The Union Budget 2025 has significantly increased the allocation for the PM Surya Ghar Muft Bijli Yojana (SGMBY) to ₹20,000 crore, up from ₹11,100 crore in the FY25 Revised Estimates (RE) and ₹6,250 crore in the FY25 Budget Estimates (BE).
AboutPM Surya Ghar Muft Bijli Yojana:
It is a flagship initiative launched by Prime Minister on February 15, 2024, under the Ministry of New and Renewable Energy (MNRE).
It aims to provide free electricity up to 300 units per month by facilitating the installation of rooftop solar panels in 1 crore households across India.
The scheme has a budget outlay of ₹75,021 crore and is planned for implementation until FY 2026-27.
The initiative is part of India’s clean energy transition, reducing dependency on fossil fuels and promoting sustainable energy solutions.
Key Features:
40% subsidy on installation costs through Central Financial Assistance (CFA).
1 kilowatt: 30,000 rupees
2 kilowatts: 60,000 rupees
3 kilowatts: 48,000 rupees
3 kilowatts or more: 78,000 rupees
National Programme Implementation Agency (NPIA) at the national level and State Implementation Agencies (SIAs) at the state level.
Two Solar Installation Models:
RESCO Model – Third-party ownership, with consumers paying only for electricity used.
Utility-Led Aggregation (ULA) Model – DISCOMs or state agencies install solar panels for households.
Model Solar Village: ₹1 crore incentive for the top-performing village in each district.
Payment Security Mechanism (PSM): ₹100 crore fund to encourage private investment in solar energy.
Significance
Reduces Electricity Bills: Households can save ₹15,000 to ₹1,80,000 annually.
Boosts Renewable Energy: Helps achieve 40 GW of rooftop solar capacity, bridging the gap from 10.4 GW (as of November 2023).
Strengthens Energy Security: Expands access to sustainable and decentralized power.
Environmental Impact: Reduces carbon emissions and reliance on fossil fuels.
Empowers Rural India: 50% of projects are expected in Tier-2 and Tier-3 cities, promoting economic growth and electrification.
PYQ:
[2020] India has immense potential for solar energy though there are regional variations in its developments. Elaborate.
The Ocean Coordination Mechanism (OCM) was recently announced by the Intergovernmental Oceanographic Commission (IOC) of UNESCO on January 14, 2025.
What is Ocean Coordination Mechanism (OCM)?
The OCM, launched by the Intergovernmental Oceanographic Commission (IOC) of UNESCO, aims to enhance marine conservation and resource management.
It focuses on the Caribbean and North Brazil Shelf, regions with rich biodiversity, coral reefs, and fisheries generating $610 million annually.
The OCM promotes Blue Carbon Projects, using coastal ecosystems for carbon storage, benefiting both climate resilience and local communities.
It has secured $15 million in funding from the Global Environment Facility (GEF) under the UNDP/GEF PROCARIBE+ Project, with an additional $126.02 million in co-financing.
Intergovernmental Oceanographic Commission (IOC) of UNESCO
Established in 1961, the IOC/UNESCO promotes marine science cooperation for sustainable ocean governance.
It operates in key areas:
Ocean science research: Supports studies on climate change, biodiversity, and sustainability.
Tsunami warning systems: Maintains early warning mechanisms to mitigate risks.
Ocean observations: Collects and analyzes oceanographic data for policy-making.
The IOC leads the UN Decade of Ocean Science for Sustainable Development (2021-2030), known as the “Ocean Decade”, advancing global marine conservation efforts.
About the Caribbean Sea
The Caribbean Sea is part of the North Atlantic Ocean, located south of the Gulf of Mexico and southwest of the Sargasso Sea.
Major Gulfs and Bays – Includes Gulf of Venezuela, Gulf of Honduras, and Gulf of Darién.
The Caribbean Sea supports rich biodiversity but faces threats from climate change, pollution, and overfishing, making conservation efforts like OCM essential for sustainability.
PYQ:
[2021] Consider the following statements :
1. The Global Ocean Commission grants licences for seabed exploration and mining in international waters.
2. India has received licences for seabed mineral exploration in international waters.
3. ‘Rare earth minerals’ are present on seafloor in international waters.
The Ministry of Culture implements a Central Sector scheme by the name of ‘Financial Assistance for Promotion of Guru-Shishya Parampara (Repertory Grant)’.
What is the Guru-Shishya Parampara Scheme?
The Ministry of Culture launched this scheme in 2003-04.
It aims to preserve and promote India’s traditional performing arts.
It provides financial assistance to Gurus (mentors) and Shishyas (students) in music, dance, theatre, and folk arts, ensuring structured training under the age-old mentorship system.
Aims and Objectives:
Preserve and revive rare art forms through direct knowledge transfer.
Support traditional artists by providing financial aid for sustainable livelihoods.
Encourage young talent by facilitating training under experienced Gurus.
Promote classical, folk, and tribal art forms through structured mentorship.
Features and Significance:
Financial Assistance
Guru – ₹7,500/month | Accompanist – ₹3,750/month
Shishyas – ₹1,500/month (up to four per Guru)
Repertory Grant – Guru: ₹15,000/month | Shishya: ₹2,000 – ₹10,000/month
Eligibility
Indian citizens engaged in traditional performing arts.
Gurus aged 45-70 years with national-level recognition.
Implementation & Monitoring
Each Guru trains 5-8 Shishyas, focusing on rural and tribal artists.
Periodic reviews and expert evaluations ensure proper fund utilization.
The Union Budget 2025-26 introduced the Nuclear Energy Mission, aiming to develop at least 5 indigenous Small Modular Reactors (SMRs) by 2033.
AboutNuclear Energy Mission (NEM):
Details
A flagship initiative announced in Union Budget 2025-26 to accelerate India’s nuclear power capacity towards the target of 100 GW by 2047.
It focuses on Small Modular Reactors (SMRs), expansion of Bharat Small Reactors (BSRs), and policy reforms to attract private and foreign investment in nuclear energy.
Key Highlights of the NEM
100 GW Nuclear Target by 2047 as part of India’s clean energy transition.
₹20,000 crore allocated for R&D and deployment of Small Modular Reactors (SMRs).
Public-Private Collaboration for setting up Bharat Small Reactors (BSRs) and advanced nuclear technologies.
Amendments to Atomic Energy Act, 1962 to allow private sector participation.
Changes to Civil Liability for Nuclear Damage Act, 2010 to attract foreign investment.
Deployment of BSRs (220 MWe) and SMRs (30-300 MWe) to replace coal plants and power remote regions.
Other Initiatives for Enhancing India’s Nuclear Capacity
Expansion of Nuclear Power Capacity:
Current capacity: 8,180 MW → Target by 2031-32: 22,480 MW.
10 reactors under construction (8,000 MW) across Gujarat, Rajasthan, Tamil Nadu, Haryana, Karnataka, and Madhya Pradesh.
Approval for 6 x 1208 MW AP1000 reactors (USA collaboration) at Kovvada, Andhra Pradesh.
Deployment of Advanced Nuclear Reactors:
Bharat Small Reactors (BSRs): 220 MWe PHWRs for industrial decarbonization.
Prototype Fast Breeder Reactor (500 MWe) at Kalpakkam achieved milestones in 2024.
High-Temperature Gas-Cooled Reactors (HTGRs) & Molten Salt Reactors (MSRs) under development using India’s thorium reserves.
Recent Developments:
New uranium deposit discovered at Jaduguda Mines (extends mine life by 50+ years).
Operationalization of first two 700 MWe PHWR units at Kakrapar, Gujarat (KAPS-3 & 4).
NPCIL-NTPC Joint Venture (ASHVINI) launched to build nuclear plants.
Rajasthan Atomic Power Project-7 (RAPP-7) reached criticality in 2024.
PYQ:
[2018] With growing energy needs should India keep on expanding its nuclear energy programme? Discuss the facts and fears associated with nuclear energy. (250 Words, 15 Marks)
[2011] The function of heavy water in a nuclear reactor is to:
India’s top 1% own 40.1% of the nation’s wealth, fueling inequality debates.UPSC often asks about wealth inequality through essay topics, GS paper questions on taxation policies, or the impact of economic disparities. Sometimes, it links wealth concentration to governance, social justice, or economic reforms. Many struggle with these topics because they focus only on memorizing facts. But UPSC wants clear analysis—why a policy was introduced, why it failed, and what alternatives exist. A surface-level understanding isn’t enough. This article simplifies the complex debate on wealth tax. It explains why India removed it, how other countries handle it, and what could work better. The best part? It connects policy with real data, making arguments stronger.
PYQ ANCHORING & MICROTHEMES:
GS 3: Capitalism has guided the world economy to unprecedented prosperity. However, it often encourages shortsightedness and contributes to wide disparities between the rich and the poor. In this light, would it be correct to believe and adopt capitalism driving inclusive growth in India? Discuss. [2014]
MICROTHEMES: Inclusive Growth X Capi talism
Wealth inequality has become a pressing issue globally and in India, with the top 1% owning 40.1% of the nation’s wealth. This concentration of wealth, juxtaposed against widespread poverty and dependence on state welfare programs, has reignited the debate on imposing wealth taxes to address inequality and generate public revenue.
About Wealth Tax
Wealth Tax is levied on the net market value of various assets owned by an individual, such as cash, bank deposits, shares, fixed assets, personal cars, and real property. Globally, several countries like France, Portugal, and Spain impose wealth tax. The primary objective of the tax is to target unproductive and non-essential assets of individuals.
Wealth Tax in India
The Wealth Tax Act was introduced in 1957 based on the recommendations of the Kaldor Committee (1955) as a part of tax rationalization measures. It imposed a 1% tax on earnings exceeding ₹30 lakh per annum for individuals, Hindu Undivided Families (HUFs), and companies.
Abolition: Abolished in 2015 due to issues such as Extensive litigation, Increased compliance burden, and High administrative costs. Replaced by an increase in the surcharge on the super-rich.
Replacement measures: The surcharge for individuals with income exceeding ₹1 crore and companies with income over ₹10 crore was increased from 2% to 12%.
Reasons for Abolition of Wealth Tax
Reason
Description
Examples/Supporting Data
Loopholes in the Tax System
Wealth tax rules had exploitable loopholes, enabling taxpayers to avoid liabilities.
Frequent litigation due to loopholes; taxpayers manipulated asset values to avoid tax.
Simplification of Tax Procedures
Abolishing wealth tax reduced complexity and multiple tax laws.
Replacing wealth tax with a 2% income surcharge improved efficiency and transparency (Post-FY 2015 Budget).
High Administrative Costs
Cost of collecting wealth tax was higher than the revenue it generated.
In FY 2013-14, wealth tax collection was only ₹1,008 crore, despite an increase in super-rich individuals.
Revenue Optimization
Replacing wealth tax with a surcharge significantly increased government revenue.
An additional ₹9,000 crore was collected annually through income surcharge post-abolition (FY 2015-16).
Administrative Burden
Valuation requirements for assets like jewelry created complexities for taxpayers and regulators.
Taxpayers needed valuation certificates for assets, leading to compliance issues and disputes.
Wider Taxpayer Coverage
Income tax had broader coverage than wealth tax, ensuring better taxpayer inclusion.
In FY 2011-12, only 1.15 lakh wealth tax assessees existed, compared to millions filing income tax returns.
Improved Asset Reporting
Income tax surcharge continued asset reporting, aiding better monitoring and preventing tax evasion.
Post-abolition, taxpayers had to declare assets under income tax returns, reducing wealth leakage.
Low Awareness of Wealth Tax
Many individuals were unaware of wealth tax obligations, leading to frequent non-compliance notices.
Frequent tax notices to non-compliant taxpayers; poor awareness led to confusion and low participation in wealth taxation.
BENEFITS AND CHALLENGES OF INTRODUCING WEALTH TAX IN INDIA
Arguments in Favour of Wealth Tax
Arguments Against Wealth Tax
Addressing Inequality: Helps redistribute wealth in an economy where the top 1% control a disproportionate share of resources.
Administrative Challenges: Complex valuation of non-liquid assets (e.g., real estate, gold) leads to high costs of collection.
Revenue Generation for Welfare: Funds raised can support public healthcare, education, and social schemes like MGNREGA.
Low Revenue Generation: In 2013-14, India’s wealth tax contributed only ₹1,008 crore, less than 0.1% of total tax revenues.
Progressive Tax System: Targets the ultra-rich, ensuring the tax burden is equitable.
Tax Evasion: The wealthy often find ways to hide or underreport their wealth.
Moral and Social Responsibility: Promotes fairness by requiring the wealthiest to contribute more to societal development.
Capital Flight: High net worth individuals may relocate to tax-friendly countries, as seen in Norway, harming domestic investments.
Impact on Wealth Creation: Discourages entrepreneurship and investment, critical for India’s growing economy.
Way Forward: Making Taxation Fair and Effective
Better Alternatives to Wealth Tax – Instead of reintroducing wealth tax, India can improve capital gains tax, property tax, and inheritance tax to ensure the rich pay their fair share.
Higher Taxes for the Ultra-Rich – Raising income tax rates for the wealthiest can make the tax system more progressive without adding new complexities.
Stronger Tax Compliance – Using technology and data analytics can help track high-value transactions and reduce tax evasion.
Expanding the Tax Base – Encouraging more individuals and businesses to enter the formal tax system will distribute the tax burden more fairly.
Transparent Use of Taxes – Clearly linking tax collection to improvements in healthcare, education, and infrastructure will build public trust.
Global Coordination – Working with other countries to prevent capital flight and tax evasion will ensure the wealthy can’t easily avoid taxes.
Encouraging Philanthropy – Offering incentives for voluntary contributions and charitable donations can motivate the rich to give back to society.
BACK2BASICS: Components of Economic Inequality in India
Component
Description
Example
Income Inequality
Wide disparity in income distribution between different groups and regions.
The top 10% of India’s population earns 57% of the national income, while the bottom 50% earns only 13% (2021).
Wealth Inequality
Disproportionate concentration of assets and wealth among the elite, with minimal ownership by lower-income groups.
According to Oxfam’s 2023 report, the richest 1% own more than 40% of India’s wealth.
Educational Disparity
Unequal access to quality education, which directly affects employment opportunities and income levels.
Rural girls, especially from marginalized communities, have significantly lower school enrollment rates.
Health Inequality
Uneven access to healthcare services, resulting in poorer health outcomes for economically disadvantaged groups.
Urban areas have 1.5 times more hospital beds per capita than rural areas, exacerbating rural health crises.
Regional Inequality
Stark differences in development levels, infrastructure, and living standards across states and regions.
Kerala has a high HDI of 0.782, while Bihar lags behind with an HDI of 0.574 (2022).
Employment Inequality
Differences in access to secure and well-paying jobs, often divided along caste, gender, and regional lines.
Women’s participation in the workforce was only 25% in 2022, and Dalits face higher unemployment rates.
Q) Critically examine the role of WHOin providing global health security during the Covid-19 pandemic. (UPSC CSE 2020)
Mentor’s Comment: UPSC mains have always focused on Bridging Healthcare Gaps (2015), and WHO Initiatives (2020).
The US is the largest contributor to WHO, providing about 18% of its funding. The withdrawal is expected to jeopardize critical health programs, particularly those addressing tuberculosis, HIV/AIDS, and other health emergencies.
Today’s editorial emphasizes the need for member states to collaborate more effectively in light of reduced US involvement, ensuring that global health priorities remain addressed despite funding challenges. This content can be used to present the significance of multilateral collaboration and its impact on international policy and governance with respect to Health.
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Let’s learn!
Why in the News?
After the USA’s withdrawal from WHO, it is time for the countries in the global south to support WHO and initiate collaborative actions to reshape the global health agenda.
What are the Potential Impacts of the US Withdrawal from WHO?
Disruption of Funding and Programs: The US contributes nearly 18% of WHO’s budget (~$1 billion annually), supporting critical health programs like immunization, tuberculosis control, and pandemic preparedness.
The withdrawal will likely disrupt ongoing projects aimed at combating health challenges such as HIV/AIDS and polio eradication.
Weakened Global Health Response: WHO’s ability to coordinate responses to health crises will be significantly impaired without US support. This includes reduced resources for disease surveillance and emergency operations in regions facing outbreaks or health threats.
Impact on Global Health Leadership and Collaboration: The absence of the US may create a leadership vacuum within WHO, allowing other nations (e.g., China) to increase their influence.
This shift could alter international collaboration dynamics and lead to fragmented approaches to public health challenges.
Repercussions for Low-Income Countries: Marginalized communities in low-income countries may face disproportionate impacts due to reduced funding from WHO. These communities rely heavily on WHO for access to essential health services, and the withdrawal signals a deprioritization of global health initiatives, exacerbating existing inequalities.
The overall effectiveness of global health initiatives may decline as WHO struggles with funding constraints and could slow long-term progress toward key health goals, such as disease eradication and comprehensive vaccination programs, ultimately affecting global health security.
How might the withdrawal reshape international health diplomacy?
Shift in Global Health Leadership: The absence of the US may create a leadership vacuum within WHO, potentially allowing countries like China to increase their influence in global health governance.
This shift could alter the dynamics of international collaboration, with other nations stepping up to fill the void left by the US.
Increased Geopolitical Tensions: The withdrawal could intensify competition between the US and China for influence in global health matters.
China’s initiatives, such as the Health Silk Road, may gain traction as it seeks to position itself as a leader in global health, thereby reshaping alliances and partnerships among countries.
Impact on Multilateral Cooperation: The US’s exit may weaken multilateral cooperation on critical health issues, leading to fragmented responses to global health challenges.
Countries may become less willing to collaborate on shared health threats without US leadership, which could hinder effective pandemic preparedness and response efforts.
Loss of Diplomatic Leverage: By withdrawing, the US relinquishes its role as a key influencer in shaping global health policies and initiatives.
This could diminish its ability to advocate for public health programs that align with its interests and values, allowing other nations to take a more prominent role in setting global health agendas.
Disproportionate Effects: The low-income countries that rely heavily on WHO for support may face greater challenges without US involvement.
What reforms or changes might be necessary within WHO in light of this withdrawal?
Diversification of Funding Sources: WHO should encourage member states to increase their assessed contributions, which currently cover less than 20% of its budget. This could help reduce reliance on any single donor, particularly the US.
WHO can seek to expand its voluntary contributions from other countries and private organizations to fill the financial gap left by the US withdrawal.
Strengthening Governance and Accountability: Implementing more transparent financial management practices can help restore trust among member states and ensure that funds are allocated effectively.
Establishing an independent oversight body to review WHO’s operations and decision-making processes may help address concerns about political influence and enhance accountability.
What opportunity do India have in this situation?
Increased Leadership Role: India can take a prominent leadership position within WHO, representing the Global South.
For Example, through the Vaccine Maitri initiative, India facilitated vaccine exports during the COVID-19 pandemic, demonstrating its commitment to global health equity and influencing health policies.
Strengthening Domestic Capabilities: The withdrawal allows India to bolster its healthcare infrastructure and research capabilities.
For Example, significant investments in indigenous vaccine production, such as Covaxin and Covishield, have positioned India as a major player in global vaccine supply chains, enhancing self-reliance and healthcare outcomes.
Enhanced Collaboration with Emerging Economies: India can forge stronger partnerships with other emerging economies to collaboratively address global health challenges.
For Example, engagement with countries like Brazil and South Africa through the IBSA Dialogue Forum can focus on shared issues like antimicrobial resistance and maternal health, enhancing collective responses to public health threats.
Leveraging Pharmaceutical Strength: India’s robust pharmaceutical industry can fill gaps left by reduced WHO funding.
Known as the “pharmacy of the world,” India supplied affordable vaccines during the pandemic, reinforcing its reputation as a key player in global healthcare by continuing to produce low-cost medications.
Way Forward: India can not only mitigate the impacts of the US withdrawal but also can significantly contribute to shaping a more equitable global health landscape.
The financial strain of cancer is often ignored but can be the most harmful. It not only impacts the patient but also their family and future generations.
What is the extent of financial toxicity faced by cancer patients in India?
High Treatment Costs: Cancer treatments, especially advanced options like immunotherapy, can be prohibitively expensive. For instance, a patient with oral cancer may face annual costs of approximately ₹10 lakh, adding to previous expenses that can total ₹25 lakh over several years. This financial strain often forces families to deplete savings or sell assets to afford care.
Impact on Families: Financial toxicity extends beyond the patient to their families, leading to severe economic consequences. Families may resort to selling properties or skipping meals to manage treatment costs, which can entrap them in a cycle of generational poverty.
Out-of-Pocket Expenses: A significant portion of healthcare costs is borne out-of-pocket by patients. For example, outpatient expenses can account for nearly 50% of total healthcare costs, which are not covered by insurance schemes like Ayushman Bharat.
What are the contributing factors to financial toxicity in cancer care?
Inadequate Public Health Funding: India’s public health expenditure has historically been below 2% of GDP, resulting in insufficient healthcare infrastructure and personnel in public hospitals. This leads to delays in diagnosis and treatment, particularly for advanced cancer cases that require more costly interventions.
Limited Insurance Coverage: Existing insurance schemes primarily cover inpatient costs, leaving patients responsible for outpatient diagnostics and follow-up treatments. This gap significantly contributes to the financial burden on patients and their families.
Economic Disparities: Patients from low and middle-income backgrounds face additional hurdles in accessing cutting-edge treatments due to their high costs and limited availability in public health systems.
What are the steps taken by the Indian Government?
Health Minister’s Cancer Patient Fund (HMCPF): Established in 2009 under the Rashtriya Arogya Nidhi, this fund provides financial assistance up to ₹5 lakh for cancer treatment at designated Regional Cancer Centers (RCCs).
In emergency cases, assistance can go up to ₹15 lakh. The fund aims to support patients living below the poverty line.
Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (PM-JAY): This scheme offers health coverage of up to ₹5 lakh per family per year for secondary and tertiary care hospitalization, including cancer treatments. It is designed for low-income families and is operational across India.
State-Specific Schemes: Various states have their own initiatives:
Arogyasri Scheme in Andhra Pradesh: Provides free cancer treatment for families with an annual income below ₹5 lakh.
Free Chemotherapy in Odisha: Offers free chemotherapy treatment at district hospitals for poor cancer patients.
Financial Assistance in Punjab: Up to ₹1.5 lakh is provided for cancer treatment to eligible residents.
What strategies can be implemented to mitigate financial toxicity? (Way forward)
Strengthening Public Healthcare: Increasing government investment in public health could improve access to affordable cancer care.
States like Delhi and Kerala have initiated schemes to support direct medical costs, but broader implementation is needed across India.
Supportive Measures for Non-Medical Costs: Initiatives such as discounted travel fares for cancer patients can alleviate some financial burdens associated with non-medical expenses. Expanding these programs could provide significant relief.
Role of Nonprofits and CSR: Nonprofit organizations play a crucial role in reducing out-of-pocket expenses through various support services. Increased funding from corporate social responsibility (CSR) initiatives could help these organisations expand their reach and impact.
Promoting Philanthropy: Encouraging individual philanthropy among wealthier segments of society could provide critical funding for cancer care initiatives and nonprofits focused on assisting low-income patients.
Policy Advocacy: Advocating for policies that address the gaps in insurance coverage and promote equitable access to cancer treatments is essential for reducing financial toxicity in the long term.
Mains PYQ:
Q What are the research and developmental achievements in applied biotechnology? How will these achievements help to uplift the poorer sections of the society? (UPSC IAS/2021)
In 2025, the United States’ imposition of a 25% tariff on imports from Canada and Mexico, along with a 10% tariff on Chinese goods, exemplifies modern beggar-thy-neighbour policies.
What is Beggar-Thy-Neighbor Policy?
Beggar-thy-neighbor policies refer to protectionist economic policies in which economic strategies are adopted by a country to improve its own economic situation at the expense of other nations.
These policies often involve protectionist measures such as tariffs, quotas, or currency devaluation, which can lead to negative repercussions for trading partners. For example, recently the USA imposed tariffs on China.
What are the positive implications of this policy?
Domestic Economic Boost: Proponents argue that these policies can stimulate the domestic economy by protecting local industries and jobs. For example, tariffs on imports can encourage consumers to buy domestic products, potentially reducing unemployment in key sectors.
National Security: Supporters often cite national security concerns, suggesting that certain industries need protection from foreign competition to maintain a robust domestic economy.
Encouragement of Exports: By depreciating the national currency, a country can make its exports cheaper and more competitive in international markets, which is believed to enhance demand for domestic goods abroad.
What do the critics say?
Global Economic Decline – The U.S.-China Trade War (2018-Present) illustrates how protectionist policies can escalate into retaliatory actions.
The U.S. imposed tariffs on Chinese goods, prompting China to retaliate with its own tariffs, disrupting global supply chains and reducing international trade volumes.
Higher Consumer Prices – The U.S. Tariffs on Steel and Aluminum (2018) under Section 232 increased production costs for American industries relying on these metals, such as automobile and construction sectors.
A study by the Federal Reserve found that these tariffs cost U.S. consumers and businesses over $1.4 billion per month.
Historical Warnings – The Smoot-Hawley Tariff Act (1930) in the U.S. significantly raised tariffs on imports, leading to retaliation from trading partners like Canada and European nations.
This contributed to a sharp decline in global trade and worsened the Great Depression. Global exports fell by nearly two-thirds between 1929 and 1934, demonstrating the adverse effects of widespread protectionism.
Reduced Innovation and Efficiency – India’s License Raj (1947–1991) is a prime example of how excessive protectionism stifled innovation. The heavily regulated economy limited foreign competition, leading to inefficiencies, outdated technology, and slow economic growth.
Post-1991 economic liberalization, which reduced trade barriers, spurred competition, efficiency, and innovation across various industries.
Which countries use this policy?
U.S. Tariffs and Trade War – Under the “America First” policy, the U.S. imposed tariffs on $250 billion worth of Chinese goods in 2018 to shield domestic industries. In response, China introduced retaliatory tariffs on U.S. products, escalating a trade war that disrupted global markets.
China’s Currency Policies – China has been accused of currency manipulation to maintain trade advantages. In 2019, the U.S. Treasury labeled China a currency manipulator after the People’s Bank of China allowed the yuan to depreciate, making Chinese exports cheaper and imports more expensive.
Japan’s Currency Interventions – To boost exports during economic stagnation, Japan’s central bank has weakened the yen through market interventions. While this makes Japanese exports more competitive, it raises import costs for domestic consumers and affects trading partners negatively.
Germany’s Eurozone Trade Advantage – Germany’s strong export-driven economy, supported by fiscal discipline and manufacturing strength, has been seen as creating imbalances within the Eurozone. During financial crises, weaker European economies struggle to compete, intensifying economic disparities.
Does India use this policy?
In recent times, India has indeed engaged in practices that can be characterized as beggar-thy-neighbor policies, particularly in the context of trade and economic strategy.
Tariffs on Imports: India has imposed tariffs on various goods to protect its domestic industries.
For instance, in 2018, India raised import duties on a range of products, including electronics and agricultural goods, to encourage local manufacturing and reduce reliance on foreign imports. Such measures can be seen as attempts to bolster India’s economy at the expense of exporting countries.
Restrictions on Chinese Imports: Following geopolitical tensions, India has implemented stricter regulations and tariffs on imports from China.
This includes bans on several Chinese apps (like tiktok) and increased scrutiny of Chinese investments.
Way forward:
Balanced Trade Policies: Countries should adopt a mix of strategic protectionism and open trade to safeguard domestic industries while preventing trade wars.
Strengthening WTO mechanisms and engaging in fair trade negotiations can ensure economic stability.
Focus on Competitiveness: Instead of relying on protectionist measures, nations should invest in innovation, skill development, and infrastructure to enhance global competitiveness, ensuring sustainable economic growth without harming trading partners.
Mains PYQ:
Q What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India? (UPSC IAS/2018)
The Union Budget offers a major tax cut, benefiting taxpayers earning above ₹7 lakh. Rebates and exemptions have increased to reduce liabilities, though it may lead to an estimated ₹1 lakh crore revenue loss.
What is the logic behind the tax rebates?
Boosting Household Consumption: Taxpayers earning ₹7–12 lakh/year now qualify for a full rebate (earlier limited to sub-₹7 lakh earners), saving ₹70,000–₹1.1 lakh annually.
This exemption limit was raised from ₹3 lakh to ₹4 lakh for those earning above ₹12 lakh, reducing tax burdens across income groups.It will Increase disposable income to drive consumption, savings, and private investment.
With weak private investment and uncertain global demand, tax rebates are aimed at stimulating domestic consumption.
Leveraging Tax Buoyancy for Revenue Growth: Despite an 8% tax rate reduction, the government anticipates a 14% rise in direct tax revenue (₹14.3 lakh crore), requiring a 24% income growth among taxpayers. It Simplified tax slabs and phased out the old regime to improve compliance and widen the taxpayer base.
Focus on Middle-Class Welfare: The overarching goal of these tax rebates is to support the middle class, which constitutes a significant portion of the electorate and plays a vital role in the economy. By alleviating their tax burden, the government seeks to enhance their financial well-being and foster a more equitable economic environment.
What are the implications if tax buoyancy does not work out?
Revenue Shortfalls: A failure in tax buoyancy would lead to lower than expected tax revenues, resulting in budget deficits. This could force the government to cut essential services and social programs, negatively impacting the welfare of vulnerable populations.
Pro-Cyclical Fiscal Policy: Insufficient tax revenue may compel the government to adopt a pro-cyclical fiscal policy, reducing public spending during economic downturns instead of stimulating growth. This can exacerbate economic slowdowns and hinder recovery efforts.
Increased Tax Burden on Compliant Taxpayers: To compensate for revenue shortfalls, the government might increase taxes on those who continue to pay taxes, placing a heavier burden on compliant taxpayers and potentially discouraging further compliance and economic activity.
Is it ‘Fiscal Consolidation’ or ‘Fiscal Contraction’?
The current approach appears to lean more towards fiscal contraction rather than fiscal consolidation. The Finance Minister has set a lower deficit target of 4.4% for 2025-26, down from 4.8% in the previous year. This suggests a tightening of fiscal policy rather than an expansion aimed at stimulating growth.
Critics argue that such contractionary measures are ill-timed given the current economic slowdown, as they limit the government’s ability to invest in growth-promoting initiatives. The expectation seems to hinge on corporate investment and export growth to drive recovery, which may not be sufficient if domestic demand remains weak due to reduced government spending.
Aspect
Consolidation Argument
Contraction Criticism
Deficit Target
Lowered to 4.4% of GDP (from 4.8% in FY24), aiming for 3% by FY29
Bank on ₹28.37 trillion net tax receipts (+11% YoY) via compliance gains and income growth
No compensatory taxes for high earners (30% slab unchanged) or wealth assets, risking ₹1.26 lakh crore shortfall
Expenditure Focus
Capital expenditure raised to ₹11.2 lakh crore (+17.4% YoY) for infrastructure multipliers
Social sector allocations remain stagnant, with FY24 revised spending 15% below initial estimates.
Way forward:
Balanced Fiscal Approach – Instead of aggressive fiscal contraction, the government should adopt a gradual deficit reduction strategy while maintaining targeted public spending, especially in infrastructure and social sectors, to sustain domestic demand and economic growth.
Enhancing Revenue without Burdening Taxpayers – Strengthen tax compliance through digital tracking, rationalize subsidies, and explore progressive taxation on wealth and high-income segments to ensure fiscal stability without increasing the burden on the middle class.
Mains PYQ:
Q Comment on the important changes introduced in respect of the Long-term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019. (UPSC IAS/2018)
The Budget proposes to remove 7 customs tariff rates for industrial goods, following a similar step in Budget 2023-24. This will leave only 8 tariff rates, including a zero rate, making customs duty structure more transparent and predictable.
What is Customs Duty?
Customs Duty is a tax imposed on goods that cross international borders to regulate their movement.
It helps protect a country’s economy, jobs, environment, and residents by controlling imports and exports.
It prevents illegal trade, ensures fair competition, and generates government revenue.
The Customs Act, 1962, which defines and regulates customs duty in India.
The Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance manages customs duties.
Types of Customs Duties in India:
Basic Customs Duty (BCD): Levied on imported goods (0-100%).
Countervailing Duty (CVD): Imposed to balance foreign subsidies (0-12%).
Social Welfare Surcharge (SWS): 10% surcharge to support welfare projects.
Anti-Dumping Duty: Imposed on goods sold below market price to prevent unfair trade.
Compensation Cess: Levied on items like tobacco and pollution-causing goods.
Integrated GST (IGST): Imposed on imports at 5%, 12%, 18%, or 28% rates.
Safeguard Duty: Applied when excessive imports harm domestic industries.
Customs Handling Fee:1% charge for customs processing.
Customs Duty Calculation: Based on product value, origin, composition, and international trade agreements.
Key Changes Announced to Customs Tariffs:
Tariff rates reduced from 15 to 8, Social Welfare Surcharge was removed on 82 items.
36 new life-saving medicines exempted, 5% duty on six more drugs.
Full BCD exemption on 35 EV battery capital goods, 28 mobile battery items, and key minerals like cobalt & lithium.
10-year duty exemption for shipbuilding materials; Ethernet Switch duty cut from 20% to 10%.
20% export duty on crust leather removed, handicraft export timeline extended to 1 year.
Frozen fish paste duty cut from 30% to 5% to boost seafood exports.
Customs assessments limited to 2 years, quarterly importer reporting instead of monthly.
How India is Protecting Its Economy from Trade War Impact?
Rupee-based trade settlements with Russia, UAE & Sri Lanka to reduce dollar dependence.
Stockpiling essential imports like semiconductors, rare earth metals, and crude oil.
Attracting companies shifting from China with PLI incentives for manufacturing.
Paperless customs clearance, AI-driven trade monitoring, and blockchain documentation for smoother trade.
Strengthening global trade alliances like IPEF (Indo-Pacific Economic Framework) and Supply Chain Resilience Initiative (SCRI) (Japan-Australia) for supply chain stability.
PYQ:
[2018] Consider the following statements
1. The quantity of imported edible oils is more than the domestic production of edible oils in the last five years.
2. The Government does not impose any customs duty on all the imported edible oils a special case.
Which of the statements given above is/are correct?
