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Subject: Economics

  • India’s goods Trade Deficit at a 42-month low 

    Why in the News?

    India’s goods trade deficit has dropped to a 42-month low of $14.05 billion in February 2025, driven by reduced imports of gold, silver, and crude oil, according to the latest data from the Ministry of Commerce and Industry.

    Key Insights from February 2025 Trade Data

    • Exports: Goods exports amounted to $36.9 billion in February 2025.
    • Imports: Merchandise imports fell to a 22-month low of $50.9 billion, primarily due to lower demand for gold, silver, and crude oil.
    • Gold and Silver Imports: The value stood at $2.7 billion, the lowest since June 2024.
    • Crude and Petroleum Imports: Reduced to $11.89 billion, marking the lowest level since July 2023.
    • On a year-on-year basis, exports dipped by 10.84% in February 2025, partially due to the base year effect of a leap month.
      • However, imports shrank by 16.3% compared to February 2024.

    Impact of Lower Trade Deficit on India’s Economy

    • Stronger Currency: A lower trade deficit reduces demand for foreign currencies, leading to an appreciation of the Indian Rupee. This makes imports cheaper, benefiting consumers and businesses.
    • Improved Current Account Balance: The lower trade deficit positively impacts India’s balance of payments, reducing dependence on external borrowing or foreign investments, and contributing to financial stability.
    • Boost to Domestic Production: A decrease in imports encourages local manufacturing and reduces reliance on foreign products, stimulating economic growth and creating jobs.
    • Growth in Exports: The reduced deficit reflects a higher level of exports, improving India’s foreign exchange reserves and supporting industrial output.
    • Reduced Inflation: With fewer imports, particularly of essential goods like crude oil and gold, prices of imported goods stabilize, helping reduce inflationary pressures in the economy.
    • Better Fiscal Health: A lower trade deficit leads to less reliance on external financing, helping the government maintain fiscal stability and potentially improve credit ratings.
    • Positive Investor Sentiment: A smaller trade deficit enhances investor confidence, attracting Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), boosting economic development.
    • Focus on Self-Reliance: Reduced imports drive self-reliance, encouraging domestic production, and decreasing dependency on imports for essential goods and services.

    PYQ:

    [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, fertilisers and machinery have decreased in recent years.

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

    Select the correct answer using the code given below:

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

     

  • What Laws govern Import of Gold into India?

    Why in the News?

    India is facing a rise in gold smuggling due to higher global gold prices, with a recent high-profile case where an actor was arrested for smuggling over 14 kg of gold from Dubai to Bengaluru.

    Laws Against Gold Smuggling in India:

    • Gold smuggling is regulated by the Customs Act, 1962.
      • Sections 111 & 112 allow confiscation and fines for illegal imports.
      • Section 135 provides up to 7 years imprisonment if the smuggled goods’ value exceeds ₹1 lakh.
    • Under the Baggage Rules, 2016, men abroad for 1+ year can bring 20g duty-free (₹50,000 cap); women can bring 40g (₹1 lakh cap).
    • Customs duty rates:
      • 3% duty: Men (20-50g), Women (40-100g).
      • 6% duty: Men (50-100g), Women (100-200g).
      • 10% duty: Beyond these limits.
    • The Bharatiya Nyaya Sanhita, 2023, punishes organized smuggling with 5 years to life imprisonment under Section 111.
    • Under UAPA Section 15, smuggling that affects India’s monetary stability is treated as a terrorist act, attracting life imprisonment.
    • The Supreme Court (2003) ruled that non-compliant imports are prohibited goods, liable for confiscation and punishment.

    India’s Gold Imports:

    • India is the second-largest gold consumer after China, with gold making up 5% of total imports, mostly for the jewellery industry.
    • Major import sources: Switzerland (40%), UAE (16%), South Africa (10%).
    • Budget 2024 reduced import duty from 15% to 6% to control smuggling and balance trade.
    • In April-July 2024-25, gold imports dipped by 4.23%, easing pressure on the Current Account Deficit (CAD).
    • April-June 2024:
      • Gems & jewellery exports: US$ 6.87 bn.
      • Diamonds: 53.47%, gold jewellery: 32.39% (US$ 608 mn), silver jewellery: 3.36%.
      • Gold jewellery imports: US$ 88.61 mn (June 2024).
    • Major production hubs: Surat, Mumbai, Jaipur, Thrissur, Nellore, Delhi, Hyderabad, Kolkata.
    • India targets US$ 100 billion gems & jewellery exports by 2027, making it a focus sector for export promotion.

    PYQ:

    [2016] What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?

    1. To bring the idle gold lying with Indian households into the economy.

    2. To promote FDI in the gold and jewellery sector.

    3. To reduce India’s dependence on gold imports.

    Select the correct answer using the code given below:

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

     

  • India’s 1st Exploration Licence Auction for Critical Minerals

    Why in the News?

    Union Coal and Mines Minister has launched the first-ever auction of Exploration Licences (ELs) for 13 critical mineral blocks.

    About the Critical Minerals Exploration Policy

    • India’s Critical Minerals Policy is designed to reduce import dependence, boost domestic production, and ensure secure access to essential minerals required for modern technology, defense, and clean energy.
    • It is driven by amendments to the Mines and Minerals (Development and Regulation) Act (MMDR), 2023, introduces systematic exploration, private sector participation, and transparent auctions.
    • Key Features of the Policy:
      • Private Sector Involvement: Allows private companies to explore and develop mineral blocks through Exploration Licences (ELs).
      • Transparent Auction Process: Introduces an auction-based allocation of exploration blocks, ensuring efficiency and competition.
      • Focus on Deep-Seated Minerals: Encourages the exploration of hard-to-extract minerals like lithium, rare earth elements (REEs), and platinum group metals (PGMs).
      • Financial Support for Exploration: Provides risk-sharing mechanisms, where 50% of exploration costs are borne by the government if minerals are not found.

    What are Critical Minerals?

    • Critical minerals are essential elements required for high-tech industries, clean energy technologies, and national security.
    • They are however at risk of supply chain disruptions due to their limited availability or geopolitical factors.
    • India’s 30 Critical Minerals (2023 List) includes: Lithium, Cobalt, Nickel, Graphite, Rare Earth Elements (REEs), Platinum Group Elements (PGEs), Silicon, Phosphorous, Potash, Tin, Tungsten, Vanadium, Zirconium, and others.

    Uses of Critical Minerals:

    • Electronics & Semiconductors: Copper, gallium, germanium, indium.
    • Electric Vehicles & Batteries: Lithium, cobalt, nickel, graphite.
    • Renewable Energy Technologies: Rare Earth Elements (REEs) for wind turbines and solar panels.
    • Aerospace & Defense: Titanium, tungsten, platinum group elements (PGEs).

    PYQ:

    [2019] With reference to the management of minor minerals in India, consider the following statements:

    1. Sand is a ‘minor mineral’ according to the prevailing law in the country.
    2. State governments have the power to grant mining leases of minor minerals, but the powers regarding the formation of rules related to the grant of minor minerals lie with the Central Government.
    3. State Governments have the power to frame rules to prevent illegal mining of minor minerals.

    Which of the statements given above is/are correct?

    (a) 1 and 3

    (b) 2 and 3

    (c) 3 only

    (d) 1, 2 and 3

     

  • What the recent GDP data revisions reveal

    Why in the News?

    The rise in real and nominal growth rates is expected to impact future economic growth plans and long-term strategies.

    Recently, the National Statistical Office (NSO) has provided two types of data.

    • Revised Annual GDP/GVA Estimates: Updated figures for Gross Domestic Product (GDP) and Gross Value Added (GVA) for the financial years 2022-23, 2023-24, and 2024-25, reflecting changes based on the latest economic data.
    • Quarterly and Advance Estimates: GDP and GVA data for the third quarter (Q3) of 2024-25, along with the second advance estimates predicting the overall economic performance for 2024-25.

    Why have the real and nominal growth rates been revised upwards?

    • Improved Sectoral Performance: Significant upward revisions in key sectors like manufacturing (by 2.4 percentage points) and financial, real estate, and related services (by 1.9 percentage points) contributed to higher GDP estimates.
    • Higher Investment Contributions: Increased gross capital formation (GCF) in 2023-24 (10.5% growth) led to stronger economic activity, positively impacting overall GDP figures. Example: Real investment rate (Gross Fixed Capital Formation to GDP ratio) reached 33.4% in 2024-25.
    • Stronger Consumption Demand: A rebound in Private Final Consumption Expenditure (PFCE) contributed to the upward revision, especially in sectors like trade and hospitality. Example: PFCE contribution to GDP increased to 5.3 percentage points in Q4, reflecting stronger consumer spending.

    Which sectors experienced the maximum upward revision in growth?

    • Manufacturing Sector: Revised upward by 2.4 percentage points, reflecting improved industrial production and better capacity utilization. Example: Manufacturing growth increased from 2.1% in Q2 to 3.5% in Q3 of 2024-25, indicating a gradual recovery.
    • Financial, Real Estate, and Related Services: Revised upward by 1.9 percentage points, driven by increased financial activities and a stronger real estate market. Example: The growth in these services contributed significantly to the overall 9.2% GDP growth in 2023-24, up from the previous estimate of 8.2%.

    What are the key challenges in achieving the implied fourth-quarter GDP growth of 7.6% for 2024-25?

    • Weak Private Final Consumption Expenditure (PFCE) Growth: The required PFCE growth for achieving 7.6% GDP growth is 9.9%, which is historically high and challenging to sustain. Example: PFCE contribution fell from 4.3 percentage points in Q1 to 3.3 percentage points in Q2, leading to slower GDP growth of 5.6%.
    • Insufficient Government Capital Expenditure: The government needs to spend ₹2.61 lakh crore in the last two months to meet the revised target of ₹10.18 lakh crore, which is significantly higher than the recent trend. Example: Average government capital expenditure during February-March (2021-24) was ₹1.81 lakh crore, making the target difficult to achieve.
    • Slow Recovery in Manufacturing Sector: Despite some improvement, manufacturing growth remains sluggish at 3.5% in Q3, limiting its contribution to overall GDP. Example: Manufacturing growth in Q2 was only 2.1%, indicating continued structural weaknesses and reduced industrial output.
    • Decline in Investment Contribution: The contribution of investment to GDP growth fell from 2.3 percentage points in Q1 to 1.8 percentage points in Q3, reducing overall economic momentum. Example: Gross capital formation growth dropped from 10.5% in 2023-24 to 5.8% in 2024-25, reflecting lower private sector investments.
    • Global Economic Uncertainty: External factors like geopolitical tensions and fluctuating global demand can negatively impact exports and foreign investments. Example: Persistent global uncertainties in energy markets and supply chains may hinder India’s export-led growth in Q4.

    What are the present policies of the Government in this regard?

    • National Infrastructure Pipeline (NIP): Launched to invest approximately ₹111 lakh crore (US$1.4 trillion) in infrastructure projects from 2020 to 2025, focusing on energy, roads, railways, and urban development to stimulate economic growth.
    • PM Gati Shakti Plan: Introduced to enhance multimodal connectivity by integrating various transportation modes, aiming to improve logistics efficiency and boost industrial productivity.
    • Goods and Services Tax (GST) Rationalization: The government plans to reduce and simplify GST rates to alleviate the tax burden on businesses and consumers, fostering a more business-friendly environment.
    • Energy Sector Reforms: Legislation has been approved to encourage oil and gas exploration. For example, Amendments to the Oilfields (Regulation and Development) Act of 1948: In December 2024, the Rajya Sabha approved amendments aimed at streamlining licensing processes and improving investor confidence.
    • Establishment of a Coal Trading Exchange: India’s Coal Ministry is proposing a coal trading exchange to manage increased domestic coal production and facilitate competitive sales. This initiative aims to shift from a government-controlled sales model to a “many-to-many” platform for efficient price discovery.

    Way forward:

    • Enhance Private Sector Participation: Implement targeted incentives and streamline regulatory processes to boost private investments in critical sectors like manufacturing and infrastructure. Example: Expanding the Production-Linked Incentive (PLI) scheme to emerging industries can drive long-term growth.
    • Strengthen Consumption and Export Demand: Promote domestic consumption through targeted tax relief and social welfare programs while enhancing export competitiveness by supporting value-added manufacturing and reducing trade barriers. Example: Implementing sector-specific export promotion schemes can mitigate global uncertainties.

    Mains PYQ: 

    Q Investment in infrastructure is essential for more rapid and inclusive economic growth.”Discuss in the light of India’s experience. (2021)

  • Wine Production in India

    Why in the News?

    Despite concerns over high tariff rates that India applies on European wine, going up to 150%, Italy sees the Indian market, along with China, as a big window of opportunity for its signature wines.

    Wine Production in India

    About India’s Wine Market

    • Wine accounts for only 2% of India’s alcohol market, while whiskey and beer dominate with 98%.
    • India’s per capita wine consumption is just 9 ml—1/8000th of France’s.
    • The domestic wine market is expanding at 20-30% annually, fueled by urban demand.
    • Mumbai, Goa, Bengaluru, and Delhi-NCR account for 70% of total wine consumption.
    • Goa leads in per capita wine consumption, driven by tourism and relaxed liquor policies.
    • India has 110+ wineries, with Maharashtra and Karnataka leading in production.
    • Sula Vineyards, India’s largest and most popular winery, produces over 1 million cases annually.
    • Events like the Nashik Wine Festival and Bengaluru Wine Festival attract tourists and wine enthusiasts.
    • Vineyard tourism is boosting the rural economy in Nashik and Nandi Hills of Karnataka.

    Viticulture in India 

    • India’s wine industry revival in the 1980s and 1990s led to increased vineyard expansion, making viticulture a key agricultural activity.
    • Nashik, Maharashtra, is known as the “Wine Capital of India”, producing over 80% of the country’s wine.
    • The semi-sandy soil, dry winters, and proximity to major cities like Mumbai and Pune make it ideal for viticulture.
    • The region has over 6,000–7,000 acres of vineyards dedicated to winemaking.
    • Key Wine Regions in India:
      • Nashik, Maharashtra – India’s largest wine-producing region, with optimal conditions for vineyards.
      • Nandi Hills, Karnataka – A cooler climate and high altitude favor premium wine production.
      • Himachal Pradesh & Tamil Nadu – Emerging high-altitude viticulture hubs.
    • Types of Grapes Used in Indian Wines:
      • Red Wine Grapes: Cabernet Sauvignon, Merlot, Shiraz, Pinot Noir.
      • White Wine Grapes: Chardonnay, Sauvignon Blanc, Chenin Blanc.
      • Indian Varieties: Anab-e-Shahi, Bangalore Blue, Thompson Seedless.

    PYQ:

    [2002] Consider the following plants:

    1. Bougainvillea 2. Carnations 3. Cocoa 4. Grapes

     

    Which of these plants are propagated by stem cuttings?

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

    [2006] Consider the following statements:

    1. Caffeine, a constituent of tea and coffee, is a diuretic.

    2. Citric acid is used in soft drinks.

    3. Ascorbic acid is essential for the formation of bones and teeth.

    4. Citric acid is a good substitution for ascorbic acid in our nutrition.

    Which of the statements given above are correct?

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

     

  • [pib] Bharat 6G Alliance

    Why in the News?

    Prime Minister has released India’s 6G vision “Bharat 6G Vision” document which envisaged India to be a frontline contributor in design, development and deployment of 6G technology by 2030.

    What is the Bharat 6G Alliance (B6GA)?

    • The B6GA is a collaborative platform established to drive India’s leadership in 6G technology.
    • It is an alliance of public and private enterprises, academic institutions, research organizations, and standardization bodies.
    • Objectives of B6GA:
      • Foster Global Collaboration: Partner with international 6G alliances to share knowledge and best practices.
      • Develop India-Centric 6G Use Cases: Identify key industry applications suited to India’s socio-economic landscape.
      • Drive High-Impact Research & Development: Facilitate cutting-edge research in terahertz communications, AI-driven networks, and quantum-enabled security.
      • Standardization & Spectrum Identification: Influence global 6G standards through active participation in International Telecommunication Union (ITU) and World Radiocommunication Conferences (WRC-27).

    Operationalization of 6G Technology:

    The Bharat 6G Project is structured into 2 key phases:

    • Phase 1 (2023-2025):  Focus on:
      • Exploratory research on futuristic telecom technologies.
      • Proof-of-concept testing in research labs.
      • Risky and innovative pathways in wireless communication.
    • Phase 2 (2025-2030): Focus on:
      • Intellectual property (IP) creation for India-led 6G innovations.
      • Deployment of testbeds leading to large-scale commercialization.
    • International Telecom Union (ITU) is evaluating new spectrum bands for 6G:
      • 4400-4800 MHz, 7125-8400 MHz, and 14.8-15.35 GHz.
      • Final decision to be taken at World Radiocommunication Conference 2027 (WRC-27).
    • Currently, 600 MHz to 26 GHz spectrum bands are allocated for IMT (2G-6G) services in India.

    PYQ:

    [2019] With reference to communication technologies, what is/are the difference / differences between LTE (Long-Term Evolution) and VoLTE (Voice over Long-Term Evolution)?

    1. LTE ‘is commonly marketed as 3G and VoLTE is commonly marketed as advanced 3G.

    2. LTE is data-only technology and VoLTE is voice-only technology.

    3. VoLTE requires IP Multimedia Subsystem (IMS) network for voice calls.

    Select the correct answer using the code given below.

    (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) Neither 1 nor 2

     

  • RBI’s Financial Stability Report (FSR) 2024 and Rising Household Debt

    Why in the News?

    The Reserve Bank of India (RBI) Financial Stability Report (FSR), 2024 has highlighted an increasing household debt burden and a concerning rise in consumption-based borrowing.

    About Financial Stability Report (FSR):

    • The FSR is published biannually (June & December) by the RBI.
    • It reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC – headed by the Governor of RBI) on risks to financial stability and the resilience of the financial system.
    • The Report also discusses issues relating to the development and regulation of the financial sector.

    RBI’s Financial Stability Report (FSR) 2024 and Rising Household Debt

    Key Highlights of the Financial Stability Report (FSR) 2024:

    • Rising Household Debt-to-GDP Ratio:
      • Household debt-to-GDP ratio: 36.6% (June 2021) → 42.9% (June 2024).
      • Household assets declined: 110.4% (June 2021) → 108.3% (March 2024), indicating more borrowing for consumption.
    • Credit Growth Trends:
      • Total credit growth (March 2024): 15.4% YoY.
      • Prime & Super-Prime borrowers: 66% of total loans, reducing risky lending.
      • Super-prime borrowers mainly borrow for asset creation, while sub-prime borrowers rely on loans for consumption.
    • Rising Unsecured Loans & Financial Stress:
      • 50% of sub-prime loans are for consumption; 64% of super-prime loans are for asset creation.
      • Credit card delinquencies: 1.8% (Sept 2023) → 2.4% (Sept 2024).
      • Personal loan defaults: 3.2% (Sept 2023) → 3.9% (Sept 2024).
      • Low-income households rely more on credit cards & personal loans than secured loans.
    • RBI’s Measures to Curb Consumer Borrowing:
      • September 2023: RBI raised risk weights on unsecured loans, slowing credit expansion.
      • Auto loan growth fell: 18.2% (March 2023) → 14.5% (March 2024) due to tighter lending norms.
    • Consumption Loans & Economic Impact:
      • More borrowing for consumption, less for housing, education, or business investment.
      • Rising debt repayment reduces spending, weakening GDP growth.
    • NPA Risks from Consumer Credit:
      • Unsecured loans growing faster, raising default risks.
      • Half of borrowers with credit card/personal loans also have home/auto loans—defaulting on one triggers loan classification as NPA.
    • Fintech’s Role in Rising Debt:
      • Digital lending & BNPL schemes enable easy credit but increase financial vulnerability.
      • Regulatory oversight needed to prevent excessive debt accumulation.

    PYQ:

    [2022] In India, which one of the following is responsible for maintaining price stability by controlling inflation?

    (a) Department of Economic Affairs, Ministry of Finance

    (b) Financial Stability and Development Council (FSDC)

    (c) NITI Aayog

    (d) Reserve Bank of India

     

  • Kisan Credit Card (KCC) Scheme

    Why in the News?

    According to the RBI, bad loans in the Kisan Credit Card (KCC) Scheme segment increased by 42% over the last four years, reaching ₹97,543 crore by December 2024, up from ₹68,547 crore in March 2021.

    About the Kisan Credit Card (KCC) Scheme

    • The KCC Scheme is a government-backed credit initiative designed to provide timely and adequate credit to farmers for agricultural and allied activities.
    • Launched in 1998 on the recommendation of NABARD (R.V. Gupta Committee), the scheme aims to ensure easy access to institutional credit, reducing farmers’ dependency on moneylenders and informal credit sources.
    • Purpose of KCC:
      • Provides short-term credit for crop cultivation and post-harvest needs.
      • Supports working capital requirements for farm mechanization, dairy, poultry, fisheries, and other allied agricultural activities.
      • Helps meet household consumption needs of farmers.
      • Allows credit access for investment in agriculture-related businesses.
    • Credit and Repayment System:
      • Farmers can avail collateral-free loans up to ₹2 lakh.
      • Interest rates start as low as 4% per annum (with government interest subvention for timely repayment).
      • The loan limit was increased from ₹3 lakh to ₹5 lakh in Budget 2025-26.
      • Revolving credit system allows farmers to withdraw and repay as needed within the sanctioned limit.
      • Repayment schedules are linked to the crop harvesting cycle, ensuring no undue financial burden.
    • Implementation: Commercial Banks; Regional Rural Banks (RRBs); Small Finance Banks; Cooperative Banks.
    • Additional Benefits:
      • Comes with insurance coverage under the Pradhan Mantri Fasal Bima Yojana (PMFBY) to protect against crop loss.
      • Covers fisheries and animal husbandry farmers (since 2018-19).

    Successes and Limitations of the KCC Scheme:

    Successes Failures
    • Increased Financial Inclusion: 7.3 crore active accounts, reducing reliance on moneylenders.
    • Higher Agricultural Productivity:  Easy access to inputs like seeds, fertilizers, and machinery.
    • Increased Support: Interest subvention makes loans affordable; loan limit raised from ₹3 lakh to ₹5 lakh (Budget 2025-26).
    • Promoted Rural Development: Covers women farmers, Farmer Producer Organizations (FPOs), and non-farm activities.
    • Rising NPAs:  Discussed above.
    • Loan Misuse: Funds diverted for non-agricultural expenses, increasing defaults.
    • Low Financial Literacy: Many farmers unaware of repayment terms, leading to debt traps.
    • High Credit Dependency: Continuous borrowing without income growth raises financial risks.

    PYQ:

    [2020] Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes?

    1. Working capital for maintenance of farm assets
    2. Purchase of combine harvesters, tractors and mini trucks
    3. Consumption requirements of farm households
    4. Post-harvest expenses
    5. Construction of family house and setting up of village cold storage facility

    Select the correct answer:

    (a) 1, 2 and 5 only

    (b) 1, 3 and 4 only

    (c) 2, 3, 4 and 5 only

    (d) 1, 2, 4 and 5

     

  • Income levels of salaried class have stagnated in recent years

    Why in the News?

    According to PLFS reports, employment in India is increasing, but the real wages of salaried workers have remained unchanged since 2019.

    What are the key reasons behind the stagnation of real wages for salaried workers in India since 2019?

    • Inflation Outpacing Wage Growth: Rising consumer prices (CPI) have eroded the purchasing power of salaries despite nominal wage increases. For example, Real wages for salaried workers in India were 1.7% lower in the June 2024 quarter compared to the June 2019 quarter (PLFS data).
    • Excess Labour Supply and Declining Returns to Education: An oversupply of qualified workers has reduced the premium for higher education, limiting salary growth. For example, the share of self-employed workers increased from 53.5% in 2019-20 to 58.4% in 2023-24, indicating a shift from salaried roles due to a lack of opportunities.
    • Depressed Private Sector Investment: Reduced corporate investment leads to slower job creation and wage stagnation. For example, India’s private sector investment-to-GDP ratio declined from 28% in 2011-12 to 21.1% in 2022-23 (Reserve Bank of India).
    • Policy Shocks (Demonetisation and GST Impact): Economic disruptions from demonetisation (2016) and GST (2017) weakened small and medium enterprises (SMEs), affecting formal employment. For example, Formal employment fell, and salaried employment as a share of total workers dropped from 22.9% in 2019-20 to 21.7% in 2023-24 (PLFS data).
    • Shift Toward Informal and Contractual Work: Companies increasingly rely on temporary and gig workers, offering lower pay and fewer benefits. For example, Casual labour wages increased by 12.3% (real terms) between 2019 and 2024, while salaried wages stagnated, reflecting a rise in informal work.

    Why is the increase in wages for casual labour not considered a net positive for the economy?

    • Lower Productivity Contribution: Casual labour typically involves low-skilled, irregular work with limited productivity gains. While wages may rise, the overall economic output does not grow proportionately.
      • For example, the agriculture sector, which employs a large share of casual labour, contributed only 16% to India’s GDP in 2023-24 despite employing over 45% of the workforce (Economic Survey 2023-24).
    • Informal Nature of Work: Casual jobs lack social security, health benefits, and job stability, leading to long-term economic insecurity despite wage increases.
      •  In India, 93% of the workforce remains in the informal sector with minimal social protection, contributing to economic vulnerability (ILO report, 2023).
    • Wage-Price Spiral Risk: Rising wages in low-skilled sectors can increase the cost of goods and services, driving inflation without improving living standards.
      • For instance, wage increases for casual farm labour contribute to higher food prices, intensifying retail inflation (CPI rose by 7.44% in July 2024, RBI).
    • Limited Skill Development and Upward Mobility: Casual work offers fewer opportunities for training or career advancement, trapping workers in low-wage cycles despite nominal wage growth.
      •  The Periodic Labour Force Survey (2023-24) shows that only 2.4% of India’s workforce received formal vocational training, limiting skill-based upward mobility.
    • Depressed Consumption and Savings Rates: Casual labourers typically earn subsistence-level wages, leaving little room for savings or significant consumption, which hampers long-term economic growth.
      • Household savings as a share of GDP declined from 23.6% in 2011-12 to 18.1% in 2022-23, reflecting weak wage-driven consumption (RBI report).

    When did real wages for self-employed workers begin to recover after the pandemic?

    Real wages for self-employed workers in India began to recover after the pandemic in the quarters. Despite this recovery, as of the June 2024 quarter, real wages remained 1.5% lower than in the June 2019 quarter.

    • Rural vs. Urban Disparities:
      • Rural Areas: In rural regions, self-employed workers experienced a 3.02% increase in real wages during the same period.
      • Urban Areas: Conversely, urban self-employed workers saw a decline of 5.2% in real wages compared to pre-pandemic levels.

    How have policy decisions like demonetization and the implementation of GST affected wage growth and employment patterns? 

    • Disruption of Informal and Small-Scale Enterprises: Both demonetisation and GST disrupted cash-dependent small and medium enterprises (SMEs), leading to job losses and reduced wage growth in the informal sector. Example: The share of salaried workers declined from 22.9% in 2019-20 to 21.7% in 2023-24 (PLFS data), indicating a shift away from formal employment.
    • Shift Toward Informal and Gig Work: Policy shocks accelerated the transition from stable salaried jobs to informal, gig-based, and self-employed work, which generally offers lower pay and fewer benefits. Example: The share of self-employed workers increased from 53.5% in 2019-20 to 58.4% in 2023-24, reflecting a rise in informal employment (PLFS data).
    • Slower Wage Growth and Employment Stagnation: Compliance burdens from GST and cash shortages from demonetisation constrained business operations, leading to slower wage increases across sectors. Example: Real wages for salaried workers were 1.7% lower in June 2024 compared to June 2019 (PLFS data), indicating stagnant wage growth despite economic recovery.

    Way forward: 

    • Enhance Formal Employment and Skill Development: Promote labour-intensive sectors and incentivize formal job creation through targeted tax benefits and reduced compliance burdens.
    • Strengthen Social Security and Wage Policies: Implement comprehensive social protection schemes for informal workers to ensure income stability and healthcare benefits.

    Mains PYQ:

    Q Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and the underprivileged sections of the society. Discuss. (UPSC IAS/2022)

  • As imports of semiconductor chips rise, India eyes local production

    Why in the News?

    At the World Economic Forum in January, Electronics and IT Minister Ashwini Vaishnaw announced that India will produce its first locally made semiconductor chip this year.

    What is the primary goal of India’s Semicon India Programme?

    • Reduce Import Dependency: To decrease reliance on foreign countries for semiconductor chips used in electronics, automobiles, and communication devices.  
    • Boost Domestic Manufacturing and Innovation: To establish a strong domestic ecosystem for semiconductor fabrication, assembly, testing, and packaging (ATP). Example: Construction of the Dholera semiconductor fabrication facility in Gujarat by Tata Electronics in collaboration with Taiwan’s Powerchip Semiconductor Manufacturing Corporation.
    • Enhance India’s Position in the Global Supply Chain: To integrate India into the global semiconductor value chain and attract investments from global tech giants. Example: The Tata Semiconductor Assembly and Test facility in Morigaon, Assam, is part of India’s effort to develop advanced chip packaging capabilities and reduce external reliance.

    How will it reduce import dependency on semiconductor chips?

    • Local Production of Semiconductor Chips: Domestic manufacturing of chips will reduce the need to import critical components used in electronics and communication. Example: India’s first indigenously manufactured semiconductor chip is expected to be produced in 2024, cutting reliance on imports from countries like China and South Korea.
    • Building Fabrication (Fab) Facilities: Establishing semiconductor fabrication plants allows India to produce advanced chips domestically. Example: The Dholera fabrication facility in Gujarat by Tata Electronics, in collaboration with Taiwan’s Powerchip Semiconductor Manufacturing Corporation will reduce the need for importing high-end chips.
    • Developing Assembly, Testing, and Packaging (ATP) Capabilities: Setting up ATP units enables India to process raw semiconductor wafers into finished products locally. Example: The Tata Semiconductor Assembly and Test facility in Morigaon, Assam, will handle large-scale chip assembly and packaging, decreasing dependence on foreign ATP services.
    • Diversifying Supply Chains and Strengthening Indigenous Innovation: Promoting research and development will encourage innovation in chip design and technology. Example: Investments in EDA software (Electronic Design Automation) and Core IP (patents) will enable India to design proprietary chips instead of relying on external technologies.
    • Attracting Global and Domestic Investments: Incentives and policy support under the Semicon India Programme will attract both domestic and foreign semiconductor companies to manufacture locally. Example: Government partnerships with industry leaders like Tata Electronics and Foxconn encourage private investment in chip manufacturing, reducing future import needs

    Where are the major semiconductor manufacturing and assembly facilities being constructed under the Semicon India Programme?

    • Tata-PSMC Semiconductor Fab, Dholera, Gujarat: ₹91,000 crore investment for a fabrication unit with a capacity of 50,000 wafer starts/month, producing 28 nm compute and power management chips for EVs, telecom, defense, and consumer electronics.
    • Tata TSAT ATMP Unit, Morigaon, Assam: ₹27,000 crore investment in an advanced packaging unit handling 48 million chips/day, catering to automotive, EV, telecom, and consumer electronics sectors.
    • CG Power-Renesas-Stars ATMP Unit, Sanand, Gujarat: ₹7,600 crore investment for specialized chip manufacturing with a capacity of 15 million chips/day, focusing on consumer, industrial, automotive, and power applications.
    • Micron Technology ATMP Unit, Sanand, Gujarat: $2.75 billion investment for a memory and storage chip assembly plant, expected to deliver the first chip by 2025, primarily for export.
    • Kaynes Semicon OSAT Facility, Sanand, Gujarat: ₹3,307 crore investment in an outsourced assembly and test unit, aiming to produce 200 million chips annually by March 2025, focusing on power electronics and industrial uses.

    Why has the actual spending under the Semicon India Programme consistently fallen?

    • Delays in Project Approvals: Lengthy evaluation and approval processes for semiconductor projects have slowed fund disbursement. For instance, the Tata and Micron projects faced regulatory and environmental clearance delays.
    • High Capital-Intensive Nature: Semiconductor manufacturing requires significant upfront investment, and the government has struggled to allocate sufficient funds. For example, the revised estimate for FY24 dropped to ₹1,503.36 crore from the budgeted ₹3,000 crore due to financial constraints.
    • Limited Domestic Expertise: India’s lack of advanced technological expertise in areas like chip design and fabrication has slowed implementation, resulting in underutilized budgets.
    • Complex Global Partnerships: Collaboration with international firms, such as Powerchip Semiconductor Manufacturing Corporation, involves lengthy negotiations and compliance with global standards, delaying fund utilization.
    • Infrastructure Bottlenecks: Inadequate supporting infrastructure (like power and water supply) at manufacturing sites has caused delays. For example, the Dholera facility required significant investments in infrastructure before full-scale construction could begin.

    Way forward: 

    • Streamline Approval Processes and Policy Support: Implement faster clearance mechanisms and provide consistent policy incentives to accelerate project approvals and fund disbursement.
    • Invest in Skill Development and Infrastructure: Enhance domestic expertise through specialized training programs and improve infrastructure at manufacturing hubs to ensure timely project execution.