Subject: Economics

[29th May 2025] The Hindu Op-ed: India’s financial sector reforms need a shake-up

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: The structure and efficiency of financial sector regulation by discussing the potential merger of two key regulatory bodies (SEBI for capital markets and IRDA for insurance). In this article, talks about the reforming India’s Financial Sector” calls for a “coherent, forward-looking strategy that harmonises rules across verticals” and mentions the need for regulatory scrutiny and transparency.

Mentor’s Comment: India’s financial sector is at a critical turning point. Even after years of policy changes, major problems remain — especially in areas like corporate bond markets, retirement savings, nomination rules across banks and financial services, and the growing risks from unregulated shadow banking. These aren’t just small technical issues; they are deep flaws that hurt investor confidence, customer safety, and the country’s economic strength.

Today’s editorial will talk about the issues related to the Financial sector in India. This content would help in GS Paper III ( Indian Economy).

Let’s learn!

Why in the News?

There must be consistent rules across all financial sectors, support for a strong corporate bond market, active development of retirement savings options, and better regulation to control shadow banking.

What are the major structural issues plaguing India’s financial sector?

Fragmented Nomination Rules Across BFSI Sectors: Inconsistent nomination rules in banks, mutual funds, and insurance create confusion and legal disputes. Eg: A person can nominate multiple people for a mutual fund but only one for a bank account, with different legal interpretations of nominee rights—leading to litigation among family members.

Underdeveloped Corporate Bond Market: The bond market remains shallow, illiquid, and lacks transparency, increasing the cost of capital for businesses. Eg: The RBI once directed the NSE to build a secondary bond market, but the exchange prioritized more profitable equity trading instead.

Opaque Capital Flows and Weak UBO Disclosures: Lack of transparency in identifying Ultimate Beneficial Owners (UBOs) hinders regulatory oversight. Eg: SEBI struggled to get ownership details from Mauritius-based Elara and Vespera Funds, delaying investigations into their Indian stock market investments.

Unregulated Shadow Banking Activities: NBFCs and brokers offer bank-like services without full regulatory supervision, exposing the system to financial risks. Eg: Brokers provide margin funding to retail investors at interest rates over 20%, without clear disclosure—mirroring unregulated lending seen before the 2008 global financial crisis.

Why is a harmonised nomination framework across BFSI (Banking, Financial Services, and Insurance) verticals necessary?

Reduces Legal Ambiguity: Different sectors (banks, mutual funds, insurance) treat nominees differently—causing confusion between nominee rights and legal heirs’ claims. Eg: A nominee in a mutual fund may only act as a trustee, while in a life insurance policy, the nominee may receive full benefits—leading to conflicting court battles.

Prevents Exploitation of Loopholes: Inconsistent rules create loopholes that can be exploited by unscrupulous actors to divert funds or delay inheritance. Eg: A person can deliberately name different nominees across instruments to cause confusion or suppress rightful heir claims.

Simplifies Compliance for Citizens: A uniform nomination system makes it easier for ordinary people to understand, update, and track their financial nominations. Eg: A senior citizen managing multiple accounts would benefit from a single, standard process rather than navigating different forms and rules for each institution.

Reduces Litigation and Administrative Burden: Courts and financial institutions face prolonged legal disputes due to conflicting nominee laws, which could be avoided with uniformity. Eg: Banks and mutual funds spend years contesting claims when legal heirs and nominees disagree—slowing down asset transfer.

Increases Trust and Transparency: Harmonisation builds trust in the financial system by making processes predictable and fair, thus encouraging formal savings. Eg: When savers know that nomination rules are clear and uniformly applied, they are more likely to invest in insurance or mutual funds without hesitation.

How can a well-developed corporate bond market benefit India’s economy?

Lowers Cost of Capital for Businesses: A deep bond market enables companies to raise funds at competitive interest rates, reducing their dependence on bank loans. Eg: An efficient bond market could lower borrowing costs by 2–3%, improving viability for sectors like infrastructure and manufacturing.

Diversifies Sources of Funding: It provides an alternative to bank financing, thereby reducing systemic risks and enhancing financial stability. Eg: Large firms like NTPC or Reliance can raise capital directly from investors through bonds, easing pressure on public sector banks.

Encourages Long-Term Investment: Corporate bonds are ideal for funding long-gestation projects like highways, power plants, and green energy, attracting pension funds and insurance firms. Eg: The National Investment and Infrastructure Fund (NIIF) can tap bond markets to finance long-term infrastructure.

Boosts Financial Market Development: A vibrant bond market leads to greater depth, liquidity, and transparency in the financial system. Eg: Countries like South Korea and Malaysia have developed strong bond markets that support efficient capital allocation.

Enhances Retail Participation and Savings Mobilization: If made accessible and credible, bond markets can attract retail investors, expanding financial inclusion and mobilizing household savings. Eg: Government-backed platforms could offer secure corporate bonds to middle-class savers as an alternative to fixed deposits.

Who is responsible for regulating and curbing the risks of shadow banking in India?

Reserve Bank of India (RBI): RBI regulates Non-Banking Financial Companies (NBFCs), ensuring they comply with capital adequacy, liquidity norms, and risk management frameworks. Eg: After the IL&FS crisis, RBI tightened norms on NBFCs’ asset-liability management and enhanced their supervision.

Securities and Exchange Board of India (SEBI): SEBI oversees brokers, margin lenders, and mutual funds that may engage in shadow banking-like activities, ensuring transparency in trading and lending practices. Eg: SEBI took steps to curb margin funding risks offered by brokers to retail investors under complex lending structures.

Ministry of Finance: The Ministry designs regulatory frameworks and inter-agency coordination, enabling RBI and SEBI to monitor and respond to emerging risks in shadow banking. Eg: The government supported RBI’s proposal to bring large NBFCs under bank-like regulations and backed a risk-based supervision model.

Way forward:

Unified and Risk-Based Regulatory Framework: Adopt a harmonised, activity-based regulation where entities performing similar financial functions are subjected to similar oversight, regardless of their institutional form. Eg: Apply the same capital, disclosure, and consumer protection standards to both NBFCs and banks offering credit, ensuring no regulatory arbitrage.
Enhanced Supervisory Capacity and Real-Time Monitoring: Strengthen inter-agency coordination (RBI, SEBI, Ministry of Finance) and invest in AI-powered data analyticsto track complex transactions and hidden risks. Eg: Use advanced analytics to monitor NBFC balance sheets and digital lending platforms in real time, enabling early warning systems and prompt corrective action.

May 29, 2025

Why India is the 3rd-largest Economy, NOT 4th or 5th?

Why in the News?

Recently, the CEO of NITI Aayog announced that India has moved ahead of Japan to become the world’s fourth-largest economy.

What is the key difference between nominal GDP and PPP-based GDP?

Nominal GDP: Measured using current market exchange rates in US dollars. Eg: If India’s GDP is ₹270 lakh crore and $1 = ₹75, then nominal GDP = ₹270 lakh crore ÷ 75 = $3.6 trillion.
PPP-Based GDP: Adjusted for differences in the cost of living and price levels between countries. Eg: If goods and services are cheaper in India, PPP adjusts the GDP upward to reflect greater actual consumption — India’s GDP could be $12 trillion in PPP terms, even though nominal GDP is lower.

When did India become the third-largest economy by PPP estimates?

In 2009, India overtook Japan in PPP-based GDP. This milestone occurred during the tenure of the Manmohan Singh-led UPA government. India has retained the 3rd position ever since, behind only China and the United States. The PPP-based ranking reflects India’s large population and lower cost of living, which boosts its effective domestic consumption.

How do exchange rates affect nominal GDP rankings?

Conversion Dependency: Nominal GDP is calculated in US dollars, so a country’s GDP in local currency must be converted using the exchange rate. Eg: If India’s GDP is ₹300 lakh crore and $1 = ₹75, its dollar GDP would be $4 trillion; but if $1 = ₹85, the same GDP becomes $3.5 trillion.
Exchange Rate Fluctuations Can Distort Rankings: A country’s global GDP rank can change without any real economic growth or decline, simply due to currency appreciation or depreciation. Eg: If the Japanese yen strengthens against the dollar, Japan’s nominal GDP in dollars rises—even if its actual output hasn’t changed.
Unfair Comparison Across Countries: Countries with volatile or weakening currencies may appear smaller in nominal terms than they are in real domestic terms. Eg: India’s GDP may seem lower than the UK’s in nominal terms due to a weaker rupee, even if India produces more goods and services overall.

Why is per capita GDP more reflective of individual prosperity?

Accounts for Population Size: Per capita GDP divides total GDP by the population, showing the average income per person, unlike aggregate GDP which may hide disparities. Eg: India’s GDP is higher than the UK’s in total, but because India has over 20 times the population, its per capita GDP is much lower.
Better Indicator of Living Standards: It reflects the average economic well-being and purchasing power of citizens, making it more relevant for assessing prosperity. Eg: A country with $50,000 per capita GDP (like the UK) offers far better public services, infrastructure, and living conditions than one with $2,800 (like India), even if total GDPs are comparable.
Highlights Income Distribution and Development Needs: Low per capita GDP suggests widespread poverty or unequal wealth distribution, even if overall GDP is growing. Eg: Despite being the world’s 5th largest economy, India’s low per capita GDP shows most individuals have limited incomes and access to economic benefits.

What does India’s per capita GDP reveal compared to the UK’s?

Aspect	India	UK	Example
Per Capita GDP (2025)	10,020 PPP dollars	58,140 PPP dollars	UK’s per capita income is ~6 times higher than India’s.
Living Standards & Services	Lower access to quality services	Higher standard of living, social welfare	Indians have limited access to healthcare, education, and housing
Economic Inequality & Prosperity	Aggregate GDP is growing, but benefits are not evenly distributed	Prosperity is more widely shared	Despite India’s growth, individual prosperity remains low on average.

Way forward:

Invest in Human Capital and Social Infrastructure: India must enhance spending on education, healthcare, and skill development to improve productivity and raise per capita incomes. Improved human capital directly boosts innovation, employability, and long-term economic growth.
Focus on Inclusive and Equitable Growth: Policies should ensure that economic gains are widely distributed, especially through rural development, MSME support, and targeted welfare schemes. This will reduce income disparities and lift more people into the formal, productive economy, improving per capita prosperity.

Mains PYQ:

[UPSC 2022] Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.

Linkage: India’s high aggregate economic rank alongside low per capita income, raises questions about how India’s economic growth model is translating into shared prosperity, a central theme of inclusive growth. This question explicitly asks about the possibility and mechanisms (like financial inclusion) of achieving “inclusive growth” within a market economy.

May 29, 2025

Cabinet approves hike in MSP for Kharif Crops

Why in the News?

The Cabinet Committee on Economic Affairs chaired by Prime Minister has approved the increase in the Minimum Support Price (MSP) for 14 kharif crops for 2025-26.

What is the Minimum Support Price (MSP)?

MSP in India originated in response to food shortages in the 1960s, notably during the Bihar famine of 1966–1967.
Agricultural Price Commission (APC) was established in 1965 to implement price policies like procurement at pre-decided prices and MSP.
Over time, the APC evolved into the Commission for Agricultural Costs and Prices (CACP) in 1985, with broader terms of reference.
Announcement: The government bases its announcement on the recommendations given by the Commission for Agricultural Costs & Prices (CACP).

Steps involved in Fixing MSPs:

CACP sends its recommendations to the Government of India.
The reports are shared with state governments and concerned central ministries for comments.
After reviewing all inputs, the Cabinet Committee on Economic Affairs (CCEA) takes the final decision on MSPs.
Once approved, CACP publishes all its reports online, ensuring transparency and explaining the rationale behind its recommendations.

How is MSP fixed?

Formulae for Calculation:
- A2: Costs incurred by the farmer in production of a particular crop. It includes several inputs such as expenditure on seeds, fertilisers, pesticides, leased-in land, hired labour, machinery and fuel
- A2+FL: Costs incurred by the farmer and the value of family labour
- C2: A comprehensive cost, which is A2+FL cost plus imputed rental value of owned land plus interest on fixed capital, rent paid for leased-in land
National Commission of Farmers also known as the Swaminathan Commission (2004) recommended that the MSP should at least be 50 per cent more than the weighted average Cost of Production (CoP), which it refers to as the C2 cost.
The government maintains that the MSP was fixed at a level of at least 1.5 times of the all-India weighted average CoP, but it calculates this cost as 1.5 times of A2+FL.
Crops covered are: CACP currently recommends MSPs for 23 key crops:

- 7 Cereals: Paddy, Wheat, Maize, Sorghum (Jowar), Pearl Millet (Bajra), Barley, and Ragi
- 5 Pulses: Gram (Chana), Tur (Arhar), Moong, Urad, and Lentil (Masur)
- 7 Oilseeds: Groundnut, Rapeseed-Mustard, Soybean, Sesame, Sunflower, Safflower, and Nigerseed
- 4 Commercial Crops: Copra, Cotton, Raw Jute and Sugarcane (Fair and Remunerative Price (FRP) is announced by CACP.)

[UPSC 2020] Consider the following statements:

1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.

2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.

Which of the statements given above is/are correct?

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

May 29, 2025

Energy and efficiency: On India and greater energy efficiency mandates

Why in the News?

Despite rising power deficits amid urbanisation and climate pressures, India’s UJALA scheme showcases energy efficiency’s impact—saving $10B and 9,500 MW—highlighting efficiency over mere capacity expansion.

What challenges does India face in meeting its peak power demand?

Rising Peak Demand due to Urbanisation and Climate Change: Rapid urbanisation and increasing use of cooling appliances during hotter summers have significantly increased electricity demand. Eg: In 2023–24, India’s peak power demand reached 250 GW, making it the third-largest power consumer globally.
Slow Expansion of Power Generation Capacity: Building new power plants, especially coal-based, is capital- and time-intensive, which cannot keep pace with rising demand. Eg: Despite efforts, power deficit widened from 0.69% in FY20 to about 5% in FY24, reflecting supply constraints.
Integration Challenges with Renewable Energy: While renewables are growing, their intermittent nature and grid integration issues limit their effectiveness in meeting peak demand. Eg: Solar and wind power face supply variability, making it difficult to meet peak-hour requirements consistently.

What is UJALA Scheme?

The UJALA scheme (Unnat Jyoti by Affordable LEDs for All) is a flagship energy efficiency program launched by the Government of India in 2015. It aims to promote energy-saving lighting solutions by distributing LED bulbs, tube lights, and energy-efficient fans at affordable prices

How has the UJALA scheme contributed to energy efficiency and savings?

Massive Reduction in Power Consumption: The scheme distributed over 37 crore LED bulbs and enabled the sale of 407 crore more, replacing energy-inefficient lighting. Eg: LED bulbs consume half the power of CFLs and 1/9th the power of incandescent bulbs, leading to major power savings in households.
Reduction in Peak Demand and Generation Needs: By improving lighting efficiency nationwide, UJALA helped reduce peak power demand by over 1,500 MW. Eg: It avoided the need to build 9,500 MW of new power capacity—equivalent to 19 new 500 MW coal-fired plants.
Lower Costs and Emissions: UJALA reduced the cost of LED bulbs from ₹500 to ₹70, making them accessible and cutting emissions. Eg: The scheme has helped India save over $10 billion and significantly reduced CO₂ emissions.

Why is enhancing energy efficiency crucial for India’s energy future?

Bridges the Gap Between Demand and Supply: India faces a widening peak power deficit (from 0.69% in FY20 to ~5% in FY24) despite increased generation. Eg: Energy efficiency helps reduce demand quickly—schemes like UJALA lowered peak demand by 1,500 MW, easing pressure on the grid.
Delays the Need for New (Often Fossil-Based) Power Plants: Building new fossil-fuel-based power plants is time-consuming and costly. Eg: Efficiency measures like LED lighting under UJALA avoided building 19 new coal plants (9,500 MW)—cutting cost, time, and pollution.
Supports Climate Goals and Reduces Emissions: India’s energy mix still depends 70% on coal, worsening climate and pollution. Eg: Energy efficiency improvements between 2000–2018 helped avoid 300 Mt of CO₂ emissions, according to the International Energy Agency.

Where can further energy efficiency mandates be applied in India?

Buildings and Construction Sector: Residential and commercial buildings consume significant energy, especially for cooling and lighting. Eg: Mandating energy-efficient designs and green building codes (like ECBC) in urban housing projects can reduce long-term electricity use.
Home Appliances: Many households still use inefficient devices that consume more electricity. Eg: Expanding BEE’s star-rating program to cover more appliances like fans, refrigerators, and ACs can push consumers toward efficient options.
Micro, Small and Medium Enterprises (MSMEs): MSMEs often use outdated machinery that wastes energy. Eg: Energy audits and subsidized upgrades in sectors like textiles or ceramics can reduce energy costs and improve competitiveness.

Way forward:

Invest in Grid Flexibility and Energy Storage: Promote battery storage, pumped hydro, and smart grid systems to manage peak loads and integrate renewable energy reliably.
Strengthen Energy Efficiency Mandates: Enforce stricter efficiency norms for buildings, appliances, and MSMEs, backed by incentives, audits, and awareness campaigns.

Mains PYQ:

[UPSC 2016] “Give an account of the current status and the targets to be achieved pertaining to renewable energy sources in the country. Discuss in brief the importance of National Programme on Light Emitting diodes (LEDs).”

Linkage: Despite growth in electricity generation, including recent additions of renewable energy, India has faced peak power demand deficits. While adding new power production capacity takes time, especially for fossil fuels, focusing on energy efficiency is presented as the quickest and least expensive way to address rising power demand and climate change. This question is highly relevant as it specifically asks about renewable energy targets and the importance of the National Programme on LEDs.

May 28, 2025

Centre restores RoDTEP Scheme

Why in the News?

To boost India’s export strength, the government has restored Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme benefits for eligible exports starting June 1, 2025.

Details of the Latest Update:

RoDTEP benefits have now been restored for Advance Authorization (AA) holders, Export-Oriented Units (EOUs), and Special Economic Zones (SEZs).
These categories were previously excluded from February 5, 2025, but are now eligible again from June 1, 2025.
The move ensures a level playing field for all exporters and encourages broad-based export growth.

About the RoDTEP Scheme:

Launch: It started on January 1, 2021, as part of the Foreign Trade Policy 2015–20.
Objective: It helps exporters get refunds for hidden taxes and duties that are not refunded under other schemes.
- Examples of Hidden Taxes: These include taxes like electricity duty, mandi tax, and fuel charges during transport.
Why it was introduced: RoDTEP replaced the earlier Merchandise Export Incentive Schemes (MIES) after India lost a case at the World Trade Organisation (WTO).
Global Compliance: The scheme is WTO-compliant, following the rule that exported goods should not carry domestic taxes.
Administered by: It is managed by the Department of Revenue under the Ministry of Finance.

Eligibility under RoDTEP:

Who can apply: All Indian exporters — whether manufacturers or merchant exporters — are eligible.
Eligible exports: Exports from SEZs, EOUs, and e-commerce platforms are also covered.
Not Eligible: Re-exported goods are not eligible for benefits.
Sector Focus: The scheme gives priority to labour-intensive sectors that earlier benefitted from MEIS.

How the refund works:

Rebate Calculation: The refund is given as a percentage of the export value (Free on Board value).
Mode of Refund: The benefit comes in the form of e-scrips, which are stored in a digital ledger by the Central Board of Indirect Taxes and Customs (CBIC).
Usage of E-Scrips: These e-scrips can be used to pay basic customs duty or be transferred to other importers.

[UPSC 2020] With reference to the international trade of India at present, which of the following statements is/are correct?

1. India’s merchandise exports are less than its merchandise imports.

2. India’s imports of iron and steel, chemicals, fertilizers and machinery have decreased in recent years.

3. India’s exports of services are more than its imports of services.

4. India suffers from an overall trade/current account deficit.

Select the correct answer using the code given below:

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

May 28, 2025

Kumbakonam Vetrilai Betel Leaf gets GI Tag

Why in the News?

The Kumbakonam Vetrilai (betel leaf or paan leaf) has received the Geographical Indication (GI) tag from the Government of India.

About Kumbakonam Vetrilai

Cultivation: It is grown in the Thanjavur region, especially in Kumbakonam, Thiruvaiyaru, Papanasam, Thiruvidaimarudur, and Rajagiri.
Characteristics: The leaf is heart-shaped, dark to light green, with a strong aroma and pungent taste, thanks to the fertile Cauvery basin soil.
Cultural Importance: It is a main ingredient in paan, a popular post-meal chew in South Asia.
Harvest: The first-year yield, called maaruvethalai, produces the largest and longest-lasting leaves (6–7 days shelf life); Farmers hand-pick leaves, working from early morning until late night due to the labour-heavy process.

Back2Basics: Geographical Indication (GI) Tag

A GI is a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin.
Nodal Agency: Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
India, as a member of the World Trade Organization (WTO), enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999 w.e.f. September 2003.
GIs have been defined under Article 22 (1) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
The tag stands valid for 10 years and can be renewed.

[UPSC 2015] Which of the following has/have been accorded ‘Geographical Indication’ status?

(1) Banaras Brocades and Sarees (2) Rajasthani Daal-Bati-Churma (3) Tirupathi Laddu

Select the correct answer using the code given below.

Options: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only* (d) 1, 2 and 3

May 28, 2025

State of the World’s Animal Health Report, 2025 by WOAH

Why in the News?

The World Organisation for Animal Health (WOAH) released the first-ever State of the World’s Animal Health report.

Key Highlights of the Report:

India faces high risk from transboundary animal diseases, with 47% of global outbreaks between 2005–2023 being zoonotic, affecting both animals and humans.
African Swine Fever (ASF), which jumped 1,800 km to Sri Lanka in 2024, threatens India’s northeast pig-rearing regions already impacted in past years.
Avian Influenza (HPAI) saw outbreaks in non-poultry species surpass poultry in 2024; India’s dense poultry population makes cross-species transmission a growing concern.
Foot and Mouth Disease (FMD), endemic in India, showed new serotype SAT 3 and SAT 1 activity in other countries, posing vaccine adaptation challenges.
Diseases like Lumpy Skin Disease and PPR, both reported in India earlier, are now spreading to new global regions, highlighting potential for reintroduction.
WOAH urges global action on vaccine equity, surveillance, and biosecurity, which align with India’s need to safeguard livelihoods, trade, and food security.

About the World Organisation for Animal Health (WOAH):

Establishment: WOAH, formerly known as OIE, was founded in 1924 and is headquartered in Paris, France.
Membership: It has 183 member countries, including India, and operates independently from the United Nations.
Mandate: WOAH is the global authority on animal health, working to control animal epidemics (epizootics) and improve global animal welfare.
Key Functions:
- Runs the World Animal Health Information System (WAHIS) to track disease outbreaks.
- Sets international health standards for trade in animals and animal products.
- Promotes science-based animal welfare policies and transparent disease reporting.
- Offers technical support to countries, especially developing nations.
Global Cooperation: Works with over 70 global partners, including the FAO.
India’s Role: India is a member and an active participant through the World Assembly of Delegates.

[UPSC 2005] Which one of the following diseases of milching animals are infectious?

1. Foot and Mouth disease

2. Anthrax

3. Black Quarter

4. Cowpox

Select the correct answer using the codes given below.

Options: (a) 1, 2 and 3 (b) 2, 3 and 4 (c) 1 and 4 (d) 1, 2, 3 and 4*

May 27, 2025

Trade deals will bring opportunities for Indian agriculture. But there will also be challenges

Why in the News?

India achieved record exports of $820.93 billion in FY25, rising 6.5%, but faced growing trade deficits as agriculture lagged, growing only 2.3% yearly despite employing half the workforce.

What was India’s trade performance in FY25?

Total exports (goods + services) reached $820.93 billion, marking a 6.5% increase over FY24.
Merchandise exports contributed $437.42 billion (53% of total exports), while services exports contributed $383.51 billion (47%).
Imports grew by 6.85% to $915.19 billion, with merchandise imports at $720.24 billion (79%) and services imports at $194.95 billion (21%).
The trade deficit widened to $94.26 billion from $78.39 billion in FY24.
The trade-to-GDP ratio stood at a robust 41.4%, reflecting India’s deeper integration with global markets.

How will Trade deals bring opportunities for Indian agriculture?

Reduced Dependence on Price-Sensitive Markets: Trade deals open new and stable markets for Indian agricultural exports, reducing over-reliance on traditional destinations and shielding against price volatility. Eg: The India-UK FTA could boost exports of premium products like Basmati rice, tea, spices, and processed foods to the UK, which is a high-value market with established Indian diaspora demand.

Boost Processed Agricultural Exports: Trade agreements typically reduce tariffs and non-tariff barriers, enhancing competitiveness of value-added and processed agri-products, which fetch higher margins. Eg: Under the India-UK FTA, processed foods and marine products can gain better access, enhancing India’s earnings from exports of ready-to-eat meals, seafood, and organic food products.

Why did agri-export growth slow down over the last decade?

Frequent Export Bans and Restrictions: Domestic policies often imposed export bans or curbs on essential commodities like rice, wheat, sugar, and onions to control inflation, disrupting export momentum. Eg: Restrictions on broken rice exports and duties on Basmati rice led to a 27% fall in rice export volume in FY24.
Global Price Fluctuations: Agri-exports are heavily influenced by global price trends — when world prices fall, Indian exports lose competitiveness and earnings. Eg: Rice export values declined despite volume recovering after lifting restrictions, due to price volatility.
Declining Productivity and Competitiveness: Lack of investment in research, technology, and resource-efficient farming practices lowered growth compared to earlier periods of rapid expansion. Eg: Average annual agri-export growth dropped from 20% (FY05–14) to just 2.3% (FY15–25).

How did rice export restrictions impact trade and prices?

Export Volume Decline: Restrictions like export bans, duties, and minimum export prices caused a sharp drop in rice export volumes. Eg: Rice exports fell by 27% from 22.3 million metric tonnes (MMT) in FY23 to 16.3 MMT in FY24.
Global Price Spike: Reduced supply due to restrictions pushed up global rice prices, affecting international markets. Eg: Imposition of export duties and minimum export price (MEP) on Basmati rice led to a spike in global rice prices.
Value Impact Less Severe than Volume: Despite the fall in export volume, the value of exports dropped only slightly because of higher prices. Eg: Rice export value fell by only 6% even as volumes dropped 27%, showing price effects cushioned revenue loss.

What are the environmental risks of rice exports?

Water Resource Depletion: Rice cultivation requires large amounts of water, which can strain local water supplies. Eg: In regions like Punjab, intensive rice farming has led to groundwater depletion and lowered water tables.
Methane Emissions: Flooded rice paddies emit methane, a potent greenhouse gas contributing to climate change. Eg: In Southeast Asia, vast rice fields are significant sources of methane emissions impacting global warming.
Soil Degradation and Pollution: Continuous rice farming with chemical fertilizers and pesticides can degrade soil quality and contaminate water bodies. Eg: Excessive use of agrochemicals in rice fields in Vietnam has caused soil salinization and river pollution.

What is the status of edible oil imports?

2022–23 (November–October): India imported approximately 16.5 million metric tons of edible oils, marking a 17% increase from the previous year. This surge was driven by lower import duties on key oils like palm, soybean, and sunflower oils.
2023–24 (November–October): Imports declined by about 3.1%, totaling 15.96 million metric tons, due to higher domestic oilseed production and reduced demand amid rising global prices.

The recent reduction in edible oil imports is very small. So, we need to take more steps to further cut down these imports.

How can India cut edible oil import dependence?

Increase Domestic Oilseed Production: Boost cultivation of oilseeds like groundnut, mustard, sunflower, and soybean through better seeds, irrigation, and farmer support. Eg: The “Oilseeds Production Mission” aims to raise domestic output and reduce imports.
Promote Sustainable Farming Practices: Encourage crop diversification and intercropping to improve yields and soil health, reducing reliance on imported oils. Eg: States like Madhya Pradesh have successfully adopted intercropping mustard with wheat to increase oilseed production.
Develop Processing Infrastructure: Invest in modern oil extraction and refining units to enhance local processing capacity and reduce post-harvest losses. Eg: Setting up mega oilseed processing clusters in regions like Rajasthan to strengthen the supply chain and self-reliance.

Way forward:

Strengthen Oilseed Ecosystem: Enhance productivity through quality seeds, MSP support, and targeted R&D under national missions like the Oil Palm and Oilseeds Mission.
Build Agro-Processing Capacity: Invest in decentralized, modern oilseed processing units to reduce wastage, improve value addition, and boost farmer income.

Mains PYQ:

[UPSC 2023] What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization(WTO) in relation to agricultural subsidies.

Linkage: Agricultural subsidies are a key area of contention in international trade negotiations, particularly within the WTO. Trade deals often involve discussions around reducing or reforming subsidies, which presents both a challenge (potential reduction of support for farmers) and an opportunity (creating a more level playing field or accessing new markets if other countries also reduce subsidies) for Indian agriculture.

May 26, 2025

Short Selling and Associated Risks

Why in the News?

The Securities and Exchange Board of India (SEBI) is considering a proposal to ease restrictions on short selling in most stocks.

SEBI’s January 2024 proposal to bar short-selling in stocks that are not in the futures and options segment had caused uncertainty.

What is Short Selling?

Definition: Short selling is a strategy where an investor sells a stock first and buys it later, aiming to profit from a price drop.
Opposite of Normal Trade: Unlike regular buying (buy low, sell high), short selling works on selling high and buying low.
How It Works: You borrow the stock from a broker, sell it at the market price, and later buy it back at a lower price to return it.
Example: If a stock is sold at ₹2,100 and later bought at ₹1,900, the profit is ₹200. If the price rises to ₹2,300 instead, the loss is ₹200.

Types of Short Selling:

Short Selling in the Spot Market (Cash Segment):

Shorting is allowed only for intraday trading (buying and selling financial instruments (like stocks) on the same day).
You must square off the position (buy back the stock) before 3:30 p.m. on the same day.
If not squared off, it leads to short delivery, where the exchange settles the trade through an auction.
There may be heavy penalties if the position is not closed on time.

Short Selling in the Futures Market:

Here, you can hold your short position overnight or even roll it over to the next month.
You must deposit margin money, which is generally higher.
Futures shorting is riskier and is mostly used by experienced traders.
This type allows more flexibility but involves greater financial commitment.

Risks Associated with Short Selling:

Unlimited Losses: If the stock price rises sharply, losses are unlimited.
Short Delivery Risk: Failing to buy back in the spot market can lead to penalties.
Liquidity Risk: Hard-to-trade stocks may lead to delayed buybacks and losses.
Margin Requirements: High margin costs in futures trading limit retail participation.
Market Volatility: Sudden movements may cause unexpected losses.
Not for Beginners: Due to complexity and high risk, short selling is unsuitable for new investors.

[UPSC 2025] Consider the following statements:

Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders.

Statement II: Bondholders are lenders to a company whereas stockholders are its owners.

Statement III: For repayment purpose, bondholders are prioritized over stockholders by a company.

Which one of the following is correct in respect of the above statements?

(a) Both Statement II and Statement III are correct and both of them explain Statement I

(b) Both Statement I and Statement II are correct and Statement I explains Statement II

(d) Neither Statement II nor Statement III is correct

May 26, 2025

PLI Scheme for 11 Pharma Products rolled out

Why in the News?

The Department of Pharmaceuticals has invited drug manufacturers to apply for benefits under the Production Linked Incentive (PLI) scheme.

It has invited fresh applications for 11 unsubscribed or partially subscribed pharmaceutical products, including Neomycin, Gentamycin, Erythromycin, Streptomycin, Tetracycline, Ciprofloxacin, and Diclofenac Sodium, to boost domestic production capacity.

About the PLI Scheme:

Launch: The Production Linked Incentive (PLI) Scheme was launched in March 2020.
Objectives: Aimed to boost domestic manufacturing, reduce import dependency, and create employment.
Initial Focus: Targeted three sectors — mobile manufacturing, electronic components, and medical devices.
Expansion: Later extended to 14 key sectors, including pharmaceuticals, textiles, IT hardware, automobiles, and electronics.
Incentive Structure: Offered 1%–4% incentives on incremental sales.
Impact: Attracted large-scale investments and enhanced global competitiveness of Indian industries.

PLI Scheme for Pharmaceuticals:

Target Area: Designed to promote bulk drug and formulation manufacturing in India.
Product Focus: Encouraged domestic production of Key Starting Materials (KSMs), Drug Intermediates (DIs), and Active Pharmaceutical Ingredients (APIs).
Strategic Aim: Aimed to reduce import dependence, particularly on China.
Financial Allocation: Total outlay for the pharmaceutical PLI scheme is ₹6,940 crore.

[UPSC 2023] Consider the following statements:

Statement-I: India accounts for 3.2% of global exports of goods.

Statement-II: Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-linked Incentive’ scheme.

Which one of the following is correct in respect of the above statements?

Options: (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I (c) Statement-I is correct but Statement-II is incorrect (d) Statement-I is incorrect but Statement-II is correct

May 26, 2025