipping meals to manage treatment costs, which can entrap them in a cycle of generational poverty.
    • Out-of-Pocket Expenses: A significant portion of healthcare costs is borne out-of-pocket by patients. For example, outpatient expenses can account for nearly 50% of total healthcare costs, which are not covered by insurance schemes like Ayushman Bharat.

    What are the contributing factors to financial toxicity in cancer care?

    • Inadequate Public Health Funding: India’s public health expenditure has historically been below 2% of GDP, resulting in insufficient healthcare infrastructure and personnel in public hospitals. This leads to delays in diagnosis and treatment, particularly for advanced cancer cases that require more costly interventions.
    • Limited Insurance Coverage: Existing insurance schemes primarily cover inpatient costs, leaving patients responsible for outpatient diagnostics and follow-up treatments. This gap significantly contributes to the financial burden on patients and their families.
    • Economic Disparities: Patients from low and middle-income backgrounds face additional hurdles in accessing cutting-edge treatments due to their high costs and limited availability in public health systems.

    What are the steps taken by the Indian Government? 

    • Health Minister’s Cancer Patient Fund (HMCPF): Established in 2009 under the Rashtriya Arogya Nidhi, this fund provides financial assistance up to ₹5 lakh for cancer treatment at designated Regional Cancer Centers (RCCs).
      • In emergency cases, assistance can go up to ₹15 lakh. The fund aims to support patients living below the poverty line.
    • Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (PM-JAY): This scheme offers health coverage of up to ₹5 lakh per family per year for secondary and tertiary care hospitalization, including cancer treatments. It is designed for low-income families and is operational across India.
    • State-Specific Schemes: Various states have their own initiatives:
      • Arogyasri Scheme in Andhra Pradesh: Provides free cancer treatment for families with an annual income below ₹5 lakh.
      • Free Chemotherapy in Odisha: Offers free chemotherapy treatment at district hospitals for poor cancer patients.
      • Financial Assistance in Punjab: Up to ₹1.5 lakh is provided for cancer treatment to eligible residents.

    What strategies can be implemented to mitigate financial toxicity? (Way forward)

    • Strengthening Public Healthcare: Increasing government investment in public health could improve access to affordable cancer care.
      • States like Delhi and Kerala have initiated schemes to support direct medical costs, but broader implementation is needed across India.
    • Supportive Measures for Non-Medical Costs: Initiatives such as discounted travel fares for cancer patients can alleviate some financial burdens associated with non-medical expenses. Expanding these programs could provide significant relief.
    • Role of Nonprofits and CSR: Nonprofit organizations play a crucial role in reducing out-of-pocket expenses through various support services. Increased funding from corporate social responsibility (CSR) initiatives could help these organisations expand their reach and impact.
    • Promoting Philanthropy: Encouraging individual philanthropy among wealthier segments of society could provide critical funding for cancer care initiatives and nonprofits focused on assisting low-income patients.
    • Policy Advocacy: Advocating for policies that address the gaps in insurance coverage and promote equitable access to cancer treatments is essential for reducing financial toxicity in the long term.

    Mains PYQ:

    Q What are the research and developmental achievements in applied biotechnology? How will these achievements help to uplift the poorer sections of the society? (UPSC IAS/2021)

  • Why the tax cuts are a one way gamble?

    Why in the News?

    The Union Budget offers a major tax cut, benefiting taxpayers earning above ₹7 lakh. Rebates and exemptions have increased to reduce liabilities, though it may lead to an estimated ₹1 lakh crore revenue loss.

    What is the logic behind the tax rebates?

    • Boosting Household Consumption: Taxpayers earning ₹7–12 lakh/year now qualify for a full rebate (earlier limited to sub-₹7 lakh earners), saving ₹70,000–₹1.1 lakh annually.
      • This exemption limit was raised from ₹3 lakh to ₹4 lakh for those earning above ₹12 lakh, reducing tax burdens across income groups.It will Increase disposable income to drive consumption, savings, and private investment.
      • With weak private investment and uncertain global demand, tax rebates are aimed at stimulating domestic consumption.
    • Leveraging Tax Buoyancy for Revenue Growth: Despite an 8% tax rate reduction, the government anticipates a 14% rise in direct tax revenue (₹14.3 lakh crore), requiring a 24% income growth among taxpayers. It Simplified tax slabs and phased out the old regime to improve compliance and widen the taxpayer base.
    • Focus on Middle-Class Welfare: The overarching goal of these tax rebates is to support the middle class, which constitutes a significant portion of the electorate and plays a vital role in the economy. By alleviating their tax burden, the government seeks to enhance their financial well-being and foster a more equitable economic environment.

    What are the implications if tax buoyancy does not work out?

    • Revenue Shortfalls: A failure in tax buoyancy would lead to lower than expected tax revenues, resulting in budget deficits. This could force the government to cut essential services and social programs, negatively impacting the welfare of vulnerable populations.
    • Pro-Cyclical Fiscal Policy: Insufficient tax revenue may compel the government to adopt a pro-cyclical fiscal policy, reducing public spending during economic downturns instead of stimulating growth. This can exacerbate economic slowdowns and hinder recovery efforts.
    • Increased Tax Burden on Compliant Taxpayers: To compensate for revenue shortfalls, the government might increase taxes on those who continue to pay taxes, placing a heavier burden on compliant taxpayers and potentially discouraging further compliance and economic activity.

    Is it ‘Fiscal Consolidation’ or ‘Fiscal Contraction’?

    • The current approach appears to lean more towards fiscal contraction rather than fiscal consolidation. The Finance Minister has set a lower deficit target of 4.4% for 2025-26, down from 4.8% in the previous year. This suggests a tightening of fiscal policy rather than an expansion aimed at stimulating growth.
    • Critics argue that such contractionary measures are ill-timed given the current economic slowdown, as they limit the government’s ability to invest in growth-promoting initiatives. The expectation seems to hinge on corporate investment and export growth to drive recovery, which may not be sufficient if domestic demand remains weak due to reduced government spending.
    Aspect Consolidation Argument Contraction Criticism
    Deficit Target Lowered to 4.4% of GDP (from 4.8% in FY24), aiming for 3% by FY29 Aggressive deficit cuts during slowing growth (projected 10.1% nominal GDP) risk stifling recovery
    Revenue Strategy Bank on ₹28.37 trillion net tax receipts (+11% YoY) via compliance gains and income growth No compensatory taxes for high earners (30% slab unchanged) or wealth assets, risking ₹1.26 lakh crore shortfall
    Expenditure Focus Capital expenditure raised to ₹11.2 lakh crore (+17.4% YoY) for infrastructure multipliers Social sector allocations remain stagnant, with FY24 revised spending 15% below initial estimates.

    Way forward: 

    • Balanced Fiscal Approach – Instead of aggressive fiscal contraction, the government should adopt a gradual deficit reduction strategy while maintaining targeted public spending, especially in infrastructure and social sectors, to sustain domestic demand and economic growth.
    • Enhancing Revenue without Burdening Taxpayers – Strengthen tax compliance through digital tracking, rationalize subsidies, and explore progressive taxation on wealth and high-income segments to ensure fiscal stability without increasing the burden on the middle class.

    Mains PYQ:

    Q  Comment on the important changes introduced in respect of the Long-term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019. (UPSC IAS/2018)

  • [pib] Budget 2025-26 removes 7 Custom Duties for Industrial Goods

    Why in the News?

    The Budget proposes to remove 7 customs tariff rates for industrial goods, following a similar step in Budget 2023-24. This will leave only 8 tariff rates, including a zero rate, making customs duty structure more transparent and predictable.

    What is Customs Duty?

    • Customs Duty is a tax imposed on goods that cross international borders to regulate their movement.
    • It helps protect a country’s economy, jobs, environment, and residents by controlling imports and exports.
    • It prevents illegal trade, ensures fair competition, and generates government revenue.
    • The Customs Act, 1962, which defines and regulates customs duty in India.
    • The Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance manages customs duties.
    • Types of Customs Duties in India:
    1. Basic Customs Duty (BCD): Levied on imported goods (0-100%).
    2. Countervailing Duty (CVD): Imposed to balance foreign subsidies (0-12%).
    3. Social Welfare Surcharge (SWS): 10% surcharge to support welfare projects.
    4. Anti-Dumping Duty: Imposed on goods sold below market price to prevent unfair trade.
    5. Compensation Cess: Levied on items like tobacco and pollution-causing goods.
    6. Integrated GST (IGST): Imposed on imports at 5%, 12%, 18%, or 28% rates.
    7. Safeguard Duty: Applied when excessive imports harm domestic industries.
    8. Customs Handling Fee: 1% charge for customs processing.
    • Customs Duty Calculation: Based on product value, origin, composition, and international trade agreements.

    Key Changes Announced to Customs Tariffs:

    • Tariff rates reduced from 15 to 8, Social Welfare Surcharge was removed on 82 items.
    • 36 new life-saving medicines exempted, 5% duty on six more drugs.
    • Full BCD exemption on 35 EV battery capital goods, 28 mobile battery items, and key minerals like cobalt & lithium.
    • 10-year duty exemption for shipbuilding materials; Ethernet Switch duty cut from 20% to 10%.
    • 20% export duty on crust leather removed, handicraft export timeline extended to 1 year.
    • Frozen fish paste duty cut from 30% to 5% to boost seafood exports.
    • Customs assessments limited to 2 years, quarterly importer reporting instead of monthly.

    How India is Protecting Its Economy from Trade War Impact?

    • Rupee-based trade settlements with Russia, UAE & Sri Lanka to reduce dollar dependence.
    • Stockpiling essential imports like semiconductors, rare earth metals, and crude oil.
    • Attracting companies shifting from China with PLI incentives for manufacturing.
    • Paperless customs clearance, AI-driven trade monitoring, and blockchain documentation for smoother trade.
    • Strengthening global trade alliances like IPEF (Indo-Pacific Economic Framework) and Supply Chain Resilience Initiative (SCRI) (Japan-Australia) for supply chain stability.

    PYQ:

    [2018] Consider the following statements

    1. The quantity of imported edible oils is more than the domestic production of edible oils in the last five years.

    2. The Government does not impose any customs duty on all the imported edible oils a special case.

    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