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Subject: Economics

  • Why Inflation Is Rising in India

    Why in the News?

    India’s Wholesale Price Index (WPI) inflation climbed to 9.87% by June 2026, after staying negative or near zero for over a year. This reverses more than a decade of relatively low inflation. It appears, on the surface, to confirm the common belief that rising prices signal demand outpacing supply.

    Why has India’s WPI inflation surged sharply, and why does simple demand overheating not explain it?

    1. Wholesale Price Index (WPI): an index tracking price changes of goods at the wholesale stage, split into three sub-categories, primary articles, fuel and power, and manufactured products.
    2. Sharp reversal: WPI inflation stayed negative or close to zero until December 2025, then climbed sharply from March 2026 onward, reaching 9.87% by June 2026.
    3. Popular assumption: Conventional economic intuition treats rising prices as a sign of demand outpacing supply (overheating), and falling prices as the reverse.
    4. Composition of the jump: Fuel and power, and manufactured products, not primary articles, accounted for the dominant share of the WPI rise in the months leading up to June 2026.

    Why do primary commodity prices and manufactured goods prices respond differently to demand and supply?

    1. Kaleckian distinction: Economist Michal Kalecki argued that primary commodity prices are demand-determined, while industrial and manufactured prices are cost-determined.
    2. Primary commodities: Supply is largely fixed in the short run, shown as a vertical supply curve. A supply shock, such as a bad monsoon, shifts this curve and directly raises prices. This is demand-pull inflation.
    3. Manufactured goods: Firms typically operate below full capacity, so the supply curve is flat. A rise in demand is met by higher production, not higher prices.
    4. Markup pricing: Manufactured goods prices are set as a cost markup over production cost. Prices rise only when input costs rise, making this cost-push inflation rather than demand-pull inflation.

    What specifically pushed up food and manufactured goods prices in India’s current surge?

    1. Fuel and power drove manufactured inflation: Fuel and power prices moved almost one-to-one with manufactured goods inflation, confirming a cost-push channel.
    2. Wages ruled out as a driver: Indian workers largely lack bargaining power over wages, so wage costs are not treated as the factor pushing up manufactured prices.
    3. Monsoon failure drove food inflation: An inadequate monsoon, linked to the El Niño effect, hurt agricultural production and pushed up food prices through 2026.
    4. Historical pattern confirmed: Data spanning 1953-54 to 2025-26 show drought years consistently coinciding with sharp spikes in food article inflation, supporting the Kaleckian structuralist explanation.
    5. Not an absolute rule: Food inflation has also occurred in some non-drought years, suggesting demand-side pressure can independently raise food prices. A drought is a sufficient but not a necessary condition for food prices to soar.

    Is India’s current inflation surge purely an external shock, or has government policy made it worse?

    1. A tool that worked: The government previously held domestic pump prices steady despite rising global crude oil prices by cutting customs and excise duties on fuel.
    2. Tool withdrawn: This countercyclical duty-cut measure has since been withdrawn.
    3. Self-inflicted component: The withdrawal is identified as one of the primary reasons for the sharp rise in WPI inflation, turning part of what looks like an external oil-price shock into a domestic policy choice.
    4. Framework critique: The existing inflation-targeting framework is described as ill-suited to managing fuel-driven, cost-push inflation, since it is built to respond to demand-side pressure rather than cost-side pressure.

    What structural policy changes are proposed to control inflation going forward?

    1. Decouple food supply from the monsoon: Heavy investment in irrigation infrastructure is proposed to reduce agriculture’s dependence on rainfall, since continued dependence on the monsoon is called unscientific and anachronistic in the present technological era.
    2. Countercyclical indirect tax policy for fuel: Customs and excise duties on fuel should be systematically lowered when global crude prices rise and restored when prices fall, rather than applied inconsistently.
    3. Move beyond inflation targeting for cost-push inflation: A rule-based countercyclical duty policy is presented as a more effective response to oil-driven, cost-push inflation than the existing inflation-targeting framework, which is tuned to demand-side price pressure.

    Conclusion

    India’s WPI inflation surge is a cost-push and supply-shock phenomenon, not demand overheating. Food prices rose due to an inadequate monsoon, and manufactured goods inflation tracked global fuel costs almost one-to-one. The government’s withdrawal of a countercyclical duty-cut measure on fuel is identified as one of the primary reasons for the sharp WPI rise. This makes part of the current inflation surge a self-inflicted policy outcome rather than a purely external shock. Going forward, food security needs to be decoupled from monsoon dependence through irrigation investment. Also, fuel-price shocks need to be cushioned through a rule-based countercyclical indirect tax policy rather than the existing inflation-targeting approach.

    PYQ Relevance

    [UPSC 2024] What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.

    Linkage: The PYQ asks for the causes of persistent food inflation in India and evaluates whether RBI monetary policy is effective in controlling it. The article gives a structural, non-monetary explanation for food inflation (monsoon-driven supply shocks) and manufactured inflation (fuel cost pass-through). It argues that both are cost-push phenomena rather than demand/monetary phenomena. 

  • India’s Green Transition Is Missing Long-Duration Energy Storage

    Why in the News?

    India recorded its highest-ever electricity peak demand of 270.8 GW on May 21, exposing gaps in the country’s storage architecture during periods of low renewable generation. This has sharpened focus on long-duration energy storage (LDES), a category entirely absent from India’s current national storage planning framework despite its technologies and resource potential already existing.

    Why did India’s existing storage roadmap prove inadequate against actual demand patterns?

    1. Record peak demand: India recorded its highest-ever peak electricity demand of 270.8 GW on May 21. This is an increase of approximately 90 GW over the same period in 2019.
    2. Dual demand peaks: Power generators typically meet India’s summer daytime peak. Demand rises again at night, driven largely by air conditioner use, precisely when solar generation is unavailable.
    3. Roadmap’s duration ceiling: The 2026 Long-Term National Resource Adequacy Plan envisages 80 GW of battery energy storage and 94 GW of Pumped Hydroelectric Energy Storage (PHES) by FY2035-36. These translate to average discharge durations of roughly 4 hours and 6 hours, respectively.
    4. Adverse-weather gap: Four-to-six-hour storage can manage routine daily demand swings. It cannot sustain the grid through prolonged low-generation events such as heatwaves.

    What technologies make up India’s Long-Duration Energy Storage (LDES) landscape, and how do they compare?

    1. Definition: LDES refers to technologies that store energy and discharge it as power or thermal energy over extended periods, ranging from 8 hours to days, weeks, or seasons.
    2. Functional distinction: Short-duration storage systems discharge for under 8 hours and smooth intra-day demand fluctuations. LDES instead balances supply and demand over prolonged periods, eases grid congestion, and adds resilience.
    3. Pumped Hydroelectric Energy Storage (PHES): PHES remains the technology benchmark. It has mature infrastructure and an energy efficiency of 70-80%.
    4. Compressed-Air Energy Storage (CAES): CAES has a similar level of market readiness to PHES. Its efficiency is slightly lower, at 40-70%.
    5. Thermal and hydrogen storage: Thermal storage offers the longest discharge duration among developed technologies, around 200 hours, with 55-90% efficiency. Hydrogen-based storage can discharge for up to 1,000 hours but remains inefficient.
    6. Vanadium flow batteries and emerging tech: Vanadium flow batteries are commercially ready, come in different sizes, and deliver 80-85% efficiency across 10-24 hour durations. Iron-air batteries are an emerging technology still under development.

    Why do cost and site constraints limit LDES deployment despite its technical readiness?

    1. Duration-cost relationship: Longer discharge duration improves a technology’s economics. Storing more energy simultaneously raises total costs, making short-duration systems uncompetitive beyond six hours of discharge.
    2. Cheapest options: PHES and CAES are currently the most cost-effective and commercially viable LDES technologies, at $0.12/kWh and $0.10/kWh respectively, per a Pacific Northwest National Laboratory study.
    3. Site dependency of PHES: PHES needs two water reservoirs at different heights, adequate land, and sufficient height difference for water to generate force when released.
    4. Site dependency of CAES: CAES needs large underground spaces, such as salt caverns or depleted gas fields, that can safely hold high-pressure air without leaking.
    5. Site-flexible alternatives: Where such geological or land conditions are unavailable, hydrogen, thermal storage, or vanadium flow batteries are more suitable, since they depend less on specific land, water, or subterranean conditions.

    What do international institutional and regulatory models demonstrate about accelerating LDES investment?

    1. LDES Council (international industry body): This body brings together industry leaders, technology developers, investors, and policymakers to accelerate LDES innovation and commercialisation. It projects a significant decline in LDES costs by 2030.
    2. United States-Pacific Northwest National Laboratory: This research body, under the U.S. Department of Energy, benchmarked PHES and CAES as the most cost-effective LDES technologies at present.
    3. California-Public Utilities Commission: California’s primary utility regulator has set an LDES procurement target of 2 GW, to be deployed between 2031 and 2037.
    4. United Kingdom- investor revenue guarantee: The U.K. has launched a financial framework guaranteeing LDES projects a minimum revenue even in poor market conditions, to unlock investment and accelerate deployment.

    Where does India currently stand on LDES resource potential and deployment?

    1. PHES potential: A 2026 Central Electricity Authority report placed India’s PHES potential at about 267 GW.
    2. Planned PHES capacity: India plans to install PHES projects with an aggregate capacity of 100.8 GW by 2035-36. Of this, 11.6 GW is currently under construction.
    3. CO2 battery pilot: In early 2025, India launched a 160-MWh carbon dioxide battery storage system at NTPC Kudgi, Karnataka. It cycles carbon dioxide between liquid and gas phases and has an operational life exceeding 25 years.
    4. Vanadium flow pilot: India inaugurated its first MWh-scale vanadium redox flow battery system, a 3-MWh facility at NTPC Greater Noida.

    Why does India’s national storage planning still not recognise LDES as a category?

    1. Resource Adequacy Plan silence: The Long-Term National Resource Adequacy Plan acknowledges the general role of energy storage in grid reliability. It does not specifically recognise the need for LDES.
    2. National Electricity Plan silence: The National Electricity Plan projects capacities for battery energy storage systems and PHES. It provides no technology-specific assessments or deployment pathways for LDES.
    3. Capability-recognition gap: India already has a 267 GW PHES resource base and functioning LDES pilot projects. National planning documents do not treat LDES as a distinct storage category requiring its own targets or provisions.

    What policy and institutional measures would close India’s LDES planning gap?

    1. Framework integration: LDES should be incorporated into the Ministry of Power’s National Framework for Promoting Energy Storage Systems, with guidelines on its deployment and grid integration.
    2. Technology-specific planning: Future planning exercises should estimate LDES requirements and identify technologies suited to India’s extreme weather and geography, rather than treating storage as a single undifferentiated category.
    3. Clearances and regulatory classification: Faster environmental and land clearances, transmission alignment, and clear regulatory classification of LDES technologies are needed to unlock investment.
    4. Technology-agnostic incentives: The incentive structure, including subsidies and viability-gap funding, must be technology-agnostic and incentivise co-location with data centres. As the market matures, the focus must shift to long-term revenue contracts, tariff structures, and procurement frameworks.
    5. Capacity building: Dispatch centres need staff trained in optimal dispatch, multi-day charge-discharge decisions, and state-of-charge management across seasons, supported by clear protocols for LDES.

    Conclusion

    India’s storage roadmap treats energy storage as a short-duration, hourly balancing problem, while a renewables-heavy grid increasingly requires multi-day resilience. LDES technologies and resource potential already exist in India; what is missing is formal policy recognition, technology-specific planning, and an incentive architecture built around them. Unless LDES is written into national storage planning documents, India’s clean energy transition will remain dependent on favourable weather and market conditions rather than assured grid reliability.

  • Core Industries Index (ICI) Revised Series

    Why in News?

    The Index of Core Industries (ICI) grew by 5% in June 2026, the highest growth in the last five months. The government also released a new ICI series with base year 2022–23, replacing the 2011–12 series.

    Key Highlights

    • Growth: ICI increased by 5% (YoY) in June 2026, up from 3.2% in May 2026.
    • Base Year Revised: Updated from 2011–12 to 2022–23.
    • Coverage Expanded: Iron ore has been added as the 9th core industry.
    • Methodology Updated: Sectoral weights and estimation methods have been revised.
    • Fastest Growing Sector: Iron ore (43.9% growth), largely due to a low statistical base.
    • Other sectors recording positive growth: Electricity: 9.8%, Cement: 9.8%, Steel: 4.6%, Coal: 1.4%
    • Sectors recording contraction: Crude Oil: –4.2%, Natural Gas: –7.4%, Refinery Products: –4.7%, Fertilisers: –3.3%

    About the Index of Core Industries (ICI)

    • Published by the Office of the Economic Adviser (OEA) under the Department for Promotion of Industry and Internal Trade (DPIIT).
    • Measures the performance of core industrial sectors.
    • Serves as a leading indicator of the Index of Industrial Production (IIP).
    • Accounts for about 40% of the weight in the IIP.
    • Nine Core Industries (Base Year 2022–23): Coal, Crude Oil, Natural Gas, Refinery Products, Fertilisers, Steel, Cement, Electricity, and Iron Ore (newly added)

      [2016] In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

      (a) Coal Production

      (b) Electricity generation

      (c) Fertilizer production

      (d) Steel production.

    1. [20th July 2026] The Hindu OpED: The Stark Reality of the Missing Jobs for India’s Gen Z

      PYQ Relevance[UPSC 2014] While we flaunt India’s demographic dividend, we ignore the dropping rates of employability. What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain.
      Linkage: The PYQ asks whether India is ignoring falling employability while flaunting its demographic dividend, and where future jobs will come from. It matches the article’s central tension between the demographic dividend narrative and the graduate unemployment reality.

      Mentor’s Comment

      Periodic Labour Force Survey (PLFS) 2023-24 data shows that unemployment among India’s Gen Z rises, not falls, with higher education. Also, most employed Gen Z workers hold no job contract or social security cover. This has exposed a widening gap between India’s celebrated demographic dividend and the actual quality of work available to its youngest working-age cohort.

      How Wide Is India’s Youth Employment Gap?

      1. Low participation: Labour Force Participation Rate (LFPR) for Gen Z stands at 41.7%, against 75% for Millennials, reflecting continued engagement in education as well as exit from the workforce.
      2. Rural-urban reversal: Rural Gen Z participation (44.1%) exceeds urban participation (37.2%), indicating urban youth delay labour market entry for education and training while rural youth enter earlier out of necessity.
      3. Unemployment gap across cohorts: Overall Gen Z unemployment is 11.9%, compared to just 2% among Millennials, showing the crisis is concentrated in the youngest cohort.
      4. Urban unemployment is sharper: Urban Gen Z unemployment rises to 17.1%, well above the national Gen Z average.
      5. Gender compounds urban unemployment: Urban young women face 22.6% unemployment, the highest among all sub-groups measured.

      How Does Gender Deepen the Employment Crisis for Gen Z?

      1. Domestic duties as exclusion: 27.1% of Gen Z women are engaged only in domestic duties, against just 0.32% of Gen Z men, pulling them out of the labour force altogether.
      2. Low regular wage employment for women: Only 4.7% of Gen Z women hold regular wage jobs, compared to 14.8% of Gen Z men.
      3. Male LFPR advantage: Male labour force participation stands at 59.3% in rural India and 51.3% in urban India, against just 28% and 21.1% respectively for young women.
      4. Structural, not just economic, barriers: Childcare burdens, safety concerns, mobility constraints, and social norms keep women out of paid work, independent of job availability.
      5. Demographic dividend undermined: A large share of young women outside the paid economy weakens the case that India is fully harnessing its demographic dividend.

      Why Does More Education Correlate with Higher Unemployment? 

      1. Graduate unemployment exceeds average: Among Gen Z men with graduate-level education or above, unemployment stands at 29%, and among Gen Z women at 36.9%, both far above the respective cohort averages.
      2. Inverted assumption: Education is expected to lower unemployment; instead, unemployment rises at the highest education levels, contradicting the standard human capital logic.
      3. Persists across cohorts: Millennial graduate unemployment is 5.2% for men and 13.8% for women, confirming the pattern is not unique to Gen Z alone but is sharper for Gen Z.
      4. Root cause is mismatch: The gap reflects a mismatch between what the education system produces and what the labour market demands, not merely a shortage of degree-holders.
      5. Technology reshapes demand: Automation and growing adoption of artificial intelligence are altering the nature of available jobs, widening the skill mismatch further.
      6. Risk of delay compounding: When higher education does not convert quickly into employment, frustration rises, family investment in education comes under strain, and confidence in the growth story weakens.

      Why Is Social Security Coverage a “Mirage” Even for Employed Gen Z?

      1. Low social security coverage: Only 20.1% of Gen Z individuals are covered by social security, leaving the vast majority without protection even when employed.
      2. Job contracts are rare: Just 14.1% of Gen Z workers have a formal job contract; among the 79.9% lacking social security, only 3.2% have a job contract.
      3. Contractual employment is the exception: Only 17.3% of Gen Z workers hold any form of contractual employment, meaning most enter the workforce without either a contract or social protection.
      4. Informalisation within formal employment: Recent years show growing evidence of informalisation of formal employment among Gen Z, meaning even formal-sector jobs are losing security features.
      5. Millennials are only marginally better: Only 26% of Millennials have a job contract and 28.6% are covered by social security, showing the informality problem extends across cohorts, not just Gen Z.
      6. Social cost visible: Large-scale labour protests by industrial and factory workers in Noida, Uttar Pradesh, demanding higher wages and better working conditions, reflect the frustration insecure and poorly protected employment can produce.

      Why Must India Treat Unemployment, Skilling, Women’s Work, and Informality as One Problem?

      1. Debate wrongly siloed: India’s jobs debate is usually discussed separately as unemployment, skilling, women’s work, and labour force participation, obscuring their common origin.
      2. Single connected failure: All four are facets of one connected failure of labour market transition, where education is prolonged but the bridge from education to work remains weak.
      3. Skilling alone is insufficient: Skill programmes have value but cannot substitute for actual job creation, since the binding constraint is demand for labour, not only its quality.
      4. Structural, not motivational, barrier for women: Women face structural barriers that keep them out of work or push them into unpaid roles, and even when employed, work is too often outside formal protection.
      5. Precondition for resolution: Expanding labour-intensive sectors, strengthening school-to-work pathways, aligning training with employer needs, and enabling women’s paid work through apprenticeships, hiring incentives, safe transport, and childcare support are named as the necessary conditions for change.

      Conclusion

      India’s demographic dividend is faltering not from a shortage of young workers but from a labour market unable to convert education into secure, well-paid work; unemployment rises rather than falls with higher education, and even the employed largely lack contracts or social security. Until labour-intensive job creation, skilling-employer linkages, and women’s structural access to work are addressed together rather than in silos, the demographic dividend will remain, in the article’s own words, a promise deferred.

    2. [18th July 2026] The Hindu OpED: Promise of Chips: India Semiconductor Mission Phase 2  

      PYQ Linkage[UPSC 2025] India aims to become a semiconductor manufacturing hub. What are the challenges faced by the semiconductor industry in India? Mention the salient features of the Indian Semiconductor Mission.
      Linkage: The PYQ examines India’s semiconductor manufacturing ambitions, the challenges in building the ecosystem, and the key features of the Indian Semiconductor Mission. The article analyses Semiconductor Mission Phase 2, highlighting expanded incentives, indigenous capabilities, talent development, and strategic challenges in making India a global semiconductor hub.

      Mentor’s Comment

      The Union government has approved Phase 2 of the India Semiconductor Mission with a ₹1.27 lakh crore outlay, exceeding the first phase’s allocation. The scale-up commits India to a decades-long strategic bet in chipmaking even as returns from Phase 1 remain unproven and frontier fabrication capability stays out of reach for most advanced economies.

      What changes has India Semiconductor Mission (ISM) Phase 2 introduced to the incentive structure for chipmaking?

      1. Larger corpus: The outlay stands at ₹1.27 lakh crore, exceeding the first phase’s allocation by a wide margin.
      2. Reduced capital subsidy share: The government’s contribution to capital subsidy is smaller than Phase 1’s 50%, shifting more upfront investment risk to private players.
      3. Output-linked incentives: Manufacturing-linked incentives are disbursed at a per-unit level only once sales occur, tying public support to actual production rather than capacity creation alone.
      4. Domestic-content boosters: Incremental incentive boosters are promised for products that use domestic capabilities and components, pushing backward integration into the supply chain.
      5. Strategic positioning goal: The scheme aims to make India a destination for the global electronics value chain and to build domestic human capital and intellectual property in areas where a few countries currently dominate.

      Why does the government consider continued public spending justified despite unproven returns and limited employment potential?

      1. Long policy horizon: The government has held that the Semiconductor Mission is a decades-long project; a larger second corpus signals continuity rather than a one-time bet.
      2. Limited job creation: Chipmaking is unlikely to become a mass employer, unlike labour-intensive manufacturing sectors.
      3. Geopolitical justification: In a geopolitically fraught environment, spending on strategic technological capability is treated as justified even without large-scale job creation.
      4. Unproven Phase 1 returns: Most facilities and projects approved in the first phase are yet to begin commercial production, so the actual returns on the initial chipmaking bet remain unknown.
      5. Sequencing risk: Public money for Phase 2 is being committed before performance data from Phase 1 becomes available.

      Can capital outlay alone secure India’s position in frontier chipmaking capability? 

      1. Technology ceiling: Extreme ultraviolet (EUV) lithography machines, needed for advanced chip fabrication, remain so complex that even the most advanced economies struggle to master them.
      2. Strategic leverage: Advanced economies treat frontier chipmaking capability as a source of hard strategic leverage over rivals, not merely as an industrial output.
      3. Deliberate resistance: Holding this leverage gives incumbent economies an incentive to resist India’s efforts to attract talent and build matching capability, rather than a neutral market response.
      4. Resource asymmetry: Advanced economies are prepared to draw on deeper pockets to defend their position in the technology hierarchy, an asymmetry that a single corpus does not easily close.
      5. AI dependency link: Artificial intelligence development itself depends on memory and processing infrastructure that India hopes to manufacture domestically, tying the semiconductor bet to a wider technology dependency.

      Does India’s talent ecosystem support or undermine its chipmaking ambitions?

      1. Global demand for Indian talent: Indian semiconductor engineers and designers are sought worldwide amid a looming global talent shortage, indicating a genuine human capital strength.
      2. Retention risk: Without worthwhile domestic work and academic opportunities in highly technical fields, this talent risks moving abroad rather than building capacity at home.
      3. Historical pattern: India has previously developed technical human capital that was absorbed by Western economies rather than retained domestically.
      4. Ecosystem-building requirement: Converting available talent into retained capability requires deliberate provision of high-skill work and research opportunities within India, not funding for fabrication plants alone.

      Conclusion

      India Semiconductor Mission Phase 2 commits significantly larger public funds to chipmaking, but capital alone does not secure India’s place in the global value chain. Frontier technological capability is guarded by incumbent economies as strategic leverage, and these economies have both the incentive and the resources to resist India’s rise. The binding constraint is therefore not the size of the corpus but whether India retains and deploys its technical talent at home instead of repeating its past pattern of exporting human capital to the West. Whether the coming decades produce an Asian Tigers-style economic boom or a repeat of past talent drain depends on this retention question, not on outlay size alone.

    3. Revised Index of Core Industries (ICI) Series (Base Year 2022–23)

      Why in News?

      The Office of Economic Adviser (OEA), DPIIT will release the revised Index of Core Industries (ICI) with base year 2022–23 on 20 July 2026, replacing the 2011–12 series.

      Key Highlights

      • New Base Year: 2022–23 (replaces 2011–12).
      • Compiled by: Office of Economic Adviser (OEA), DPIIT.
      • Frequency: Monthly.
      • Major Change: Iron Ore added as a new core industry, increasing the total from 8 to 9.
      • Steel Index: Compiled using gross production data instead of net production.
      • Coal Sector: Only Raw Coal retained; Coal Middlings and Washed Coal excluded to avoid double counting.
      • Weights: Derived from the Index of Industrial Production (IIP) 2022–23 released by MoSPI.

      Nine Core Industries (2022–23 Series)

      • Coal, Crude Oil, Natural Gas, Refinery Products, Fertilisers, Steel, Cement, Electricity, and Iron Ore (Newly Added)
      • Index of Core Industries (ICI):
        • Measures the performance of core industrial sectors.
        • Represents infrastructure and industrial activity.
        • Forms a key indicator of industrial growth and serves as an input for the Index of Industrial Production (IIP).

      [2015] In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

      [A] Coal production

      [B] Electricity generation

      [C] Fertilizer production

      [D] Steel production

    4. How a new subsidy plan hopes to build an Indian smartphone brand

      Why in the News?

      The Union Cabinet approved a Rs 62,500 crore, five-year scheme on July 16, 2026 to subsidise the building of Indian smartphone brands, structured as a follow-on to the Production Linked Incentive (PLI) scheme for smartphone assembly. The scheme responds to a persistent gap in India’s electronics story: the country assembles almost every smartphone sold domestically, but no Indian company owns a smartphone brand with global scale and reach.

      Why has India’s success in smartphone manufacturing not produced an Indian smartphone brand?

      1. Manufacturing without ownership: India has succeeded in attracting global companies to manufacture mobile phones at scale, but the value generated by the industry, from product design and intellectual property to branding and technology, continues to be owned by companies headquartered elsewhere.
      2. Contract manufacturing, not brand ownership: Indian companies such as Tata Electronics and Dixon are establishing themselves in contract manufacturing, but this is assembly-level participation, not brand ownership.
      3. Market share data confirms the gap: Counterpoint Research data on India smartphone shipment market share (Q4 2024-Q1 2026) shows no named Indian brand among the leading players. Recorded shares: Vivo 21-24%, Samsung 13-17%, Oppo 14-17%, Xiaomi 12-15%, Realme 9-11%, and a residual “Others” category of 22-26% across the six quarters.
      4. PLI 1.0 met its narrower goal: Production-linked incentives helped attract global manufacturers like Apple and expanded India’s capacity to make phones, with the country emerging as a major manufacturing and export base. This was the scheme’s intended scope, not a design failure.

      How does the new scheme redefine what India subsidises in electronics manufacturing?

      1. Shift in subsidy object: The new scheme moves the subsidy focus from assembly volume to local sourcing for domestic value addition, and to design and R&D by Indian brands.
      2. Design and R&D incentive: An additional incentive at the rate of 3% on eligible sales will apply for design and R&D of the product under the scheme.
      3. Export linkage retained: Incentives are also linked to the export of smartphones, continuing the export-orientation of the PLI framework.
      4. Stated objectives: The scheme’s stated objectives are achieving technological sovereignty, capturing a larger share of the economic value generated by the sector, and creating Indian patents in design and research.
      5. Scale of commitment: The outlay is Rs 62,500 crore over five years, intended to deepen domestic value addition, strengthen supply chains, and improve global competitiveness, while providing incentives on eligible mobile phone sales.

      Does the subsidy structure resolve the cost disability facing Indian brands, or only narrow it?

      1. Estimated cost disability: A senior government official stated that Indian companies interested in building a competing mobile phone brand may face a cost disability of 10-15% initially against established competitors, particularly from China.
      2. Partial bridge, not full correction: The scheme is designed to bridge at least 5-6 percentage points of this gap, leaving a residual disadvantage of roughly 4-10 percentage points unaddressed by the subsidy alone.
      3. Narrow base of interested players: The government expects only four or five Indian companies to be interested in building a mobile phone brand that can compete with others on quality and price.
      4. Competitiveness condition unmet by subsidy alone: Closing a cost gap through incentives does not by itself guarantee that a resulting brand will match established rivals on quality, price, and global reach.

      Why is manufacturing scale not the same as industrial control?

      1. Assembly can coexist with foreign control: A phone assembled in India may still be designed elsewhere, use foreign-owned intellectual property, and be sold under a foreign brand.
      2. Value chain control requires more than assembly: Manufacturing alone does not necessarily translate into control over an industry; control requires ownership of design, technology, and brand.
      3. First-phase limits acknowledged: The policy reflects the limits of the first phase of India’s mobile manufacturing push, which built capacity and export volume but not brand ownership.
      4. Redefinition of the next phase: The government now wants Indian companies to move up the value chain into product design, research and development, intellectual property, component ecosystems, and brand ownership, rather than remaining at the assembly stage.

      Conclusion

      India’s electronics policy is moving from subsidising assembly volume to subsidising ownership of design, intellectual property, and brand, because the manufacturing scale achieved under PLI did not by itself convert into Indian control over the smartphone value chain. The new scheme narrows the cost disability facing Indian brands by only 5-6 percentage points against an estimated 10-15% gap, leaving open whether subsidy alone can produce brands capable of competing with entrenched rivals on quality and price. Manufacturing at scale remains necessary but not sufficient for industrial control unless design, intellectual property, and brand ownership are also Indian.

      PYQ Relevance

      [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: The PYQ tests understanding of industrial policy and the transition from manufacturing-led growth to globally competitive domestic industries. The article discusses the new smartphone subsidy scheme aimed at promoting Indian brands through design, R&D, and value addition, directly reflecting the theme of manufacturing competitiveness.

    5. Semicon 2.0

      Why in News?

      The Union Cabinet approved Semicon 2.0 with an outlay of ₹1,27,500 crore to strengthen India’s semiconductor design and manufacturing ecosystem after the success of Semicon 1.0.

      Key Highlights

      • Outlay: ₹1,27,500 crore.
      • Objective: Develop a complete semiconductor ecosystem and strengthen India’s position in the global semiconductor value chain.

      Six Pillars

      • Design: Promote indigenous chip design, Intellectual Property (IP) creation and System-on-Chip (SoC) development.
      • Machines & Materials: Support manufacturing of semiconductor equipment, chemicals and materials.
      • Semiconductor Fabs: Encourage Silicon, Compound Semiconductor, Display and Discrete Component fabrication units.
      • ATMP/OSAT: Expand Assembly, Testing, Marking and Packaging (ATMP) and Outsourced Semiconductor Assembly and Test (OSAT) facilities.
      • R&D: Strengthen Research and Development (R&D) for advanced semiconductor technologies.
      • Talent Development: Expand semiconductor education and industry training.

      Progress under Semicon 1.0

      • 12 manufacturing units approved with investment of ₹1.64 lakh crore.
      • Includes 1 Silicon Fab, 1 Silicon Carbide Fab, 1 Gallium Nitride (GaN) Micro LED Fab and 9 packaging units.
      • Micron, Kaynes and CG Semi have started commercial production.
      • 24 design projects supported and 105 startups/MSMEs provided access to Electronic Design Automation (EDA) tools.

      Significance

      • Reduces import dependence on semiconductors.
      • Strengthens supply chain resilience and national security.
      • Promotes innovation, high-value manufacturing and technological self-reliance.

      Prelims Pointer

      • Nodal Ministry: Ministry of Electronics & Information Technology (MeitY)
      • Mission: India Semiconductor Mission (ISM)
      • Key Focus: Chip design, fabrication (Fabs), ATMP, OSAT, R&D and skill development.

    6. Future-Ready Workforce for India’s Creative Economy

      Why in News?

      The Press Information Bureau (PIB) organised a ‘Varta’ workshop on “Creating a Future-Ready Workforce for India’s Creative Economy” in Nagpur.

      Key Highlights

      • India currently contributes ~3% to the global Orange Economy and aims to increase it to 12 to 15% over the next decade.
      • IICT: Indian Institute of Creative Technology is the National Centre of Excellence for the AVGC-XR sector.
      • AVGC-XR: Animation, Visual Effects, Gaming, Comics and Extended Reality.
      • Kaushal Bodh curriculum, developed by IICT in collaboration with NCERT (National Council of Educational Research and Training), will promote creativity and skill development from an early stage.
      • Proposal to establish AVGC Content Creator Labs in 500 colleges and 15,000 schools.
      • IICT will offer industry-oriented courses through a Hub-and-Spoke model, extending training beyond Mumbai to regional and semi-urban centres.
      • Focus on leveraging India’s storytelling tradition and indigenous knowledge systems to strengthen the creative economy.

      About Orange Economy

      • Refers to the creative economy based on creativity, culture, intellectual property, and digital content.
      • Includes sectors such as animation, films, gaming, music, publishing, design, advertising, media, and digital arts.

      [2019] In the context of digital technologies for entertainment, consider the following statements:
      1. In Augmented Reality (AR), a simulated environment is created and the physical world is completely shut out.
      2. In Virtual Reality (VR), images generated from a computer are projected onto real-life objects or surroundings.
      3. AR allows individuals to be present in the world and improves the experience using the camera of smart-phones or PC.
      4. VR closes the world, and transposes an individual, providing complete immersion experience.
      Which of the statements given above is/are correct?

      [A] 1 and 2 only

      [B] 3 and 4

      [C] 1, 2 and 3

      [D] 4 only

    7. Reform Express: Eight New Railway Reforms

      Why in News?

      The Ministry of Railways announced 8 new structural reforms under the Reform Express initiative, taking the total to 17 reforms as part of the target of52 reforms in 52 weeks.

      Key Highlights

      • Aim: Reduce logistics costs, improve freight efficiency, encourage private investment, and promote green transport.
      • Fly Ash Transport: Introduction of containerised transport using ISO containers for pollution-free movement.
      • Container Sector: Unified Pan-India Container Train Operator (CTO) licence replacing multiple categories.
      • Fertiliser Transport: Simplified freight tariff and permission for containerised movement.
      • Skilling Policy: QR code-enabled certification for railway artisans in critical trades.
      • Construction Reforms: Better contractor selection, mandatory insurance, and Rail Bhoomi digital platform for land acquisition.
      • Wagon Design: Industries can now design specialised freight wagons with RDSO (Research Designs and Standards Organisation) approval.
      • Petroleum Transport: Oil companies can own or lease specialised POL (Petroleum, Oil and Lubricants) tank wagons.
      • Foodgrain Transport: Simplified freight rates and containerised transport for foodgrains, flour, and pulses.

      Significance

      • Promotes ease of doing business and multimodal logistics.
      • Shifts freight from road to rail, reducing costs and carbon emissions.
      • Supports PM Gati Shakti and sustainable freight transportation.

      [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, development 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?

      [A] I and II only

      [B] II and III only

      [C] I and III only

      [D] I, II and III