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  • Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

    [13th February 2026] The Hindu OpED: Farmers’ pulse: On India and its demand for pulses

    op-ed snap | Agriculture | Mains Paper 3: Agriculture and related issues

    PYQ Relevance

    [UPSC 2017] Mention the advantages of the cultivation of pulses because of which the year 2016 was declared as the International year of Pulses by the United Nations.

    Linkage: It links to the pulses debate as it highlights their nutritional, ecological, and income-support role, strengthening arguments for procurement reform and crop diversification.

    Mentor’s Comment

    Pulses policy reflects a structural tension between consumer price stabilization and farmer income security. Weak procurement architecture, import dependence, and trade commitments intersect with federal politics and food security imperatives.

    Why in the News?

    India’s pulses policy is back in focus after reports of possible import commitments under a trade deal with the United States. This appears to clash with the government’s Mission for Aatmanirbharta in Pulses, raising fresh concerns among farmers about the gap between self-reliance goals and trade decisions.

    Why Are Pulses Crucial to India’s Food and Farm Economy?

    1. Protein Dependence: Pulses supply nearly 25% of non-cereal protein intake.
    2. Livelihood Base: Around five crore farmers depend on pulse cultivation.
    3. Persistent Demand Gap: Production ~2.5 crore tonnes; demand ~3 crore tonnes; imports fill deficit.
    4. Food Security Linkage: Dependence on imports exposes vulnerability to global price fluctuations.

    How Do Imports Create Immediate Market Distortions?

    1. Centralized Decision Impact: A single central decision to import can immediately lower domestic prices.
    2. Household Spending Relief: Imports reduce consumer expenditure when supply is tight.
    3. Farmer Income Shock: Price depression directly hurts domestic producers.
    4. Market Absorption Constraint: Domestic markets cannot always absorb “extra” supply, worsening price collapse.
    5. Political Sensitivity: Trade commitments perceived as favouring foreign producers revive post-2020 protest anxieties.

    Why Is the Procurement Regime Considered Structurally Weak?

    1. Limited Coverage: Procurement under the Price Support Scheme ranged between 2.9%-12.4% (2019-24).
    2. MSP Without Guarantee: Absence of reliable procurement undermines MSP credibility compared to rice and wheat.
    3. Organised Neglect: Weak procurement mechanisms, cereal bias, and institutional design collectively marginalize pulses.
    4. Distress Sales: Inadequate procurement centres force farmers to sell below MSP to private traders.
    5. Investment Disincentive: Uncertain returns discourage productivity-enhancing investments.

    What Structural Constraints Affect Pulse Cultivation?

    1. Rain-fed Cultivation: Pulses largely grown in rain-fed regions, increasing climate risk.
    2. Lower Yields: Productivity remains below international competitors.
    3. Underinvestment Cycle: Weak price assurance leads to low investment, perpetuating low yields.

    What Does the Mission for Aatmanirbharta in Pulses Seek to Achieve?

    1. Financial Allocation: ₹11,440 crore outlay.
    2. Area Expansion: Target of 310 lakh hectares.
    3. Production Goal: 350 lakh tonnes by 2030-31.
    4. Strategic Objective: Reduce import dependence and achieve self-sufficiency.
    5. Credibility Challenge: Past unfulfilled promises create farmer scepticism.
    6. Policy Contradiction Risk: Import commitments contradict mission objectives.

    Why Does This Issue Trigger Political Sensitivity?

    1. Farm Protest Context: Post 2020-21 protests, trade and agri-reform decisions face scrutiny.
    2. Federal Dimension: Central trade decisions affect state-level agriculture.
    3. Trust Deficit: Perception of favouring foreign producers undermines domestic policy legitimacy.
    4. Food Security Vulnerability: Continued import dependence sustains long-term strategic risk.

    Way Forward

    1. Stronger Procurement: Expand procurement centres in pulse-growing areas to ensure MSP reaches farmers and reduce distress sales.
    2. MSP Credibility: Ensure timely and predictable procurement to build farmer confidence and encourage investment.
    3. Stable Import Policy: Align imports with domestic production cycles to prevent sudden price crashes.
    4. Higher Productivity: Promote improved seeds, irrigation support, and climate-resilient varieties to raise yields.
    5. Crop Diversification: Reduce policy bias toward rice and wheat and incentivise pulses through procurement and subsidies.

    Conclusion

    Pulses policy reflects the tension between consumer price stability and farmer income security. Import dependence without strong procurement weakens domestic incentives and deepens vulnerability. Long-term food security requires credible MSP implementation, higher productivity, and a trade policy aligned with self-reliance goals.

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  • Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

    The hidden cost of insurance distribution

    Explained | Economics | Mains Paper 3: Indian Economy

    Why in the News?

    India’s life insurance industry paid ₹60,799 crore in commissions in FY2025, yet premium growth stood at only 6.7% while commission payouts increased by 18%. This divergence signals a structural imbalance between distribution costs and value creation. The Life Insurance Corporation (LIC) reduced its commission ratio from 5.45% to 5.17% despite premium growth of 2.8%, whereas private insurers increased commission ratios sharply to 7.21%-8.95%, leading to a 38.8% surge in commission payouts to ₹35,491 crore. Insurance penetration declined from 4% of GDP in FY2020 to 3.7% in FY2024. The issue marks a shift from episodic compliance concerns to a structural distribution faultline affecting financial stability and consumer welfare.

    Public-Private Structure of India’s Insurance Sector

    1. Life Insurance Composition: LIC, the sole public-sector life insurer, contributes 57.07% of total new business premiums (FY2024-25). The sector comprises 27 life insurers, including 26 private companies.
    2. General (Non-Life) Market Distribution: Private insurers hold approximately 64-66% market share, while Public Sector General Insurance Companies (PSGICs) account for 31-32%. The industry includes 34 non-life insurers, 6 public and 28 private (including standalone health and specialised insurers).
    3. Health Segment Significance: Health insurance constitutes 41.42% of gross direct premiums in FY2024-25, emerging as the largest non-life segment. Public sector general insurers’ premiums increased from ₹80,000 crore (2019) to approximately ₹1.06 lakh crore (early 2025).

    What Is the Structural Difference Between Public and Private Insurers?

    1. Channel Composition: LIC derives 95% of business from agency channels, enabling tighter commission control.
      1. Agency channels are individual agents appointed by an insurance company to sell its policies directly to customers.
    2. Commission Ratio Reduction: LIC reduced commission ratio from 5.45% to 5.17% despite 2.8% premium growth.
    3. Alternate Channel Dependence: Private insurers rely heavily on bancassurance, brokers, and marketing firms.
      1. Bancassurance is a distribution model where banks sell insurance products to their existing customers.
    4. Sharp Commission Escalation: Private commission ratios rose from 7.21% to 8.95% (174 basis points increase).
    5. Commission Outgo Surge: Private insurer commission payouts increased 38.8% to ₹35,491 crore from ₹25,564 crore.

    Why Does Distribution Cost Escalation Reflect Structural Market Imbalance?

    1. Bargaining Concentration: Twenty-six life insurers compete for access to banks operating over 4,00,000 branches, strengthening distributor leverage.
    2. High Switching Power: Banks and brokers control infrastructure and customer base, increasing negotiation power over insurers.
    3. Channel Dependence: Greater reliance on alternate channels directly increases commission payouts.
    4. Incentive Distortion: Competitive pressures push insurers to offer higher commissions to secure partnerships.
    5. Persistent Pattern: Rising commission ratios despite regulatory changes indicate systemic, not temporary, escalation.

    How Effective Have Regulatory Reforms Been?

    1. Product-Wise Caps: IRDAI introduced product-level commission ceilings to contain rising distribution payouts.
    2. Expense of Management (EOM) Consolidation: The regulatory framework later shifted to a unified Expense of Management structure, embedding commissions within overall expense limits.
    3. Competitive Structuring: Marketing tie-ups, infrastructure arrangements, and distribution negotiations limited the restraining effect of reforms.
    4. Structural Persistence: Commission escalation continued despite regulatory redesign, indicating unchanged bargaining asymmetry.

    What Changed in Expense of Management (EOM) Norms?

    1. Unified EOM Framework: 2023-24 reform merged management, acquisition, and commission expenses.
    2. Embedded Leverage: Commission expenses remained embedded within overall expense limits.
    3. Institutional Assertiveness: Institutions with bargaining power demanded higher payouts.
    4. Agent Retention Share: Agents retain approximately 35-40% of headline commissions after overrides and deductions.
    5. Concentration of Gains: Nearly ₹26,000 crore in FY2025 accrued to corporate intermediaries and large marketing firms.

    What Are the Consumer and Macroeconomic Implications?

    1. Limited Consumer Benefit: High distribution costs do not proportionately enhance policyholder value.
    2. Low Visibility Incentives: Informal rebates push transactions outside regulatory transparency.
    3. Penetration Decline: Insurance penetration declined from 4% (FY2020) to 3.7% (FY2024).
    4. Middle-Income Impact: High costs restrict sustainable inclusion for middle-income households.
    5. Financial Stability Concern: RBI flagged distribution cost sustainability concerns in the Financial Stability Report (December 2025).

    What Policy Correction Is Proposed?

    1. Outcome-Based Regulation: Focus on retention, service quality, and claim settlement ratios.
    2. Joint Oversight: IRDAI and RBI coordination on bancassurance governance.
    3. Commission Rebalancing: Shift from upfront commissions toward renewal-based income streams.
    4. Incentive Redesign: Align commissions with persistence and servicing metrics.
    5. Rational Cost Containment: Ensure sustainable penetration expansion.

    Conclusion

    Rising distribution costs signal a structural imbalance in India’s insurance ecosystem rather than a temporary market distortion. Regulatory recalibration under the amended IRDAI framework must prioritise cost efficiency, persistence-based incentives, and balanced public-private participation. Sustainable insurance penetration depends on correcting bargaining asymmetries while safeguarding financial stability and consumer interest.

    Value Addition

    Insurance Density 

    Key Figures & Trends: 

    1. Recent Density: Around $97 per person for 2024-25.
    2. Life Density: Increased to $72 in 2024-25.
    3. Non-Life Density: Stable at $25 in 2024-25.
    4. Growth: Gradual, steady increase observed since 2016-17.
    5. Comparison with Global Averages (Approximate):  India’s density ($97) is a fraction of the global average (around $874 in 2021-22).

    Insurance penetration 

    1. It in India stood at approximately 3.7% in FY25, remaining relatively stagnant and well below the global average of 7.3%. 
    2. Life insurance penetration dipped to 2.7%, while non-life insurance remained flat at 1.0%.

    PYQ Relevance

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

    Linkage: Recent amendments to the Insurance Regulatory and Development Authority Act have renewed focus on insurance sector reforms, making regulatory architecture and governance in insurance a high-priority area for GS II and GS III. The article’s discussion on distribution costs and bargaining asymmetry highlights why regulatory design under the revised IRDAI framework remains central to sectoral stability.

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  • Foreign Policy Watch: India-United States

    As multilateralism erodes, India must reframe its foreign policy

    Explained | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Why in the News?

    Global institutions are weakening as U.S.-China rivalry intensifies and countries increasingly take unilateral trade and security actions. The U.S. has bypassed WTO dispute systems and imposed tariffs, while China has expanded trade ties and is now the top trading partner for over 120 countries. The North Atlantic Treaty Organization’s (NATO) role is questioned, and the United Nations (UN) faces decision-making paralysis. Despite tensions, India remains heavily dependent on Chinese imports. The post-1991 liberal global order is fragmenting, forcing India to rethink strategic autonomy, diversify trade, and build domestic capacity. These shifts directly affect India’s trade, security, and diplomatic space.

    Introduction

    India’s foreign policy evolved from Non-Alignment to strategic autonomy within a multilateral, rule-based global order. The emerging order is increasingly transactional, alliance-driven, and technology-centric. This requires recalibration of India’s external engagement strategy.

    Why is Multilateralism Eroding?

    1. Institutional Paralysis: Multilateral institutions such as the UN and World Trade Organisation (WTO) face decision-making deadlocks, reducing enforceability of global norms. The WTO dispute settlement mechanism remains dysfunctional.
    2. Power Politics: Major powers prioritise bilateral leverage over multilateral commitments. The U.S. imposed unilateral tariffs despite WTO membership.
    3. Alliance Fragmentation: NATO’s unity faces internal divergence. Strategic competition overshadows collective security objectives.
    4. Economic Nationalism: Countries increasingly adopt protectionist measures. The U.S.-China trade war reflects departure from liberal trade principles.
    5. Decline of Global Consensus: Consensus-based diplomacy gives way to issue-based coalitions and minilateral frameworks.

    Is Strategic Autonomy Still Viable?

    1. Cold War Origins: Strategic autonomy emerged through the Non-Aligned Movement to preserve decision-making independence amid U.S.-Soviet bipolarity.
    2. Post-1991 Evolution: India retained autonomy while integrating into the liberal economic order, engaging the U.S., Russia, EU, BRICS, and Quad simultaneously.
    3. Operational Example: India purchased the Russian S-400 system despite U.S. CAATSA pressure and did not choose the U.S. Patriot system, demonstrating independent security choices.
    4. Multi-Alignment: Simultaneous engagement in Quad, BRICS, SCO, and continued defence ties with Russia reflect flexible alignment.
    5. Shrinking Multilateral Space: WTO paralysis and UN gridlock reduce institutional protection for balanced positioning.
    6. Capability Imperative: Autonomy is sustainable only if backed by manufacturing strength, technological capacity, and diversified trade. Strategic autonomy now requires material capability, not only diplomatic positioning. 

    How Is Power Politics Reshaping Global Relations?

    1. U.S.-China Rivalry: The U.S. CHIPS and Science Act (2022) restricts semiconductor exports to China; China advances “Made in China 2025” for tech self-reliance.
    2. Economic Coercion: The U.S. imposed Section 301 tariffs on China; Russia was excluded from SWIFT after the Ukraine war, showing finance as a strategic tool.
    3. Supply Chain Shift: The Indo-Pacific Economic Framework (IPEF) and “friend-shoring” aim to reduce dependence on China; Japan subsidised firms relocating from China.
    4. Minilateralism: The Quad and AUKUS operate outside universal platforms like the UN, focusing on strategic coordination.
    5. WTO Paralysis: The U.S. blocked Appellate Body appointments, disabling dispute settlement since 2019.

    What Challenges Does This Create for India?

    1. Trade Dependence: India remains significantly dependent on Chinese imports despite geopolitical tensions.
    2. Reduced Legal Recourse: WTO paralysis limits dispute resolution options.
    3. Technology Gaps: Dependence on external technology constrains strategic space.
    4. Dual Security Pressure: Border tensions and regional instability complicate balancing strategy.
    5. Development Linkage: External volatility directly affects growth ambitions.

    India must therefore shift from reactive diplomacy to structured strategic positioning.

    How Should India Reframe Its Foreign Policy?

    1. Endogenous Capacity: Strengthens domestic manufacturing and technological capability.
    2. Trade Diversification: Expands FTAs with EU, Africa, and emerging markets.
    3. Technology Partnerships: Deepens cooperation in AI, digital infrastructure, and cybersecurity.
    4. Pragmatic Regional Engagement: Stabilises neighbourhood relations through economic instruments.
    5. BRICS Repositioning: Aligns BRICS toward economic coordination rather than political bloc identity.
    6. Digital Currency Cooperation: Integrates official digital currencies to facilitate cross-border trade.
    7. Viksit Bharat 2047 Alignment: Links foreign policy with development milestones and economic transformation.

    Conclusion

    The erosion of multilateralism reflects structural transformation in global power distribution. India must recalibrate foreign policy toward endogenous capacity, diversified trade, and technology-driven growth. Strategic autonomy remains relevant but requires economic and technological foundations to remain credible.

    PYQ Relevance

    [UPSC 2019] “The long-sustained image of India as a leader of the oppressed and marginalised Nations has disappeared on account of its new found role in the emerging global order”. Elaborate.

    Linkage: It examines the evolution of India’s foreign policy from moral leadership of the Global South to pragmatic strategic positioning. It directly links to themes of eroding multilateralism and the shift from traditional strategic autonomy to interest-driven engagement in the emerging global order.

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  • Defence Sector – DPP, Missions, Schemes, Security Forces, etc.

    DAC Grants AoN Worth ₹3.6 Lakh Crore for Rafale, P-8I and Major Defence Modernisation Push

    Prelims Only | Economics | Mains Paper 3: Government Budgeting

    Why in the News?

    The Defence Acquisition Council chaired by Rajnath Singh has granted Acceptance of Necessity for defence procurement proposals worth about ₹3.6 lakh crore, including 114 Rafale fighter jets and six P-8I aircraft.

    About Defence Acquisition Council

    • Apex decision making body for capital procurement in the Ministry of Defence after the Kargil War of 1999.
    • Headed by the Defence Minister
    • Grants Acceptance of Necessity, which is the first formal step in defence procurement
    • Functions under the framework of the Defence Acquisition Procedure 2020

    Composition 

    • The council is chaired by the Defence Minister (Raksha Mantri). Key members include the Chief of Defence Staff, the three Service Chiefs (Army, Navy, Air Force), and the Defence Secretary, with the Deputy Chief of Defence Staff (Planning & Procurement) as Member Secretary.

    Key Points: Recent procurement proposals: 

    • Acceptance of Necessity (AoN): First stage of capital procurement approval under Defence Acquisition Procedure 2020.
    • Indian Air Force: 114 Rafale Multi Role Fighter Aircraft, combat missiles, and High Altitude Pseudo Satellite for ISR and ELINT roles.
    • Indian Navy: Six P-8I long range maritime reconnaissance aircraft for anti submarine warfare and maritime strike capability.
    • Indian Army: Procurement of Vibhav anti tank mines and overhaul of T-72, BMP II and armoured recovery vehicles.
    [2024] Consider the following aircraft: 1. Rafael 

    2. MiG-29 

    3. Tejas MK-1 

    How many of the above are considered fifth generation fighter aircraft? 

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

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  • Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

    New CPI Inflation Series (Base Year 2024): Food Weight Reduced to 37%

    Prelims Only | Economics | Mains Paper 3: Indian Economy

    Why in the news?

    India’s new Consumer Price Index (CPI) series with base year 2024 will reduce the weight of food and beverages from 45.86% to 36.75%, aligning the inflation basket with updated household consumption patterns from the 2023–24 Household Consumption Expenditure Survey (HCES).

    What is CPI?

    The Consumer Price Index (CPI) measures retail inflation by tracking changes in prices of goods and services consumed by households.

    It is:

    • The headline inflation measure in India
    • Used by the Reserve Bank of India for monetary policy
    • Based on periodic base year revision to reflect current consumption patterns

    Key Changes in the New CPI Series

    • Food Weight Reduced
      • From 45.86% → 36.75%
      • Reflects decline in food expenditure share
      • Based on Engel’s Law: As income rises, share of food expenditure falls
    • HCES Findings:
      • Rural food share: 52.9% (2011–12) → 47.04% (2023–24)
      • Urban food share: 42.62% → 39.68%
    • Housing Weight Increased
      • From 10.07% → 17.66%
      • Now includes: Water, Electricity, Gas and Other fuels
      • Methodological change: Employer provided accommodation excluded
      • This may exert upward pressure on inflation.
    • Basket Expansion
      • Items increased from 299 → 358
      • Reclassification of categories
      • Linking factor to be released for back series comparison

    Why Was High Food Weight a Concern?

    • Food inflation is often supply driven.
    • Monetary policy cannot control vegetable or cereal supply in short run.
    • High food weight caused:
      • Excess volatility in headline inflation
      • Constraints on repo rate decisions

    Example:

    • October 2025 CPI: 0.25%
    • Food inflation: (-)5.02%
    • Food price fall dragged headline inflation sharply lower

    Implications for RBI

    • The RBI follows Flexible Inflation Targeting (FIT):
      • Target: 4%
      • Tolerance band: 2–6%
      • Mandated under RBI Act amendment (2016)
    • Lower food weight may:
      • Reduce volatility
      • Give clearer signal of core inflation
      • Improve monetary policy transmission
      • However, higher housing weight may increase measured inflation.
    [2020] Consider the following statements: 1. The weightage of food in Consumer Price Index (CPI) is higher than that of 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

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  • Foreign Policy Watch: India-Pakistan

    Pakistan Raises Indus Waters Issue over Sawalkot Dam

    Prelims Only | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Why in the News?

    Pakistan’s Foreign Office has stated that it has formally sought details from India regarding the Sawalkot Dam project, asserting that there will be no compromise on Pakistan’s water rights under the Indus Waters Treaty (IWT).

    Indus Waters Treaty (1960)

    Key Features

    • Signed in 1960 between:
      • India
      • Pakistan
      • Brokered by the World Bank

    River Allocation

    • Eastern Rivers (Exclusive use to India): Ravi, Beas and Sutlej
    • Western Rivers (Primarily for Pakistan, limited use to India): Indus, Jhelum and Chenab
    • India can build:
      • Run of the river hydroelectric projects
      • Non consumptive use projects
         But must share technical details with Pakistan.

    Sawalkot Dam Issue

    • Proposed on the Chenab River in Jammu and Kashmir.
    • Pakistan’s Indus Water Commissioner has written to India seeking:
      • Complete technical details
      • Design specifications
      • Compliance verification under IWT
    [2009] Consider the following statements: 1. The Baglihar Power Project had been constructed within the parameters of the Indus Water Treaty. 

    2. The project was completely built by the Union Government with loans from Japan and the World Bank. 

    Which of the statements given above is/are correct? 

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

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  • Forest Conservation Efforts – NFP, Western Ghats, etc.

    Supreme Court Stays Haryana’s Aravalli Zoo Safari Project

    Prelims Only | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    Why in the news?

    • The Supreme Court of India has refused to allow the Haryana government to proceed with its proposed Aravalli Zoo Safari Project until the definition of the “Aravalli Range” is scientifically clarified by experts.
    • The Court observed that no one will be allowed to “touch the Aravallis” until the matter is conclusively settled.

    About the Aravalli Range

    • One of the oldest fold mountain ranges in the world
    • Extends across Gujarat, Rajasthan, Haryana and Delhi
    • Acts as:
      • Natural barrier against desertification from the Thar Desert
      • Groundwater recharge zone
      • Biodiversity hotspot
      • Climate regulator for North India

    What is the Zoo Safari Project?

    • Proposed by Haryana Government
    • Initially planned over 10,000 acres, later reduced to 3,300 acres
    • Envisioned as the world’s largest zoo safari
    • Includes:
      • Big cat zones
      • Enclosures for birds, reptiles and butterflies
    • Located in Gurgaon and Nuh districts
    • Petitioners, including retired Indian Forest Service officers and NGO “People for Aravallis”, argued that the project could further degrade the ecologically fragile region.
    [2012] When you travel in Himalayas, you will see the following: 1. Deep gorges 

    2. U-turn river courses 

    3. Parallel mountain ranges 

    4. Steep gradients causing land sliding 

    Which of the above can be said to be the evidence for Himalayas being young fold mountains? 

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

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  • Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

    [12th Februrary 2026] The Hindu OpED: The CPI base revision exercise measures a slice of life

    op-ed snap | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth,Indian Economy

    PYQ Relevance[UPSC 2023] Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements. Linkage: Unemployment and inflation are core GS-3 macro indicators influencing growth and monetary policy. Just as CPI base revision affects inflation measurement, unemployment estimates depend on survey methodology (PLFS), shaping policy credibility and reform design.

    Why in the News?

    The Ministry of Statistics and Programme Implementation (MoSPI) has decided a comprehensive exercise for revision of the base year of Gross Domestic Product (GDP), Index of Industrial Production (IIP) and Consumer Price Index (CPI) to enhance their relevance, accuracy and international comparability. The proposed new base year for the GDP and IIP is 2022-23, and for CPI the proposed base year is 2024. The revision of CPI will be done using findings from the latest Household Consumption Expenditure Survey (HCES). The revision recalibrates expenditure weights to reflect structural shifts in consumption patterns over the past decade. Since CPI is the anchor for inflation targeting and monetary policy, changes in its composition directly influence measured inflation and policy response. The exercise also gains significance after gaps in consumption data, making representativeness and credibility central concerns.

    What is CPI and Why is it Important?

    Consumer Price Index (CPI) measures the average change over time in the retail prices of a fixed basket of goods and services consumed by households. It reflects retail inflation and serves as the nominal anchor under India’s inflation targeting framework.

    1. Retail Inflation Measure: Tracks price changes at the consumer level across goods and services.
    2. Inflation Target Anchor: Forms the basis of RBI’s flexible inflation targeting framework.
    3. Cost-of-Living Indicator: Reflects purchasing power of households.
    4. Policy Benchmark: Guides interest rate decisions, wage revisions and welfare indexation.
    5. Macroeconomic Signal: Influences investor expectations and economic outlook.

    Why Was Base Year Revision Necessary?

    1. Outdated Consumption Weights: 2012 basket no longer reflects current spending behaviour.
    2. Structural Economic Shift: Expansion of services sector and urbanisation since 2012.
    3. Consumption Diversification: Rising share of telecom, transport and service expenditures.
    4. Reduced Food Share: Relative decline in food and clothing weight in total expenditure.
    5. Data Discontinuity Concern: Delay in updated consumption data affected representativeness.

    How Does the CPI Basket Reflect Structural Changes in Society?

    1. Shift from Goods to Services: Higher expenditure on communication, transport and service-based consumption.
    2. Urbanisation Impact: Changing food habits, mobility patterns and housing expenditure.
    3. Changing Aspirations: Rising discretionary spending relative to subsistence consumption.
    4. Technology Integration: Inclusion of modern consumption categories such as telecom services.
    5. Rural-Urban Convergence: Updated survey captures evolving rural consumption patterns.
    6. Declining Engel Ratio: Reduced proportional spending on food indicates income progression.

    What Are the Macroeconomic Implications of CPI Base Year Revision?

    1. Inflation Recalibration: Weight changes can alter headline and core inflation trends.
    2. Monetary Policy Adjustment: RBI policy stance depends on CPI trajectory.
    3. Real Interest Rate Impact: Changes in measured inflation affect real returns.
    4. Fiscal Planning Effect: Influences subsidy indexation and welfare transfers.
    5. Market Signalling: Alters inflation expectations in financial markets.
    6. Credibility Enhancement: Strengthens confidence in official inflation statistics.

    Conclusion

    CPI base revision updates inflation measurement to reflect contemporary consumption patterns. It strengthens accuracy, improves macroeconomic signalling and supports effective monetary policy.

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  • Tax Reforms

    Taxpayer base more than doubled in the last decade

    Explained | Economics | Mains Paper 3: Indian Economy

    Why in the News?

    India’s direct tax system has recorded sustained expansion in both individual and non-individual taxpayers. India’s taxpayer base has more than doubled over the last decade, with individual taxpayers rising from 3.26 crore in AY2013-14 to nearly 7.26 crore in AY2024-25, while the total base expanded to about 4.8 crore. Simultaneously, the cost of collecting direct taxes declined to 0.41% in FY2024-25 (provisional), the lowest in available data.The increase reflects administrative reforms, digitalisation of filing systems, and structural strengthening of compliance mechanisms.

    What is the scale of expansion in the taxpayer base?

    1. Individual taxpayers: Increased from 3.26 crore (AY2013-14) to nearly 7.26 crore (AY2024-25), more than doubling in a decade.
    2. Total taxpayer base: Expanded from about 2.9 crore in AY2013-14 to nearly 4.8 crore in AY2024-25.
    3. Growth rate: Registered a CAGR of approximately 5% over the period.
    4. Peak annual growth: 7.89% CAGR observed during the period.
    5. Pandemic disruption: Growth slowed sharply in FY2020-21 due to COVID-19-related economic disruption.
    6. Recovery phase: Growth rebounded in subsequent years, indicating durability of expansion.

    How has the composition of taxpayers evolved?

    1. Dominance of individuals: Individual taxpayers continue to dominate the system.
    2. Non-individual taxpayers: Includes firms, companies, LLPs, Association of Persons (AOPs), Body of Individuals (BOIs), local authorities, and artificial juridical persons.
    3. Steady growth in non-individuals: Growth remained more stable compared to individuals, without major pandemic volatility.
    4. Broader base expansion: Evidence suggests increasing formalisation across business entities.

    What institutional changes supported this expansion?

    1. Digital filing systems: Increased reliance on online return filing.
    2. Pre-filled returns: Reduced compliance burden and errors.
    3. Expanded third-party reporting: Strengthened information matching.
    4. Reduced face-to-face interactions: Enhanced transparency and minimised discretion.
    5. Compliance friction reduction: Enabled smoother onboarding of taxpayers.
    6. Administrative strengthening: Indicated by consistent year-on-year improvements.

    What does the cost of collection indicate?

    1. Declining cost of collection: Reduced from 0.61% of gross direct tax collections (FY2000-01) to 0.41% (FY2024-25 provisional).
    2. Lowest in available data series: Reflects sustained administrative efficiency.
    3. Pandemic spike: Temporary rise in FY2020-21 due to disruptions.
    4. Post-pandemic correction: Returned to declining trajectory.
    5. Efficiency gain: Indicates improved revenue mobilisation per rupee spent.

    What does this imply for fiscal capacity and governance?

    1. Structural strengthening: Evidence suggests durable expansion, not a one-time compliance surge.
    2. Formalisation of economy: Broader cross-section of taxpayers entering formal net.
    3. Revenue resilience: Supports fiscal planning and long-term budgeting.
    4. Administrative modernisation: Reflects digital governance success.
    5. Compliance culture: Indicates deeper tax participation.

    Conclusion

    The sustained expansion of the taxpayer base alongside declining cost of collection signals structural strengthening of India’s direct tax system. The evidence suggests institutional reform, digitalisation, and broader formalisation have enhanced fiscal resilience and administrative efficiency.

    PYQ Relevance

    [UPSC 2019] Enumerate the indirect taxes which have been subsumed in the goods and services tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017.

    Linkage: This question tests understanding of how tax reforms expand the revenue base and strengthen fiscal capacity, a core GS3 theme. The article shows how widening the taxpayer base and improving compliance are part of the same structural shift that GST triggered in India’s tax ecosystem.

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  • Finance Commission – Issues related to devolution of resources

    Have States gained from the 16th FC

    Explained | Polity | Mains Paper 2: Constitutional Bodies,Federalism

    Why in the news?

    The 16th Finance Commission (FC) submitted its report for 2026-31, reopening debates on fiscal federalism. The 14th FC had raised vertical devolution from 32% to 42%, marking a structural shift. The 15th FC reduced it to 41% due to the reorganisation of Jammu and Kashmir into two Union Territories. Industrialised States demanded an increase to 50%, while several States sought restoration to 45-48%. The divisible pool has shrunk due to rising cesses and surcharges, which formed around 19% of gross tax revenue in 2015-16, leaving only 81% for distribution. The issue highlights tensions between equity-based redistribution and efficiency-based reward mechanisms.

    Introduction

    The 16th Finance Commission  chaired by Dr. Arvind Panagariya, submitted its final report to the President of India on November 17, 2025. Its recommendations, which cover the five-year period from April 1, 2026, to March 31, 2031, were accepted by the Union Government and tabled in Parliament on February 1, 2026

    What is the constitutional and institutional framework governing tax devolution?

    1. Article 270: Provides for distribution of net tax proceeds between Centre and States.
    2. Article 280: Mandates constitution of Finance Commission to recommend devolution formula.
    3. Divisible Pool: Includes corporation tax, personal income tax, Central Goods and Services Tax (CGST), and Centre’s share of Integrated GST.
    4. Exclusion of Cesses and Surcharges: These are not part of the divisible pool. In 2015-16, divisible pool constituted about 81% of gross tax revenue due to this exclusion.

    How has vertical devolution evolved over time?

    1. 13th FC (2010-15): Provided 32% share to States. Maintained specific transfers for Centrally Sponsored Schemes (CSS) with conditionalities.
    2. 14th FC (2015-20): Increased States’ share to 42%. Discontinued specific CSS transfers. Marked significant fiscal decentralisation.
    3. 15th FC (2020-26): Reduced share to 41% due to reorganisation of Jammu and Kashmir into Union Territories.
    4. 16th FC (2026-31): Retained 41% vertical devolution.

    What criteria guide horizontal devolution among States?

    13th FC Criteria:

    1. Income Distance (47.5%): Favoured poorer States to reduce fiscal disparities.
    2. Population (1971) (25%): Reflected demographic basis.
    3. Area (10%): Addressed administrative cost variations.
    4. Fiscal Discipline (17.5%): Incentivised prudent financial management.

    14th FC Criteria:

    1. Income Distance (50%): Increased equity emphasis.
    2. Population (1971) (17.5%) & Population (2011) (10%): Incorporated updated demographic data.
    3. Area (15%): Continued geographic consideration.
    4. Forest Cover (7.5%): Recognised ecological services.

    15th FC Criteria:

    1. Income Distance (45%): Slight reduction in redistributive weight.
    2. Population (2011) (15%): Sole population criterion.
    3. Area (15%) & Forest (10%): Maintained ecological compensation.
    4. Demographic Performance (12.5%): Incentivised population control.
    5. Tax Effort (2.5%): Rewarded revenue mobilisation.
    6. State’s Contribution to GDP (10%): Recognised growth contribution.

    What were the demands of States before the 16th FC

    1. Higher Vertical Share: Industrialised States such as Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Telangana demanded an increase from 41% to 50%.
    2. Restoration Demand: Several States sought to increase to 45-48%.
    3. Inclusion of Cesses and Surcharges: States demanded their inclusion in the divisible pool.
    4. Cap on Cesses: Sought ceiling on Centre’s ability to levy cesses and surcharges.
    5. GDP Contribution Criterion: Industrialised States advocated inclusion of States’ contribution to GDP in horizontal devolution formula.

    What did the 16th FC recommend?

    1. Vertical Devolution: The share of states in the divisible pool of central taxes has been retained at 41%, the same level as the 15th Finance Commission
    2. Horizontal Devolution Formula: A new formula was introduced to determine how the 41% is divided among individual states. Horizontal Devolution Approach: is guided by two principles: Equity Consideration: Recognises need to address inter-State income disparities. And Efficiency Recognition: Gives due weight to States’ contributions to growth and fiscal performance. Notable changes include:
      1. Contribution to GDP: A new criterion with a 10% weight to reward states’ economic performance
      2. Income Distance: Weight reduced to 42.5% (from 45%).
      3. Population: Based on the 2011 Census, with a weight of 17.5%
      4. Forest & Ecology: Weight maintained at 10%, but now includes “open forests” and rewards increases in forest cover.
    3. Grants-in-Aid: Recommended total grants of ₹9.47 lakh crore over five years.
      1. Discontinued Grants: The Commission has stopped Revenue Deficit Grants (RDG), sector-specific grants, and state-specific grants
      2. Local Body Grants: ₹8 lakh crore allocated, split 60:40 between rural (₹4.4 lakh crore) and urban (₹3.6 lakh crore) bodies.
    4. Fiscal Roadmap:
      1. Centre’s Fiscal Deficit: Target to reduce to 3.5% of GDP by 2030-31.
      2. States’ Fiscal Deficit: Capped at 3% of GSDP.
      3. Off-Budget Borrowings: Recommended a strict end to off-budget borrowings for both Centre and States. 

    What are the broader fiscal implications?

    1. Redistribution vs Incentives: Higher income distance weight benefits poorer States; GDP contribution and tax effort reward growth-oriented States.
    2. Shrinking Divisible Pool: Rising cesses reduce effective devolution.
    3. Union Fiscal Needs: Increased defence and infrastructure expenditure cited as constraints.
    4. State-Level Reforms: Recommends subsidy targeting, power sector reforms, and fiscal deficit control.

    Conclusion

    The 16th Finance Commission retains the 41% vertical devolution, maintaining continuity with the 15th FC despite demands for expansion. It upholds constitutional limits on cesses and surcharges while balancing equity through income distance and efficiency through recognition of States’ GDP contribution and fiscal performance. The recommendations reflect calibrated fiscal federalism, where redistribution, growth incentives, and Union fiscal requirements coexist within constitutional boundaries.

    PYQ Relevance

    [UPSC 2020] Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal tensions?

    Linkage: The question directly connects to the debate on shrinking divisible pool, rising cesses and surcharges, and the resulting Centre-State fiscal tensions that frame the discussion on vertical devolution and fiscal federalism.

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