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Subject: Economics

  • Defence production in India receives a fillip

    Why in the News?

    After Operation Sindoor, India’s military strike against Pakistan in May, there has been a lot of talk about strategy — but it has also given a strong boost to India’s defence sector, especially to private companies and small businesses (MSMEs) involved in defence manufacturing.

    What impact did Operation Sindoor have on the performance of defence company stocks?

    • Sharp Rise in Defence Stocks: Defence company stocks surged by nearly 21% in the week when India conducted Operation Sindoor, significantly outperforming the broader market’s 3.1% rise in the Nifty50 index during the same period.
    • Sustained Positive Momentum: In the week following Operation Sindoor, defence stocks continued to rise by 5.4%, whereas the Nifty50 index actually declined by 0.5%, showing sustained investor confidence in the defence sector.
    • Reversal of Previous Underperformance: Before Operation Sindoor, defence stocks were lagging behind the top 50 companies on the National Stock Exchange, but the operation acted as a catalyst that boosted their performance substantially.

    Why is the growth in India’s defence production and exports significant?

    • Enhances Self-Reliance: The growth signals India’s increasing capability to produce defence equipment domestically, reducing dependence on imports. Eg, defence production reached a record ₹1.3 lakh crore in FY24, showing strong progress in indigenous manufacturing.
    • Boosts Economic and Strategic Strength: Rising defence exports, which have doubled since FY20 and crossed ₹20,000 crore in recent years, help strengthen India’s global defence market presence and contribute to economic growth. The government’s export target of ₹30,000 crore for the current fiscal reflects this ambition.
    • Encourages Innovation and Industry Growth: Sustained double-digit growth since FY22 encourages innovation and investment in defence technology, benefiting both public and private sectors.

    How have private companies and MSMEs contributed to India’s defence sector in recent years?

    • Growing Share in Defence Production: Private defence companies increased their share of total defence production from about 20% in FY17 to nearly 24% in FY25, showing their expanding role in the sector. Eg, companies like Paras Defence and Space Technologies have become prominent players.
    • Leading Role in Defence Exports: Private firms now account for the majority share of defence exports due to export authorisations, helping India expand its footprint in the global defence market. Eg, several private companies contribute to exports of small arms and protective gear.
    • MSMEs as Key Component Suppliers: MSMEs supply crucial components to the defence industry, with government procurement from MSMEs doubling the target to ₹13,000 crore in FY25. Eg, MSMEs provided goods worth around ₹3,000 crore between FY18 and FY20, with larger orders thereafter.

    When did defence production begin steady growth?

    • Defence production contracted by 2.5% in FY20 (pre-pandemic).
    • Since FY22, defence production has been seeing consistent double-digit growth.
    • The growth momentum continues with production touching nearly ₹90,000 crore by December 2024 against a target of ₹1.6 lakh crore for FY25.

    What are the steps taken by the Indian government? 

    • Promoting Domestic Manufacturing: The government has set ambitious targets to boost indigenous defence production, encouraging self-reliance. Eg, defence production crossed ₹1.3 lakh crore in FY24 and is targeted at ₹1.6 lakh crore in FY25.
    • Supporting MSMEs through Procurement: Mandatory public procurement targets have been set to ensure MSMEs receive steady orders and support. Eg, goods worth ₹13,000 crore were procured from MSMEs in FY25, more than double the target.
    • Encouraging Private Sector Participation: Policies have facilitated the growing involvement of private companies in defence production and exports. Eg, private companies increased their production share from 20% in FY17 to nearly 24% in FY25, and dominate defence exports.

    Way forward: 

    • Enhance Technology Upgradation and Innovation: Invest more in R&D and foster collaboration between public and private sectors to develop cutting-edge defence technologies, ensuring global competitiveness and self-reliance.
    • Strengthen MSME Integration and Export Support: Expand financial and policy support to MSMEs for scaling up production capacity and quality, and create dedicated export facilitation mechanisms to boost India’s defence exports further.

    Mains PYQ:

    [UPSC 2014] Defence manufacturing in India is still in a nascent stage. What influence this is expected to have on Indian defence and economy in the short and long run?

    Linkage: Recent data from the article clearly demonstrates a significant “fillip” in India’s defence production, directly linked with the “nascent stage” described in the 2014 PYQ. This 2014 question is highly relevant as it highlights a past perception that “defence manufacturing in India is still in a nascent stage. In this articel, the discussions on the efficacy and confidence in India’s home-grown defence capabilities have increased. Following “Operation Sindoor,” defence stocks of 18 companies on the Nifty Defence Index rose by almost 21% in a week in May, significantly outperforming the Nifty50 index.

  • PM inaugurates Chenab Railway Bridge

    Why in the News?

    Prime Minister inaugurated the world’s highest railway bridge over the Chenab River in Jammu and Kashmir.

    About the Chenab Rail Bridge:

    • Location: The Chenab Rail Bridge is the world’s highest railway bridge, situated over the Chenab River in Reasi district, Jammu and Kashmir. It is part of the Udhampur–Srinagar–Baramulla Rail Link (USBRL).
    • Height: The bridge rises to a height of 359 metres, which is 35 metres taller than the Eiffel Tower.
    • Structure and Length: It has a total length of 1,315 metres, comprising a 530-metre approach bridge and a 785-metre steel arch bridge.
    • Project Execution: Constructed by Konkan Railway Corporation, with contributions from Afcons Infrastructure, Ultra Construction & Engineering (South Korea), and VSL India.
    • Design and Engineering:
      • IISc Bengaluru designed the foundation.
      • IIT Delhi and IIT Roorkee conducted seismic analysis.
      • DRDO ensured it is blast-proof.
    • Durability and Safety: The bridge can withstand magnitude 8 earthquakes, blasts up to 40 tonnes of TNT, temperatures as low as -20°C, and wind speeds of 266 km/h.
    • Speed and Lifespan: It supports train speeds up to 100 km/h and has a lifespan of 120 years.
    • Key Milestones: The arch closure was completed in April 2021, and the Golden Joint Ceremony was held on August 13, 2022.

    PM also inaugurated Anji Bridge:

    • About: The Anji Bridge is India’s first cable-stayed railway bridge, built over the Anji River, a tributary of the Chenab.
    • Ranking: It is the second-highest railway bridge in India, after the Chenab Bridge.
    • Design: Originally planned as an arch bridge, the design was changed to cable-stayed due to geological challenges.
    • Structure Details: The total length is 725 metres, comprising an ancillary viaduct, approach bridge, and central embankment.
    • Features: It is supported by 96 cables ranging from 82 to 295 metres, with a deck width of 15 metres.
    • Resilience: The bridge is engineered to withstand seismic activity, unstable terrain, strong winds, heavy storms, and explosions.

     

    [UPSC 2025] Consider the following statements:

    I. Indian Railways have prepared a National Rail Plan (NRP) to create a future ready railway system by 2028. II. ‘Kavach’ is an Automatic Train Protection system developed in collaboration with Germany. III. ‘Kavach’ system consists of RFID tags fitted on track in station section.

    Which of the statements given above are not correct?

    Options: (a) I and II only (b) II and III only (c) I and III only (d) I, II and III*

     

  • RBI’s Monetary Policy Committee (MPC) Decisions

    Why in the News?

    The RBI, in its Monetary Policy Committee (MPC) meeting, cut the Cash Reserve Ratio (CRR) by 1% to release ₹2.5 lakh crore into the banking system by November 2025.

    Key Changes Announced:

    • Cash Reserve Ratio (CRR) reduced by 1% in four tranches, bringing it down to 3% by November 29, 2025.
    • This CRR cut will release ₹2.5 lakh crore liquidity into the banking system by December 2025.
    • Statutory Liquidity Ratio (SLR) remains unchanged at 18% of Net Demand and Time Liabilities (NDTL).

    Key terms related to the MPC instruments:

    Explanation
    Cash Reserve Ratio (CRR)
    • CRR is the percentage of a bank’s total deposits that must be maintained as liquid cash with the RBI.
    • Banks cannot use this amount for lending or investment. No interest is earned on CRR.
    • It is used to control liquidity and inflation in the economy.
    • Increasing CRR reduces bank lending capacity; decreasing it increases liquidity.
    • Current CRR is 4.5% of Net Demand and Time Liabilities (NDTL).
    Statutory Liquidity Ratio (SLR)
    • SLR is the minimum percentage of NDTL that banks must maintain in liquid form.
    • It includes cash, gold, or approved government securities, kept with the bank itself.
    • It helps ensure bank solvency and restricts excessive credit growth.
    • Raising SLR reduces funds available for lending; lowering it boosts credit and growth.
    • It also helps the government ensure demand for its securities.
    Net Demand and Time Liabilities (NDTL)
    • It includes public deposits and balances held with other banks.
    • It excludes deposits the bank itself has with other banks.
    • Demand liabilities include current accounts and demand drafts.
    • Time liabilities include fixed deposits and recurring deposits.
    • CRR and SLR are calculated as a percentage of NDTL.
    Repo Rate
    • The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities.
    • Banks sell securities to RBI with an agreement to repurchase them later.
    • Lower repo rate makes borrowing cheaper and boosts liquidity.
    • Higher repo rate makes borrowing costlier, reducing liquidity.
    • It is a key monetary policy tool to regulate inflation and money supply.
    Variable Rate Repo (VRR) Auction
    • VRR auction is a method where RBI conducts repo operations at variable interest rates.
    • Interest rate is determined through competitive bidding by banks.
    • It reflects real-time demand and supply of liquidity.
    • Enables more flexible and efficient liquidity management by RBI.
    Standing Deposit Facility (SDF)
    • SDF allows banks to deposit surplus funds with the RBI without providing any collateral.
    • Banks earn interest at a rate set by the RBI.
    • It is used to absorb excess liquidity from the system.
    • Part of RBI’s liquidity management framework.
    Weighted Average Call Rate (WACR)
    • WACR is the weighted average interest rate at which banks borrow and lend overnight funds in the interbank call money market.
    • It is an important indicator of short-term liquidity conditions.
    • RBI monitors WACR to guide monetary policy decisions.

     

    [UPSC 2020] If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?

    1. Cut and optimise the Statutory Liquidity Ratio.

    2. Increase the Marginal Standing Facility Rate.

    3. Cut the Bank Rate and Repo Rate.

    Select the correct answer using the code given below:

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

     

  • [6th June 2025] The Hindu Op-ed: Is IBC an effective resolution tool? | Explained

    PYQ Relevance:

    [UPSC 2018] How far do you agree with the view that tribunals curtail the jurisdiction of ordinary courts? In view of the above, discuss the constitutional validity and competency of the tribunals in India.

    Linkage: The Insolvency and Bankruptcy Code (IBC), India’s first comprehensive bankruptcy law enacted in 2016, fundamentally relies on a specialized tribunal system for its implementation. This system includes the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The effectiveness of the IBC as a resolution tool is intrinsically linked to the efficiency, competency, and operational challenges faced by these tribunals.

     

    Mentor’s Comment:  India’s Insolvency and Bankruptcy Code (IBC), started in 2016, has been running for over eight years now. It has helped recover ₹3.89 lakh crore with a recovery rate of 32.8%, changing how companies deal with unpaid debts. But delays in courts, problems after settlements, and a recent Supreme Court decision on Bhushan Steel have created new worries.

    Today’s editorial will talk about the effectiveness of the Insolvency and Bankruptcy Code (IBC) in India. It will help with GS Paper II (Policy Making) and GS Paper III (Banking).

    _

    Let’s learn!

    Why in the News?

    As India works towards becoming a $5 trillion economy, there is growing discussion about whether the IBC is ready for the future, whether its decisions are respected, and how efficient the courts are in handling cases.

    Why was the Insolvency and Bankruptcy Code (IBC) enacted in India in 2016?

    • To Establish a Time-bound Resolution Mechanism: The IBC aimed to replace India’s slow and fragmented insolvency system with a fast-track process for resolving distressed assets within a maximum of 330 days. Eg: Earlier, recovery through legal channels often took years; under IBC, cases like Essar Steel were resolved with clear timelines.
    • To Shift Control from Debtors to Creditors: It empowered creditors by giving them control over the insolvency process and discouraging willful default. Eg: In the case of Bhushan Steel, creditors approved Tata Steel’s resolution plan, overriding promoter control.
    • To Improve Recovery Rates and Credit Culture: IBC sought to improve debt recovery rates and create a culture of responsible borrowing and repayment. Eg: As per IBBI data, creditors have recovered over ₹3.89 lakh crore with an average recovery rate of 32.8%, much higher than earlier systems.

    What makes IBC the preferred route for debt recovery according to the RBI and IBBI data?

    • Highest Share in Total Recoveries: According to the RBI’s 2024 report, the IBC accounted for 48% of all recoveries made by banks in FY 2023-24, making it the dominant recovery mechanism. Eg: Compared to other channels like DRTs and SARFAESI, IBC recovered nearly half of total dues in just one financial year.
    • Better Realisation Than Liquidation: As per IBBI, resolution plans under IBC are yielding 93.41% of the fair value and 170.1% of liquidation value, showing greater efficiency. Eg: In the case of Electrosteel Steels, creditors recovered more than they would have in a liquidation scenario.
    • Timely Resolution and Settlement: The IBC’s time-bound process has led to early settlements, with 30,310 cases settled before admission, involving defaults worth ₹13.78 lakh crore. Eg: Companies facing insolvency threats often clear dues or settle quickly, improving the overall credit discipline.

    How has the IBC impacted the credit culture and corporate governance in India?

    • Improved Credit Discipline: The IBC has fostered a repayment-oriented credit culture by creating a credible threat of insolvency, discouraging willful defaults. Eg: The Supreme Court observed that “the defaulter’s paradise is lost,” reflecting a clear shift in borrower behavior post-IBC.
    • Reduction in NPAs: The IBC has contributed to a sharp fall in Gross Non-Performing Assets (NPAs), which declined from 11.2% in 2018 to 2.8% in 2024 for scheduled commercial banks. Eg: Many firms have restructured or repaid loans early to avoid IBC proceedings, improving asset quality in the banking sector.
    • Boosted Corporate Governance Standards: Firms resolved under IBC show better board practices, including a rise in the number of independent directors, enhancing transparency and accountability. Eg: A study by IIM Bangalore showed firms post-resolution had more professionalised management and stronger compliance norms.

    What are the key challenges currently affecting the effectiveness of the IBC framework?

    • Judicial Delays and Backlogs: Delays in approvals by the National Company Law Tribunal (NCLT) and prolonged litigation undermine the IBC’s goal of time-bound resolution. Eg: Even after creditor approval, resolution plans like that of Jaypee Infratech have been stuck for years due to legal battles, leading to erosion in asset value.
    • Post-resolution Uncertainty: Lack of legal finality and frequent challenges after plan approval create investor hesitation and risk derailment of settled cases. Eg: In the Bhushan Power and Steel case, a previously approved resolution plan was reopened, shaking confidence in the system.
    • Inadequate Framework for Emerging Assets: The IBC lacks clear mechanisms to deal with issues like intellectual property valuation, employee dues, and tech continuity, making it unfit for resolving non-traditional businesses. Eg: Tech start-ups and IP-heavy firms may not be efficiently resolved under current provisions, leading to value destruction.

    Why is the Bhushan verdict seen as a setback?

    • Erodes Commercial Certainty: The verdict questioned a resolution plan that had already been approved and operational for years, undermining the finality of the IBC process. Eg: The reopening of the Bhushan Power and Steel Ltd. case raised fears that even completed transactions are not immune from future legal scrutiny.
    • Deters Investor Confidence: If resolution applicants fear judicial reversal after making large investments, they may hesitate to participate, weakening the IBC’s appeal. Eg: A successful bidder may now think twice before committing to a resolution plan if legal sanctity isn’t guaranteed.
    • Delays in Execution and Recovery: Continuous litigation post-approval increases the risk of liquidation for otherwise viable firms due to delayed implementation. Eg: In the Bhushan case, years of uncertainty stalled asset utilisation, resulting in a loss of economic value.

    Way forward: 

    • Strengthen Tribunal Infrastructure and Capacity: Expand the capacity of NCLT and NCLAT by appointing more judges, improving case management systems, and digitising proceedings to reduce delays and ensure time-bound resolutions.
    • Ensure Legal Finality and Commercial Certainty: Introduce clear jurisprudential safeguards to prevent post-resolution litigations and uphold the sanctity of approved resolution plans, thereby boosting investor confidence and preserving the IBC’s credibility

  • Should India amend its nuclear energy laws?

    Why in the News?

    India is thinking about changing the Civil Liability for Nuclear Damages Act, 2010, and the Atomic Energy Act, 1962. These changes would let private companies build and run nuclear power plants.

    Why is there a proposal to amend India’s nuclear energy laws?

    • To Attract Private and Foreign Participation: Current laws like the Civil Liability for Nuclear Damage Act (CLNDA), 2010, deter foreign companies due to strict liability provisions. Amending them would enable global firms like Westinghouse (U.S.) and Électricité de France (EDF) to invest and supply nuclear technology.
    • To Meet India’s Clean Energy Targets: India aims to scale up nuclear capacity from 8 GW to 100 GW by 2047 as part of its low-carbon energy transition. Legal reforms are essential to unlock the necessary investments and partnerships to achieve this scale.

    What are the concerns about foreign investment and liability?

    • Foreign Companies Fear Being Blamed After Accidents: They worry they’ll be held legally responsible if something goes wrong, which could cost them a lot of money. Eg: U.S. company Westinghouse and French company Areva stayed away from India’s nuclear sector due to strict liability laws.
    • Indian Law Puts All Blame on the Operator: India’s current law makes the plant operator fully responsible, even if the equipment from foreign suppliers fails. Eg: If a part made by a foreign company causes a problem, only NPCIL (Indian operator) is blamed and has to pay.
    • Old Accidents Still Raise Worries: Events like the Bhopal Gas Tragedy make people cautious about giving foreign companies a free pass on liability. Eg: In 2012, the NDA opposed changes in law that would reduce foreign companies’ responsibility, citing past disasters.

    How will the amendments help achieve 100 GW capacity?

    • Enabling Foreign Participation: Amendments will remove liability-related hurdles, allowing global firms to invest and supply technology. Eg: Westinghouse (U.S.) and EDF (France) may enter Indian projects if liability norms align with international standards.
    • Boosting Domestic-Private Sector Involvement: Changes in laws like the Atomic Energy Act could allow Indian private companies to build and operate reactors. Eg: Companies like L&T and BHEL may contribute to infrastructure and component manufacturing at scale.
    • Attracting Investment in Advanced Reactors (SMRs): Legal clarity could attract funds and partnerships in Small Modular Reactors, helping scale capacity rapidly. Eg: New-age firms working on SMRs may partner with India if assured of returns and limited liability.

    What are Small Modular Reactors (SMRs)? 

    • Small Modular Reactors (SMRs) are compact nuclear power plants that produce up to 300 MW of electricity and are built in factories for easy transport and quicker installation.
    • They use advanced, safer designs with features like passive cooling and are ideal for remote areas, industrial use, and integration with renewable energy sources.

    What challenges exist in small modular reactor (SMR) technology transfer?

    • Profit-Driven Technology Sharing: Private foreign firms transfer technology only if it’s commercially viable, not for strategic or public interest reasons. Eg: U.S. companies will share SMR tech only if returns outweigh security or IP risks.
    • Restrictions by National Governments: Export controls and national security concerns limit what tech can be transferred internationally. Eg: The U.S. government regulates tech transfers; past transfers to China (like AP1000) led to cloning and IP misuse.
    • Partial Transfers and Proprietary Control: Even friendly countries often retain core tech and allow only partial local production. Eg: Russia’s Rosatom allowed India to build sub-components of VVER reactors but kept control over critical hot sections.

    What is the Convention on Supplementary Compensation (CSC)? 

    • The Convention on Supplementary Compensation (CSC) is an international treaty that establishes a global fund to provide prompt compensation to victims of nuclear accidents.
    • It assigns primary liability to nuclear plant operators while limiting supplier liability, ensuring faster financial support and shared responsibility among participating countries.

    Why is the Convention on Supplementary Compensation (CSC) important for nuclear compensation?

    • Ensures Quick Compensation Without Legal Delays: CSC focuses on giving fast financial help to victims of nuclear accidents without long court cases. Eg: After a nuclear incident, funds can be released immediately to affected people, unlike long litigation seen in Bhopal.
    • Fixes Responsibility on the Operator Only: CSC channels all liability to the nuclear plant operator, protecting suppliers unless there’s proven misconduct. Eg: If NPCIL runs the plant, it bears full responsibility, not companies like Westinghouse or Rosatom.
    • Creates an International Compensation Fund: It sets up a multi-tiered fund (including global contributions) to support countries during large-scale accidents. Eg: A country can access a global pool of money through CSC if the cost of a disaster exceeds national capacity.

    Way forward: 

    • Strengthen Legal Framework to Balance Liability and Investment: Amend India’s nuclear laws to align liability rules with international standards like the CSC, ensuring fair responsibility for operators while providing enough protection to attract foreign and private investments.
    • Promote Technology Transfer and Domestic Capacity Building: Create transparent policies and incentives that encourage foreign companies to share advanced nuclear technologies such as Small Modular Reactors (SMRs) with Indian firms, while simultaneously building India’s own manufacturing and operational capabilities to achieve energy targets sustainably.

    Mains PYQ:

    [UPSC 2018] With growing energy needs should India keep on expanding its nuclear energy programme? Discuss the facts and fears associated with nuclear energy.

    Linkage: The article  indicate that discussions are ongoing in India to amend its nuclear liability framework (specifically, the Civil Liability for Nuclear Damages Act (CLNDA), 2010, and the Atomic Energy Act (AEA), 1962). The primary reason for these proposed amendments is to allow private companies to build and operate nuclear energy-generation facilities and to expand India’s nuclear energy capacity from 8 GW to 100 GW by 2047, aligning with the country’s clean energy goals.

  • The seeds of sustainability for India’s textile leadership

    Why in the News?

    India is one of the world’s top textile exporters and a major manufacturing center, but its textile industry is now at a critical stage.

    What challenges affect India’s textile industry globally?

    • Geopolitical Tensions: Rising global conflicts and trade restrictions disrupt export routes and reduce India’s textile market access. Eg: The U.S.-China trade war shifted demand to countries like Vietnam, affecting Indian exporters’ global share.
    • Fragmented Supply Chains: Lack of coordination between suppliers, weavers, and exporters leads to production delays and higher costs. Eg: During the COVID-19 pandemic, uncoordinated lockdowns at different supply chain points delayed delivery timelines.
    • Price Volatility: Unpredictable fluctuations in raw material prices reduce planning efficiency and shrink profit margins. Eg: In 2022, cotton prices spiked globally, affecting the cost structure of Indian textile firms and making exports less competitive.
    • Sustainability Compliance: Global markets demand eco-friendly and traceable textile products, which Indian firms may struggle to provide without investing in green technology. Eg: The EU’s push for traceability and environmental standards may restrict access for non-compliant Indian products.
    • Changing Consumer Preferences: International buyers now prioritize ethically sourced, durable, and sustainably certified products. Eg: Brands like H&M and Levi’s require sustainability certifications, posing challenges for uncertified Indian manufacturers.

    ​​What is Regenerative Farming?

    Regenerative farming is an agricultural practice focused on restoring and enhancing soil health, increasing biodiversity, and improving ecosystem resilience. It goes beyond sustainable farming by actively repairing environmental damage caused by conventional agriculture.

    Why is regenerative farming vital for textiles?

    • Sustainable Raw Material Sourcing: Regenerative farming ensures a steady and eco-friendly supply of natural fibres like cotton, reducing environmental impact. Eg: In Aurangabad, Maharashtra, over 6,000 farmers under the Regenerative Cotton Program reported higher yields and soil health improvement.
    • Climate Resilience: It improves soil health and enhances resistance to climate shocks, ensuring consistent fibre quality. Eg: Regen farms showed better crop survival during erratic rainfall and drought periods, supporting uninterrupted textile production.
    • Cost-Effective Production: Reduced dependence on chemical inputs lowers input costs, making raw materials more affordable for textile producers. Eg: Farmers using regen methods observed less fertilizer usage, lowering their overall production cost.
    • Enhanced Traceability: Regen farming enables real-time data and certification, ensuring supply chain transparency demanded by global brands. Eg: Cotton grown under traceable regenerative systems is preferred by brands like Patagonia for its verified originand sustainability.
    • Rural Livelihood and Inclusion: It creates inclusive rural economies by empowering smallholders, supporting gender equity, and connecting farmers with global markets. Eg: Regen cotton initiatives have led to higher incomes and women participation in farming across India’s cotton belts.

    Where is regenerative cotton farming showing success?

    Aurangabad, Maharashtra: A notable hub for regenerative cotton farming, where farmers have adopted climate-friendly agricultural practices. Eg: Over 6,000 farmers are part of the Regenerative Cotton Program, resulting in higher yields, reduced use of chemical fertilisers, and more stable incomes.

    How does traceability boost textile exports?

    • Product Authenticity: Traceability ensures transparency from raw material to final product, building consumer trust in international markets. Eg: Kasturi Cotton branding enhances India’s image by assuring authentic, high-quality cotton to global buyers.
    • Sustainability Compliance: Export destinations demand eco-conscious sourcing. Traceable supply chains show alignment with sustainability standards. Eg: The EU and U.K. emphasize environmentally responsible production under FTAs and Digital Product Passports (DPPs).
    • Market Access & Expansion: Traceability helps Indian textiles meet foreign regulatory standards, easing entry into eco-sensitive markets. Eg: India-U.K. Free Trade Agreement (FTA) can boost exports by leveraging traceability credentials.
    • Brand Accountability: It shifts perception from just a supplier to a responsible brand, enhancing global brand equity. Eg: Tech-based tracking systems help Indian brands share sustainability stories, increasing appeal in premium markets.
    • Competitive Differentiation: Traceable products stand out in global markets with rising demand for ethical fashion. Eg: As per the 2023 Consumer Circularity Survey, over 37% consumers consider traceability a key purchase factor.
    Note: Traceability refers to the ability to track the origin, movement, and history of a product through every stage of the supply chain — from raw material sourcing to manufacturing, distribution, and final sale.

    What are the steps taken by the Indian government? 

    • PM MITRA Scheme: Establishes Mega Integrated Textile Regions and Apparel Parks to integrate the entire textile value chain, reduce logistics costs, boost competitiveness, and create jobs.
    • Promotion of Regenerative Cotton Farming: Supports sustainable farming practices to improve soil health, reduce chemical use, and enhance cotton qualitythrough collaborative platforms.
    • Support for Technical Textiles and Innovation: Launches initiatives like the National Technical Textiles Mission to promote R&D and commercialization of high-value technical textiles for sectors like healthcare and defense.

    Way forward: 

    • Adopt Sustainable Practices: Promote widespread use of regenerative farming, traceability technologies, and product circularity to enhance environmental responsibility and global competitiveness.
    • Strengthen Innovation and Collaboration: Invest in R&D, encourage public-private partnerships, and leverage trade agreements to boost technological advancement and expand export markets.

    Mains PYQ:

    [UPSC 2023] Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard.

    Linkage: Indian textile industry is “one of the world’s largest manufacturing hubs” and projects its growth to $350 billion by 2030, with the potential to add 35 million new jobs. This PYQ directly addresses the importance of the manufacturing sector for economic growth and government policies supporting it, which are crucial for the textile industry to realize its leadership vision and achieve an “economic competitive edge”.

  • Falling short India must ensure technology transfer in the EV segment

    Why in the News?

    India has announced a major cut in import duty — 15% off on fully built electric cars — but only if the makers promise to invest locally and add value within the country. This is part of a new plan called the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI).

    What is the SPMEPCI scheme?

    The SPMEPCI scheme (Scheme to Promote Manufacturing of Electric Passenger Cars in India) launched in 2024 offers a 15% concessional import duty on electric cars. It requires manufacturers to invest ₹4,150 crore and achieve 25–50% domestic value addition within five years, promoting local EV production and reducing imports.

    How does it aim to promote EV manufacturing in India?

    • Investment-Linked Incentives: Offers a 15% concessional import duty on completely built-up (CBU) EVs. Manufacturers must invest at least ₹4,150 crore over 3 years. Eg: A global EV company like Tesla or BYD can benefit from lower import taxes if it sets up a manufacturing plant or R&D unit in India.
    • Mandatory Localisation of Production: Companies must achieve 25% Domestic Value Addition (DVA) within 3 years, increasing to 50% in 5 years. Encourages use of local auto components, reduces import dependency, and builds domestic manufacturing capacity. Eg: EV makers could partner with Indian auto component suppliers like Motherson Sumi or Bosch India to meet DVA targets.
    • Cap on Imports to Push Local Production: Only 8,000 CBUs annually per manufacturer are allowed under concessional duty for 5 years. Companies must move quickly to set up local production to scale beyond this limit. Eg: After hitting the import cap, a company like Volkswagen may be compelled to start local assembly to meet rising demand and avoid higher duties.

    Why is technology transfer critical for India’s EV transition?

    • Late Start Requires Catching Up Quickly: India began its EV journey in 2015, about 5 years later than major players like China and the U.S. Without technology transfer, India risks falling behind in innovation and manufacturing capabilities. Eg: China’s early joint ventures helped it quickly develop advanced EV technology, something India needs to replicate.
    • Lack of Indigenous Battery Technology: Batteries are the core component of EVs, and India currently lacks the technology to produce advanced batteriesdomestically. Technology transfer will help India build expertise in battery design, manufacturing, and supply chain integration. Eg: China’s vertical integration from mining to battery assembly gave it a competitive edge in pricing and scale.
    • Building a Localised EV Ecosystem: Transferring technology via partnerships or joint ventures helps develop local suppliers and skilled workforce. This reduces dependency on imports and supports long-term sustainability of the EV industry. Eg: India’s success in ICE vehicles came through mandated joint ventures which facilitated tech and skill transfer; the same model can be applied to EVs.

    How has China’s strategy helped it lead in global EV adoption?

    • Early and Ambitious Subsidy Program: Launched the New Energy Vehicle subsidy programme in 2009, much earlier than many countries. This long-term financial support boosted EV production and adoption. Eg: Subsidies encouraged companies like BYD and NIO to rapidly scale EV manufacturing.
    • Mandatory Joint Ventures for Technology Transfer: Required foreign EV manufacturers to form joint ventures with Chinese firms until 2022. This ensured technology transfer and domestic capability building. Eg: Tesla initially partnered with local companies to set up manufacturing in China.
    • Massive Financial Incentives: China invested around $230 billion over 15 years on EV subsidies, infrastructure, and research—the largest globally. This comprehensive support accelerated industry growth. Eg: Government funding helped develop a vast EV charging network nationwide.
    • Gradual Reduction of Import Duties: Reduced import duties on EVs from 25% in 2010 to 15% in 2018. Lower duties made EVs more affordable, increasing domestic demand. Eg: More affordable imports boosted consumer adoption alongside local manufacturing.
    • Vertical Integration of Battery Manufacturing: Controls entire battery value chain: mining, processing, manufacturing, and assembly. This integration reduced costs and improved competitiveness against conventional vehicles. Eg: Chinese battery giants like CATL dominate global markets due to this vertical setup.

    What are the steps taken by the Indian government? 

    • Expansion of FAME Scheme: The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme initially launched in 2015 with ₹895 crore outlay, expanded to ₹10,000 crore in 2019. Supports EV adoption through subsidies and incentives for manufacturers and buyers.
    • Encouraging Localisation and Investment: Caps on imported EVs to encourage domestic production (maximum 8,000 completely built units annually per manufacturer under SPMEPCI). Push for localisation of components and assembly to build a robust domestic EV ecosystem.

    Way forward:

    • Promote Strategic Partnerships for Technology Transfer: Encourage and mandate joint ventures between foreign EV firms and Indian manufacturers to ensure effective technology sharing and skill development.
    • Build a Comprehensive Domestic Battery Ecosystem: Invest in creating end-to-end battery manufacturing capabilities, including raw material sourcing, processing, and cell production, to reduce import reliance and lower costs.

    Mains PYQ:

    [UPSC 2023} How do electric vehicles contribute to reducing carbon emissions and what are the key benefits they offer compared to traditional combustion engine vehicles?

    Linkage:  India’s journey to decarbonize and transform mobility, which includes the adoption of EVs, is currently hampered because policies “fall short of addressing a pressing issue… technology transfer”. This question directly addresses the core subject of electric vehicles (EVs) and their benefits, particularly in reducing carbon emissions.

  • [4th June 2025] The Hindu Op-ed: A strategy fuelled by vision, powered by energy

    PYQ Relevance:

    [UPSC 2022] How will India transform from being a net import dependent country to a net export dependent in renewable energy by 2030 ? Justify your answer. How will the shift of subsidies from fossil fuels to renewables help achieve the above objective? Explain.

    Linkage: “A strategy fuelled by vision, powered by energy” as it discusses India’s explicit goal for a future energy landscape – transforming into a net export-dependent country in renewable energy by 2030. It also delves into the strategic policy shift – moving subsidies from fossil fuels to renewables – intended to power this transformation.

     

    Mentor’s Comment:  Energy is very important for India’s industry, saving foreign money, and global influence. India’s energy needs will grow 2.5 times by 2047, and it will use 25% of the world’s new energy. India’s shift to stronger, cleaner energythrough smart policies and renewable sources is a great success for the country.

    Today’s editorial will explain India’s energy sector strategy and challenges. This will be useful for GS Paper II(International Relations) and GS Paper III (Energy & Environment).

    _

    Let’s learn!

    Why in the News?

    India is now the world’s fourth-largest economy, moving ahead of Japan, with its GDP reaching $4.3 trillion in 2025. This major success happened because of important changes in the economy and energy sector.

    What are the key components of India’s energy strategy?

    • Four-pronged approach: a) Diversification of energy sources and suppliers, b) Expansion of domestic production, c) Transition to renewables, d) Ensuring affordability for citizens
    • Structural transformation: Significant reforms in both upstream and downstream sectors, including new revenue-sharing models, pricing reforms, and logistics integration.
    • Digital mapping & infrastructure: PM Gati Shakti digitally mapped over 1 lakh energy assets, integrated with the National Master Plan for real-time visibility and route optimization.

    Why is energy security considered equivalent to development security for India?

    • Rapidly Growing Energy Demand: With India projected to account for 25% of global energy demand growth by 2047, uninterrupted energy supply is essential to fuel economic growth, industrial output, and urban development. Eg: India’s rise to the 4th-largest oil consumer shows its energy needs are deeply tied to its global economic standing.
    • Foundation for Self-Reliance and Sovereignty: Ensuring access to affordable and sustainable energy strengthens national resilience and reduces geopolitical vulnerabilities. Eg: Ethanol blending (19.7% in 2025) and expanding biofuels have saved ₹1.26 lakh crore in foreign exchange, enhancing energy independence.
    • Social Stability and Equitable Access: Affordable and stable energy supply supports welfare schemes and shields vulnerable populations from price shocks. Eg: Under PM Ujjwala Yojana, LPG cylinder prices for beneficiaries remain at ₹553 despite a global 58% rise, ensuring energy access for the poor.

    How has India expanded its domestic oil and gas exploration acreage from 2021 to 2025?

    • Doubling Exploration Acreage: India increased its exploration area from 8% in 2021 to 16% in 2025, aiming to cover 1 million sq km by 2030 to unlock vast hydrocarbon resources. Eg: This expansion includes frontier basins like the Andamans and the Mahanadi.
    • Landmark Policy Reforms: Reforms such as reducing ‘No-Go’ zones by 99% and streamlining licensing through the Open Acreage Licensing Policy (OALP) rounds have facilitated easier access for exploration. Eg: The OALP rounds attract new investors by offering simplified licensing.
    • Attractive Pricing and Revenue Sharing: New pricing mechanisms link gas prices to 10% of the Indian crude basket with a 20% premium for new wells, and revenue-sharing contracts allow shared infrastructure, boosting investment incentives. Eg: These incentives encourage development of new gas wells and city gas networks.

    Which renewable energy initiatives have contributed significantly to India’s green energy transition?

    • Ethanol Blending in Petrol: Ethanol blending increased from 1.5% in 2013 to 19.7% in 2025, expanding the ethanol supply from 38 crore litres to 484 crore litres, reducing emissions and saving foreign exchange. Eg: This has saved ₹1.26 lakh crore in foreign exchange and reduced 643 lakh MT of emissions.
    • Compressed Biogas (CBG) through SATAT Initiative: The SATAT program has commissioned over 100 CBG plants and targets a 5% CBG blending mandate by 2028, promoting circular and affordable bioenergy. Eg: Central support for biomass procurement and CBG pipeline connectivity accelerates adoption.
    • Green Hydrogen Production: India has produced 8.62 lakh tonnes of green hydrogen and awarded 3,000 MW electrolyser tenders, with public sector units leading large-scale hydrogen projects. Eg: Indian Oil Corporation’s 10 KTPA green hydrogen tender for the Panipat refinery.

    What are the challenges? 

    • Infrastructure and Technology Gaps: Limited infrastructure for large-scale production, storage, and distribution of renewables like green hydrogen and biofuels slows down adoption. Eg: Need for expanded electrolyser manufacturing capacity to meet tender targets.
    • Feedstock Availability and Supply Chain Issues: Securing consistent and diversified feedstock for biofuels like ethanol and CBG is challenging due to agricultural dependencies and regional disparities. Eg: Ensuring steady supply of molasses, maize, and biomass for ethanol and CBG production.
    • High Initial Costs and Financing Constraints: Capital-intensive nature of renewable projects and lack of affordable financing options can hinder MSMEs and smaller players from scaling up. Eg: Limited access to credit for startups working on cutting-edge green hydrogen technologies.

    Way forward: 

    • Boost Infrastructure and Technology: Invest in large-scale renewable production, storage, and distribution facilities—especially for green hydrogen and biofuels—and expand domestic manufacturing of key technologies like electrolysers.
    • Enhance Feedstock Supply and Financing: Develop diversified, reliable feedstock supply chains for biofuels, and create affordable financing schemes to support MSMEs and startups in scaling clean energy innovations.

  • Why has net FDI inflow plummeted?

    Why in the News?

    The RBI Bulletin (May 2025) reports that India received a record-breaking $81 billion in gross FDI inflows in FY 2024-25, but retained only $353 million in net FDI, revealing a dramatic divergence in the investment narrative.

    What do gross and net FDI trends indicate about India’s investment climate?

    • Gross FDI inflows are high: India received a record $81 billion in gross FDI in 2024-25, indicating strong headline interest from foreign investors. Eg: Media and government reported this as a sign of a robust investment climate.
    • Net FDI is drastically low: Net FDI dropped to only $353 million, showing that much of the incoming investment is offset by capital outflows, weakening the real impact on the economy. Eg: Rising outward FDI and disinvestment reduced net foreign capital retained in India.
    • Declining FDI-to-GDP ratio: The gross inflow-to-GDP ratio fell from 3.1% (2020-21) to 2.1% (2024-25), and net FDI-to-GDP fell from 1.6% to near zero, reflecting a slowing domestic investment environment despite high gross inflows. Eg: This signals tepid corporate investment and cautious investor sentiment in India.

    What is  Private Equity (PE) and Venture Capital (VC)?

    • Private Equity (PE) refers to investment funds that buy existing companies or large stakes in businesses, often to improve their performance and later sell them for profit. PE typically invests in more mature companies.
    • Venture Capital (VC) is a type of financing that supports early-stage startups and small businesses with high growth potential. VC investors take higher risks in exchange for potentially high returns.

    Why is the rise in Private Equity (PE)/Venture Capital (VC) driven FDI a concern for long-term investment?

    • PE/VC-driven FDI focuses on brownfield investments: These funds mainly acquire existing firms rather than creating new production capacity, limiting contributions to capital formation and technology acquisition. Eg: Investments by Blackstone in Care Hospitals and ChrysCapital in Lenskart.
    • Short investment horizon: PE/VC funds typically have a 3-5 year exit strategy, often selling holdings during stock market booms, which leads to disinvestment rather than sustained growth. Eg: The spike in disinvestment in FY25 was partly due to PE/VC funds liquidating their positions.
    • Limited impact on long-term industrial growth: Since these funds focus on services like fintech and retail rather than manufacturing or infrastructure, they contribute less to enhancing India’s productive capacity. Eg: The declining share of FDI in greenfield projects shows limited greenfield capital formation.

    How does outward FDI suggest India is used for tax arbitrage?

    • High correlation between inward and outward FDI: India shows a strong link between the money flowing in and out, suggesting that funds often enter and exit quickly rather than being invested long-term. Eg: Similar volumes of FDI both coming into and going out of India.
    • Use of tax havens as intermediaries: A significant portion of both inward and outward FDI involves countries like Singapore and Mauritius, known for tax concessions and treaty benefits. Eg: Many Indian companies route investments through these jurisdictions to reduce tax liabilities.
    • ‘Treaty shopping’ for tax benefits: Global investors move capital through India to exploit variations in tax laws, a practice called tax arbitrage, which may not contribute to domestic economic growth. Eg: Research shows India ranked 6th among emerging markets for such correlated FDI flows, indicating use as a conduit for tax optimization.

    What are the effects of declining FDI-to-GDP and GFCF ratios?

    • Reduced contribution to economic growth: Declining FDI-to-GDP and FDI-to-GFCF (Gross Fixed Capital Formation) ratios indicate that foreign investments are becoming a smaller part of India’s overall economy and capital investment, potentially slowing down industrial expansion and technology adoption. Eg: Gross FDI inflows peaked at 7.5% of GFCF in FY21 but have declined sharply since then.
    • Weakening investor confidence: The downward trend signals tepid domestic corporate investment and reduced foreign investor interest, which can affect job creation and long-term economic stability. Eg: Net FDI relative to GDP has declined from 1.6% in 2020-21 to nearly zero in 2024-25, showing declining investor enthusiasm.

    Why should India reform its foreign capital regulations?

    • To curb tax arbitrage and ‘hot money’ flows: Current regulations allow large volumes of inward and outward FDIthrough tax havens, enabling tax optimization rather than genuine investment, which undermines domestic economic goals. Eg: High FDI flows involving Singapore and Mauritius reflect such practices.
    • To promote long-term, productive investments: Reform is needed to encourage FDI that contributes to capital formation, technology acquisition, and industrial growth rather than short-term PE/VC-driven disinvestment. Eg: The rising share of alternative investment funds in FDI has led to increased disinvestment, affecting sustainable growth.

    Way forward: 

    • Strengthen Regulatory Frameworks: Implement stricter rules to curb tax arbitrage and limit quick inflows and outflows via tax havens, ensuring FDI supports genuine, long-term economic growth.
    • Promote Greenfield and Productive Investments: Encourage FDI in new capacity building, manufacturing, and technology sectors over short-term PE/VC deals to boost capital formation, industrial growth, and sustainable development.

    Mains PYQ:

    [UPSC 2013] Though India allowed Foreign Direct Investment (FDI) in what is called multi-brand retail through the joint venture route in September 2012, the FDI, even after a year, has not picked up. Discuss the reasons.

    Linkage: The net FDI-to-GDP ratio has steadily fallen from 1.6% in 2020-21 to zero in 2024-25. This ongoing decline is worrying, even though policymakers continue to make optimistic claims.

  • Growing pains: On economic performance, Viksit Bharat

    Why in the News?

    India’s economic data for 2024–25 shows a mixed picture: the economy grew strongly by 7.4% in the last quarter, which was better than expected, but the overall yearly growth dropped to 6.5% — the lowest in four years since the pandemic.

    What led to the higher-than-expected GDP growth in Q4 2024-25?

    • Robust Growth in Construction and Agriculture Sectors: The construction sector returned to double-digit growth, and agriculture performed strongly, both of which are key employment generators. Eg: Infrastructure expansion and favourable harvests boosted rural incomes and demand.
    • Strong Performance of Services Sector: The services sector maintained steady and strong growth, contributing significantly to the GDP rise. Eg: IT, finance, and hospitality services saw sustained recovery post-pandemic.
    • Statistical Boost from Higher Net Taxes: A 12.7% increase in net tax collections inflated the GDP figure, even though underlying economic activity was slower. Eg: Higher indirect tax revenues during the quarter pushed headline growth from ~6.8% to 7.4%.

    Why is 6.5% annual GDP growth seen as inadequate despite being the highest globally?

    • Below the Required Rate for ‘Viksit Bharat 2047’ Vision: To achieve the developed nation goal by 2047, India needs sustained annual growth of around 8% or more. Eg: The Economic Survey states that consistent 8% growth is essential to meet infrastructure, employment, and welfare needs by 2047.
    • Mismatch with India’s Domestic Demands and Aspirations: India’s population growth and development needs demand faster economic expansion, regardless of how the rest of the world is performing. Eg: Even though India outpaces global peers, a 6.5% rate may not create enough jobs or uplift per capita incomes sufficiently.
    • Limited Acceleration Potential Under Stable Growth Phase: While 6.5% reflects stability, it also signals a plateau, with low inflation but no signs of rapid acceleration in the near future. Eg: Chief Economic Adviser V. Anantha Nageswaran indicated India may not see major growth spurts soon, making it harder to catch up with long-term development targets.

    How do net taxes affect the true picture of GDP growth?

    • Artificial Boost to Headline GDP: A significant rise in net taxes (taxes minus subsidies) can inflate GDP figures without a corresponding increase in real economic activity. Eg: In Q4 2024–25, GDP growth was 7.4%, but without the 12.7% surge in net taxes, real growth would have been around 6.8%.
    • Distorts Sector-Wise Contribution Assessment: High net tax contributions may overshadow sluggish performance in core sectors like manufacturing or consumption, giving a misleading impression of overall health. Eg: Despite weak private consumption, GDP looked robust due to the statistical impact of increased tax revenue.

    Is stable growth enough for India’s transition?

    • Stability Reduces Risk but Limits Acceleration: While stable growth ensures low inflation and reduced economic volatility, it may not generate the momentum needed to transform India into a developed economy. Eg: As per the Chief Economic Adviser, India has entered a phase of low inflation and stable growth, but such stability might cap faster economic acceleration.
    • Inadequate for Meeting Rising Aspirations: India’s growing population and developmental needs require higher employment, infrastructure, and productivity, which stable but slow growth may not adequately support. Eg: A 6.5% GDP growth may not create enough jobs or income levels to match the goals of schemes like ‘Viksit Bharat 2047’.
    • Missed Opportunity in a Global Slowdown: In a “growth-scarce” global environment, India has the chance to become a key economic engine. Relying on stable growth without pushing for higher gains may lead to missed strategic opportunities. Eg: Despite outperforming other major economies, India’s slow capital investment pace until late FY25 indicates underutilization of its potential.

    Way forward: 

    • Accelerate Structural Reforms and Investments: India must boost productivity by investing in infrastructure, manufacturing, skilling, and digitalisation, while simplifying regulations to attract both domestic and foreign investment. Eg: Fast-tracking initiatives like Gati Shakti and PLI schemes can unlock higher economic momentum.
    • Enhance Domestic Demand and Job Creation: Policies should focus on reviving rural consumption, supporting MSMEs, and expanding labour-intensive sectors to ensure inclusive growth. Eg: Increasing public expenditure on health, education, and affordable housing can stimulate demand and generate employment.

    Mains PYQ:

    [UPSC 2024] Examine the pattern and trend of public expenditure on social services in the post-reforms period in India. To what extent this has been in consonance with achieving the objective of inclusive growth?

    Linkage: Inclusive growth is a core objective for a “transitioning economy” like India aiming for goals such as ‘Viksit Bharat’, and challenges in achieving it represent “growing pains”.