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Subject: Economics

  • Subhash Chandra case: IBBI to tighten guarantor resolution

    Why in the News

    The Insolvency and Bankruptcy Board of India (IBBI) has proposed four amendments to the insolvency resolution process for personal guarantors to corporate debtors, extending to banks and creditors safeguards already available under the corporate insolvency resolution process (CIRP) of a company. The proposals follow a special bench of the National Company Law Tribunal (NCLT) staying a single bench order that had approved a repayment plan offering creditors Rs 6.25 crore against admitted claims of Rs 22,006.57 crore. That case led experts to question the efficacy of the Insolvency and Bankruptcy Code, 2016, which was introduced to revive companies under heavy debt and secure repayment to banks. The contested point is that the guarantor track of the Code was built with weaker creditor protections than the corporate track, and a related party of the guarantor can currently vote on the plan that decides what creditors recover.

    What is the personal guarantor resolution process?

    1. Who a personal guarantor is: An individual, usually a promoter, who personally guarantees a company’s borrowing, so the lender can proceed against that individual’s own estate when the company defaults.
    2. How the process runs: A resolution professional is appointed, a repayment plan is prepared for the guarantor, and the plan is put to a vote of the creditors before it goes to the adjudicating authority for approval.
    3. How it differs from the corporate track: Under CIRP the plan is decided by a committee of creditors from which a related party of the debtor company is excluded from voting. In a personal guarantor resolution only an associate is barred, and the definition of associate is far narrower.

    What triggered the review?

    1. The order under stay: On August 25 the NCLT single bench approved a repayment plan involving personal guarantor and Essel Group founder Subhash Chandra, and a special bench has since stayed that order.
    2. The recovery on offer: Creditors were offered Rs 6.25 crore against admitted claims of Rs 22,006.57 crore.
    3. What the banks alleged: The banks alleged that the non bank entities voting on the plan were associates or related parties of the guarantor and had acted under his influence to push through a plan carrying a very large haircut.
    4. The gap the case exposed: The narrower associate test let entities that would fail a related party test vote on the plan. The IBBI’s own illustration is a company that habitually acts on the guarantor’s advice or instructions, without the guarantor holding any shares in it or controlling its board.

    What are the four proposed amendments?

    1. Voting rights of related parties: Any creditor who is a related party of the guarantor would get no voting right in approving the resolution plan, replacing the narrower associate test.
    2. Scrutiny of avoidance transactions: Resolution professionals would have to examine whether the guarantor was party to any avoidance transactions, meaning undervalued transactions, transactions giving preference and extortionate credit transactions, present those findings to creditors before the vote, and initiate legal proceedings with creditor approval.
    3. Independent asset valuation: A registered valuer would have to determine the fair value and the realisable value of the guarantor’s assets, and the valuation report would go to creditors along with the repayment plan.
    4. Reasoned minutes of creditor meetings: Resolution professionals would have to record creditors’ deliberations and the reasons for their decision in the minutes of creditors’ meetings.

    How do these proposals close the gap with the corporate process?

    1. Parity on the voting bar: The related party exclusion is the CIRP standard, and applying it to guarantor resolutions removes the mismatch the Chandra case turned on.
    2. A duty that does not currently exist: When a guarantor’s repayment plan is put to a vote, the resolution professional is today under no obligation to examine whether an avoidance transaction took place or whether the guarantor made full disclosure of affairs.
    3. Informed commercial judgement: The IBBI’s stated purpose for the valuation report is to let creditors assess the adequacy of the proposed security, the viability of the repayment plan and the potential recovery available from the guarantor’s assets.
    4. An auditable record: Recording only raw voting tallies leaves no record of commercial reasoning, and reasoned minutes give an appellate forum something to review beyond the arithmetic of the vote.

    Challenges to the personal guarantor resolution framework

    1. Asset shielding before the filing: A guarantor can move assets into family or trust structures well before insolvency begins, leaving little to value. Eg. Promoter assets held through family trusts have repeatedly fallen outside the estate available to lenders in large default cases.
      The Fix: Extend the look back period for avoidance transactions involving a guarantor’s relatives and require a sworn asset disclosure covering it.
    2. Proving a related party connection: The related party test is broader than the associate test and is also harder to establish, since control through habitual instruction leaves no shareholding trail. Eg. The IBBI’s own example is a company acting on the guarantor’s instructions without any shareholding or board control.
      The Fix: Place the burden on the creditor claiming unrelated status to establish it, rather than on the objecting bank to disprove it.
    3. Delay in adjudication: The guarantor track sits in the same tribunals already carrying a heavy corporate caseload, so an order and its stay can consume months while asset value erodes. Eg. The stay in this case leaves the approved plan in suspension with no fixed date for a decision.
      The Fix: Fix a statutory outer limit for disposal of a personal guarantor repayment plan and report breaches bench wise.
    4. Valuation of illiquid personal assets: Fair value and realisable value diverge sharply for unlisted shareholdings, disputed land and pledged promoter stock. Eg. Pledged promoter shareholdings lose value the moment a lender begins to sell them into the market.
      The Fix: Require two independent registered valuers where the guarantor’s estate is dominated by unlisted or pledged securities.

    Conclusion

    The guarantor track of the Code was written as a lighter version of the corporate one, and the difference has turned out to matter most in exactly the cases where recovery is largest. The four proposals move that track towards the corporate standard on voting, scrutiny, valuation and record keeping, and each of them constrains the resolution professional rather than the tribunal. The proposals sit in a discussion paper open for public comment, and the special bench’s stay holds until it decides the matter.

    Back2Basics: Insolvency and Bankruptcy Board of India

    1. What it is: The IBBI is the regulator for insolvency and bankruptcy proceedings in India, established in 2016 under the Insolvency and Bankruptcy Code, 2016.
    2. Who it regulates: Insolvency professionals, insolvency professional agencies, registered valuers and information utilities.
    3. What makes it unusual: It holds regulatory, executive and quasi judicial functions over the same set of entities, which is rare among Indian regulators.
    4. Its rule making role: It frames the regulations that govern both the corporate insolvency resolution process and the resolution of personal guarantors, which is what the present discussion paper proposes to amend.

    Matching Previous Year Question

    “[2019] What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institutions recently? (a) To lessen the Government of India’s perennial burden of fiscal deficit nd current account deficit (b) To support the infrastructure projects of Central and State Governments (c) To act as independent regulator in case of applications for loans of Rs. 50 crore or more (d) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending Answer: (d)”

  • Govt: No bank charge on UPI payment up to Rs 2,000

    Why in the News

    The Ministry of Finance has notified that no bank or system provider may impose any charge, directly or indirectly, on a payment made through RuPay debit cards or through the Unified Payments Interface (UPI), the National Payments Corporation of India’s real time system for transferring money between bank accounts using a virtual address, up to Rs 2,000. The notification does not specify any charge for transactions above that amount, which opens the way for a fee on higher value person to merchant payments. It follows the Taxation and Other Laws (Amendment) Bill, 2026, passed by Parliament last month, which removed the statutory bar on charging for these payment modes. The contested point is that a threshold covering 96 per cent of person to merchant transactions by number leaves roughly two thirds of their value open to a charge.

    What is the Merchant Discount Rate?

    1. What it is: The Merchant Discount Rate (MDR) is the fee a bank that processes a card or digital payment levies on the merchant receiving it.
    2. What it pays for: It covers transaction processing, settlement and payment infrastructure costs across the chain of banks and providers that carry the payment.
    3. The usual range: An MDR normally runs between 1 and 3 per cent of transaction value on debit and credit card payments.
    4. The exemption since 2020: No MDR has been levied on RuPay debit cards and UPI transactions since January 2020, a decision taken to promote adoption of digital payments.

    What has the notification done, and who decides a fee above the threshold?

    1. The prohibition: The notification bars any charge, direct or indirect, on RuPay debit card payments and on UPI transactions of up to Rs 2,000, whether imposed on the person making or the person receiving the payment.
    2. The silence above the threshold: The ministry did not specify charges for transactions above Rs 2,000, which is what creates the opening for an MDR on higher value person to merchant payments.
    3. The deciding body: Whether an MDR is imposed above the threshold will be decided by the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), with 22 members including banks, third party application providers such as PhonePe and Google Pay, the Payments Council of India and the Indian Banks’ Association.
    4. The rate under discussion: Payments industry officials have suggested an MDR of around 0.4 to 0.5 per cent for UPI payments to large merchants, which would help meet the industry’s annual cost of about Rs 20,700 crore.

    What legal change made this possible?

    1. The provision amended: The Bill amended Section 10A of the Payment and Settlement Systems Act, 2007, which had barred any bank or system provider from imposing a charge on payments made through the electronic modes prescribed under Section 269SU.
    2. The modes covered: Those prescribed modes were RuPay debit cards, BHIM UPI and the UPI QR code.
    3. Who the underlying obligation binds: Section 269SU of the Income Tax Act, 1961 applies to businesses with a turnover of over Rs 50 crore, requiring them to offer the prescribed electronic payment modes.
    4. What the amendment enables: Removing the exemption paves the way for an MDR on UPI and RuPay debit card payments to large merchants such as e commerce platforms.
    5. The stated rationale: The amendment is presented as an enabling provision for UPI’s long term sustainability, technological advancement and resilience against emerging risks.

    Why does the Rs 2,000 threshold matter for UPI’s economics?

    1. Small share by number: Only 4 per cent of person to merchant UPI payments in 2025 to 26 were for more than Rs 2,000.
    2. Large share by value: Those same transactions accounted for about two thirds of total person to merchant UPI payment value.
    3. The base: More than 24,000 crore UPI transactions worth Rs 314 lakh crore were made during the year.
    4. What the design achieves: The threshold protects the small ticket everyday payment from any charge while leaving the value where a percentage fee actually earns revenue open to one.

    How has the state paid for zero MDR so far?

    1. The incentive scheme: The government subsidises payments of up to Rs 2,000 made to small merchants through its incentive scheme for promotion of RuPay debit cards and low value BHIM UPI person to merchant transactions.
    2. The cap and the exclusion: The incentive is capped at 0.15 per cent of transaction value, and large merchants are not covered by the scheme at all.
    3. What it costs: The Budget for 2026 to 27 estimated the payout at Rs 2,000 crore. Rs 2,196.21 crore was paid in 2025 to 26, up from Rs 1,922.77 crore in 2024 to 25.
    4. The sustainability finding: A March report of the Standing Committee on Finance recorded that the absence of MDR makes the UPI ecosystem financially unsustainable.

    Challenges to reintroducing a Merchant Discount Rate on UPI

    1. Merchant pass through to the customer: A merchant charged a percentage fee recovers it by quoting a higher price or by preferring cash for large tickets. Eg. Many small retailers added a surcharge on card payments before the Reserve Bank of India barred the practice on debit cards.
      The Fix: Bar surcharging by contract with the acquiring bank and make the ban a condition of merchant onboarding.
    2. Threshold gaming by splitting payments: A fixed value threshold invites a single large payment being broken into several below the cut off. Eg. A Rs 5,000 purchase settled as three separate UPI transfers falls entirely inside the exempt band.
      The Fix: Apply the threshold to the aggregate value settled to one merchant from one payer in a day rather than to a single transaction.
    3. Definition risk on the large merchant: The charge is designed to fall on large merchants, and the line between a large and a small merchant sits on self declared turnover. Eg. Section 269SU already uses a Rs 50 crore turnover test that a merchant can restructure across entities.
      The Fix: Anchor the classification to verified Goods and Services Tax turnover rather than to a declaration made at onboarding.
    4. Fiscal and commercial funding running in parallel: An incentive subsidy and an MDR answer the same infrastructure cost, and running both leaves the split unstated. Eg. The subsidy payout has risen each year while the industry’s stated annual cost has stayed far above it.
      The Fix: Publish a stated glide path withdrawing the incentive as MDR revenue begins, so the two do not fund the same cost twice.

    Conclusion

    The zero fee regime on UPI was paid for by the exchequer, and the bill grew every year while the payments industry’s own cost stayed several times larger. The notification shifts the funding of the large value end of the system from the Budget to the merchant, and leaves the small everyday payment where it was. What to watch is whether the UPI and Services Steering Committee sets a rate above the threshold at all, and whether merchants at that end of the market stay on UPI once it does.

    Back2Basics: National Payments Corporation of India

    1. What it is: NPCI is the umbrella organisation for retail payments and settlement systems in India.
    2. How it was set up: It was incorporated in 2008 as a not for profit company, promoted jointly by the Reserve Bank of India and the Indian Banks’ Association.
    3. Its statutory anchor: It operates under the Payment and Settlement Systems Act, 2007, which is the law governing payment systems in India.
    4. What it runs: Its systems include UPI, RuPay, the Immediate Payment Service, the National Automated Clearing House and FASTag.

    Matching Previous Year Question

    “[2023, GS3, 10 marks] What is the status of digitalization in the Indian economy? Examine the problems faced in this regard and suggest improvements.”

  • Key inflation numbers rise in August, all eyes on RBI’s interest rate decision next month

    Why in the News

    Retail inflation measured by the Consumer Price Index (CPI) rose to 4.82 per cent in August from 4.45 per cent in July, the highest reading in at least eight months. This is the third month in a row that headline retail inflation has stayed above the 4 per cent target the Reserve Bank of India (RBI) is legally mandated to hold it at. The Monetary Policy Committee (MPC), the six member body that sets the policy repo rate, left that rate unchanged at 5.25 per cent last month and has not raised it since February 2023. The contested point is whether a price rise now visible across food, fuel and manufactured goods obliges the MPC to begin tightening even as output is growing faster than expected.

    What is India’s inflation targeting framework?

    1. The statutory target: The RBI is legally mandated to keep CPI inflation at 4 per cent, within a tolerance band of 2 to 6 per cent.
    2. The instrument: The MPC sets the policy repo rate, the rate at which the RBI lends overnight to commercial banks against government securities, and changes in it are expected to pass through to deposit and lending rates.
    3. Why the band matters: Inflation inside the band does not by itself require action. A reading persistently above the central target, rather than a breach of the 6 per cent ceiling, is what builds the case for a rate increase.

    What do the August retail price numbers actually show?

    1. Food inflation: Food inflation measured by the CPI rose from 5.52 per cent in July to 5.95 per cent in August.
    2. Sugar: The CPI for sugar surged 19 per cent over July and 24 per cent over August 2025, on lower than expected production and inventory falling to multi year lows.
    3. Policy response on sugar: The government last month allowed duty free imports of up to 10 lakh tonnes of raw sugar until October 31, with sugar a key input through the festival season.
    4. Onion: Onion prices were up 22 per cent in August over July, with late rains delaying planting.

    Why is the price rise being read as broad based rather than a food shock?

    1. Breadth of the increase: 314 of the 358 items in the CPI recorded higher prices in August than in July. The figure was 310 in July and 236 in February, before the war in West Asia began.
    2. Items above target: The number of items with inflation above the target rate rose from 101 in July to 110 in August.
    3. Spillover risk: Price pressure spreading from food and fuel into other categories is what distinguishes a broad based rise from a seasonal vegetable spike, and it is the pattern the data now shows.

    What do the wholesale and producer numbers add?

    1. Wholesale Price Index: Wholesale inflation rose to 9.92 per cent in August from 9.78 per cent in July, driven by food and fuel.
    2. Wholesale food: Wholesale food inflation hit a 20 month high of 7.05 per cent in August, which ICRA attributes largely to higher prices of fruits, vegetables, milk, spices and sugar.
    3. Producer prices: Inflation based on the output Producer Price Index (PPI) edged up to 9.81 per cent from 9.57 per cent in July.
    4. Structural signal in manufacturing: India Ratings and Research reads the rise as becoming structural, since seven manufacturing sub categories, tobacco products, textile products, chemical products, rubber and plastic products, base metals, electrical equipment and other manufacturing, all carry wholesale inflation above 10 per cent. Those seven make up more than a quarter of the manufacturing group, which is itself almost two thirds of the entire Wholesale Price Index.

    Where does this leave the Monetary Policy Committee?

    1. Direction from the last meeting: Minutes of last month’s meeting showed the RBI Governor and a Deputy Governor both hinting towards an increase in interest rates.
    2. The RBI’s own projections: The central bank expects CPI inflation to average 4.7 per cent in July to September, 5.9 per cent in October to December, 5.5 per cent in January to March 2027 and 5.3 per cent in April to June 2027.
    3. Growth is not a constraint: GDP growth was 7.8 per cent in the first quarter of 2026 to 27, which removes the usual argument against tightening.
    4. The meeting date: The MPC meets on October 5 to 7, three weeks after this price data, and could deliver the first interest rate increase in three and a half years.

    What is the external monetary backdrop?

    1. US Federal Reserve: The Fed announces its own interest rate decision this week, with markets expecting a 25 basis point increase in the federal funds rate target range to 3.75 to 4 per cent.
    2. The US price trigger: American consumer prices rose 0.4 per cent month on month in August against a 0.1 per cent increase in July, with the year on year headline rate steady at 3.4 per cent.
    3. The tightening cycle: ANZ economists expect a compressed 75 basis point tightening cycle, with the increase this week followed by further increases in October and December to take the key rate to 4.25 to 4.50 per cent.
    4. Why it matters for India: Major central banks have already begun raising rates, which narrows the room for the MPC to hold while inflation runs above target.

    Challenges to inflation targeting in India

    1. Food weight in the index: Food carries a large share of the CPI basket, so a supply shock in one commodity moves the headline number that policy is judged against. Eg. A sugar output shortfall and delayed onion planting moved the August print on their own.
      The Fix: Publish the policy response against core inflation alongside the headline, so a supply driven spike is not read as a demand signal.
    2. Interest rates do not reach a supply shock: The repo rate works on credit demand and cannot add a tonne of sugar or an onion crop to the market. Eg. The government answered the sugar price surge with an import window rather than with monetary policy.
      The Fix: Pair the rate decision with a stated buffer stock and import calendar for the commodities driving the print.
    3. Transmission lag to borrowers: A change in the repo rate reaches lending and deposit rates only over several quarters, so a decision taken after inflation is established arrives late. Eg. The policy rate has been unchanged for four consecutive meetings while the headline number has risen for three months.
      The Fix: Widen the share of loans benchmarked to an external rate, so a policy change reaches borrowers in the same quarter.
    4. Imported price pressure: A large share of fuel and edible oil demand is met by imports, so the exchange rate and global prices set domestic costs irrespective of the domestic rate stance. Eg. Landed prices of imported crude palm, soyabean and sunflower oil in Mumbai are all above their September 2025 levels.
      The Fix: Use a calibrated import duty schedule on edible oils that moves against global prices rather than staying fixed through a cycle.

    Conclusion

    Inflation has moved from a food story to a broader one, and the numbers that usually lag the headline, wholesale and producer prices, are now leading it. The central bank holds a rate that has not changed in three and a half years against a growth rate that gives it no reason to wait. The thing to watch is the next Monetary Policy Committee decision and whether it treats the current run as a supply spike that will pass or as the start of a demand driven episode requiring a rate increase.

    Back2Basics: Producer Price Index

    1. What it measures: The Producer Price Index tracks the average change in prices received by domestic producers for their output, measured from the seller’s side of a transaction.
    2. How it differs from the Wholesale Price Index: The Wholesale Price Index measures the price a buyer pays at the wholesale stage, so it includes trade margins and indirect taxes. The PPI strips those out and measures the producer’s own realisation.
    3. Why it is tracked: It signals cost pressure building upstream before that pressure reaches retail prices, so it works as a leading indicator for consumer inflation.

    Matching Previous Year Question

    “[2024, GS3, 10 marks] 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.”

  • From Bengal to Boston, politicians love a ‘revdi’

    Why in the News

    The US President has promised a dividend of $5,000 to every adult citizen of the United States if the Republican Party retains control of Congress at the November midterm elections, describing it as a return on the country’s economic strength. The promise imports into a rich economy an instrument Indian parties have used for two decades. In India, Direct Benefit Transfers (DBT), the routing of welfare money straight into a beneficiary’s bank account, were built on the Jan Dhan, Aadhaar and Mobile (JAM) trinity under the second United Progressive Alliance government, and every party now carries cash handouts in its manifesto. The Prime Minister warned against a “revdi culture” in July 2022, and his own party’s state units went on to make cash transfers central to their poll strategy. The contested point is whether an instrument with this universal electoral pull is welfare policy or a substitute for a state that has not delivered health, education and skilling.

    What is a Direct Benefit Transfer based cash transfer?

    1. Direct Benefit Transfer: Welfare money is credited directly to an identified beneficiary’s bank account instead of reaching them as a subsidised good or a service.
    2. The JAM rails: A Jan Dhan bank account, an Aadhaar number for identification and a mobile number for authentication together make the credit instantaneous and traceable.
    3. Unconditional transfer: The recipient has to satisfy an eligibility filter such as being an adult woman, and nothing more. No school attendance, health check or work requirement attaches to the payment.

    Why does a cash dividend appeal to voters in the world’s richest economy?

    1. Per capita income gap: US annual per capita income is $94,430, almost 34 times India’s $2,813, so a flat payment reads very differently at each end of that range.
    2. Bottom quintile: Mean household income of the poorest 20 per cent of Americans is $17,132 a year, per the 2024 American Community Survey of the US Census Bureau. A $5,000 payment is more than 100 days of that household’s annual income.
    3. Second quintile: The next 20 per cent has a household income of $48,852 a year, so the same payment is a little over a month’s income.
    4. Concentration at the top: Annual household income of the top 5 per cent is $5,25,113, more than 30 times the mean of the bottom 20 per cent. A flat transfer is therefore a large sum for the bottom of a rich country and a rounding error at its top.

    How large is the fiscal commitment behind these promises?

    1. Cost of the US dividend: About 245 million citizens are over 18, per US Census Bureau 2024 data, putting the cost of the promise at at least $1 trillion.
    2. Scale against India: That sum is close to a fourth of India’s entire GDP of $3.92 trillion in 2025 to 26.
    3. State transfers in India: The Sixteenth Finance Commission estimates large group unconditional cash transfers by states at Rs 1.96 lakh crore in 2025 to 26, roughly $20 billion, the bulk of it going to women in Maharashtra, Karnataka and West Bengal.
    4. Approval risk: The US dividend is a promise and not an appropriation. It requires the United States Congress to approve the spending.

    How did cash transfers become the common instrument of Indian electoral politics?

    1. Origin in delivery reform: DBT began as a leakage reduction measure under the second United Progressive Alliance government, built on the JAM trinity rather than on an electoral calculation.
    2. The electoral discovery: An advisor to that government framed the appeal in terms of funds reaching a voter’s account at the click of a mouse ahead of an election.
    3. Cross party adoption: Regional parties, the Congress and the Bharatiya Janata Party all now carry cash handouts to sections of their voter base in their manifestos.
    4. Reversal of a stated position: The Prime Minister’s July 2022 warning against the practice was followed by his own party’s state units adopting it, producing a competitive escalation between state units, regional parties and the Congress.

    What does the spread of cash transfers reveal about the state?

    1. A political economy fallout: Cash transfers expanded because the state failed on health, education and skilling, leaving parties to offer money in place of services.
    2. Substitute forms of security: The same failure produces minimum income through job guarantees, cash in the hands of women and allowances for the literate but jobless, each of them a payment standing in for a missing service.
    3. Universality of the instrument: A rich economy with 34 times India’s per capita income reaches for the same device, which shows the appeal is electoral rather than developmental.

    Challenges to unconditional cash transfers

    1. Recurring outlay against capital spending: A monthly transfer becomes a permanent charge on a state budget and competes with capital spending on hospitals, schools and water supply. Eg. Maharashtra’s Ladki Bahin scheme and Karnataka’s Gruha Lakshmi are annual recurring commitments rather than one time payments.
      The Fix: Report unconditional transfer outlay as a disclosed share of a state’s own revenue receipts in every annual budget document.
    2. Absence of human capital conditionality: An unconditional payment asks nothing of the household, so it does not move school attendance or immunisation. Eg. Mexico’s Progresa linked benefits to school attendance and health check ups, and Brazil’s Bolsa Familia used conditional transfers to lift 36 million people out of poverty.
      The Fix: Attach verifiable attendance and immunisation conditions where the delivery system can already confirm them.
    3. Exclusion through the identification layer: Eligibility rests on databases, and a household with unseeded or mismatched records drops out of the list without knowing why. Eg. Aadhaar seeding failures have removed ration card holders from beneficiary lists in Jharkhand.
      The Fix: Provide an offline grievance and reinstatement route at the block level with a fixed disposal deadline.
    4. Pressure off the public provider: Cash allows a household to buy the private service the state failed to supply, which removes the political pressure to repair the public one. Eg. Out of pocket spending on private hospitals remains a leading route into household impoverishment in India.
      The Fix: Publish a service availability audit of the relevant public facilities alongside each transfer scheme.

    Conclusion

    A cash transfer buys immediate relief and buys it visibly, which is why it has crossed from a lower middle income democracy to the richest one. It does not build a health centre, staff a school or train a worker, and the states expanding it fastest are the ones whose service delivery gaps created the demand for it. The tension is unresolved: the instrument is popular precisely because the public system it compensates for has not been fixed, and every rupee committed to the transfer makes fixing that system harder to finance.

    What is Inclusive Growth?

    1. About: Inclusive growth is economic growth distributed fairly across society that creates opportunity for all, as defined by the Organisation for Economic Co operation and Development (OECD).
    2. Rationale: It entered India’s stated policy goals with the Eleventh Five Year Plan (2007 to 2012), titled “Rapid and More Inclusive Growth”, and continued in the Twelfth Plan as “Faster, Sustainable, and More Inclusive Growth”.
    3. The OECD typology: Three dimensions govern it. Participation, meaning all groups can contribute to growth; benefit sharing, meaning all groups gain in proportion to their contribution; and equity, meaning historical disadvantage is actively redressed.
    4. How it is measured: The National Multidimensional Poverty Index across health, education and living standards, the Gini coefficient for consumption or income inequality, the Human Development Index, and the Periodic Labour Force Survey for participation and unemployment.

    Government Initiatives for Inclusive Growth

    1. Pradhan Mantri Garib Kalyan Anna Yojana: Free food grain to 81.35 crore beneficiaries, extended to 31 December 2028 at an outlay of about Rs 11.80 lakh crore.
    2. Viksit Bharat G RAM G Act, 2025: Replaces the Mahatma Gandhi National Rural Employment Guarantee Act with a 125 day wage guarantee plus skill and livelihood diversification components, effective 1 July 2026.
    3. Ayushman Bharat PM JAY: Health cover of Rs 5 lakh a year for 55 crore beneficiaries, now extended to all persons above 70 under Ayushman Vay Vandana.
    4. Pradhan Mantri Mudra Yojana and PM SVANidhi: Rs 27 lakh crore disbursed across 43 crore micro enterprise loans since 2015, and collateral free credit of Rs 10,000 to Rs 50,000 for street vendors.

    Matching Previous Year Question

    “[2024, GS3, 10 marks] 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?”

  • Incentive Scheme for Promotion of Domestic PNG Connections

    Why in News

    The Press Information Bureau (PIB) issued a PIB Backgrounder on the Incentive Scheme for Promotion of Domestic Piped Natural Gas (PNG) Connections. Piped Natural Gas (PNG) is cooking gas supplied to homes through a pipeline network rather than in cylinders.

    Core facts

    The scheme incentivises City Gas Distribution (CGD) entities to expand domestic PNG connections. City Gas Distribution (CGD) is the network that retails natural gas to households, commercial units and vehicles in a defined geographical area. The nodal ministry is the Ministry of Petroleum and Natural Gas. Release specific outlay and connection figures could not be verified, as the PIB detail page did not resolve this run.

    Static Context

    The Petroleum and Natural Gas Regulatory Board (PNGRB) authorises and regulates CGD networks. The PNGRB was set up under the Petroleum and Natural Gas Regulatory Board Act, 2006. It regulates refining, storage, transport, distribution and marketing of petroleum products and natural gas, and grants CGD authorisations through competitive bidding rounds. Domestic PNG and Compressed Natural Gas (CNG) together form the priority segment for gas supply, which receives domestic gas allocation on a priority basis. The scheme sits alongside the clean cooking access agenda pursued earlier through the Pradhan Mantri Ujjwala Yojana (PMUY), which provided Liquefied Petroleum Gas (LPG) connections to poor households.

    Prelims angle

    The regulator to remember is the PNGRB and the range of activities it regulates. Distinguish PNG (piped, network based) from LPG (cylinder based) and CNG (vehicle fuel). Note the priority allocation of domestic natural gas to the CGD household segment.

    Mains angle

    GS3, energy and infrastructure. A question can frame domestic gas access as a clean energy transition and last mile infrastructure issue. The scheme links to energy security, import dependence on natural gas, and household air quality gains from switching away from solid fuels.

    Matching Previous Year Question

    “[2025] Consider the following activities:
    I. Production of crude oil
    II. Refining, storage and distribution of petroleum
    III. Marketing and sale of petroleum products
    IV. Production of natural gas
    How many of the above activities are regulated by the Petroleum and Natural Gas Regulatory Board in our country?
    (a) Only one
    (b) Only two
    (c) Only three
    (d) All the four
    Answer: (b)”

    PIB Link

    https://www.pib.gov.in/PressReleasePage.aspx?PRID=2309647&reg=3&lang=1

  • Limits to supply, rising demand: Behind Keralam’s electricity crisis

    Why in the News

    The Keralam State Electricity Board (KSEB) has instituted power cuts lasting between 30 minutes and an hour to manage peak hour demand, including cuts at night. Average daily demand in September 2026 reached about 5,000 MW against 3,794 MW in September 2025, and only 4,200 MW has been met. The shortfall arrives at the hour when the state’s largest renewable asset stops producing, because rooftop solar output ends at dusk and the state has no storage in service. The tension is that a state that leads the country in rooftop solar cannot use any of it against the demand peak that is actually breaking its system.

    How does a State draw power from the Central pool?

    1. What a Central Generating Station is: Central Generating Stations (CGS) are large power generating stations owned centrally rather than by a state utility.
    2. How allocation works: The Union Ministry of Power periodically allocates generation capacity to states from its pool of unallocated quota in those stations.
    3. Who has jurisdiction over electricity: Electricity is a subject on the Concurrent List of the Constitution, so both the Centre and the states have jurisdiction over it.

    How large is the shortfall?

    1. Demand has risen sharply in a year: Average daily demand in September 2026 was about 5,000 MW, against 3,794 MW in September 2025.
    2. Supply has not kept pace: The state has met only 4,200 MW, leaving a daily shortage.
    3. Own generation and the Central pool draw: Keralam produces only 1,650 MW and draws 1,500 MW from the Central pool.
    4. The structural position: The state generates only 25 per cent of its actual requirement from all sources including hydel, solar and wind, against 86 per cent for Andhra Pradesh and 50 per cent for Tamil Nadu.

    Why has hydropower been throttled?

    1. The monsoon failed: The southwest monsoon was weak through the June to September period, with Keralam recording a 26 per cent deficit in seasonal rainfall till 11 September.
    2. The El Nino effect: The El Nino effect, meaning the abnormal warming of surface waters in the equatorial Pacific Ocean that can suppress the Indian monsoon, has been witnessed this year.
    3. Reservoir water storage: Water storage across all KSEB reservoirs stood at only 63.75 per cent of the maximum storage level as of 10 September.
    4. The Board is rationing water, not power alone: KSEB has throttled down hydropower generation deliberately, holding storage against the withdrawal of the monsoon and higher temperatures in the weeks ahead.

    Why does rooftop solar not close the night gap?

    1. The state leads on rooftop capacity: Keralam’s solar production hit 2,508 MW by the end of May, with the vast majority of it rooftop panels.
    2. The scheme behind the build: Under PM Surya Ghar, Keralam has 2.96 lakh installations covering 3,03,531 households.
    3. The output arrives at the wrong hour: Solar power does not help meet the nighttime demand, because the state has no options to store it.
    4. The storage is contracted but not running: KSEB has lined up a slew of Battery Energy Storage Systems (BESS) that are yet to become operational.

    What is a Battery Energy Storage System?

    1. The battery and its grid electronics: A bank of rechargeable cells with power electronics attached to the grid. It charges when generation exceeds demand and discharges when demand exceeds generation, so energy produced in one hour is delivered in another.
    2. Time shifting of solar output: Solar output peaks near midday and ends at dusk, while the demand peak sits in the evening. A battery moves the midday surplus into the evening block, which is the only route by which a daytime resource serves a night peak.
    3. Ramping, not only energy: A battery responds within seconds, so it also covers the sunset ramp, the period when solar falls away faster than thermal or hydro plants can raise their output.
    4. The limits of stored duration: A battery holds a fixed quantity of energy and delivers it for a defined duration, commonly a few hours. It shifts a peak rather than adding generating capacity, and it supplies nothing that was not generated and stored first.

    Why is night demand rising?

    1. The consumer mix loads the evening: Domestic consumers make up 75 per cent of the state’s power connections, so demand rises at night rather than during working hours.
    2. Temperatures are abnormally high: The state disaster management authority has put Keralam on alert for an unusual rise in temperature, with a departure of up to 4 degrees Celsius from normal.
    3. Cooling load runs longer: Rising night temperatures are driving long duration air conditioner usage.
    4. Electric vehicle charging: KSEB has found that nighttime demand is also rising owing to the charging of electric vehicles.

    Challenges to Keralam’s power supply security

    1. Buying from the exchange fails when the scarcity is national: A deficit state can outbid others only when surplus exists somewhere, and this September the shortage is countrywide. Eg. India is witnessing an unusual surge in electricity demand this September, with peak power demand nearing the level recorded during peak summer, driven by a poor monsoon and low coal stock at power plants.
      The Fix: Contract firm capacity ahead of the season under medium term agreements, so the state is not bidding into a national spot market at the moment of scarcity.
    2. The coal fleet has no headroom to absorb the gap: Thermal plants are the swing capacity a deficit state usually leans on, and they are already running close to their limits. Eg. The plant load factor of most imported coal based plants is around 70 per cent or above, leaving no thermal plant that can be asked to raise generation.
      The Fix: Shift a defined share of the evening block onto demand response contracts with large consumers, so the peak is reduced rather than sourced.
    3. Nothing firm replaces solar at the evening ramp: The system loses its entire solar output within an hour of sunset, which is also the hour demand rises, and only fast ramping capacity can bridge that. Eg. Nationally, generation from gas based plants rose 80.3 per cent during 1 to 9 September over the same period last year, with the Centre relying on 4.5 to 5.5 GW of gas based capacity to meet the evening shortfall.
      The Fix: Bring the Board’s contracted battery systems into service against a dated commissioning schedule, since they are the only asset that can move midday solar into the evening block.
    4. Distributed solar weakens the utility that must still serve the peak: A rooftop consumer exports at midday and draws at night, so the utility recovers less revenue while carrying the same obligation to supply at the peak. Eg. Keralam’s rooftop capacity is concentrated in domestic connections, which are the same consumers driving the night peak.
      The Fix: Move rooftop settlement from net metering to net billing with a time of day price, so midday export and evening drawal are valued at what each is actually worth to the system.

    Conclusion

    The immediate crisis will ease when the monsoon withdrawal passes and temperatures fall, and the Board’s rationing is calibrated to hold storage until then. What will not change on its own is the structural position, because a state generating a quarter of its own requirement is buying the rest in a market that tightens in exactly the months it needs power most. The measurable marker is the commissioning of the contracted battery systems, since until they run, every additional megawatt of rooftop solar adds to the state’s daytime surplus and nothing to its evening deficit.

    Back2Basics: PM Surya Ghar Muft Bijli Yojana

    1. PM Surya Ghar: Muft Bijli Yojana: A central scheme under the Ministry of New and Renewable Energy to install rooftop solar systems on residential buildings.
    2. Coverage target: One crore households, with free electricity of up to 300 units a month for the households that install under it.
    3. Household financing route: Central financial assistance is credited directly to the beneficiary’s bank account, alongside access to collateral free low interest loans for the balance cost.
    4. Capacity building component: The scheme carries a capacity building component covering training in installation, operation, maintenance and repair of rooftop systems at the local level.

    Matching Previous Year Question

    “[2025] Consider the following statements about ‘PM Surya Ghar Muft Bijli Yojana’: I. It targets installation of one crore solar rooftop panels in the residential sector. II. The Ministry of New and Renewable Energy aims to impart training on installation, operation, maintenance and repairs of solar rooftop systems at grassroot levels. III. It aims to create more than three lakhs skilled manpower through fresh skilling and up-skilling, under scheme component of capacity building. Which of the statements given above are correct? (a) I and II only (b) I and III only (c) II and III only (d) I, II and III ANSWER: (d)”

  • A blueprint to create productive jobs, a lesson from Tiruppur

    Why in the News

    The Prime Minister’s Independence Day address placed manufacturing power first among the seven Saptadhara streams meant to carry India towards a Viksit Bharat, and tied that effort to harnessing the potential of India’s youth. Research at the Indian Council for Research on International Economic Relations (ICRIER) answers the question that follows, which is which manufacturing sector can actually deliver jobs at the scale India needs, and its answer is textiles and apparel. The evidence offered is the Tiruppur knitwear cluster, an organically grown ecosystem that supports over a million livelihoods, set against the PM MITRA parks announced in 2021 to replicate it, of which only one appears operational. The tension is that India has closed its tariff gaps with competitors and still cannot convert that access into exports, because the binding constraint is not market access but the absence of the cluster ecosystem around the factory.

    Why is India’s job problem one of composition and of job quality?

    1. The size of the workforce: India had 61.6 crore employed persons aged more than 15 years in 2025.
    2. Agriculture’s share of employment: Agriculture still accounted for 43 per cent of employment against 12.1 per cent in manufacturing, per PLFS 2025.
    3. The arithmetic of any shift: Even a 1 percentage point shift in employment from agriculture to manufacturing would involve moving a large number of workers.
    4. The stated target has not been met: The governing alliance had promised to create 2 crore jobs every year, and the outcome is nowhere near that.
    5. Youth unemployment: Unemployment among those aged 15 to 29 was 9.9 per cent, rising to 13.6 per cent in urban areas, per PLFS 2025.
    6. Youth outside employment, education and training: 25 per cent of that age group were neither in employment nor in education or training.
    7. The gender gap in participation: Female labour force participation was 40 per cent, against 79.1 per cent for men.
    8. Student agitations over paper leaks: The recent student agitations over paper leaks reflected the underlying position that respectable formal sector jobs remain scarce even after a basic education.
    9. The PLFS usual status measure: The PLFS usual status measure counts people who worked for a long part of the year and also those who undertook economic activity for at least 30 days during the year.
    10. The limit of the employment count: Being counted as employed does not mean holding a regular or formal job.
    11. Regular formal employment with social security: Economic security requires regular formal employment carrying social security benefits such as the Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI).

    Why does apparel fit the gap better than the frontier sectors?

    1. Labour absorption in apparel: The apparel sector is labour intensive and employs women in large numbers.
    2. Training time for production roles: Workers can be trained in short periods, about 60 days for specific production roles, which is what allows a cluster to scale its workforce quickly.
    3. Fit with India’s skill distribution: Chip making, artificial intelligence and other advanced technologies serve a highly skilled workforce, while the majority of India’s labour force is at the bottom end of the skill distribution.
    4. The cost of a job is lower: Textiles and apparel offer higher employment intensity at relatively low cost, which is the path China, Bangladesh and Vietnam followed.

    Is the $100 billion export target achievable, and what do the international comparisons show about market access?

    1. The headline target: India has set a target of $100 billion in textiles and apparel exports by 2030, from $36 billion today.
    2. The apparel share of the target: $40 billion of that is for apparel exports specifically, from $15.7 billion today.
    3. Exporters do not accept the date: Interactions with exporters suggest the targets are not grounded in current realities and are more likely to be achieved by 2035, not 2030.
    4. The capacity gap behind the target: Closing it means building capacity of a scale that does not exist, not raising utilisation at existing units.
    5. The tariff gap has already closed: India has recently closed the tariff gaps with competitors such as Bangladesh and Vietnam in major markets including the EU and the UK.
    6. The India Japan agreement of 2011: Under the India Japan agreement of 2011, India’s apparel exports to Japan fell from $229 million in 2013 to $203 million in 2024.
    7. Market access without capacity: Market access alone does not ensure exports, and India needs the scale and capacity to tap free trade agreements before a concession converts into shipments.

    What made Tiruppur work, and what did its environmental crisis show about collective capacity?

    1. Tiruppur’s knitwear exports: Tiruppur’s knitwear exports rose from $3.3 billion in 2020-21 to $5.3 billion in 2024-25, per the Tiruppur Exporters Association in 2026.
    2. Share of India’s knitwear exports: The cluster accounts for about 68 per cent of India’s knitwear exports.
    3. The cluster’s employment base: It supports the livelihoods of more than a million workers, around 70 per cent of them women.
    4. The whole chain sits in one place: Within roughly 20 km, yarn, knitting, dyeing, printing, stitching, finishing, packaging and dispatch are woven into one production ecosystem, with nearly 20,000 units operating across the different stages.
    5. The ecosystem effect of density: Firms specialise, workers specialise, and thousands of jobs are created around a common market, which is the ecosystem effect the argument rests on.
    6. Institutions and common infrastructure built over decades: Entrepreneurs, industry associations and government built the institutions and common infrastructure over decades. The Tiruppur Exporters Association and the South India Hosiery Manufacturers Association built collective capabilities, and infrastructure such as the Netaji Apparel Park supported expansion.
    7. The Madras High Court’s 2011 zero liquid discharge order: The Madras High Court’s 2011 order applied to units failing to meet zero liquid discharge (ZLD) norms, meaning norms requiring that no effluent leave the unit as liquid waste.
    8. The response was collective, not firm by firm: The cluster invested more than Rs 850 crore in common effluent treatment infrastructure.
    9. Collective financing of the effluent plant: A single firm could not have financed that plant, which is the clearest demonstration that the cluster’s value lies in what its firms can do jointly.

    What is a cluster ecosystem?

    1. The cluster ecosystem: A concentration of firms in one trade inside a small geography, together with the suppliers, contractors, traders and service providers each of them draws on. A single factory then operates inside a supply chain it does not have to own.
    2. Why proximity lowers cost: Each stage of production is bought from a neighbouring specialist rather than built in house, so a firm carries only the stage it is good at. The cost and the time of moving material between stages fall close to nil.
    3. The shared labour pool: A workforce trained in that trade accumulates in one place, so a unit can add or shed capacity without training workers from scratch, and a worker can change employer without changing town.
    4. Collective capability: Facilities no single firm could finance become viable once the cost is spread across thousands of units. Eg. Tiruppur’s common effluent treatment infrastructure, built by the cluster after a court order.

    What still constrains Tiruppur?

    1. Dependence on migrant labour: The cluster depends heavily on migrant workers from Odisha, Jharkhand, Bihar and elsewhere.
    2. Housing is the retention problem: Worker housing and retention are named as the important challenges in taking the cluster to its next million jobs.
    3. The cluster’s planned upgrade path: The cluster plans to move into man made fibres, technical textiles and high value sustainable manufacturing to expand both exports and employment.

    Why has the national attempt to replicate it stalled?

    1. The seven PM MITRA parks announced in 2021: The government announced seven PM MITRA parks in 2021 as the instrument for creating more such clusters.
    2. Operational status of the parks: Only one park appears operational, at Warangal, and the others are still in the planning stages.
    3. The execution pace against the export target: Such a pace in the execution of even good ideas does not inspire confidence that the $100 billion export target can be reached, and it limits the speed at which jobs can be created.
    4. One cluster cannot carry a national target: Tiruppur alone cannot deliver the target, and India needs many more clusters of the same kind.

    Challenges to the PM MITRA parks model

    1. A greenfield park has to create the ecosystem a cluster inherits: Tiruppur’s advantage is the density of specialised units around a common market, and a new park begins with land and utilities alone. Eg. Nearly 20,000 specialised units in one cluster took decades to assemble.
      The Fix: Anchor each park on an existing textile concentration so tenants arrive with supplier relationships already in place, rather than siting parks to distribute them across states.
    2. Land and clearances drive the timeline more than the incentive does: The scheme’s outlay is committed at announcement while state level land transfer, environmental clearance and utility connection decide the commissioning date. Eg. Roughly 70 per cent of infrastructure project delays in India stem from complex land acquisition processes.
      The Fix: Make the release of central assistance conditional on dated state milestones for land handover and clearances, so delay has a financial consequence.
    3. Common effluent capacity is the binding utility for textiles: Dyeing and processing are the stages that cannot start without treatment capacity, and they are also the stages that create the most jobs per unit of investment. Eg. Tiruppur had to build more than Rs 850 crore of common effluent treatment infrastructure after a court order, long after the cluster had grown.
      The Fix: Commission the zero liquid discharge plant before tenant allotment rather than after, so processing units can begin operating from the first year.
    4. Worker housing is treated as outside the park: A labour intensive park draws migrant workers who need housing at the same moment the units need staff, and housing is rarely part of the industrial park’s own scope. Eg. Worker housing and retention are the named constraints on Tiruppur’s next million jobs.
      The Fix: Include rental worker housing within the park’s own master plan and viability gap funding, treating it as production infrastructure rather than welfare.

    Conclusion

    The evidence assembled here says the binding constraint on labour absorbing manufacturing is executional rather than strategic. India already has a demonstrated model, a closed tariff gap with its competitors and a stated national target, and the one instrument built to convert all three into jobs has produced a single operating park in five years. Whether the remaining six parks reach commissioning, and on what dated schedule, is the marker that will decide whether the $100 billion target slips to the exporters’ 2035 or fails altogether.

    Manufacturing Sector in India

    1. Share of GDP: Manufacturing contributes around 17 per cent of GDP, against a policy target of 25 per cent.
    2. Share of global manufacturing output: India holds about 2.8 per cent of global manufacturing output, compared with China’s roughly 29 per cent.
    3. The size of output: Manufacturing output is projected to reach approximately $1 trillion in FY 2025-26.
    4. What incentives have drawn: The Production Linked Incentive (PLI) scheme had drawn over Rs 1.76 lakh crore across 14 sectors as of March 2025.

    Government Initiatives for Manufacturing

    1. Make in India (2014): Seeks to raise manufacturing’s share of GDP from around 17 per cent toward 25 per cent through ease of doing business reforms.
    2. Atmanirbhar Bharat (2020): Promotes self sufficiency, local industry and reduced import dependence without closing the economy off to the world.
    3. Production Linked Incentive Scheme (2020): Covers 14 sunrise and strategic sectors, including textiles, with outcome linked financial incentives paid on incremental production.
    4. National Manufacturing Mission: A Budget mission targeting a 25 per cent GDP share and 143 million jobs by 2035, unifying policy across clean and sustainable manufacturing.
    5. National Logistics Policy: Aims to cut logistics costs and improve supply chain efficiency, which is a direct input into export competitiveness.
    6. Industrial corridors: Eleven approved corridors bundle infrastructure to support clustered industrial development, with 12 new industrial nodes approved in 2024.

    Back2Basics: PM MITRA Parks

    1. What the name stands for: Pradhan Mantri Mega Integrated Textile Region and Apparel parks, administered by the Ministry of Textiles.
    2. The design idea: Each park brings spinning, weaving, processing, dyeing, printing and garmenting onto a single site, so a garment can be produced end to end within one location.
    3. The vision it implements: The 5F vision, meaning Farm to Fibre to Factory to Fashion to Foreign, which treats the textile value chain as a single continuum from cotton to export.
    4. How they are built: Each park is developed by a Special Purpose Vehicle owned jointly by the central and the concerned state government, with central support for development capital and for the first units to begin production.

    Matching Previous Year Question

    “[2025, GS3, 15 marks] Discuss the rationale of the Production Linked Incentive (PLI) scheme. What are its achievements? In what way can the functioning and outcomes of the scheme be improved?”

  • MoSPI Secy: Nominal GDP revised down as informal sector data has improved

    Why in the News

    The Ministry of Statistics and Programme Implementation (MoSPI) has stated that the downward revision of nominal Gross Domestic Product (GDP) under the new base year series follows a change in how the informal sector is measured, not a correction of an earlier overstatement. The revision runs across every overlapping year of the two series and was driven by the replacement of proxy based estimates with direct annual surveys. The new series moves the base year to 2022-23 from 2011-12 and was released in February. Two separate criticisms have been put to the Ministry, one that the informal economy is still being read off the performance of listed companies, and the other that the price data used for deflation is the wrong kind. The contest is therefore not about the growth rate but about whether the measurement itself can be trusted.

    What changed in the new base year GDP series?

    1. The base moved: The series shifts its base year from 2011-12 to 2022-23, and was released in February.
    2. The estimation method changed with it: The informal sector is now estimated from direct, empirical annual surveys rather than from proxies carried forward from a base year.
    3. The revision is systematic, not a one year correction: Nominal GDP has been revised lower across all overlapping years, meaning 2022-23 to 2024-25 and the subsequent quarters.

    Why did nominal GDP fall in the revised series?

    1. The old series had no regular unorganised sector survey: MoSPI calculated Gross Value Added (GVA), meaning output net of the cost of inputs used up in producing it, for the unorganised sector by multiplying estimated workforce counts by the Value Added per Worker derived from decadal surveys.
    2. Forward projection of the base year figure: The projection used proxies such as formal corporate growth rates, inter survey growth rates and historical tax collections, because no regular data was available.
    3. Survey evidence changed the picture: Annual survey evidence made it possible to capture the distinct growth patterns of the informal sector, which had been running on the formal sector’s growth rate by assumption.
    4. Informal services, the largest single driver: The single largest driver of the revision is the improved measurement of India’s informal services sector.

    How do the new surveys change the measurement?

    1. Two surveys replaced the proxies: The Annual Survey of Unincorporated Sector Enterprises (ASUSE), which enumerates unincorporated non agricultural businesses, and the Periodic Labour Force Survey (PLFS), which measures employment and workforce size, now supply the inputs directly.
    2. Survey frequency: ASUSE is now available on a quarterly basis and PLFS on a monthly basis, so quarterly GDP no longer waits on a survey that ran once every five years.
    3. What is now measured directly: Unorganised sector productivity and workforce size are measured rather than inferred from corporate results.

    What is the Annual Survey of Unincorporated Sector Enterprises?

    1. What an unincorporated enterprise is: A business run as a proprietorship or a partnership rather than as a registered company. Its accounts are never filed with a corporate registry, so its output cannot be read off company results and has to be counted directly.
    2. What ASUSE enumerates: Non agricultural businesses in manufacturing, trade and other services. It covers both establishments that hire workers and own account enterprises run by the proprietor without hired labour.
    3. How the units are reached: The survey draws a sample against an area based frame rather than against a registration list, which is what allows it to reach units that appear on no register.
    4. Why the frequency changes the estimate: Its predecessor ran roughly once in five years, so every intervening year was filled in by projection. A survey running annually and now quarterly supplies measured values for the same periods the national accounts are compiled for.

    Where does the contest over the new series lie?

    1. The listed company charge: A former Chief Economic Adviser has argued that the GDP data does not capture the informal economy properly and extrapolates the performance of listed companies. The Ministry’s stated position is that ASUSE is being used for quarterly GDP and proxies are not.
    2. The proxies were always bounded: Even in the earlier series proxies were used only between the quinquennial surveys, carried forward from previous base years, which is how the overhang continued.
    3. Overestimation is rejected as a framing: The Ministry holds that GDP is an estimation built on the best data available at the time, and that calling the old series an overestimate implies a systematic bias that was not there.
    4. The price data objection: A separate criticism concerns the use of producer price data. The Ministry’s answer is that the method of calculation was shifted to producers in the 2011-12 series of the Wholesale Price Index (WPI) itself, and that data for the past 10 years has been collected from industry.
    5. What separates the two indices: The WPI excludes exports and imports and includes taxes and trade margins to some extent, while a Producer Price Index (PPI) does not, and the Ministry states those corrections have since been made.
    6. The growth is not felt on the ground: The Ministry treats this as a larger question shaped by other factors, uncertainties and the global situation, comparable to how an individual’s experience of prices differs from an inflation rate aggregated across the country.

    What is a Producer Price Index?

    1. Prices received at the factory gate: A Producer Price Index tracks the change in prices received by domestic producers for their own output at the factory gate. It reads the price at the point of production rather than the price at any later point in the chain.
    2. Why the deflator has to match the output: Real output is nominal output divided by a price index, so the index must track the prices of the goods and services being deflated. A mismatch between the output being measured and the prices used to deflate it moves the real growth rate without anything happening in the economy.
    3. The services gap: A wholesale price index is built on goods traded in bulk and carries no services. An economy whose output is majority services therefore has no matching price series for its largest component, which is why the deflator is the contested instrument.

    Challenges to a base year revision of the national accounts

    1. A long gap between base years builds in drift: Holding a base year for more than a decade lets the structure of the economy move away from the weights the series is built on. Eg. The 2011-12 base was carried forward for over a decade on proxies before the present revision replaced it.
      The Fix: Fix a statutory base year revision cycle with a published date, so the revision is a scheduled operation rather than an event that invites suspicion.
    2. A revision breaks the comparable series users rely on: Analysts, ratings and fiscal ratios are all computed on a level that has now moved, and back series construction is where most disputes about Indian GDP have historically landed. Eg. The dispute over the back series of the 2011-12 base ran for years after that series was introduced.
      The Fix: Release a fully documented back series alongside the new base, with the method for each sector stated, rather than issuing the levels first and the method later.
    3. Deflation remains the weakest link: Converting nominal values to real ones requires price indices that match the output being deflated, and India has no full producer price index for services. Eg. Services form the largest share of output and are deflated using indices built for goods.
      The Fix: Complete and publish a services producer price index so that the largest part of output is deflated on prices collected from services producers.
    4. Survey coverage of the informal sector is thin at the edges: An enterprise survey reaches businesses with a recognisable place of operation more easily than it reaches itinerant and home based work. Eg. Home based and own account work is concentrated among women, which is also where labour force measurement is weakest.
      The Fix: Link the enterprise survey to the labour force survey at the household level, so an activity missed as an enterprise is still captured through the worker reporting it.

    Conclusion

    The disagreement now on record is about method rather than about the growth rate, and the Ministry has taken the position that the new series is the best available and that no obvious correction has been put to it for the next one. That claim is testable, since a statistical system is judged on whether its next revision moves the numbers again in the same direction. The marker to watch is the deflator, because the informal sector question has now been answered with direct surveys while the price side has not been given an equivalent instrument.

    Matching Previous Year Question

    “[2021, GS3, 10 marks] Explain the difference between computing methodology of India’s Gross Domestic Product(GDP) before the year 2015 and after the year 2015.”

  • India gets 1.64 mt EU steel quota, imports of EU cars may rise 6-fold

    Why in the News

    The draft text of the India European Union (EU) Free Trade Agreement (FTA) gives India a country specific steel export quota of 1.64 million tonnes (mt) across 16 categories, including specialised items such as metallic coated sheets and stainless hot rolled quarto plates. The quota answers the tightening of EU steel entry through the Steel Overcapacity Regulation, which came into force on 1 July this year, and through the Carbon Border Adjustment Mechanism (CBAM), a levy that prices the carbon embedded in an imported good so that it carries the same carbon cost as an EU produced one. In exchange the EU has won a first year quota of 1,00,000 completely built up cars, close to six times what it currently ships to India. Only a part of India’s steel quota is actually reserved for India, while the automotive concession is the first of its kind India has given to a major economy after the United Kingdom.

    What is a Tariff Rate Quota?

    1. The instrument: A Tariff Rate Quota (TRQ) limits the quantity of a particular item that is eligible for a lower duty, so volume inside the quota enters cheap and volume beyond it pays the full tariff.
    2. Two components in India’s steel quota: The FTA component of 0.69 mt is reserved for India. The most favoured nation component of 0.95 mt is open to all partner countries.
    3. The assured component against the open component: Only the FTA component is assured, and India’s products must compete with other exporting countries for the remaining categories.

    How much steel market access has India actually secured?

    1. Breadth of the quota: The 1.64 mt covers 16 categories of steel, including specialised products such as metallic coated sheets and stainless hot rolled quarto plates.
    2. Value added lines are inside it: India has received quotas on several value added categories, which are the lines that carry a higher realisation per tonne.
    3. The assured share is small: The reserved FTA component is under half the headline quota, so the larger part of India’s access depends on outcompeting other suppliers for the same tonnage.
    4. The framing regulation: The TRQs follow the EU’s Steel Overcapacity Regulation, whose stated aim is to protect the EU steel industry against the effects of global overcapacity.

    What does the EU gain in India’s car market?

    1. A first year quota six times current trade: The EU has won a first year TRQ of 1,00,000 completely built up internal combustion and non plug in hybrid cars, against the 17,191 cars India imported from the EU in 2025.
    2. The ten year volume ramp: The quota rises to 1,60,000 cars by the 10th year of the agreement.
    3. A price floor protects the mass market: The concession applies only to cars priced above €15,000, and India has given no concession at all to cars below that price to protect Indian car manufacturers.
    4. The duty schedule for the mid segment: For cars priced between €15,000 and €35,000, the in quota duty falls from 110% to 35% in the first year and to 10% by the fifth year of the deal coming into effect.
    5. The duty schedule for the luxury segment: For cars priced above €35,000, tariffs decline from 66% to 30% in the first year and to 10% over the same period.
    6. A reserved luxury band: The quota is divided across three price bands, with 43,000 units reserved for cars priced above €50,000 from Year 5 onward.

    What does the separate electric vehicle schedule protect?

    1. Concessions begin later: Concessions on battery electric vehicles, plug in hybrids and cars using other technologies begin only in the fifth year of the agreement.
    2. A higher price floor applies: They apply only to vehicles priced at €20,000 or more, and electric and other eligible cars below that price get no concession.
    3. The volume ramp is slow: The completely built unit quota starts at 20,000 cars in the fifth year, rises to 50,000 in the tenth year and reaches 90,000 from the fourteenth year onwards.

    What must India do to use the steel quota?

    1. Move up the product ladder: Shifting toward higher value added steel products reduces the applicable CBAM tax burden and improves India’s competitive position in the EU market, per an Indian Council for Research on International Economic Relations (ICRIER) note.
    2. Pair the shift with industrial policy: The ICRIER note holds that this structural transition must be supported by industrial policies that integrate Production Linked Incentives with dedicated research and development funding.
    3. Carry the smallest firms through compliance: Targeted financial and technical assistance, including concessional financing, access to clean technology and investment guarantees, is treated as essential to ease the disproportionate compliance burden on Micro, Small and Medium Enterprises (MSMEs).

    What is the Carbon Border Adjustment Mechanism?

    1. The charge on embedded carbon: An importer of a covered good declares the greenhouse gas emissions released in producing it and surrenders certificates priced against the European Union’s own carbon market. The imported tonne therefore carries the same carbon cost as a tonne produced inside the EU.
    2. Covered goods: CBAM applies to emissions intensive goods traded in bulk, including iron and steel, aluminium, cement, fertilisers, electricity and hydrogen, which are the sectors where production is most easily relocated to a jurisdiction with no carbon price.
    3. Default values where data is absent: An exporter that cannot supply verified plant level emissions data is charged on a default value rather than on its actual emissions. Eg. A low emission Indian plant that does not document its emissions is charged as though it used the high emission route.
    4. Phasing: A transitional stage requires importers only to report embedded emissions, and the financial obligation attaches at the definitive stage, so the reporting burden arrives before the cost does.

    Challenges to the India EU Free Trade Agreement steel and auto package

    1. The quota covers well under half of existing trade: Most of what India already ships to the EU falls outside the country specific quota and meets the full tariff. Eg. India’s steel exports to the EU currently stand at 4 mt.
      The Fix: Concentrate the residual volume in categories where the per tonne realisation absorbs the out of quota duty, rather than treating the quota as the whole of the market.
    2. The out of quota wall is punitive: The Steel Overcapacity Regulation sets free of duty quotas at 18.3 mt overall with a 50% duty on out of quota imports, so exceeding the quota is close to a trade stop. Eg. The same regulation introduced a melt and pour regime that traces where steel was first cast, which narrows the scope for rerouting through third countries.
      The Fix: Seek an annual review clause that indexes the country specific quota to India’s realised shipments rather than fixing it at the level negotiated once.
    3. The carbon charge sits outside the quota: A tonne of steel that enters inside the quota still carries its CBAM liability, so tariff relief and carbon cost are two separate gates. Eg. CBAM prices embedded emissions per tonne, which penalises India’s coal based blast furnace and induction furnace routes regardless of quota access.
      The Fix: Build verified plant level emissions accounting into Indian steel exports so that lower carbon Indian output is recognised at the EU border instead of being charged on a default value.
    4. The automotive concession sets a precedent for other partners: The EU becomes the second major trade partner after the United Kingdom to secure automotive tariff concessions from India under an FTA. Eg. The Global Trade Research Initiative (GTRI) holds that these precedents could prompt other key trade partners such as Japan and South Korea to seek similar preferential market access and TRQs.
      The Fix: Fix a common automotive concession template across agreements, so each new negotiation starts from a stated ceiling rather than from the last deal signed.

    Conclusion

    The draft text is published rather than ratified, so the numbers in it are a negotiating position and not yet a schedule in force. What the package does settle is the shape of the bargain: India trades a widening opening of its passenger vehicle market for steel access that is only partly reserved and wholly separate from its carbon liability. The marker to watch is whether the reserved FTA component of the steel quota is enlarged in the final text, and whether India’s shipments move into the value added categories the quota already covers.

    Matching Previous Year Question

    “[2025, GS3, 10 marks] What are the challenges before the Indian economy when the world is moving away from free trade and multilateralism to protectionism and bilateralism? How can these challenges be met?”

  • Inclusive and trusted intelligent finance pitched at Global Fintech Festival 2026

    Why in News

    The Ministry of Communications set out India’s digital finance record at the Global Fintech Festival 2026 in Mumbai.

    Core facts

    1. Guiding frame: Finance must become inclusive before it becomes intelligent. Connectivity, compute and trust are named the new digital trinity.
    2. Internet access: It expanded from 25 crore users to 100 crore users over a decade.
    3. Broadband access: It grew from 6 crore to 103 crore, a 16 fold rise in ten years. About 6.5 lakh villages now join the digital economy.
    4. 5G rollout: The fifth generation (5G) network covers 99.9% of districts and 85% of the population within 26 months of its 2022 launch. It runs on over 5 lakh base stations with ₹4.5 lakh crore capital expenditure.
    5. Data price: Data costs about 10 cents per gigabyte. India is stated as the world’s most affordable data market.
    6. Unified Payments Interface (UPI): UPI is a real time retail payment system linking bank accounts for instant transfers. It processed 24,162 crore transactions worth ₹314 lakh crore in the 2025 to 2026 financial year. It forms 84% of domestic digital transactions and 49% of global real time payment volumes.
    7. UPI abroad: It is live in nine countries at no cost. Expansion to 20 more nations is planned.
    8. Financial inclusion base: 60 crore Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts are open. 9 billion documents sit on DigiLocker, the government’s digital document wallet.
    9. Rural coverage: Under Digital Bharat Nidhi, 22,000 towers are being placed across 34,000 villages without telecom links.
    10. Fraud tools: Sanchar Saathi blocks suspicious connections and stolen devices. ASTR, an Artificial Intelligence (AI) tool, cut 88 lakh suspicious mobile connections. The Financial Fraud Risk Indicator blocks fraudulent transfers before withdrawal.
    11. Stated vision: A Trust Grid would integrate telecom, digital identity, UPI and financial systems. The 6G mission targets 10% of global patents.

    Static Context

    1. UPI is operated by the National Payments Corporation of India (NPCI). NPCI is an umbrella body for retail payments set up in 2008 under the guidance of the Reserve Bank of India (RBI) and the Indian Banks’ Association.
    2. Digital Bharat Nidhi is the successor to the Universal Service Obligation Fund (USOF). It was renamed under the Telecommunications Act, 2023. It funds telecom access in commercially unviable rural and remote areas.
    3. PMJDY launched in 2014 as the national financial inclusion mission. It provides basic savings accounts, RuPay cards and overdraft access.
    4. DigiLocker operates under the Ministry of Electronics and Information Technology. It issues and stores verified documents linked to Aadhaar.

    Prelims angle

    UPI versus Central Bank Digital Currency (Digital Rupee) distinctions; the operator of UPI is NPCI, not RBI; Digital Bharat Nidhi sits under the Telecommunications Act, 2023 and replaces the USOF; PMJDY launch year 2014; Sanchar Saathi as the fraud reporting platform.

    Mains angle

    GS Paper 3, Indian economy and inclusive growth. The digital public infrastructure stack can frame a question on how far technology driven financial inclusion closes welfare and credit gaps.

    Matching Previous Year Question

    “[2026] Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is NOT correct?
    (a) UPI is a real-time payment system but Digital Rupee is akin to sovereign paper currency
    (b) In case of UPI, settlement for end users happens instantly; in case of Digital Rupee, wallet balance gets transferred to another wallet (no traditional settlement)
    (c) UPI transactions are recorded by banks and reflected in bank statements; in case of Digital Rupee, no data is captured in bank statements
    (d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks
    Answer: (d)”

    “[2023, GS3, 10 marks] What is the status of digitalization in the Indian economy? Examine the problems faced in this regard and suggest improvements.”