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GS Paper: GS3

  • The Gen Z that wasn’t at Jantar Mantar

    Why in the News

    The Gen Z visible at the Jantar Mantar protest was young, articulate and quotable, and drew wide attention online. A far larger part of the same cohort was absent from those photographs, working as delivery riders, security guards, warehouse packers and unemployed graduates. The gap between the two groups sets up the question of whether a generation that has been given aspiration has also been given the means to act on it.

    What is the demographic dividend?

    1. The concept: A demographic dividend is the growth advantage a country gains when the share of its working age population rises relative to its dependent population. The advantage arises from a temporary shift in age structure, not from population size.
    2. Why it is conditional: The advantage converts into output only where the additional working age population is employed at rising productivity. Absent that, a larger workforce raises the number of job seekers without raising income.
    3. How India has used the term: For two decades the demographic dividend has been described as an asset that pays out automatically. A young population is better understood as capital advanced against a future that has to be built to repay it, and unlike a dividend, it can default.

    What is a reference group?

    1. The concept: A reference group is the set of people against whom an individual measures their own life, as set out by sociologist Robert Merton. Satisfaction depends on the comparison, not on the absolute level of income.
    2. What changed the group: A farmhand can now compare himself with a Dubai apartment or a weekend in Silicon Valley, delivered more reliably than a crop forecast.

    What is the capacity to aspire?

    1. The concept: The capacity to aspire, as framed by anthropologist Arjun Appadurai, is not merely wanting a different future. It is knowing the routes that lead to it.
    2. The asymmetry it exposes: The capacity to imagine has been democratised at internet speed. The capacity to navigate has not.

    What is the gig or platform economy?

    1. The arrangement: Work is allocated by a digital platform on a task by task basis, and the worker is classified as an independent partner rather than an employee. The platform can deactivate a worker without ever meeting him.
    2. What it prices: The platform prices risk more precisely than labour, so incentives rise when it rains rather than when skill accumulates.

    Which Gen Z was absent from the protest?

    1. The delivery rider: A 22 year old delivering dinner to someone watching the protest on a phone, financing a motorcycle on debt he does not fully understand.
    2. The security guard: A worker stationed outside a building, protecting a lifestyle he can see but cannot enter.
    3. The village youth: A young man who can watch a Stanford lecture for free and has no idea what job he will do next year, whose imagination has migrated while his life chances have not.
    4. The three the category quietly merges: A liberal arts student in Delhi, a warehouse packer outside Gurugram and a UPSC aspirant in Bihar are treated as one cohort because they were born within the same 15 years.
    5. What they actually share: They share visibility without access, not a common set of opportunities.

    Why has inequality become harder to bear without becoming larger?

    1. The level is not the change: India has never lacked inequality. What has changed is the technology of experiencing it.
    2. Comparison is no longer rationed: The farmer knew the landlord lived better. He did not begin breakfast watching the landlord’s holiday in the Maldives.
    3. The comparison set is now global: The smartphone has given a young population the entire planet to measure itself against.
    4. Consumption has become identity: The sneaker, the café and the start up vocabulary function as signifiers of having arrived rather than as possessions.
    5. The mismatch of speeds: Desire now travels at the speed of a 5G network. Social mobility still moves at the pace of a passenger train.

    Why does the platform economy break the link between work and status?

    1. The old bargain was legible: Selling labour converted time into standing over a working life, through tenure, wage progression and recognised skill.
    2. The mechanism was removed, not replaced: The platform economy dropped that conversion and substituted the vocabulary of entrepreneurship for it.
    3. Hours convert into more hours: A worker classified as a partner finds that additional hours produce additional hours rather than advancement, described as autonomy.
    4. Deactivation replaces dismissal: Loss of livelihood arrives as an algorithmic status change, without a hearing, a notice period or an identified decision maker.
    5. The scaffolding is missing: Aspiration has been mass produced without the institutions that let a person act on it.

    If a salary cannot deliver status, what does?

    1. A second economy opens: When the economic route to status narrows, an economy of dignity opens in its place.
    2. The substitutes on offer: Religion, nationalism, caste and an online tribe can supply the standing a salary does not.
    3. The switching cost is near zero: A young man cannot change his salary. He can change his avatar.
    4. The consequence for politics: A society that cannot offer its young enough ladders should not be surprised when identity begins to function as one.
    5. What the protest actually demonstrated: The protesters possessed something rarer than anger, which is a vocabulary for it. Most anger never reaches that stage.

    Why should the demographic dividend be read as a loan rather than a payout?

    1. A dividend is unconditional, a loan is not: Treating youth as an asset that pays out automatically removes the obligation to build the employment and training system that repays it.
    2. The default condition is identifiable: Loans default when the future they were advanced against is not built, which in this case means a labour market that cannot absorb the graduates it produces.
    3. The window is finite: The favourable age structure lasts for a fixed period, after which the dependency ratio rises again and the opportunity closes.
    4. The test is not happiness: The operative question is whether a generation believes the future is negotiable, not whether it reports itself content.
    5. The distinction that matters: Every generation tolerates hardship that looks like a corridor. The trouble begins when it starts looking like a closed room.
    6. The unfinished journey: The protesters had travelled from disappointment to language and from anger to demand. Millions of their contemporaries are still between the first two.

    Challenges to realising India’s demographic dividend

    1. Employability lags enrolment: Degree attainment has risen faster than the skills employers price, so unemployment rises with education level rather than falling. Eg. Urban youth unemployment in the 15 to 29 age group stood at 13.6% even as the overall unemployment rate stayed at 3.1%.
    2. The workforce is concentrated in low productivity work: A large share of workers remains in self employment and casual labour, where earnings do not accumulate into savings or standing. Eg. Self employment accounted for 56.2% of employment and casual labour for 20.2%.
    3. Agriculture holds labour it cannot pay for: The sector employs a share of the workforce far above its contribution to output, which caps rural incomes. Eg. Agriculture employs about 43% of the workforce and contributes around 15% to 16% of output.
    4. Female participation limits the size of the dividend: A dividend calculated on the working age population is not realised where half of it stays outside the labour force. Eg. Female labour force participation stood at 40.0% against 79.1% for men.
    5. Social security does not follow the worker: Platform and informal workers move between employers and locations faster than benefit entitlements can be established. Eg. Portable benefits for gig workers were introduced only through the e-Shram linkage under the four labour codes effective 21 November 2025.
    6. The dividend is unevenly distributed across States: States that completed the demographic transition earlier are ageing while the working age surge continues elsewhere, so the labour surplus and the job supply sit in different places. Eg. Kerala’s multidimensional poverty rate of 0.55% sits alongside Bihar’s 33.76%, and the two States are at opposite ends of the age structure.
    7. Aspiration outruns the migration corridor: Young workers who move for work enter cities without housing, portable schooling or urban welfare registration. Eg. Migrant workers were excluded from ration entitlements outside their home State until One Nation One Ration Card portability was rolled out.

    Conclusion

    The visible Gen Z at Jantar Mantar had converted disappointment into a demand, and that conversion is what made it photographable. The larger part of the cohort holds the same grievance without the vocabulary or the platform to state it, which is why absence rather than presence is the more accurate measure of the generation. The demographic dividend framing has obscured this by treating a young population as a payout rather than as a claim that must be earned. What remains unaddressed is the machinery that converts aspiration into mobility, namely employable skills, formal jobs and portable social protection.

    What is Inclusive Growth?

    1. About: Inclusive growth is economic growth that raises the incomes and capabilities of every group in the population, not only aggregate output.
    2. Rationale: It exists because headline growth can rise while the bottom half of the distribution gains little, leaving poverty, unemployment and inequality intact alongside a rising gross domestic product.
    3. The three domains it is studied across: Overall inequality, poverty, and unemployment.
    4. The three dimensions in the framework of the Organisation for Economic Co-operation and Development (OECD):
    5. Participation: All groups are able to contribute to the growth process.
    6. Benefit sharing: All groups gain from growth in proportion to their contribution.
    7. Equity: Historical disadvantages are actively redressed through policy.
    8. Where it entered Indian planning: The Eleventh Five Year Plan (2007 to 2012) was titled “Rapid and More Inclusive Growth” and the Twelfth Five Year Plan (2012 to 2017) was titled “Faster, Sustainable, and More Inclusive Growth”.

    Key Concerns Regarding Inclusive Growth

    1. Trickle down has not operated: Headline expansion in gross domestic product has not translated into proportionate gains for the bottom half of the distribution.
    2. Growth has been jobless in composition: High informal employment shares and structural underemployment persist alongside robust manufacturing and services output.
    3. Regional disparity accumulates: Gains concentrate within urban clusters and industrialised States, widening per capita income divergence across regions.
    4. Redistribution capacity is weak: The effective tax burden on ultra high net worth individuals is often lower than on middle income households, which limits the fiscal space for welfare intervention.
    5. Wealth inequality compounds across generations: Wealth transfers through inheritance in a way income does not, so the wealth distribution is more concentrated than the income distribution and stays that way.
    6. Group based exclusion cuts across income: Gender, caste, region and rural or urban location each produce separate deprivation patterns that an income only measure does not capture.

    Key Facts about India’s Youth and Labour Market

    1. Labour force participation: The labour force participation rate stands at 59.3%, with 79.1% for men and 40.0% for women.
    2. Worker population ratio: The worker population ratio stands at 57.4%, with 76.6% for men and 38.8% for women.
    3. Unemployment: The overall unemployment rate is 3.1%, at 2.4% in rural areas and 4.8% in urban areas.
    4. Youth unemployment: Unemployment in the 15 to 29 age group is 9.9%, down from 10.3% in 2024, with urban youth unemployment at 13.6% against 14.3% earlier.
    5. Employment composition: Self employment accounts for 56.2%, casual labour for 20.2% and regular wage or salaried employment for 23.6%.
    6. Income concentration: The top 10% capture 58% of national income and the bottom 50% earn 15%, per the World Inequality Report 2026.
    7. Wealth concentration: The top 10% hold 65% of national wealth and the top 1% alone holds 40%.
    8. Human development: India ranked 130 of 193 on the Human Development Index with a value of 0.685, and inequality erases 30.7% of that value, bringing the Inequality adjusted Human Development Index to 0.475.
    9. Multidimensional poverty: The national multidimensional poverty headcount fell from 29.17% in 2013-14 to 11.28% in 2022-23, with 24.82 crore people moving out of multidimensional poverty.

    Laws and Rules Governing Gig and Platform Work in India

    1. Code on Social Security, 2020: Provides the first statutory definition of a gig worker and a platform worker in Indian law and empowers the Centre to frame welfare schemes for them.
    2. It provides for an aggregator contribution towards a social security fund, set as a share of the aggregator’s annual turnover subject to a ceiling linked to payments made to workers.
    3. The four labour codes, effective 21 November 2025: Consolidate the earlier labour statutes and introduce a universal minimum wage floor, extend social security to gig workers and provide portable benefits through the e-Shram registry.
    4. Rajasthan Platform Based Gig Workers (Registration and Welfare) Act, 2023: The first State law dedicated to platform workers, providing for a welfare board, mandatory registration of workers and aggregators and a welfare fee levied on transactions.
    5. Karnataka platform based gig workers welfare law, 2025: Establishes a welfare board and a transaction level welfare fee, and provides for notice and a reasoned order before a worker is terminated from a platform.
    6. Unorganised Workers’ Social Security Act, 2008: The earlier framework for welfare schemes for unorganised sector workers, operating through National and State Social Security Boards.

    Government Initiatives for Youth Employment and Skilling

    1. Pradhan Mantri Kaushal Vikas Yojana 4.0 (2022 to 2026): The flagship short term skilling scheme, under which 1.4 crore youth have been trained.
    2. National Apprenticeship Promotion Scheme: Supports stipend linked apprenticeships in establishments, with over 10 lakh registered apprentices.
    3. e-Shram: The national database of unorganised and platform workers, used as the registry through which portable social security benefits are delivered.
    4. Pradhan Mantri Mudra Yojana: Provides collateral free credit to micro enterprises, with disbursement across 43 crore loans since 2015, largely to micro entrepreneurs and women.
    5. PM SVANidhi: Provides working capital loans to street vendors, with 68 lakh loans disbursed.
    6. Viksit Bharat Gramin Rozgar Adhiniyam, 2025: Replaces the earlier rural employment guarantee with a 125 day wage guarantee together with skill and livelihood diversification components, effective 1 July 2026.
    7. Pradhan Mantri Jan Dhan Yojana: Provides the basic banking access on which wage, benefit and credit delivery to young and informal workers rests, with 58.63 crore accounts.

    Challenges in Achieving Inclusive Growth in India

    1. The informal economy absorbs most new entrants: Job creation happens largely outside registered enterprises, where wages, hours and safety are unenforced. Eg. Around 56% to 57% of workers remain self employed rather than in wage employment.
    2. Regional divergence is widening rather than closing: Poorer States add the most working age population while investment concentrates in already industrialised States. Eg. Bihar records a multidimensional poverty headcount of 33.76% and Jharkhand 28.81%, against Kerala at 0.55%.
    3. The rural and urban gap persists in deprivation, not only income: Access to health, schooling and sanitation remains structurally weaker in rural areas. Eg. Rural multidimensional poverty stands at 15.96% against urban at 5.27%.
    4. Caste concentrates assets independently of policy: Ownership of productive wealth remains skewed towards groups that already held it. Eg. Upper castes, at just over a quarter of the population, control 88.4% of billionaire wealth and own nearly 55% of total wealth.
    5. Women’s work is undercounted and underpaid: Unpaid care work keeps women out of measured employment and depresses earnings when they enter it. Eg. Women earn about 61% of men’s hourly earnings excluding unpaid work, and only 32% when unpaid work is included.
    6. The tax system does not redistribute at the top: Low effective tax burdens on the very wealthy constrain the fiscal room for public services that would raise mobility. Eg. The World Inequality Report 2026 finds the effective tax burden on the very wealthy often lower than on middle income households.
    7. Human development trails income growth: Gains in output have not translated into proportionate gains in health, education and gender outcomes. Eg. India’s Gender Inequality Index value is 0.403 with a rank of 102, and the country falls in Group 5 on the Gender Development Index.

    Way Forward

    1. Tie skilling to placement outcomes rather than enrolment counts: Fund training providers on verified employment retention at six and twelve months instead of on numbers trained.
    2. Extend the platform worker welfare model nationally: Convert the State level transaction fee and welfare board design into a uniform national mechanism under the Code on Social Security, 2020 so benefits do not stop at a State border.
    3. Make social protection portable by default: Link e-Shram registration to health, accident and pension entitlements that travel with the worker across employers, platforms and States.
    4. Create a formal job track in labour intensive manufacturing and construction: Direct incentives towards sectors that absorb workers with school level education, rather than towards capital intensive sectors that add output without adding jobs.
    5. Raise female labour force participation through care infrastructure: Expand crèche provision, safe transport and hostel capacity, which are the binding constraints on entry rather than willingness to work.
    6. Publish district level youth employment data: Report youth unemployment and employment composition at the district level so the mismatch between where young workers live and where jobs are created becomes visible to planners.
    7. Strengthen redistribution at the top of the distribution: Widen the base for capital and inheritance related taxation to fund the education, health and urban services that determine mobility.

    “[2014, GS3, 12.5] “While we flaunt India’s demographic dividend, we ignore the dropping rates of employ ability.” What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain”

  • Buffalo meat exports boom: Read the message

    Why in the News

    India’s buffalo meat exports hit a record 5.1 billion dollars in 2025-26 and are set to cross 6 billion dollars in the current financial year. The boom rests on a market for culled unproductive buffaloes that lets dairy farmers turn their herds over, and the same herd turnover logic is blocked for cattle by a political prohibition.

    What is India’s buffalo meat export trade?

    1. The product: Buffalo meat, known in international trade as carabeef, is meat obtained from buffaloes and is exported almost entirely in deboned and frozen form.
    2. The source animal: The animals culled are mostly buffaloes not giving enough milk and males, which have no role in a dairy herd beyond breeding.
    3. The export channel: Exports are allowed only through government approved abattoirs and processing plants, which is what makes compliance with importing country standards enforceable at the point of slaughter.
    4. The quality regime: The trade operates under internationally recognised quality and hygiene standards, and the product is now positioned on its own profile rather than as a cheaper alternative to regular cattle beef.

    What is a spent animal in dairy farming?

    1. Definition: A spent animal is a milch animal that has passed the productive phase of its lactation life and no longer yields enough milk to justify the cost of maintaining it.
    2. Why the term matters here: India’s buffalo meat comes from spent buffaloes that have outlived their usefulness as milkers, not from animals reared for meat.

    What is unit value realisation?

    1. Definition: Unit value realisation is the average price earned per physical unit of a good exported, calculated by dividing total export value by total export quantity.
    2. What it indicates: A rise in unit value realisation with volumes unchanged shows the product is being sold into a higher grade market rather than simply in larger quantity.

    What is the inter calving interval?

    1. Definition: The inter calving interval is the period between two successive calvings of the same animal, and it determines how frequently the animal returns to a fresh lactation.
    2. Why it matters: A longer interval means fewer lactations across an animal’s productive life, so lifetime milk output falls even where daily yield is unchanged.

    What do the buffalo meat export figures show about the trade’s position?

    1. A record year: Buffalo meat exports reached a record 5.1 billion dollars in 2025-26.
    2. The projection: Exports are set to cross 6 billion dollars in the current financial year.
    3. Price realisation: Unit value realisations have risen from below 3,000 dollars to more than 4,000 dollars per tonne over the last two to three years.
    4. Established markets: The industry has built a market across countries in Southeast Asia, West Asia and Africa.
    5. New markets: Uzbekistan, Russia and Georgia are the more recent additions to the destination list.
    6. The repositioning: The rise in realisation followed concerted effort at raising the product profile of Indian buffalo meat, which shows the gain came from grading and standards rather than from volume alone.

    How does the buffalo meat trade support India’s dairy economy?

    1. It creates a market for the unproductive animal: By creating a market for unproductive buffaloes, meat plants have enabled farmers to replace low yielding and ageing animals with high milking and fresh stock.
    2. It removes a direct maintenance cost: The fodder, feed, water and labour that go towards maintaining an unproductive animal are a direct cost on the farmer with no returning output.
    3. It removes an opportunity cost: The same fodder, feed, water and labour, if allocated to a more productive bovine, would produce output, so keeping an unproductive animal costs the farmer the foregone milk as well.
    4. It makes herd turnover possible: Regular herd turnover is essential for any viable dairy enterprise, and turnover is only possible where the exiting animal has a destination.
    5. It avoids competition for scarce resources: The buffaloes going to the slaughterhouse are not competing for scarce feed and water with the ones giving milk, which makes the arrangement more sustainable than one where both are maintained.
    6. It supports rising milk demand: Consumption of milk, especially high fat milk, is growing in India on the back of rising incomes, and buffalo milk is the high fat segment of that demand.

    What does the Brazil and United States model show about India’s dual purpose bovine economy?

    1. Brazil, separate herds for separate purposes: Brazil rears cattle separately for milk and for beef, with beef production built on dedicated meat breeds rather than on animals exiting a dairy herd.
    2. United States, the same separation: The United States also rears cattle separately for milk and beef, so its beef supply is generated by a purpose built industry independent of dairy herd turnover.
    3. India’s contrasting structure: In India the meat comes from spent buffaloes that have outlived their usefulness as milkers, so the meat industry is a downstream consequence of dairying rather than a parallel industry.
    4. What the comparison establishes: The comparison rests on these two country cases alone, and it establishes one design point, that India’s meat output is structurally tied to the productivity cycle of its dairy herd and cannot expand independently of it.

    Why can buffaloes alone not meet India’s growing milk demand?

    1. Lower yields: Buffalo milk yields are lower compared to yields from crossbred cows, so the same herd size produces less milk.
    2. Later entry into production: The age at which a buffalo first begins producing milk is higher than for a crossbred cow, which shortens its productive life within a given lifespan.
    3. Longer inter calving intervals: Buffalo inter calving intervals are longer, which reduces the number of lactations an animal delivers across its productive years.
    4. The medium term conclusion: Buffaloes alone cannot supply India’s increasing milk requirement from a medium to long term perspective, whatever support the meat export market provides to buffalo rearing.
    5. What follows for cattle: A scientific approach to culling unproductive animals is therefore necessary in cattle too, whether for breeding and reproductive efficiency or for redirecting finite resources to higher yielding stock.

    Why does the same culling logic that sustains buffalo dairying not extend to cattle?

    1. The economics are identical: An unproductive cow imposes the same fodder, feed, water and labour cost on the farmer as an unproductive buffalo, and the same foregone output.
    2. The outlet is not: Buffaloes have a legal and organised outlet through approved abattoirs, while cattle slaughter is prohibited or heavily restricted in most States.
    3. The consequence for the farmer: Without an outlet, the farmer either maintains an animal that yields nothing or abandons it, and neither choice permits the herd turnover a viable dairy enterprise requires.
    4. The consequence for the herd: Blocked turnover holds low yielding animals inside the national cattle herd, which suppresses average productivity and works against the very breed improvement programmes the State funds.
    5. Where the decision sits: The choice on scientific culling in cattle is a political one, and the political leadership cannot avoid taking that call if dairy productivity is to rise.

    Challenges to India’s buffalo meat export trade

    1. Dependence on a narrow set of importing markets: A large share of export value goes to a small group of destinations, so a single import ban moves the whole trade. Eg. Restrictions on Indian buffalo meat by importing countries on animal health grounds have previously stalled shipments to major West Asian destinations.
    2. Animal disease status: India’s foot and mouth disease status keeps several high value markets closed regardless of processing standards. Eg. Japan, South Korea and the European Union remain effectively closed to Indian bovine meat on foot and mouth disease grounds.
    3. Concentration in approved plants: Exports flow only through government approved abattoirs and processing plants, and their number and geographic spread limit the trade’s capacity. Eg. Approved integrated abattoirs are concentrated in a few States in northern and western India, leaving southern producers dependent on long distance animal transport.
    4. Transport and cruelty compliance: Long distance movement of animals to approved plants attracts enforcement action and litigation under animal welfare law. Eg. The Prevention of Cruelty to Animals (Regulation of Livestock Markets) Rules, 2017 restricted sale of cattle for slaughter in animal markets before they were stayed and later withdrawn.
    5. Informal segment outside the regime: Domestic slaughter for local consumption occurs largely in municipal and unregistered facilities outside the export quality regime, which carries public health and reputational risk for the whole sector. Eg. Municipal slaughterhouses in several cities have been ordered shut by courts and tribunals for effluent and hygiene violations.
    6. Currency and tariff exposure: Realisations in dollar terms are sensitive to exchange rate movement and to tariff changes in destination markets. Eg. The shift of Indian buffalo meat into Russia and Georgia followed changes in trade access rather than any change in Indian production.
    7. Substitution by competing suppliers: Brazil and Australia compete in the same low and mid price bovine meat segments with disease free status and larger scale. Eg. Brazilian beef has displaced Indian buffalo meat in several Southeast Asian markets during periods of price parity.

    Conclusion

    The buffalo meat export boom is not merely a trade success, it is evidence that a legal culling market is what allows a dairy herd to renew itself. Record exports of 5.1 billion dollars in 2025-26 rest on animals that had stopped producing milk and were therefore consuming feed, water and labour without return. The same logic applies to cattle, where blocked turnover keeps low yielding animals in the herd and holds average productivity down. What remains unresolved is the political decision on scientific culling in cattle, without which breed improvement spending will keep working against a herd it cannot renew.

    “[2015, GS3, 12.5] Livestock rearing has a big potential for providing non-farm employment and income in rural areas. Discuss suggesting suitable measures to promote this sector in India.”

  • RWAs a barrier, Govt may let high-income households compile own spending data

    Why in the News

    The Ministry of Statistics and Programme Implementation (MoSPI) is considering a separate diary based method of recording expenditure for high income households living in gated societies. The proposal answers a refusal rate that has climbed fastest at the top of the income distribution. It also splits a single national survey across two different collection methods.

    What is the Household Consumption Expenditure Survey?

    1. What it measures: The Household Consumption Expenditure Survey (HCES) records how much a household spends on goods and services over a reference period. It covers rural and urban households across the country.
    2. Who runs it: The National Statistics Office under MoSPI conducts it as a sample survey using tablets to record responses.
    3. What the output is used for: The spending shares it produces fix the weights of the Consumer Price Index (CPI) basket, which forms the basis of headline retail inflation. The Reserve Bank of India (RBI) looks at that inflation measure while deciding on interest rates, against a CPI target of 4% within a band of 2% to 6%.
    4. How often it runs: It was earlier conducted every five years. Two back to back rounds ran in 2022-23 and 2023-24 after an overhaul of methods, and the ministry now intends a round every three years or so.

    What is diary based data collection?

    1. The method: The household itself notes down the information as and when the relevant activity occurs, instead of answering a field official at the door. For the HCES this means jotting down monthly spending on different goods and services, ranging from food items to haircuts.
    2. The form it may take: The record need not be a physical diary. The ministry may allow such households to enter consumption expenditure details on an online portal.

    What is recall error in survey data?

    1. The defect: Recall error is the gap between what a household actually spent and what a respondent remembers spending when asked later. It rises with the length of the reference period and the number of items being recalled.
    2. Why the diary reduces it: A household writing an entry at the moment of purchase is not relying on memory at all. The error the interview method introduces is therefore absent from the diary record.

    How far has participation in official surveys fallen?

    1. Urban non response: The overall urban non response rate during the 2022-23 HCES rose to 9.8%, from 2.8% in the 75th round of the National Sample Survey conducted from July 2017 to June 2018.
    2. Rural non response: The rural rate rose to 4.1% over the same period, from 1.5%.
    3. The most affluent respondents: For the most affluent urban and rural respondents, the non response rate stood at 11% and 3.9% respectively.
    4. The earlier baseline: In the 2011-12 survey the corresponding figures for those groups were 3.3% and 1.3%.
    5. The scale of the last round: The most recent HCES, conducted from August 2023 to July 2024, surveyed 2.6 lakh households across the country, barring a few inaccessible villages in the Andaman and Nicobar Islands. It sought responses for a total of 405 goods and services.
    6. The next round: The next edition is expected to begin in mid-2027 and continue for about a year, with the diary method proposed only for richer households in gated societies on a pilot basis.

    Why do affluent households refuse to be surveyed?

    1. Physical exclusion by the association: Resident Welfare Associations (RWAs) have cited security as the reason for not permitting survey staff inside gated societies. Field officers already inform the district collector, local bodies and the police station to obtain permission and support before entry.
    2. Objection to the questions themselves: RWAs have objected to the sensitive and private nature of some questions asked in government surveys.
    3. Fear of onward sharing: RWAs have voiced the apprehension that the details may be shared with other government departments. MoSPI has stated that data privacy is paramount and that the data is anonymised.
    4. Inability to remember: Households have cited the difficulty of recalling expenditure details accurately during a door to door interview.
    5. Discomfort within the family: Residents have cited unease at answering certain questions in front of family members, such as expenditure on alcohol and cigarette consumption.
    6. No perceived reason to participate: MoSPI has recorded a lack of awareness of why these surveys matter for policy, which often leads to outright refusal. Eg. Residents of an affluent society in Gurugram refused to take part in the Time Use Survey.

    Why does refusal concentrated at the top distort national estimates?

    1. The sample shrinks: A rise in non response rates curtails the achieved sample size of a survey.
    2. The sample changes shape: Non responses drawn from one segment leave the final composition of the sample different from what was intended, which produces incorrect estimates from the exercise.
    3. Substitution moves the problem, it does not solve it: Where access failed, the ministry substituted the original residential society with a similar one, so the households actually surveyed are not the households the design selected.
    4. The refusal is not confined to one survey: Similar incidents have been reported from high rises in Bengaluru, Kolkata, Udaipur, Mumbai and Bhopal for the HCES, the Periodic Labour Force Survey, the Annual Survey of Unincorporated Sector Enterprises and the Urban Frame Survey.
    5. Policy is built on these numbers: Government policy is increasingly data and evidence driven, so a biased estimate leads to inappropriate conclusions and decisions that do not produce the desired result.

    What does international practice show about diary based expenditure surveys?

    1. United Kingdom: The Office for National Statistics runs the Living Costs and Food Survey, in which each adult in a selected household keeps a two week spending diary. The results feed the weights of the United Kingdom consumer price indices.
    2. United States: The Bureau of Labor Statistics runs the Consumer Expenditure Surveys in two parts, a quarterly interview component and a separate diary component in which households record purchases for two consecutive one week periods.
    3. Japan: The Statistics Bureau runs the Family Income and Expenditure Survey using a household account book kept by the household over a fixed period rather than a single recall interview.
    4. Australia: The Australian Bureau of Statistics collects a two week personal expenditure diary from household members in its Household Expenditure Survey, alongside a face to face interview.
    5. The limit of the evidence here: The proposal is defended on the ground that the diary method is used in other countries, without naming a country or a comparability finding from any of them.

    Can one survey run on two collection methods without breaking its own comparability?

    1. Two data sets, one estimate: The practical problem is how data compiled through two different methods will be stitched together into a single national estimate.
    2. The error is asymmetric by design: Data collected door to door from poorer households would carry higher recall error than diary based data supplied by richer households. The difference in the numbers would then reflect the method as much as the spending.
    3. The asymmetry runs the wrong way: India's survey samples are dominated by the low income group, so the method with the larger error would apply to most of the sample.
    4. Literacy sets the boundary: Lower literacy rates in the low income group mean only higher income households can be expected to follow the diary method correctly.
    5. The department's own position: MoSPI has stated that the integration of diary compiled data with the main survey is still being worked out and that the proposal is at a planning stage.

    Challenges to the diary based collection proposal

    1. No legal compulsion behind participation: Voluntary compliance is what has broken down, and a change of instrument does not create an obligation to respond. Eg. Residents of gated societies have simply stated that they do not want to participate in a survey, with no consequence following.
    2. Self reporting understates socially sensitive spending: Items respondents are reluctant to declare in front of family are also the items most likely to go unrecorded in a self kept diary. Eg. Expenditure on alcohol and cigarette consumption was named by RWAs as a category respondents avoid.
    3. A portal shifts the burden to the respondent: An online entry system asks an unpaid household to do the work a trained investigator was paid to do, which raises the risk of partial and abandoned records. Eg. The ministry already uses tablets for field recording, so the enumerator side of the process is not the bottleneck.
    4. A pilot on one income class cannot be validated: Without running both methods on the same households, there is no way to separate a method effect from a real difference in spending. Eg. The 2017-18 consumption expenditure survey was junked in November 2019 after its results were questioned on data quality grounds, showing how a contested method destroys the entire round.
    5. Privacy assurance rests on administrative practice: Anonymisation has been promised as a departmental assurance rather than as an enforceable statutory guarantee against onward sharing. Eg. RWAs specifically raised the fear that details would travel to other government departments.
    6. Class segregated methods invite challenge to the inflation number itself: A CPI weight derived from two collection systems can be contested on the ground that the two halves are not measuring the same thing. Eg. The food group weight in the CPI was cut sharply on the basis of the 2023-24 HCES, a revision that depends entirely on the survey being internally consistent.

    Conclusion

    The proposal is at the planning stage, with a diary based pilot intended for high income households in gated societies before the 2027-28 consumption expenditure survey begins. The problem it addresses is real, since non response among the most affluent urban respondents has reached 11% against 3.3% in 2011-12. The unresolved question is the one the ministry itself has flagged, namely how a diary record and a door to door interview can be combined into one estimate when they carry different recall error. Until that is settled, the fix repairs coverage at the cost of comparability.

    About India's Consumption and Price Statistics System

    1. What the Consumer Price Index measures: It captures the price change experienced by the average urban and rural household across food, housing, transport, healthcare, education, clothing and services. It is the closest approximation to the cost of living for a typical household.
    2. How the basket is organised: The CPI is built on 12 divisions of the Classification of Individual Consumption According to Purpose, 2018 (COICOP-2018), covering food and non-alcoholic beverages, pan, tobacco and narcotics, clothing and footwear, housing, water, electricity, gas and other fuels, furnishings and routine household maintenance, health, transport, information and communication, recreation, sport and culture, education, restaurants and accommodation services, and personal care, social protection and miscellaneous items.
    3. The weight of food: Food and non-alcoholic beverages carry a weight of about 36.75% in the CPI, revised down from 45.86%.
    4. The food price index: The Consumer Food Price Index (CFPI) is derived from Division 1 of COICOP-2018 and is published separately for rural, urban and combined series. Its sub components include cereals, milk, meat and fish, oils and fats, vegetables, fruits, pulses, spices and sugar.
    5. Headline against core: Headline inflation includes every item in the basket and swings with monsoons, global crude and supply disruptions. Core inflation strips out food and fuel to give a cleaner read of demand driven, sticky inflation.
    6. The wholesale index: The Wholesale Price Index (WPI), on a 2011-12 base, measures what the economy produces and trades at wholesale. Manufacturing alone accounts for about 64% of the WPI, and food articles at the farm gate together with food manufacturing account for only about 24%.
    7. How the two indices enter national accounts: Goods producing sectors such as agriculture, mining and manufacturing are deflated using the WPI, since their transactions occur at the wholesale level. Services sectors are deflated using CPI components or dedicated services price indices.
    8. Where consumption data feeds employment and enterprise statistics: The Periodic Labour Force Survey (PLFS), launched in 2017-18, tracks employment, workforce participation and unemployment. The Annual Survey of Unincorporated Sector Enterprises (ASUSE) captures output, employment, wages and value added in the informal business economy.

    Laws and Rules Governing Official Statistics in India

    1. Collection of Statistics Act, 2008: Provides the legal framework for the collection of statistics on economic, demographic, social, scientific and environmental matters by the Centre, States and local bodies.
    2. It empowers a statistics officer to require information and penalises wilful refusal or supply of false information.
    3. The Collection of Statistics (Amendment) Act, 2017 extended the framework to the erstwhile State of Jammu and Kashmir and clarified the Centre's powers over subjects in the Union and Concurrent Lists.
    4. Collection of Statistics Rules, 2011: Lay down the procedure for notification of a statistical survey, appointment of statistics officers, service of notices and the handling of returns.
    5. Census Act, 1948: Governs the conduct of the decennial Census and the appointment of census officers.
    6. It makes information given to a census officer confidential and inadmissible as evidence, a confidentiality guarantee the Collection of Statistics framework does not replicate in the same terms.
    7. Registration of Births and Deaths Act, 1969: Provides the civil registration system that supplies vital statistics independent of survey estimates.
    8. Digital Personal Data Protection Act, 2023: Governs the processing of digital personal data and shapes how identifiable household records collected in surveys may be stored and shared.
    9. Right to Information Act, 2005: Provides the route through which unit level survey data and methodology notes are sought from statistical agencies.

    Government Initiatives

    1. National Statistical Commission: Constituted in 2005 on the recommendation of the Rangarajan Commission, it advises on statistical priorities, standards and the release calendar of official statistics.
    2. eSankhyiki portal: A MoSPI platform that brings macro indicators and survey outputs into a single searchable data lake for public and departmental use.
    3. National Data and Analytics Platform: A NITI Aayog initiative to standardise and publish government datasets in machine readable form for researchers and administrators.
    4. Data Governance Quality Index: Scores ministries and departments on the quality of their administrative data systems, aimed at raising the reliability of data generated outside sample surveys.
    5. Revamped Periodic Labour Force Survey: From January 2025 the survey shifted to the calendar year, expanded its sample and moved to monthly reporting of key labour market indicators.
    6. Sustainable Development Goals National Indicator Framework: Maintained by MoSPI, it fixes the national indicators against which progress on the Sustainable Development Goals is reported.

    Key Facts about India's Statistical System

    1. National Statistics Day: Observed on 29 June, the birth anniversary of Prasanta Chandra Mahalanobis, recognised as the architect of India's sample survey system.
    2. World Statistics Day: Observed on 20 October, designated by the United Nations Statistical Commission.
    3. Origins of the survey system: The National Sample Survey was set up in 1950 on Mahalanobis's initiative, making India one of the earliest large scale household survey systems in the developing world.
    4. Institutional merger: The Central Statistics Office and the National Sample Survey Office were merged into the National Statistical Office in May 2019.
    5. International standards: India was among the first countries to subscribe to the International Monetary Fund's Special Data Dissemination Standard, in 1996.

    Back2Basics: National Sample Survey

    1. What it is: A nationwide, large scale sample survey system that collects household and enterprise data through successive rounds, each round running for a fixed period.
    2. Who runs it: The National Statistical Office under MoSPI, through a field operations wing with offices across the country.
    3. How rounds work: Each round carries a principal subject, such as consumption expenditure, employment and unemployment, health, education or land and livestock holdings, with subjects rotating across rounds.
    4. Design: It uses a stratified multi stage sample design covering rural and urban areas, with villages and urban blocks as first stage units and households as ultimate units.
    5. Why the round number matters: Round numbers identify the survey period, so the 75th round refers to the survey conducted from July 2017 to June 2018.

    Challenges in India's Official Statistical System

    1. The sampling frame ages between Censuses: Village lists and urban blocks used to draw samples are anchored to the last Census, so the frame drifts from reality as migration and new construction accumulate. Eg. The decennial Census due in 2021 was deferred, leaving the 2011 Census as the frame for over a decade of surveys.
    2. Base years lag the structure of the economy: An index built on an old base assigns weights drawn from a consumption or production pattern that no longer exists. Eg. The Wholesale Price Index still uses 2011-12 as its base year.
    3. Comparability breaks at every methodological revision: A redesigned questionnaire produces a series that cannot be compared with its own predecessor, which destroys the ability to measure change. Eg. The 2011-12 and 2022-23 consumption rounds used different questionnaire designs, so poverty change between them cannot be read off directly.
    4. Contested releases erode trust in the system: A withheld or discarded round leaves policy without a number and invites the charge that inconvenient results are suppressed. Eg. Two members of the National Statistical Commission resigned in January 2019 over the withholding of employment survey results.
    5. No updated official poverty line: Welfare targeting continues on a threshold fixed against a consumption pattern from an earlier decade. Eg. No official poverty line has been revised since the estimates based on 2011-12 data.
    6. Administrative data sits outside the statistical system: Rich transaction records held by other departments are not routinely used to validate or supplement survey estimates. Eg. Goods and Services Tax returns, e-Shram registrations and direct benefit transfer records are maintained in separate systems from the household survey series.
    7. Privacy law raises the cost of collection: Stricter obligations on identifiable personal data increase the compliance burden on an agency that collects household level detail at scale. Eg. The Digital Personal Data Protection Act, 2023 applies to digital personal data held by government bodies with limited carve outs.

    Way Forward

    1. Run both methods on the same households first: Conduct a calibration study in which a subset of households is covered by interview and diary together, so the method effect can be measured and adjusted before the two data sets are combined.
    2. Give the survey a statutory response obligation with a privacy guarantee: Invoke the notification powers under the Collection of Statistics Act, 2008 for the HCES, paired with a published confidentiality and anonymisation protocol that binds onward sharing.
    3. Shorten reference periods rather than change the respondent's job: Use shorter recall windows and item specific reference periods to cut recall error for the interview sample instead of relying on the diary alone.
    4. Publish non response by income group with every release: Report achieved sample and non response rates decile wise alongside each estimate, so users can see where the sample is thin.
    5. Negotiate access through housing federations rather than society by society: Build standing memoranda with apex RWA federations and municipal bodies so that field access does not depend on a fresh permission at every gate.
    6. Refresh the sampling frame on the 2027 Census: Rebuild urban blocks and rural village lists on the new Census the moment enumeration closes, so the diary pilot is drawn from a current frame.
    7. Use administrative data as a cross check: Validate high income consumption estimates against Goods and Services Tax turnover, card and digital payment aggregates and vehicle and property registration data, without linking them to individual households.

    Matching Previous Year Question

    “[2020] Consider the following statements: 1. The weightage of food in Consumer Price Index (CPI) is higher than that Wholesale Price Index (WPI). 2. The WPI does not capture changes in the prices of services, which CPI does. 3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. Which of the statements given above is/are correct? (a) 1 and 2 only (b) 2 only (c) 3 only (d) 1, 2 and 3 | Answer: (a)”

  • Centre imposes sugar stockholding limit to rein in price increase

    Why in the News

    The Centre on 20 August 2026 imposed a stockholding limit on bulk consumers of sugar and simultaneously allowed duty free import of 10 lakh metric tonne of raw sugar till the end of October. Retail sugar prices had risen about 15 per cent in a month ahead of the festive demand peak, which has pulled a commodity the government had been steadily deregulating back under the controls of the Essential Commodities Act, 1955.

    What is a stockholding limit under the Essential Commodities Act, 1955?

    1. What it does: A stockholding limit is an order fixing the maximum quantity of a notified commodity that a specified class of trader, processor or bulk consumer may hold at one time, or the maximum period for which it may be held.
    2. The legal source: It is issued by the administering ministry under Section 3 of the Essential Commodities Act, 1955, which empowers the Centre to regulate production, supply, distribution, trade and commerce in an essential commodity.
    3. The economic purpose: By capping how long stock can sit with a buyer, the order forces held inventory back into circulation and removes the incentive to accumulate ahead of an expected price rise.
    4. Its temporary character: Such orders carry a stated duration or a stated coverage period, because a permanent cap would function as a structural restriction on trade rather than a price intervention.

    What is a Tariff Rate Quota?

    1. Definition: A Tariff Rate Quota permits a fixed quantity of a good to be imported at a reduced or zero duty within a stated period, with imports beyond that quantity attracting the normal tariff.
    2. Why it is used: It supplies a targeted volume to correct a domestic shortage without dismantling the tariff protection that the domestic industry otherwise enjoys.

    What is an Advance Authorisation?

    1. Definition: It is a scheme permitting duty free import of inputs that are physically incorporated into a product meant for export, subject to an export obligation.

    What are the Standard Input Output Norms?

    1. Definition: The Standard Input Output Norms (SION) are the notified input to output ratios that fix how much of an input may be imported duty free for a given quantity of export product.
    2. The norm for sugar: SION E-52 is the norm applicable to sugar.

    Who does the sugar stockholding order cover and what does it require?

    1. Confectioners: Confectionery manufacturers using sugar as a production input fall within the class of bulk consumers covered by the order.
    2. Soft drink manufacturers: Beverage manufacturers are the second named category of bulk consumer brought under the limit.
    3. Food processing industry: Food processing units using sugar as raw material are the third named category.
    4. Sweetmeat sellers: Sweetmeat sellers form the fourth named category in the order.
    5. Any other institutional buyer above the threshold: The order extends to any other institutional buyer consuming not less than ten metric tonne of sugar as average monthly consumption over the past one year, excluding the current month.
    6. The fifteen day rule: No bulk consumer using more than ten metric tonne of sugar per month as raw material for production, consumption or use may keep sugar in stock for any period exceeding 15 days for such consumption or use.
    7. The exemption: Government institutions are kept outside the purview of the order.

    How will compliance with the stock limit be verified?

    1. Mill level sales data: The monthly quantity of sugar sold by each sugar mill to a bulk consumer is to be verified, whether that sale was made directly or routed through dealers.
    2. Consumption determined from tax returns: The consumption of each bulk consumer is to be determined with reference to the Goods and Services Tax returns filed by the sellers or the buyers, or both.
    3. The Harmonised System of Nomenclature code: The determination uses the relevant Harmonised System of Nomenclature code applicable to sugar, which is the standardised commodity classification used in tax and customs filings.
    4. Why this mechanism matters: Verification runs off filings the buyer already makes for tax purposes rather than off a separate physical inspection regime, which removes the need for a new inspectorate to enforce the cap.

    What do the price figures show about the trigger for the order?

    1. The current level: Sugar retail prices touched Rs 5,152.44 per quintal on Thursday, 20 August 2026, on the price portal maintained by the Department of Consumer Affairs.
    2. The one month rise: That level is a 15.12 per cent rise over Rs 4,475.84 per quintal a month earlier.
    3. The one year rise: It is a 19.68 per cent rise over Rs 4,305.05 per quintal a year earlier.
    4. The rate of acceleration: Close to four fifths of the annual increase occurred within the final month of the series, which points to a short run supply and holding response rather than a slow structural rise.
    5. The seasonal context: The spike lands with the festive season approaching, when sweetmeat, confectionery and beverage demand for sugar is at its annual peak.

    Why has the Centre paired stock limits with duty free imports?

    1. A two pronged approach: The government has described the intervention as a two pronged approach, acting on domestic holding and on import supply at the same time.
    2. Stock limits address holding: The 15 day cap targets sugar already inside the country that is being held by bulk consumers rather than converted into output.
    3. Imports address volume: The Ministry of Commerce and Industry amended the import policy for raw sugar to allow 10 lakh metric tonne of duty free imports under Tariff Rate Quota till 31 October 2026, which adds physical supply that stock limits alone cannot create.
    4. The conversion option: A one time option allows conversion of Advance Authorisations already issued under SION E-52 to the Tariff Rate Quota scheme, for the quantity of raw sugar actually imported under them up to the date of the notification, subject to specified conditions.
    5. Why one instrument alone would fail: A stock limit without added supply merely redistributes a shortage across the chain, while imports without a holding cap can be absorbed into inventory instead of reaching the retail price.

    Challenges to using stock limits to control sugar prices

    1. Signalling effect on the trade: An Essential Commodities Act order signals that the Centre will intervene again, which discourages legitimate seasonal inventory building by processors. Eg. Stock limits imposed on pulses in 2015 were followed by traders shifting holdings to unregulated intermediaries rather than releasing them to the market.
    2. Enforcement rests with State machinery: The order is issued by the Centre but is enforced through State civil supplies departments whose inspection capacity varies widely. Eg. Enforcement of edible oil stock limits notified in 2021 differed sharply across States, with several reporting negligible verification.
    3. Displacement rather than release: A cap on bulk consumers does not bind mills, dealers or unregistered buyers, so stock can move down the chain instead of into consumption. Eg. The present order exempts government institutions and does not fix a limit on the mills themselves.
    4. The ethanol diversion trade off: Sugar diverted to ethanol under the blending programme reduces the quantity available for the sweetener market, and the diversion decision is taken separately from price management. Eg. Sugar diversion to ethanol has crossed 35 lakh tonne in recent seasons, which directly reduces the sugar balance sheet.
    5. Import lead time: Duty free import permission does not translate into arrivals within the price window it is meant to address, because contracting, shipping and refining take weeks. Eg. The present window closes on 31 October 2026, which leaves a narrow period for contracting and delivery ahead of the festive peak.
    6. Producer price consequences: Import liberalisation and stock caps depress mill realisations, which feeds into delayed cane payments to farmers. Eg. Cane arrears in Uttar Pradesh have historically risen in seasons when mill realisations were compressed by policy interventions.

    Conclusion

    The Centre has notified a 15 day stockholding cap on bulk sugar consumers under Section 3 of the Essential Commodities Act, 1955, and separately amended the raw sugar import policy to allow 10 lakh metric tonne of duty free import. The order stands issued and in force, with compliance to be determined from Goods and Services Tax filings using the sugar Harmonised System of Nomenclature code. The next stated milestone is 31 October 2026, when the duty free Tariff Rate Quota import window closes.

    Sugar Sector in India

    1. Scale: India is among the world's largest producers of sugar and is the largest consumer, with sugarcane occupying a large share of the country's irrigated cropped area.
    2. Producing States: Uttar Pradesh, Maharashtra and Karnataka together account for the bulk of national sugar output, with Tamil Nadu, Gujarat and Andhra Pradesh forming the second tier.
    3. Livelihood base: Around five crore sugarcane farmers and their dependants, along with workers employed in mills and ancillary units, depend on the sector.
    4. A multi point regulated commodity: The sector is regulated at the cane price, at the mill's monthly sale quantity, at the mill's minimum selling price and at the export and import margin, which makes it one of the most administered agricultural value chains in India.
    5. Cane price mechanism: The Centre fixes a Fair and Remunerative Price on the recommendation of the Commission for Agricultural Costs and Prices, and several States additionally announce a higher State Advised Price.
    6. The ethanol link: Sugar and cane juice are diverted to ethanol production under the Ethanol Blended Petrol Programme, which makes the sugar balance sheet directly sensitive to fuel blending policy.

    Laws and Rules Governing Sugar and Essential Commodities

    1. Essential Commodities Act, 1955: Empowers the Centre to control the production, supply, distribution, trade and commerce of commodities notified as essential.
    2. Section 3 is the operative provision under which stock limits, licensing and price control orders are issued.
    3. The Essential Commodities (Amendment) Act, 2020 removed cereals, pulses, oilseeds, edible oils, onion and potato from regulation except in extraordinary circumstances, and was repealed by the Farm Laws Repeal Act, 2021.
    4. Sugarcane (Control) Order, 1966: Provides for the fixation of the minimum price of sugarcane payable by producers and for cane area reservation and bonding with mills.
    5. Sugar (Control) Order, 1966: Empowers the Centre to regulate the production, sale, storage and movement of sugar by mills, including the monthly release quota.
    6. Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980: Provides for preventive detention of persons acting in a manner prejudicial to the supply of essential commodities.
    7. Foreign Trade (Development and Regulation) Act, 1992: Provides the authority under which the Directorate General of Foreign Trade amends the import policy and administers Tariff Rate Quotas.
    8. Customs Tariff Act, 1975: Fixes the tariff rates against which a duty free quota concession operates.
    9. Food Safety and Standards Act, 2006: Governs quality and labelling standards for sugar as a food product.

    Government Initiatives for the Sugar Sector

    1. Ethanol Blended Petrol Programme: Channels surplus sugar and cane juice into fuel ethanol, giving mills an alternative revenue stream and reducing the sugar surplus that depresses domestic prices.
    2. Minimum Selling Price for mills: A floor price below which mills may not sell sugar in the domestic market, introduced to prevent distress sales from eroding the mills' capacity to pay cane dues.
    3. Fair and Remunerative Price: The statutory minimum price payable to cane growers, announced each season on the recommendation of the Commission for Agricultural Costs and Prices.
    4. Soft loan and interest subvention schemes for mills: Extended to sugar mills to clear cane price arrears and to fund ethanol distillation capacity.
    5. PM JI-VAN Yojana: Supports commercial second generation ethanol projects using agricultural residue, widening the ethanol feedstock base beyond cane.
    6. Price Monitoring Division: Maintains daily retail and wholesale price data for essential commodities on the Department of Consumer Affairs portal, which is the basis on which interventions are triggered.

    Key Facts about Sugar in India

    1. The sugar season: The Indian sugar season runs from October to September, not the financial year, which is why import and stock windows are set against October.
    2. Global position: India is the world's largest consumer of sugar and alternates with Brazil at the top of the global production table.
    3. Minimum Selling Price level: The Minimum Selling Price for mills has stood at Rs 31 per kilogram since it was last revised in February 2019.
    4. Cooperative dominance: A large share of the sugar mills in Maharashtra operate in the cooperative sector, which links the industry to State level politics.
    5. Ethanol blending milestone: India reached the 20 per cent ethanol blending level in petrol in 2025, ahead of the original 2030 target.
    6. Byproducts: Bagasse is used for cogeneration of power and press mud for biofertiliser, so a mill's revenue does not depend on sugar alone.

    Challenges in Agricultural Price Stabilisation in India

    1. Leakage and diversion in the public distribution chain: Grain and sugar released at subsidised rates are diverted into the open market before reaching the entitled household. Eg. Sugar released for the public distribution system in several States has been recovered from open market traders during civil supplies raids.
    2. Exclusion errors in beneficiary identification: Households entitled to subsidised supply are left out because the beneficiary list is anchored to an outdated population base. Eg. National Food Security Act, 2013 coverage continues to be calculated on the 2011 Census population, which excludes households added since.
    3. Storage and warehousing deficiency: Inadequate scientific storage causes physical loss between procurement and distribution, tightening supply independent of production. Eg. Foodgrain stored in cover and plinth facilities during the monsoon has repeatedly been reported as damaged in Comptroller and Auditor General audits.
    4. Regional disparity in procurement: Procurement infrastructure is concentrated in a few States, so price support reaches producers unevenly. Eg. Wheat and paddy procurement remains concentrated in Punjab, Haryana and Madhya Pradesh, leaving eastern State growers dependent on traders.
    5. Fiscal burden of the intervention: Price support, buffer carrying cost and subsidised distribution together consume a large and rising share of the food subsidy bill. Eg. The food subsidy has remained among the largest single line items in the Union Budget's revenue expenditure.
    6. The commodity price cycle: High prices in one season induce acreage expansion and a glut in the next, so annual interventions treat a cycle that policy itself reinforces. Eg. The sugar cycle in India has historically alternated between surplus years requiring export subsidy and deficit years requiring import concession.
    7. Weak monitoring data: Price intervention depends on retail price reporting from a limited set of centres, which lags the actual market. Eg. The Department of Consumer Affairs price portal draws daily quotations from a fixed set of reporting centres, which may not capture local scarcity.

    Back2Basics: Essential Commodities Act, 1955

    1. Purpose: It provides for the control of production, supply and distribution of, and trade and commerce in, commodities declared essential in the interest of the general public.
    2. Administering ministry: It is administered by the Department of Consumer Affairs and the Department of Food and Public Distribution under the Ministry of Consumer Affairs, Food and Public Distribution.
    3. The essential commodities list: The Schedule lists the commodities covered, including drugs, fertilisers, foodstuffs, hank yarn, petroleum and products, raw jute and jute textiles, and seeds of food crops.
    4. Power to amend the list: The Centre may add or remove a commodity from the Schedule in consultation with the State Governments, which allows the coverage to change without amending the Act.
    5. Section 3: Empowers the Centre to issue orders regulating or prohibiting production, supply, distribution, storage, transport and disposal of an essential commodity.
    6. Section 7: Prescribes penalties for contravention of an order made under Section 3, including imprisonment and forfeiture of the stock involved.
    7. Delegation to States: The Centre delegates enforcement powers to State Governments, which issue their own control orders and conduct inspections.

    Way Forward

    1. Attach an explicit sunset to the stock order: State the closing date of the stockholding limit in the order itself, so that a price stabilisation measure does not harden into a standing restriction on processors.
    2. Publish stock disclosure in real time: Extend the online stock declaration portal used for pulses and edible oils to sugar, so that holdings across mills, dealers and bulk consumers are visible before an intervention is needed.
    3. Coordinate ethanol diversion with the sugar balance sheet: Fix the season's ethanol diversion cap after the opening stock and expected production are known, rather than treating fuel policy and food policy as separate decisions.
    4. Move cane pricing to a revenue sharing formula: Adopt the revenue sharing approach recommended by the Rangarajan Committee so that the cane price moves with sugar and byproduct realisations instead of being fixed independently of them.
    5. Widen the price reporting base: Expand the Price Monitoring Division's reporting centres and integrate mandi level data, so intervention is triggered on a fuller picture of local scarcity.
    6. Use warehouse receipt financing: Encourage negotiable warehouse receipts so that mills can raise working capital against stored sugar without distress selling, which reduces the volatility that stock limits are later called on to correct.
    7. Time the import window to the demand peak: Align duty free import windows with the contracting and shipping lead time for raw sugar, so that permitted volume actually lands before the festive demand period.

    Matching Previous Year Question

    “[2024, GS3, 15] Elucidate the importance of buffer stocks for stabilizing agricultural prices in India. What are the challenges associated with the storage of buffer stock? Discuss.”

  • Export payments in rupees get trade policy benefits

    Why in the News

    Two paragraphs of the Foreign Trade Policy 2023 were amended on 20 August 2026 so that exporters invoicing overseas sales in Indian rupees receive the same trade policy benefits as those realising payment in foreign currency. Rupee invoicing has been permitted for years without carrying equal benefit, and removing that mismatch shifts the constraint from India's own rulebook to whether foreign buyers will hold and pay in rupees.

    What is the Foreign Trade Policy 2023?

    1. About: The Foreign Trade Policy is the framework issued by the Directorate General of Foreign Trade setting out the rules, entitlements and obligations governing India's exports and imports.
    2. What its benefits are: Policy benefits include duty remission and duty exemption entitlements that lower the cost of inputs used in exported goods, claimed against realised export proceeds.
    3. Export obligation: Several of these entitlements are conditional on the exporter fulfilling a stated export obligation, measured against the value of realised proceeds.
    4. The 2023 version: The current policy has no end date and is amended continuously by notification rather than being replaced every five years.

    What is the Asian Clearing Union?

    1. About: The Asian Clearing Union is a regional payment arrangement established in 1974 to facilitate trade settlements and reduce repeated transfers of foreign exchange by periodically settling the net obligations of its members.
    2. Membership: It has nine members, Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka, represented by their central banks or monetary authorities.

    What is a Special Rupee Vostro Account?

    1. About: A Special Rupee Vostro Account is a rupee account opened in an Indian bank by a correspondent bank of a partner country, through which international trade is invoiced, paid for and settled in rupees.
    2. Its purpose: The framework was implemented in view of the evolving dynamics of India's international trade, and it lets a foreign buyer pay in rupees without either side converting through a third currency.

    What exactly has changed in the Foreign Trade Policy?

    1. The stated purpose of the amendment: Two paragraphs of the Foreign Trade Policy 2023 were amended to align the provisions on denomination of export contracts and eligibility for policy benefits in respect of export realisation in Indian rupees with the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023.
    2. Denomination freed outside the Asian Clearing Union: For countries outside the Asian Clearing Union, export contracts and invoices may now be denominated in any foreign currency or in Indian rupees.
    3. Coverage: The amendments cover exports to all countries, with the applicable rules varying by destination.
    4. Two countries excepted: Eligible rupee payments for exports to any country other than Nepal and Bhutan will now qualify for trade policy benefits and count towards fulfilment of export obligations.
    5. Parity with foreign currency realisation: Rupee earnings received through approved banking channels are to be treated on par with export payments received in foreign currency.
    6. Lines of credit included: Exports financed through the Export-Import Bank of India or through Government of India lines of credit may also be invoiced in Indian rupees.

    Why were rupee realisations treated differently until now?

    1. Two rulebooks had drifted apart: The exchange control regulations permitted receipt in rupees while the trade policy did not extend the same benefit eligibility to those receipts, so the exporter chose the currency and lost the entitlement.
    2. The export obligation problem: An exporter claiming a duty exemption against an export obligation needed the realisation to count, and a rupee realisation that did not count left the obligation unfulfilled on paper.
    3. The Asian Clearing Union carve-out: Settlement among the nine members runs through the Union's own netting mechanism, which is why denomination rules for those destinations differ from the rest.
    4. The effect on behaviour: Faced with the risk of losing entitlements, exporters defaulted to dollar invoicing even where the counterparty was willing to pay in rupees.

    What does rupee invoicing do for India's external position?

    1. Reduces demand for foreign exchange in settlement: Every transaction invoiced in rupees is one that does not require the exporter or the buyer to source dollars, easing pressure on reserves.
    2. Removes a layer of conversion cost: Trade settled directly between two currencies avoids the spread paid twice when a third currency intermediates.
    3. Insulates counterparties under sanctions pressure: Rupee settlement lets trade continue with partners whose access to dollar clearing is restricted, which is why several Asian Clearing Union members matter here.
    4. Supports lines of credit as an export instrument: Invoicing Export-Import Bank of India and Government of India credit lines in rupees keeps both the financing and the payment inside one currency.
    5. Builds a rupee balance abroad: Settlement in rupees creates rupee holdings with foreign banks, which is the first condition for the currency being used beyond bilateral trade.

    Why does a rulebook change not by itself internationalise the rupee?

    1. Willingness sits with the counterparty: India can permit rupee invoicing and cannot make a foreign buyer accept payment in a currency it has no independent use for.
    2. A trade deficit limits the mechanism: Rupee settlement works most easily where flows are balanced, and India's persistent goods trade deficit means partners accumulate rupees faster than they can spend them.
    3. Idle balances need an investment outlet: A rupee balance held abroad is only attractive if it can be deployed in Indian government securities or corporate paper at a return the holder accepts.
    4. Currency weakness discourages holding: A depreciating currency is a poor store of value between invoice and use. Eg. The rupee was quoted at 95.71 to the dollar on the day the notification was issued.
    5. Convertibility remains partial: The rupee is convertible on the current account and only partially on the capital account, which limits what a foreign holder can do with a rupee balance.

    What challenges does rupee-denominated trade settlement face?

    1. Accumulated balances with no deployment route: Partners that sell more to India than they buy build rupee balances they cannot spend. Eg. Rupee balances held under vostro arrangements with Russia accumulated well beyond what Russian buyers could absorb in Indian goods.
    2. Exchange rate risk shifts to the foreign counterparty: A buyer paying in rupees carries the depreciation risk that the exporter previously bore. Eg. The rupee has weakened steadily against the dollar, having breached the 91 mark during 2025-26 and traded near 95.7 in August 2026.
    3. Thin rupee hedging markets offshore: A foreign counterparty cannot cheaply hedge a rupee exposure in the way it hedges a dollar one. Eg. Offshore non-deliverable forward markets in the rupee developed precisely because onshore hedging access is restricted for non-residents.
    4. Correspondent banking and compliance frictions: Opening and operating vostro accounts requires approvals and sanctions screening that smaller banks avoid. Eg. Trade with Asian Clearing Union member Iran has repeatedly stalled on the willingness of banks to handle the settlement leg.
    5. Interest rate and return disadvantage: Rupee balances earn less than the holder can obtain in reserve currency instruments unless a specific investment window is opened. Eg. Permission to invest surplus vostro balances in Indian government securities was extended precisely to address this gap.
    6. Documentation mismatch across regulations: Exporters must satisfy both exchange control and trade policy requirements, and any divergence between them creates a compliance risk. Eg. The present amendment exists only because eligibility rules under the Foreign Trade Policy had drifted from the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023.
    7. Uneven customer experience at the bank counter: Documentation demands and delays at authorised dealer banks slow cross-border remittances regardless of the currency chosen. Eg. A supervisory review found multiple documentation requirements and cases of delay in executing cross-border remittances, and banks were advised to publish a clear policy on documentation, charges, timelines and grievance redress.

    Conclusion

    The amendment removes an internal inconsistency rather than creating a new entitlement, since it makes a rupee realisation earn the same trade policy benefit and count towards the same export obligation as a dollar realisation. That closes the reason exporters had for avoiding rupee invoicing even where the buyer was willing. The notification has been issued by the Directorate General of Foreign Trade and is in effect, and the measure that follows is whether the Special Rupee Vostro Account framework generates enough deployable rupee balances abroad for foreign buyers to choose rupee settlement on their own account.

    India's External Sector

    1. What it covers: The external sector comprises merchandise and services trade, investment flows in both directions, external borrowing, remittances, foreign exchange reserves and the exchange rate that links them.
    2. Two accounts: The current account records trade in goods and services, primary income and transfers. The capital and financial account records investment and borrowing flows.
    3. Direct investment position: India held fifth position globally in foreign direct investment inflows with $28 billion in 2024, fourth position in announced greenfield projects, and fifth position in international project finance deals.
    4. Recent direction of flows: Net foreign direct investment turned negative for three consecutive months during 2025, with gross inflows staying strong while outward investment and repatriation rose.
    5. Currency pressure: The rupee breached the 91 mark against the dollar during 2025-26 and emerged as Asia's worst performing currency amid trade uncertainty.
    6. Energy in the import bill: India depends on imports for over 88% of its crude oil requirement and about half of its natural gas consumption, so the trade balance moves with global energy prices.
    7. Global backdrop: Global foreign direct investment fell 11% in 2024, and the share of foreign direct investment in global Gross Domestic Product fell from 5% in 2007 to under 1% in 2023-24.

    Laws and Rules Governing Foreign Trade and Payments in India

    1. Foreign Trade (Development and Regulation) Act, 1992: Provides for the development and regulation of foreign trade and is the statute under which the Foreign Trade Policy and the office of the Director General of Foreign Trade exist.
    2. Empowers the Central government to formulate and announce the export and import policy and to amend it by notification.
    3. Foreign Exchange Management Act, 1999: Governs all foreign exchange transactions, replacing a control-based regime with a management-based one and treating contraventions as civil rather than criminal.
    4. Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023 prescribe the currencies and channels through which export proceeds may be received, the regulations the present amendment aligns the trade policy to.
    5. Customs Act, 1962: Governs the levy of customs duty, valuation, clearance of goods and the operation of duty exemption and remission schemes at the border.
    6. Customs Tariff Act, 1975: Prescribes the rates of import and export duty and provides for anti-dumping and countervailing measures.
    7. Special Economic Zones Act, 2005: Governs the establishment and operation of zones treated as outside the customs territory for duty purposes.
    8. Reserve Bank of India Master Directions on Export of Goods and Services: Prescribe realisation and repatriation periods, documentation and the role of authorised dealer banks in export transactions.

    Government Initiatives for Export Promotion

    1. Remission of Duties and Taxes on Exported Products: Refunds embedded central, state and local duties and taxes that are not otherwise rebated, at notified rates by tariff line.
    2. Rebate of State and Central Taxes and Levies: Provides rebate of embedded taxes specifically for exports of garments and made-ups.
    3. Advance Authorisation and Duty Free Import Authorisation: Allow duty free import of inputs physically incorporated in an export product, against a stated export obligation.
    4. Export Promotion Capital Goods scheme: Permits import of capital goods at zero duty against an export obligation linked to the duty saved.
    5. Interest Equalisation Scheme: Provided interest subvention on pre-shipment and post-shipment rupee export credit, particularly for micro, small and medium enterprises and for identified sectors.
    6. Districts as Export Hubs: Identifies products with export potential in each district and builds district-level export action plans and institutional support.
    7. Market Access Initiative: Funds participation in international trade fairs, buyer-seller meets and market studies to open new destinations.
    8. Trade Connect e-Platform: Brings exporters, Indian missions abroad, export promotion councils and banks onto a single digital interface for market and regulatory information.

    Back2Basics: Directorate General of Foreign Trade (DGFT)

    1. What it is: The agency responsible for formulating, implementing and amending India's Foreign Trade Policy.
    2. Parent ministry: It functions under the Department of Commerce in the Ministry of Commerce and Industry.
    3. Statutory basis: It operates under the Foreign Trade (Development and Regulation) Act, 1992.
    4. Core function: It issues the Importer Exporter Code, without which no person may import or export except as exempted.
    5. Entitlement administration: It grants authorisations and scrips under the duty exemption and duty remission schemes and monitors fulfilment of export obligations.
    6. Instrument of change: It amends the Foreign Trade Policy and the Handbook of Procedures through notifications, public notices and circulars.
    7. Trade facilitation role: It runs the online platform through which authorisations are applied for and issued, and it handles quality complaints and trade disputes involving Indian exporters and importers.

    Challenges in India's External Sector

    1. Structural merchandise trade deficit: Import demand for energy, electronics and gold consistently exceeds export earnings, which keeps the current account in deficit. Eg. Net oil and gas imports rose 43.4% in value to $57.8 billion in April to July of 2026-27 from $40.3 billion a year earlier.
    2. Concentration of imports in a few commodities: A price shock in one commodity transmits directly to the trade balance. Eg. Every one dollar per barrel increase in oil prices raises India's annual oil import bill by up to $2 billion, on annual imports of 1.8 to 2 billion barrels.
    3. Protectionism and tariff shocks in destination markets: Export access can be withdrawn by unilateral action outside any trade agreement. Eg. Tariffs on key goods surged to 50% in August 2025, disrupting exporter planning.
    4. Competition from alternative manufacturing destinations: Rivals offer faster approvals and wider free trade agreement networks to firms relocating supply chains. Eg. Vietnam, Indonesia and Mexico compete directly for near-shoring investment that India seeks.
    5. Volatility of portfolio capital: Portfolio flows reverse quickly and transmit directly to the exchange rate. Eg. Foreign portfolio investors recorded an outflow of Rs 1.66 lakh crore, equivalent to $18.9 billion, in 2025, the largest since such investment began.
    6. Rising outward investment and repatriation: Indian firms investing abroad and foreign firms repatriating profits both reduce net inflows even when gross inflows hold up. Eg. Foreign companies operating in India repatriated about $5 billion in October 2025, of which $3.3 billion followed a single initial public offering.
    7. Round-tripping and financialisation of investment flows: A large share of inflows originates from a few jurisdictions and increasingly arrives through funds rather than as direct industrial equity. Eg. Inflows routed through Mauritius and Singapore reflect tax arbitrage rather than fresh industrial capital.
    8. Exchange rate depreciation raising the external debt burden: A weaker rupee raises the rupee cost of servicing external liabilities without any new borrowing. Eg. The rupee emerged as Asia's worst performing currency during 2025-26 amid trade uncertainty.

    Way Forward

    1. Open deployment routes for accumulated rupee balances: Allowing surplus vostro balances into Indian government securities, corporate bonds and project financing gives foreign holders a reason to accept rupees.
    2. Expand bilateral local currency settlement arrangements: Agreements with major trading partners, negotiated alongside the vostro framework, are what convert a permission into actual volumes.
    3. Deepen onshore rupee hedging access for non-residents: A foreign buyer that can hedge a rupee payable onshore no longer needs a dollar invoice to manage currency risk.
    4. Keep the trade policy and exchange control rulebooks synchronised: A standing reconciliation between the Foreign Trade Policy and the exchange management regulations would prevent the mismatch this amendment had to correct.
    5. Fix the customer experience at authorised dealer banks: Publishing documentation requirements, charges, timelines and escalation routes on bank websites and at branches removes a practical barrier that no notification reaches.
    6. Diversify the export basket and destinations: Reducing dependence on a small number of markets and product lines is the durable answer to unilateral tariff action.
    7. Reduce the energy component of the import bill: Faster domestic oil and gas output, refining efficiency and electrification of transport address the largest single driver of the trade deficit.

    Matching Previous Year Question

    “No direct PYQ traced in the provided files (closest microtheme: Foreign Exchange,Currency Devaluation)”

  • The Vanashakti verdict is balanced and pragmatic

    Why in the News

    The Supreme Court of India delivered its judgment in Vanashakti vs Union of India on 29 July 2026, on the fate of projects that began construction or operation without obtaining prior Environmental Clearance (EC). The ruling shuts the executive routes to regularisation while holding that the statutory power to create a fresh one survives, which moves the question of legacy violations from administrative discretion to statutory law making.

    What is prior Environmental Clearance under the Environment Impact Assessment Notification, 2006?

    1. The requirement: Prior Environmental Clearance is the approval a project proponent must obtain before commencing construction or operation of a listed project, based on an assessment of the project's likely environmental consequences.
    2. The legal source: It is mandated by the Environment Impact Assessment Notification, 2006. That notification is issued under Section 3 of the Environment (Protection) Act, 1986, the provision empowering the central government to take measures to protect and improve environmental quality.
    3. Coverage: It applies to listed sectors including mining, thermal power, infrastructure, construction and building projects above notified thresholds, and to real estate developments above specified built up area.
    4. Why the word prior matters: The clearance is a precondition for starting work, so an approval granted after work has begun cannot perform the function the law assigns it, which is to shape the project before its impact occurs.

    What is an ex post facto environmental clearance?

    1. Definition: An ex post facto environmental clearance is an approval granted to a project that has already commenced construction or operation without clearance, regularising the completed activity after the fact.

    What is an Office Memorandum in environmental regulation?

    1. Definition: An Office Memorandum is an internal executive communication issued by a ministry to set out an administrative procedure, and it carries no independent statutory force of its own.
    2. Its limit: It cannot create an exception to a requirement imposed by a statutory notification, since an administrative instrument cannot override the instrument that ranks above it.

    What did the Supreme Court hold on the 2017 Notification and the 2021 Standard Operating Procedure?

    1. Prior clearance reaffirmed as mandatory: The Court firmly reiterated that obtaining prior Environmental Clearance is a mandatory legal requirement under the Environment Impact Assessment Notification, 2006.
    2. The 2017 window is closed: Project proponents who commenced construction or operations without prior clearance and did not apply under the earlier violation mechanisms cannot now seek regularisation under the 2017 Notification.
    3. The 2021 Standard Operating Procedure struck down: The 2021 Standard Operating Procedure, issued as an Office Memorandum, was held legally unsustainable because an administrative memorandum cannot override the requirement of prior clearance.
    4. No fresh applications: Both mechanisms are no longer available for fresh cases, so the immediate operative message to project developers, industries and infrastructure agencies is that no fresh application can be made under them.
    5. What survives: The central government retains its Section 3 power to frame a fresh statutory mechanism for violation cases, if it considers this necessary in the larger public interest.

    Why did so many projects proceed without prior environmental clearance?

    1. Regulatory uncertainty: Some projects proceeded because the applicable regime was unsettled at the time work began, and the proponent could not identify with certainty which approval its category required.
    2. Incorrect interpretation of the law: Others proceeded on a mistaken reading of the requirement, treating a clearance as inapplicable to their category or their scale of activity.
    3. Failure to obtain approvals: A third set simply failed to obtain the necessary approvals before commencement, without any question of ambiguity in the law.

    Why does the distinction between an administrative memorandum and a statutory notification decide the outcome?

    1. Source of authority: A statutory notification draws its force directly from Section 3. An Office Memorandum draws only on the executive's power to instruct its own officials.
    2. Capacity to modify a legal requirement: Only an instrument of equal statutory standing can qualify a requirement imposed by the Environment Impact Assessment Notification, 2006, which is why the 2021 memorandum failed and a fresh notification would not.
    3. Procedural discipline: A statutory notification must be published, is open to legislative and judicial scrutiny in the form it takes, and cannot be varied by an internal circular.
    4. The practical consequence: The Court has not foreclosed relief for legacy violations, it has relocated the power to grant that relief from the ministry's administrative desk to a formal statutory instrument.
    5. A limit on the executive's own convenience: The distinction removes the option of granting case by case relief through evolving internal procedure, which is the mechanism through which the earlier windows expanded.

    Does barring post facto regularisation protect the environment or only strand completed projects?

    1. The deterrence claim: Environmental law cannot encourage deliberate violations by allowing routine post facto approvals, since a proponent who knows regularisation is available has no reason to wait for clearance.
    2. The proportionality claim: Indiscriminate closure or demolition of every violation project does not necessarily serve environmental protection or the larger public interest, particularly where the project is otherwise environmentally acceptable.
    3. The sunk investment problem: Numerous industrial units, commercial developments, infrastructure projects and public utility projects across India are in violation, and substantial investments have already been made in them.
    4. The pathway vacuum: Many such projects never applied under the earlier violation windows, so the closure of the 2017 scheme and the striking down of the 2021 memorandum leaves them with no legal pathway at all.
    5. How the judgment resolves the tension: It preserves the mandatory character of prior clearance while acknowledging the practical reality, refusing to convert the acknowledgement into a direction that the government must act.

    What safeguards must any future one time regularisation scheme carry?

    1. No permanent amnesty: Any future scheme cannot become a permanent violate first and regularise later mechanism, which is the specific design failure the Court guarded against.
    2. Strictly one time: The opportunity must be one time and confined to specified categories of violation projects, rather than a standing window that renews itself.
    3. Statutory authority: It must be issued as a notification under Section 3 and not as an administrative memorandum.
    4. Environmental damage assessment: The scheme must require an assessment of the environmental damage that the unauthorised commencement has already caused.
    5. Remediation and compensation: It must attach remediation measures and environmental compensation to the assessed damage, so that regularisation carries a cost proportionate to the harm.
    6. Strict compliance conditions: It must impose strict compliance conditions on the regularised project going forward, and be carefully designed within the framework of environmental law.
    7. No judicial direction to create it: The Court did not direct the central government to introduce such a scheme, it clarified that the government may do so if it considers it necessary in the larger public interest.

    Challenges to implementing the Vanashakti verdict

    1. Projects left without any pathway: Legacy violators outside the earlier windows now have no forum to approach until the government chooses to act, and inaction is a permissible outcome under the judgment. Eg. Real estate developments that exceeded their approved built up area before the 2017 window opened have no application route once the 2021 memorandum stands struck down.
    2. Capacity to assess environmental damage: Damage assessment for an already operating project requires baseline data that was never collected, because the baseline study is precisely what a prior clearance would have produced. Eg. State Pollution Control Boards in several States function with vacant technical posts and rely on proponent submitted monitoring data.
    3. Defining specified categories: Any future notification must draw a line between the proponent who acted in genuine regulatory uncertainty and the one who simply avoided approval, and the source material offers no test for that line. Eg. The 2017 Notification's six month window was criticised for treating a small unit's procedural lapse and a large mining expansion on identical terms.
    4. Fresh litigation risk: A one time notification will itself be challenged, so relief through this route is not quick relief. Eg. The 2021 Standard Operating Procedure survived for close to five years before it was set aside in the present judgment.
    5. Lender and contractual exposure: Projects with no clearance pathway carry impaired security for the banks that financed them, and the exposure does not sit with the proponent alone. Eg. Infrastructure projects halted for want of clearance have previously moved into stressed asset classification with their lending consortia.
    6. Enforcement against operating violators: Closure of the regularisation route does not by itself produce enforcement action, and the Court has not directed any. Eg. Show cause proceedings against units operating without clearance have historically ended in continued operation under interim orders.

    Conclusion

    The judgment settles that ex post facto regularisation cannot be granted by administrative memorandum while holding that Section 3 still permits a carefully framed statutory route. What it changes is the instrument, not the availability of relief, and it attaches damage assessment, remediation and compensation as the price of any such relief. What remains unresolved is whether the central government will exercise that power at all, since the Court has left the decision entirely to it. Until it does, thousands of legacy violation projects sit outside any legal pathway.

    Environmental Impact Assessment in India

    1. What it is: Environmental Impact Assessment is the process of predicting, evaluating and mitigating the environmental consequences of a proposed project before a decision on approval is taken.
    2. When it became mandatory: It was made legally mandatory in India by the Environment Impact Assessment Notification of 27 January 1994, which was superseded by the Environment Impact Assessment Notification, 2006.
    3. Project categorisation: Category A projects are appraised at the central level by the Union Ministry of Environment, Forest and Climate Change on the recommendation of an Expert Appraisal Committee, while Category B projects are appraised by the State Environment Impact Assessment Authority.
    4. The B1 and B2 split: Category B projects are further divided into B1, which require a full impact assessment report, and B2, which are exempted from that requirement.
    5. The four stages: The process runs through screening, scoping, public consultation and appraisal, with public consultation comprising a public hearing at the site and written responses from concerned persons.
    6. The 2020 draft: A draft Environment Impact Assessment Notification was published in 2020 for public comment and was never notified.

    Constitutional Framework Governing Environmental Protection

    1. Article 21: Guarantees the right to life, judicially read to include the right to a clean and healthy environment.
    2. Article 48A: Directs the State to protect and improve the environment and to safeguard the forests and wildlife of the country.
    3. Article 51A(g): Places a fundamental duty on every citizen to protect and improve the natural environment including forests, lakes, rivers and wildlife.
    4. Article 253: Empowers Parliament to legislate for the whole or part of India to implement international agreements, the provision under which the Environment (Protection) Act, 1986 was enacted.
    5. Seventh Schedule, Concurrent List Entry 17A: Places forests in the Concurrent List, moved there from the State List by the Forty second Constitutional Amendment.
    6. Seventh Schedule, Concurrent List Entry 17B: Places protection of wild animals and birds in the Concurrent List.

    Laws and Rules Governing Environmental Clearance

    1. Water (Prevention and Control of Pollution) Act, 1974: Establishes the Central and State Pollution Control Boards and requires consent to establish and consent to operate for discharging effluent.
    2. Amended by the Water (Prevention and Control of Pollution) Amendment Act, 2024, which replaced imprisonment with monetary penalties for several contraventions.
    3. Air (Prevention and Control of Pollution) Act, 1981: Empowers the Boards to declare air pollution control areas and to regulate emissions from industrial plants.
    4. Environment (Protection) Act, 1986: The umbrella statute empowering the central government to take all measures necessary to protect and improve the quality of the environment.
    5. Section 5 empowers the central government to issue directions including closure, prohibition or regulation of any industry.
    6. Environment (Protection) Rules, 1986: Prescribe emission and effluent standards and the procedure for issuing directions under the parent Act.
    7. Environment Impact Assessment Notification, 2006: Lists the projects requiring prior clearance and fixes the appraisal procedure and the authorities at each level.
    8. Forest (Conservation) Act, 1980: Requires prior approval of the central government for diversion of forest land to non forest use.
    9. Renamed the Van (Sanrakshan Evam Samvardhan) Adhiniyam, 1980 by the amendment of 2023, which introduced exemptions for specified categories of land.
    10. Coastal Regulation Zone Notification, 2019: Regulates construction and industrial activity in the coastal stretches and the intertidal zone.
    11. National Green Tribunal Act, 2010: Constitutes a specialised tribunal for effective and expeditious disposal of cases relating to environmental protection and enforcement of legal rights relating to environment.
    12. Public Liability Insurance Act, 1991: Requires owners handling hazardous substances to hold insurance for immediate relief to persons affected by accidents.

    Government Initiatives for Environmental Regulation

    1. PARIVESH portal: A single window online hub for submission, monitoring and management of environment, forest, wildlife and coastal regulation zone clearance proposals, upgraded to its second version in 2023.
    2. National Clean Air Programme: A time bound national framework launched in 2019 to reduce particulate matter concentrations in identified non attainment cities.
    3. Extended Producer Responsibility portals: Digital registration and credit trading platforms for plastic, battery, tyre and electronic waste producers under the respective waste management rules.
    4. Green Credit Programme: A market mechanism notified in 2023 that awards tradable credits for voluntary environmental actions such as plantation and water conservation.
    5. Mission LiFE: A behaviour focused initiative launched in 2022 to shift individual and community consumption patterns towards sustainable practice.
    6. National Adaptation Fund for Climate Change: A central fund supporting State level adaptation projects in vulnerable sectors and regions.

    Key Facts about Environmental Regulation in India

    1. World Environment Day: Observed on 5 June, marking the opening of the 1972 United Nations Conference on the Human Environment at Stockholm.
    2. National Pollution Control Day: Observed on 2 December in memory of those who died in the 1984 Bhopal gas disaster.
    3. A dedicated environment court: The establishment of the National Green Tribunal in 2010 made India the third country in the world, after Australia and New Zealand, to set up a specialised environmental court.
    4. Public hearing notice: The Environment Impact Assessment Notification, 2006 requires a minimum notice period of 30 days for the public hearing stage.
    5. Consultant accreditation: Impact assessment consultants are accredited through the National Accreditation Board for Education and Training under the Quality Council of India.
    6. Central Pollution Control Board: Constituted in 1974 under the Water Act, it functions as the technical apex body for pollution monitoring and standards.

    Challenges in Environmental Impact Assessment in India

    1. Proponent funded assessment: The impact assessment report is commissioned and paid for by the project proponent, which places the assessor in a client relationship with the party being assessed. Eg. Accreditation of consultants through the National Accreditation Board for Education and Training was introduced after assessment reports were found to carry copied ecological baseline chapters.
    2. Weak public consultation: Hearings are held at short notice, in venues distant from affected habitations and in a language the affected population does not read the documents in. Eg. Public hearings for coal block expansions in central India have been challenged before the National Green Tribunal on grounds of inadequate local language disclosure.
    3. Expanding exemption categories: Successive amendments have moved project categories out of the assessment requirement or into the B2 exempt class, shrinking the regime's coverage. Eg. Building and construction projects above notified built up area thresholds have repeatedly been shifted between assessment categories through amendment notifications.
    4. Absence of cumulative impact assessment: Each project is appraised in isolation, so the combined load of several projects on the same river basin or airshed is never assessed. Eg. Hydropower projects in the Himalayan river basins have been cleared individually without an assessment of the cumulative effect on downstream flow.
    5. Post clearance compliance monitoring: Half yearly compliance reports are self submitted by proponents and rarely verified through independent field inspection. Eg. Regional offices of the Union environment ministry cover several States each with a small inspection staff, which makes physical verification of every cleared project impossible.
    6. State appraisal authority capacity: State Environment Impact Assessment Authorities carry the bulk of the caseload with limited technical staff and periodic vacancies in their expert committees. Eg. Clearances issued by State authorities during periods when their expert appraisal committees stood unconstituted have been set aside by the National Green Tribunal.

    Back2Basics: Environment (Protection) Act, 1986

    1. Enactment context: It was enacted in the aftermath of the Bhopal gas disaster of December 1984, which exposed the absence of a general statute covering all forms of environmental harm.
    2. Constitutional basis: It was enacted under Article 253 to implement the decisions taken at the 1972 United Nations Conference on the Human Environment at Stockholm.
    3. Character: It is umbrella legislation, giving the central government general powers over environmental quality rather than regulating a single medium such as air or water.
    4. Commencement: It came into force on 19 November 1986.
    5. Definition of environment: The Act defines environment to include water, air and land and the interrelationship existing among and between them and human beings, other living creatures, plants, micro organisms and property.
    6. Penalty regime: Section 15 provided for imprisonment and fine for contravention, and was amended by the Jan Vishwas (Amendment of Provisions) Act, 2023 to substitute monetary penalties adjudicated by an appointed authority for several offences.
    7. Administering ministry: It is administered by the Ministry of Environment, Forest and Climate Change.

    Way Forward

    1. Frame the statutory notification with a hard sunset: Issue any one time mechanism as a notification under the parent Act with a fixed closing date written into the instrument itself, so it cannot be extended by circular.
    2. Define eligible categories by test, not by sector: Set an objective test distinguishing genuine regulatory uncertainty from avoidance, so that the scheme does not become a general amnesty by default.
    3. Make damage assessment independent: Require the environmental damage assessment for each applicant to be conducted by an accredited third party appointed by the regulator, not commissioned by the proponent.
    4. Link compensation to assessed harm: Calibrate environmental compensation to the damage assessed and the period of unauthorised operation, rather than to a flat percentage of project cost.
    5. Fund and staff the State authorities: Fill technical vacancies in State Environment Impact Assessment Authorities and Pollution Control Boards before loading them with damage assessment for legacy cases.
    6. Digitise post clearance compliance: Route compliance reporting through the PARIVESH platform with automated flagging and mandatory random field verification of a fixed share of cleared projects.
    7. Publish the pending violation inventory: Compile and publish a sector wise and State wise inventory of projects operating without clearance, so that any future scheme is designed against a known caseload.

    Matching Previous Year Question

    “[2020, GS3, 10] How does the draft Environment Impact Assessment (EIA) Notification, 2020 differ from the existing EIA Notification, 2006?”

  • Centre’s fiscal outlook faces geopolitical, revenue risks

    Question (2025, GS2): “Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?”
    Linkage: The Centre’s reliance on new cesses and duties to meet its budget goals, rather than expanding the core tax base itself, directly impacts fiscal federalism. Cesses and surcharges do not go into the divisible pool shared with states, altering Centre-State financial dynamics.

    Mentor comment

    Controller General of Accounts data show the Centre’s gross tax revenues growing only 3.7% in the first quarter of 2026-27, with Goods and Services Tax collections contracting and Union excise duties falling more than a fifth. The fiscal arithmetic is being held near its budgeted position by a larger nominal Gross Domestic Product denominator, by non-tax receipts led by the Reserve Bank of India dividend, and by new cesses and duties, rather than by the tax base itself.

    What is the divisible pool of central taxes?

    1. About: The divisible pool is that part of the Centre’s gross tax revenue which is shared with the States, arrived at after deducting collection costs, cesses and surcharges.
    2. The States’ share: The Sixteenth Finance Commission retained the share of States in the divisible pool of central taxes at 41%.
    3. From gross to net: The Centre’s net tax revenue is what remains after devolution, and a factor of 65% of gross tax revenue reflects the ratio of net to gross tax revenues in 2025-26 and in the 2026-27 Budget Estimates.
    4. Why cesses matter to it: A cess levied for a specified purpose sits outside the divisible pool, so the same rupee raised through a cess rather than a tax does not reach the States as devolution.

    What is tax buoyancy?

    1. About: Tax buoyancy measures how far tax revenue grows for each unit of growth in nominal Gross Domestic Product, capturing both the natural response of the tax base and the effect of policy changes.
    2. What zero buoyancy means: Personal income tax revenue growth in 2025-26 was only 0.037%, which implies a buoyancy of zero, so the tax raised nothing extra despite the economy expanding.

    What is the Implicit Price Deflator?

    1. About: The Implicit Price Deflator is the ratio of nominal to real Gross Domestic Product, and it captures the average price change across everything the economy produces rather than a fixed consumption basket.
    2. How it is used here: An Implicit Price Deflator based inflation of 5% to 5.5% is what converts an expected real growth of about 7% into nominal Gross Domestic Product growth of 12.5% to 13% in 2026-27.

    What is a cess?

    1. About: A cess is a levy imposed for a specified purpose, collected over and above the base tax, and its proceeds are meant to be applied only to that stated purpose.
    2. Its fiscal effect: Cess proceeds are not shareable with the States, so a shift from taxes to cesses reduces the shareable pool while leaving gross collections unchanged.

    Why did the Centre’s gross tax revenues grow only 3.7%?

    1. Two large taxes were rationalised: Personal income tax and Goods and Services Tax were both subjected to substantive modifications in 2025-26, with extensive rate rationalisation in both cases and a substantive rate reduction in the case of the Goods and Services Tax.
    2. The stated expectation: Those reforms were expected to entail an initial revenue sacrifice, with subsequent expansion of the tax base offsetting the loss over time.
    3. The carry-forward into this year: Personal income tax showed growth of 6.8% in the first quarter of 2026-27, and Goods and Services Tax revenues contracted 11%.
    4. The 2025-26 baseline: Goods and Services Tax revenue growth for the second half of 2025-26 was 4.67%, and personal income tax growth over the same year was effectively nil.
    5. The excise duty cut: As retail fuel prices rose on the West Asian crisis, the government reduced excise duties to ease the burden on consumers, and revenue from Union excise duties contracted 22.4% in the first quarter of 2026-27.

    What three remedial measures has the government taken?

    1. A new cess replacing a discontinued one: A Health Security and National Security Cess was introduced with effect from 1 February 2026, even as the Goods and Services Tax Compensation Cess was discontinued.
    2. A higher windfall tax on fuel exports: The windfall tax on exports of diesel, petrol and aviation turbine fuel was increased with effect from 3 August 2026.
    3. Higher import duties on precious metals: Import duty rates were raised on gold and silver bullion and on other specific precious metal articles, sweepings and clad metals.

    How does a higher nominal GDP change the fiscal picture?

    1. The budgeted assumption is being exceeded: The Budget assumed nominal Gross Domestic Product growth of 10.04%, well short of the growth now expected for the year.
    2. The consistency check: That deflator range is consistent with Consumer Price Index inflation at 3.9% and Wholesale Price Index inflation at 9.3% in the first quarter of 2026-27.
    3. The level, not the growth rate, is lower: On the 2022-23 base series, nominal Gross Domestic Product is estimated at Rs 391 lakh crore, below the budgeted level of Rs 393 lakh crore.
    4. The net effect on revenue: Taken together, estimated gross tax revenue would be realised or fall short by a small margin.

    What has happened to transfers to the States?

    1. A sharp contraction in the first quarter: Tax devolution to the States contracted 19.5% in the first quarter of 2026-27, with an expectation of higher assignment of central tax revenues in subsequent months.
    2. The shareable pool narrows at the margin: The introduction of the non-shareable Health Security and National Security Cess produces a marginal reduction in the shareable pool, though some part of its revenues may reach the States as grants outside the Finance Commission route.
    3. Finance Commission grants are budgeted lower: Based on the Sixteenth Finance Commission’s recommendation, Finance Commission grants for the States are budgeted to contract by Rs 23,556 crore in 2026-27.
    4. The devolution share itself is unchanged: The contraction is in the amounts flowing, not in the entitlement, since the States’ share in the divisible pool stays at 41%.

    What is holding the revenue account together?

    1. The central bank dividend: The Reserve Bank of India transferred dividends to the Centre in May 2026, so 77% of the budgeted dividends and profits for the full year were already covered in the first three months.
    2. Weight of non-tax revenue: The Centre’s non-tax revenues contributed 37% of its net revenue receipts in the first quarter of 2026-27.
    3. Other receipts on track: The budgeted amounts for non-tax and non-debt capital receipts are expected to be realised.
    4. Subsidy pressure on the other side: Major subsidies had to be increased 37.4% in the quarter because of the unexpected rise in global crude oil prices.
    5. Revenue expenditure held down: Growth in revenue expenditure was contained at 7.4% over the same quarter.
    6. Capital expenditure front-loaded: Capital expenditure grew 23.7% in the first quarter of 2026-27, against a contraction of 23.3% in the fourth quarter of 2025-26.
    7. The full-year subsidy overshoot: Extrapolating first-quarter subsidies to the year, realised subsidies are expected to exceed the budgeted amount by about Rs 50,000 crore.

    Where do the deficit numbers stand, and what could push them off track?

    1. First-quarter deficit position: The fiscal deficit accounted for 18.2% of the annual budgeted magnitude in the first quarter, and the corresponding share of the revenue deficit was 0.4%.
    2. Why the revenue account looks strong: The revenue account balance is held up mainly by the contribution of non-debt receipts, not by tax collections.
    3. The full-year estimates: Fiscal deficit calculated as the increment in debt is estimated at Rs 18.16 lakh crore, giving a fiscal deficit-to-Gross Domestic Product ratio of 4.6% on the new series, with the debt-to-Gross Domestic Product ratio at 55.8%.
    4. Three named slippage risks: A shortfall in tax revenues, an unbudgeted increase in revenue expenditure arising from additional subsidies, and a slightly higher external debt amid sustained pressure on the Indian rupee.
    5. The overriding risk: An escalation of the war in West Asia would deliver a major jolt to the economy and to central finances.
    6. The unwound measure: The reduction in excise duty on fuel must be restored at some suitable time, since it is a temporary relief carried at a permanent revenue cost.

    What challenges does the Centre’s fiscal consolidation path face?

    1. Rate rationalisation without base expansion: A tax cut delivers the revenue sacrifice immediately and the base expansion only over an uncertain horizon. Eg. Personal income tax delivered a buoyancy of zero in 2025-26, the year its rationalisation took effect.
    2. Subsidy exposure to imported energy prices: Subsidy outgo is set by global crude prices rather than by a domestic policy decision. Eg. Major subsidies rose 37.4% in the first quarter of 2026-27, putting the full year on course to overshoot its budgeted provision.
    3. Reliance on a single large non-tax transfer: A dividend from the central bank is a discretionary, year-specific receipt that cannot be assumed to repeat. Eg. 77% of the full year’s budgeted dividends and profits were covered in the first three months of 2026-27.
    4. Revenue relief that is politically hard to withdraw: An excise duty cut given when fuel prices rise is difficult to reverse when they fall. Eg. Union excise duties contracted 22.4% in the first quarter of 2026-27 following the cut.
    5. Deficit ratios improved by a denominator effect: A higher nominal Gross Domestic Product lowers the deficit ratio without any change in borrowing. Eg. Nominal growth running ahead of the budgeted 10.04% flatters the 4.6% fiscal deficit ratio.
    6. Interest burden crowding out capital spending: A debt-to-Gross Domestic Product ratio near 56% commits a large share of revenue receipts to interest before any programme is funded. Eg. Capital expenditure was front-loaded 23.7% in the first quarter after contracting 23.3% in the preceding quarter, a pattern that shifts rather than raises the annual total.
    7. Exchange rate pressure raising external liabilities: A weaker rupee raises the rupee cost of external debt service without any new borrowing. Eg. Sustained pressure on the rupee is named as one of the three sources of possible slippage from budgeted outcomes.

    Conclusion

    The Centre’s 2026-27 outcomes are likely to stay close to budgeted levels, and the reasons are a larger nominal Gross Domestic Product, front-loaded non-tax receipts and three new revenue measures, not a tax base that is delivering. Gross tax revenue growing at barely a third of the pace of nominal output is the number that has to change, since the rate rationalisations of 2025-26 were justified on the promise of base expansion that has not yet appeared. The immediate unresolved decisions are when the excise duty cut on fuel is restored and how far an escalation in West Asia pushes subsidies beyond the overshoot already projected.

    What is Fiscal Federalism?

    1. About: Fiscal federalism is the division of taxation powers, expenditure responsibilities and transfer arrangements between the Union and the States in a federal system.
    2. Rationale: Revenue-raising powers concentrate at the Centre because major tax bases are mobile, while expenditure responsibilities concentrate at the States because services are delivered locally. Transfers exist to close that gap.
    3. Vertical fiscal imbalance: The mismatch between the Union’s revenue capacity and the States’ expenditure responsibilities, addressed through devolution of a share of central taxes.
    4. Horizontal fiscal imbalance: The mismatch across States in revenue capacity and expenditure need, addressed through the Finance Commission’s distribution formula among States.
    5. Third tier imbalance: The mismatch between the functions devolved to panchayats and municipalities and the revenue sources available to them, addressed through State Finance Commissions and grants.
    6. The transfer instruments: Tax devolution from the divisible pool, Finance Commission grants, and centrally sponsored schemes with a matching State contribution.

    Key Concerns Regarding Fiscal Federalism

    1. Shrinking divisible pool through cesses and surcharges: Levies outside the divisible pool raise Union revenue without expanding what is shared, so the effective transfer falls below the headline share.
    2. Erosion of State taxation autonomy under the Goods and Services Tax: States surrendered independent rate-setting on most indirect taxes, and rate decisions now require a collective decision in a council.
    3. Weak third tier finances: Local bodies depend on transfers rather than own revenue, and State Finance Commissions are constituted irregularly in several States.
    4. Contested horizontal distribution criteria: Weighting population, income distance and demographic performance sets States that have controlled population growth against those with larger populations.
    5. Conditionality attached to central transfers: Centrally sponsored schemes tie State spending to Union priorities, reducing the discretion that devolution is meant to confer.
    6. Off-budget and contingent liabilities: Borrowing routed through State-owned entities and guarantees sits outside the headline deficit at both levels, obscuring the true fiscal position.

    Constitutional Framework Governing Union Finances

    1. Article 265: No tax shall be levied or collected except by authority of law.
    2. Article 266: Establishes the Consolidated Fund and the Public Account of India and of each State.
    3. Article 267: Provides for the Contingency Fund of India, placed at the disposal of the President for unforeseen expenditure.
    4. Article 112: Requires the annual financial statement of estimated receipts and expenditure to be laid before Parliament.
    5. Article 246 and the Seventh Schedule: Distribute legislative and taxation powers between the Union and the States through the Union, State and Concurrent Lists.
    6. Article 246A: Confers concurrent power on Parliament and State legislatures to make laws on the Goods and Services Tax.
    7. Article 269A: Provides for the levy and collection of the Goods and Services Tax on inter-State supply and its apportionment between the Union and the States.
    8. Article 270: Provides for the distribution of taxes levied and collected by the Union between the Union and the States, and excludes cesses and surcharges from that distribution.
    9. Article 271: Empowers Parliament to levy a surcharge on specified taxes for the purposes of the Union, the proceeds of which accrue wholly to the Union.
    10. Article 275: Provides for grants-in-aid from the Union to States in need of assistance.
    11. Article 279A: Provides for the constitution of the Goods and Services Tax Council.
    12. Article 280: Provides for the constitution of a Finance Commission every fifth year to recommend the distribution of taxes and the principles governing grants-in-aid.
    13. Article 282: Permits the Union or a State to make any grant for any public purpose, the provision under which centrally sponsored schemes are funded.
    14. Article 292 and Article 293: Govern borrowing by the Union and by the States, with State borrowing subject to Union consent where the State is indebted to the Union.
    15. Article 360: Provides for a proclamation of financial emergency.

    Laws Governing Government Budgeting in India

    1. Fiscal Responsibility and Budget Management Act, 2003: Requires the Centre to limit the fiscal deficit and to lay medium-term fiscal policy statements before Parliament.
    2. Amended in 2018 to shift the primary anchor from the revenue deficit to a debt-to-Gross Domestic Product target, with an escape clause for specified circumstances.
    3. Fiscal Responsibility and Budget Management Rules, 2004: Prescribe the form of the disclosure statements and the quarterly review requirement.
    4. Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971: Provides the basis for audit of Union and State accounts and for the reports laid before the legislatures.
    5. State fiscal responsibility legislation: Every State has enacted its own fiscal responsibility law setting deficit and debt limits, complementing the Union statute.
    6. Appropriation and Finance Acts: The Appropriation Act authorises withdrawal from the Consolidated Fund, and the Finance Act gives effect to the taxation proposals for the year.

    Government Initiatives in Public Financial Management

    1. Public Financial Management System: An end-to-end platform tracking fund release and utilisation from the Union to the last implementing agency, reducing float in the system.
    2. Direct Benefit Transfer: Routes subsidy and benefit payments to bank accounts directly, cutting duplication and leakage in the transfer chain.
    3. Single Nodal Agency mechanism: Requires each centrally sponsored scheme in a State to operate through one designated account, so unspent balances are visible.
    4. Special Assistance to States for Capital Investment: Provides fifty-year interest free loans to States tied to capital expenditure and to specified reforms.
    5. National Monetisation Pipeline: Raises resources by leasing operating public assets while retaining ownership, supplementing tax revenue for capital spending.
    6. Goods and Services Tax Network: The common technology platform for registration, return filing and invoice matching that generates the data underlying indirect tax collections.

    Back2Basics: Sixteenth Finance Commission

    1. What it is: A constitutional body constituted under Article 280 to recommend the distribution of net tax proceeds between the Union and the States, the allocation among States, and the principles governing grants-in-aid.
    2. Constitution: Constituted in December 2023, chaired by a former Vice Chairman of NITI Aayog.
    3. Award period: Its recommendations cover the five years beginning 2026-27.
    4. Advisory Council: The Commission is assisted by an Advisory Council of economists and public finance specialists.
    5. Status of recommendations: Its report is laid before Parliament along with an explanatory memorandum on the action taken, and the recommendations are advisory rather than binding.
    6. Additional terms of reference: Beyond devolution, the Commission examines disaster management financing and the review of State fiscal positions.

    Challenges in India’s Public Finances

    1. A low tax-to-Gross Domestic Product ratio: India’s combined tax collection relative to output remains below that of comparable middle-income economies, which caps what can be spent without borrowing. Eg. Gross tax revenue in the first quarter of 2026-27 grew at less than a third of the nominal output growth expected for the year.
    2. Narrow direct tax base: A small share of the population files and pays income tax, so any rate change transmits through a thin base. Eg. Personal income tax raised no more in 2025-26 than in the year before, despite nominal output expanding through that year.
    3. Rigidity of committed expenditure: Interest, salaries, pensions and statutory transfers consume most revenue receipts before discretionary spending begins. Eg. The debt-to-Gross Domestic Product ratio is estimated at 55.8% for 2026-27.
    4. Exposure to imported commodity prices: Fuel and fertiliser subsidies move with global prices rather than with domestic policy. Eg. Major subsidies rose 37.4% in the first quarter of 2026-27 on the unexpected rise in global crude oil prices.
    5. Volatility of non-tax receipts: Dividends, disinvestment proceeds and spectrum receipts are lumpy and cannot be relied on across years. Eg. Non-tax revenues contributed 37% of net revenue receipts in the first quarter of 2026-27.
    6. State-level fiscal stress and guarantees: Contingent liabilities from State-owned distribution companies and guaranteed borrowings sit outside headline deficits. Eg. Tax devolution to the States contracted 19.5% in the first quarter, tightening State cash positions in the same period.
    7. Weak link between capital spending and outcomes: Front-loading capital expenditure raises the quarterly number without ensuring project completion. Eg. Capital expenditure grew 23.7% in the first quarter of 2026-27 after contracting 23.3% in the preceding quarter.

    Way Forward

    1. Restore the excise duty on fuel on a stated schedule: Announcing the timing in advance converts a politically difficult reversal into a pre-committed step, as the analysis itself recommends.
    2. Publish base expansion metrics alongside rate rationalisation: Reporting the change in the number of filers and in registered taxpayers would test the premise on which the 2025-26 rationalisation was justified.
    3. Cap the share of revenue raised through cesses and surcharges: A ceiling would stop the divisible pool narrowing through instruments that bypass Article 270.
    4. Insulate subsidy budgeting from a single price assumption: Building a price band and a contingency provision into the subsidy estimate would prevent an overshoot of this size appearing mid-year.
    5. Treat central bank dividends as a windfall, not a base receipt: Directing above-trend transfers to debt reduction rather than to recurring expenditure would stop a one-off receipt becoming a structural assumption.
    6. Smooth capital expenditure across quarters: Front-loading followed by contraction disrupts contractor payment cycles and project execution, so a steady release profile serves outcomes better than a strong first quarter.
    7. Bring off-budget and guaranteed borrowing into the disclosure statements: Consolidated reporting at both Union and State levels is the precondition for the debt path to mean what it states.

    “[2019, GS3, 10] The public expenditure management is a challenge to the Government of India in context of budget making during the post liberalization period. Clarify it.”

  • CRPF forms core group to review self-harm cases after a spate of suicides

    Why in the News

    The Central Reserve Police Force (CRPF) has constituted a high level core group to conduct monthly reviews of self harm cases among its personnel. Deaths by suicide in the force touched a five year high of 59 in 2025, which moves the response from unit level handling of individual incidents to a standing headquarters mechanism.

    What is the Central Reserve Police Force?

    1. Mandate: The Central Reserve Police Force is the Union’s principal internal security force, deployed on requisition to States for counter insurgency, anti Left Wing Extremism operations, law and order duty and election security.
    2. Command: It functions under the Ministry of Home Affairs and is headed by a Director General, with operations organised through executive battalions and specialised wings.
    3. Scale: It is the largest of the Central Armed Police Forces, with a sanctioned strength above three lakh personnel spread across every State and Union Territory.

    What do the suicide figures in the force since 2021 show?

    1. Five year peak in 2025: Fifty nine CRPF personnel died by suicide in 2025, the highest figure in the five year series and the trigger for the present review mechanism.
    2. The full series: The force recorded 57 such deaths in 2021, 43 in 2022, 57 in 2023, 46 in 2024 and 59 in 2025.
    3. The current year: Nineteen such deaths were reported till 30 May 2026.
    4. No downward trend: The numbers oscillate within a narrow band rather than falling, which indicates that existing unit level welfare measures have not shifted the underlying pattern.
    5. Deaths on duty: The figures from 2021 to May 2026 show that several of these deaths took place while the personnel were on duty, not while on leave or at home.

    Why has a headquarters level core group been created rather than leaving reviews to individual units?

    1. A structured mechanism: Senior officers at a meeting in the CRPF headquarters earlier this month identified the absence of a structured mechanism to examine such incidents as the gap to be closed.
    2. Recurring risk factors: A unit examining a single death cannot detect a factor that repeats across battalions, so pattern identification requires a body sitting above the unit.
    3. Command level ownership: The core group is headed by the Director General of the force, which places accountability for prevention at the apex of the command chain rather than with the battalion commandant.
    4. Fixed periodicity: The group is to meet every month, converting review from an event triggered by a death into a standing calendar obligation.
    5. Four review heads: Each monthly meeting is to cover the self harm incidents reported, the causes and circumstances behind them, the availability and use of welfare or psychological support, and the preventive steps taken by the unit concerned.

    What drives self harm among central armed police force personnel?

    1. Prolonged separation from family: Personnel serve long tenures in field formations away from their home States, with leave frequently curtailed during active operations.
    2. Operational stress in insurgency theatres: Extended deployment in Left Wing Extremism affected districts and in Jammu and Kashmir combines physical risk with an absence of privacy and rest.
    3. Domestic and financial distress: Land disputes, family illness and debt at the home station cannot be attended to from a field posting, and the inability to act is itself a stressor.
    4. Grievance and leave denial: Perceived unfairness in leave sanction, posting and promotion converts an administrative decision into a personal grievance with no accessible appeal.
    5. Stigma around psychological help: Seeking counselling is read within the force as an admission of unfitness for armed duty, which suppresses the demand for the support that does exist.

    What does the National Human Rights Commission’s intervention add to the response?

    1. External scrutiny: The National Human Rights Commission took note of the rising figures last week and sought reports from the Ministry of Home Affairs and the Director General of the force.
    2. Reframing the issue as a rights question: The Commission’s entry treats deaths in service as a question of the State’s obligation to its own personnel rather than as an internal personnel matter.
    3. A reporting obligation: A requisition from the Commission compels a written response from both the administrative ministry and the force, creating a record that survives changes in command.
    4. Timing: The core group’s formation and the Commission’s notice fall in the same month, so the force’s internal mechanism now operates under an external deadline.

    Challenges to the CRPF’s self harm prevention mechanism

    1. A review body without a treatment capacity: A monthly review can classify causes but cannot supply the clinical care the classification points to, and psychiatrist and counsellor strength in the central armed police forces remains far below the deployed strength. Eg. Composite hospitals of the central armed police forces routinely operate with a single mental health specialist serving several battalions spread across districts.
    2. Under reporting of distress: Personnel avoid recording psychological symptoms because a medical entry can affect weapon issue, posting and promotion prospects. Eg. Screening drives in armed forces and central police organisations consistently record self reported distress far below the levels found in anonymous surveys of the same units.
    3. Housing and family accommodation deficit: Family accommodation available to central armed police force personnel falls well short of the authorised requirement, which keeps families separated even at peace stations. Eg. The Parliamentary Standing Committee on Home Affairs has repeatedly recorded a housing satisfaction ratio below half the sanctioned entitlement across the central armed police forces.
    4. Leave and rotation practice: Announced entitlements are overridden by operational exigency in the very theatres where the stress is highest. Eg. The force’s initiative to give personnel around 100 days with their families each year has proved hardest to implement in the Left Wing Extremism theatre where deployment density is greatest.
    5. Weapon access at the point of crisis: Personnel on duty carry service weapons continuously, which removes the interval between intent and act that prevention depends on. Eg. Several of the deaths recorded between 2021 and May 2026 occurred while the personnel were on duty, when the service weapon was in hand.
    6. Fratricide and grievance escalation: Unresolved interpersonal grievance within a small deployed unit escalates into violence against colleagues as well as self harm. Eg. Fratricide incidents in central armed police force camps have prompted the Bureau of Police Research and Development to study stress and grievance handling in deployed units.

    Conclusion

    The Central Reserve Police Force has moved suicide prevention from ad hoc unit level handling to a monthly review chaired by its Director General, after 2025 recorded the highest figure in five years. The immediate status is that the core group stands constituted and the National Human Rights Commission has sought reports from the Ministry of Home Affairs and the force. The next expected step is the submission of those reports and the first monthly review sitting of the core group.

  • Derivatives trader base falls for first time in four years in FY26

    Why in the News

    The number of individual traders participating in the equity derivatives market fell 19% to 78.6 lakh in 2025-26 from 98.1 lakh a year earlier, according to data released by the Securities and Exchange Board of India (SEBI) on 20 August 2026. A smaller market has not turned into a safer one, since the average loss carried by each loss-making trader rose to its highest level since the analysis began.

    What are equity derivatives?

    1. About: Equity derivatives are contracts whose value is derived from an underlying share or share index, settled at or before a stated expiry date rather than by delivery of the underlying at the time of trade.
    2. Futures and options: A futures contract obliges both sides to transact at an agreed price on expiry. An option gives the buyer the right without the obligation, in exchange for a premium paid upfront.
    3. Why losses concentrate here: A small premium controls a large notional exposure, so a modest adverse price move can erase the entire amount committed.
    4. Contract value: Each contract carries a minimum notional value fixed by the regulator, which sets the smallest position an individual can take.

    What is the extreme loss margin?

    1. About: The extreme loss margin is an additional margin collected over and above the standard margin, calibrated to cover losses outside the range that normal margining assumes.
    2. How it was used here: SEBI increased the extreme loss margin for expiry-day trading by 2%, raising the cost of holding a position on the day price movement is sharpest.

    What is a weekly expiry?

    1. About: A weekly expiry is a contract that settles at the end of a given week rather than at the end of a month, which multiplies the number of short-dated, low-premium contracts available to trade.
    2. How it was restricted: SEBI limited weekly expiries to one index per exchange, cutting the number of high-turnover expiry events in a week.

    What do SEBI’s two studies show about participation and losses?

    1. Participation: The individual trader base fell 19% to 78.6 lakh in 2025-26 from 98.1 lakh in 2024-25, the first fall in four years, against 42.74 lakh in 2021-22 when the analysis began.
    2. Share of losing traders: The proportion of traders who incurred losses declined marginally to 87.7% in 2025-26 from 90.9% in 2024-25, the lowest level recorded since 2021-22.
    3. Aggregate losses: Aggregate losses fell 18% year-on-year to Rs 91,685 crore in 2025-26, and still remained higher than the levels recorded between 2021-22 and 2023-24.
    4. Loss per trader: The average loss per loss-making trader rose to Rs 1.16 lakh from Rs 1.13 lakh in 2024-25, the highest average loss recorded since 2021-22.
    5. Who remains the largest cohort: Individual traders continued to account for the largest cohort in the derivatives market despite the decline in participation.
    6. What the studies are: The two studies cover the profitability and the trading behaviour of individual derivatives traders, and were released on 20 August 2026 by SEBI’s Department of Economic and Policy Analysis II.

    Why does a smaller trader base not amount to a safer market?

    1. The averages moved in opposite directions: Aggregate losses fell 18% while the average loss per loss-making trader rose to a five-year high, so the burden concentrated rather than eased.
    2. The improvement in the loss ratio is marginal: A fall from 90.9% to 87.7% still leaves close to nine in ten participants losing money.
    3. The remaining participants are the more exposed ones: Those who stayed after the curbs are the traders willing to meet a higher minimum contract value and a higher expiry-day margin.
    4. Aggregate losses are still above the pre-boom level: Even after an 18% decline, losses in 2025-26 exceeded the levels recorded between 2021-22 and 2023-24.

    What explains the fall in participation?

    1. Fewer weekly expiry events: SEBI limited weekly expiries to one index per exchange, removing several of the short-dated contracts that carried the highest retail turnover.
    2. A higher entry ticket: The minimum contract value was raised to Rs 15 lakh to Rs 20 lakh, which prices out the smallest participants.
    3. A costlier expiry day: The extreme loss margin for expiry-day trading was increased by 2%, raising the capital required to hold the most volatile positions.
    4. The regulator’s own caveat: SEBI cautioned against attributing the decline entirely to the regulatory measures, stating that participation had already begun moderating before their implementation.

    What does the persistence data reveal about trader behaviour?

    1. Losses do not by themselves deter continuation: The second study found that incurring losses did not necessarily discourage traders from continuing to participate in derivatives.
    2. Persistence weakened this year: Only about 57% of the traders who formed the 2024-25 cohort continued trading in 2025-26, against a long-term average of around 65%.
    3. Nearly half stopped: 43% of that cohort stopped trading during the year.
    4. Experience does not improve outcomes: In 2023-24, 91.6% of traders who had reported losses in both 2021-22 and 2022-23 also reported losses in 2023-24.
    5. The probability holds across the experience range: The probability of making losses remained above 90% across traders with one to five years of experience.

    What challenges does retail investor protection in the derivatives market face?

    1. Curbs raise the entry price without changing the odds: A higher minimum contract value screens out small participants rather than improving the outcomes of those who remain. Eg. The probability of making losses stayed above 90% across traders with one to five years of experience.
    2. Losses do not teach: Repeated loss-making does not reliably drive exit, so a behavioural remedy cannot be assumed. Eg. 91.6% of traders who lost money in both 2021-22 and 2022-23 lost money again in 2023-24.
    3. Unregistered advisers and finfluencers: Trading advice reaches retail participants through channels outside the registered investment adviser framework. Eg. SEBI has issued repeated orders against unregistered persons offering stock recommendations on social media platforms.
    4. Migration to unregulated venues: Tightening a regulated segment can push activity to opaque alternatives rather than out of speculation altogether. Eg. SEBI and the Reserve Bank of India have repeatedly warned against unauthorised electronic trading platforms offering leveraged contracts.
    5. Exchange revenue tied to the volumes being curbed: Transaction charges and the derivatives segment are a significant part of exchange income, which creates a tension with tighter product rules. Eg. Weekly index expiries generated the highest turnover days on Indian exchanges before being limited to one index per exchange.
    6. Investor grievance redress capacity: Losses from a legitimate but unsuitable product are not a grievance, so the redress machinery does not reach the harm being measured. Eg. Aggregate losses of Rs 91,685 crore in 2025-26 arose from lawful transactions on regulated exchanges.
    7. Measurement lag on a fast-moving market: Behaviour is analysed a full financial year after it occurs, so remedies address a market that has already changed. Eg. The studies released in August 2026 report on the year ended March 2026.

    “[2025] Consider the following statements:

    I. India accounts for a very large portion of all equity option contracts traded globally, thus exhibiting a great boom.

    II. India’s stock market has grown rapidly in the recent past, even overtaking Hong Kong’s at some point in time.

    III. There is no regulatory body either to warn small investors about the risks of options trading or to act on unregistered financial advisors in this regard.

    Which of the statements given above are correct?

    (a) I and II only

    (b) II and III only

    (c) I and III only

    (d) I, II and III

  • Transaction fees on UPI in 2 weeks

    Why in the News

    A merchant discount rate of 0.3% on Unified Payments Interface (UPI) transactions of Rs 2,000 and above is expected to be announced within two weeks. Six years of zero pricing built a network that now carries most of India’s digital payment volume without generating the revenue to maintain it, and restoring a fee moves that cost onto merchants while keeping the transaction free for consumers.

    What is the merchant discount rate?

    1. About: The merchant discount rate (MDR) is a fee paid by businesses to payment processors for accepting digital payments, deducted from the amount the merchant receives.
    2. Who it is shared among: The fee funds the banks, payment service providers and network operators that carry a transaction between the payer and the merchant.
    3. Its history on UPI: An MDR of up to 0.3% of the transaction value applied to UPI person-to-merchant transactions until December 2019.
    4. Zero MDR: Zero MDR was introduced in January 2020 to accelerate digital payment adoption and encourage a shift from cash to digital payments.

    What is the UPI and Services Steering Committee?

    1. About: It is the body headed by the National Payments Corporation of India that will determine the merchant discount rate on UPI, its scope and its structure.

    What is Section 10A of the Payment and Settlement Systems Act, 2007?

    1. About: Section 10A is the provision granting statutory protection from charges to specified electronic payment modes, which is what prevented a fee being levied on UPI.
    2. What changed: The Taxation and Other Laws (Amendment) Bill, 2026 amended Section 10A to pave the way for an MDR on UPI transactions above a certain threshold.

    How will the fee actually be brought into effect?

    1. Step one, the gazette notification: The Department of Financial Services will likely issue a gazette notification within a week specifying which electronic payment modes continue to receive statutory protection from charges.
    2. Step two, the rate decision: The UPI and Services Steering Committee will then determine the MDR, its scope and its structure.
    3. The consumer assurance: The government assured during the parliamentary debate on the amending Bill that UPI transactions will remain free for consumers.

    Why is a fee being restored after six years of zero pricing?

    1. Volume outgrew the funding model: UPI transactions jumped sharply after the Covid-19 pandemic, and banks and payment intermediaries ramped up investment in payment infrastructure to carry that load.
    2. Industry pressure for sustainability: The scale of that investment produced industry calls for the restoration of charges to make the system financially sustainable.
    3. The interim substitute was a subsidy: The government introduced an incentive scheme providing banks and other ecosystem participants an incentive equivalent to 0.15% MDR on UPI transactions up to Rs 2,000.
    4. The parliamentary committee’s warning: The Parliamentary Standing Committee on Finance called for early implementation of a tiered MDR framework, warning that delays could leave payment service providers dependent on inadequate government subsidies and weaken investment in payment infrastructure.

    How does 0.3% compare with the cost of other payment instruments?

    1. Credit cards: The prevailing MDR on credit card transactions is 1% to 3% of transaction value.
    2. Debit cards: The prevailing MDR on debit card transactions runs up to 0.9%.
    3. UPI at the proposed rate: A reintroduced MDR of 0.3% above a threshold would still be substantially lower than either.
    4. The subsidy benchmark: The proposed rate is double the implicit rate the exchequer already bears through the incentive scheme on small-value payments.
    5. The volume the rate applies to: UPI processed 241.62 billion transactions worth Rs 314.23 lakh crore in 2025-26, so even a fraction of a percent applied above a threshold is a large revenue pool.

    Why does a free-to-consumer network still have to be paid for by someone?

    1. The cost does not disappear when the price is zero: Switching, settlement, fraud monitoring and dispute resolution have running costs, and zero MDR moved them from merchants onto banks and the exchequer.
    2. Subsidy funding is discretionary and can lapse: An incentive scheme depends on an annual budgetary allocation, which is what the Parliamentary Standing Committee on Finance identified as inadequate and unreliable.
    3. Merchants now bear what consumers do not: Keeping the consumer free means the fee lands on the acceptance side, on the same small merchants whose adoption zero MDR was designed to secure.
    4. The threshold is doing the distributive work: Applying the fee only at Rs 2,000 and above protects the low-value transactions that dominate UPI by count, and captures the higher-value transactions that dominate by value.

    What challenges does reintroducing MDR on UPI face?

    1. Merchant resistance at the acceptance point: Small merchants may refuse UPI above the threshold or steer customers to cash to avoid the fee. Eg. Cash-on-delivery persists across Indian e-commerce despite a decade of digital payment incentives.
    2. Transaction splitting to stay below the threshold: A hard cut-off gives both sides a reason to break one payment into two. Eg. A payment of Rs 2,500 broken into two of Rs 1,250 falls below the threshold and carries no fee.
    3. Erosion of the adoption gains zero MDR bought: The zero-price regime was introduced specifically to shift users from cash, and reversing it risks reversing part of that shift. Eg. Zero MDR was introduced in January 2020 for the stated purpose of accelerating digital payment adoption.
    4. Concentration risk in the underlying network: A small number of third-party applications carry most UPI volume, so pricing decisions transmit through a narrow set of intermediaries. Eg. The National Payments Corporation of India has repeatedly deferred its own market share cap on third-party application providers.
    5. Outage and reliability exposure at national scale: A single network carrying most retail payments makes any downtime a systemic event rather than a service failure. Eg. UPI accounted for 85% of India’s digital payment transactions by volume in 2025-26.
    6. Fraud and mule account misuse growing with volume: Higher-value transactions attract more sophisticated fraud, and the cost of investigation falls on the same intermediaries the fee is meant to fund. Eg. The Reserve Bank of India has repeatedly directed banks to tighten controls on accounts used to route proceeds of digital payment fraud.
    7. Cross-subsidy questions across instruments: Pricing UPI below cards while both run on shared bank infrastructure distorts the choice of instrument at the counter. Eg. Credit card MDR at 1% to 3% funds reward programmes that UPI cannot match at 0.3%.

    Conclusion

    Zero MDR delivered adoption at a scale no other retail payment system has reached, and it did so by placing the cost of the network on banks and on the exchequer rather than on its users. Restoring a 0.3% fee above Rs 2,000 converts that subsidy into a price, keeps consumers unaffected and tests whether merchants will absorb the cost at the acceptance point. The measure currently stands at the stage where Section 10A of the Payment and Settlement Systems Act, 2007 has been amended, and the next milestones are a gazette notification from the Department of Financial Services within a week and the rate decision by the UPI and Services Steering Committee within two weeks.

    “[2026] Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is NOT correct?

    (a) UPI is a real-time payment system but Digital Rupee is akin to sovereign paper currency

    (b) In case of UPI, settlement for end users happens instantly; in case of Digital Rupee, wallet balance gets transferred to another wallet (no traditional settlement)

    (c) UPI transactions are recorded by banks and reflected in bank statements; in case of Digital Rupee, no data is captured in bank statements

    (d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks