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Subject: Economics

  • Fiscal Health Index (FHI) 2026

    Why in News?

    NITI Aayog has released the second edition of the Fiscal Health Index (FHI) 2026, providing a comprehensive assessment of the fiscal performance of Indian States during FY 2023–24. The report expands its coverage to include 10 North-Eastern and Himalayan States, in addition to the 18 major States assessed in the inaugural edition.

    Key Highlights

    • Expanded coverage: Evaluates 28 States (18 major States + 10 North-Eastern and Himalayan States).
    • Purpose: Measures the fiscal health of States using a transparent and data-driven framework.
    • Fiscal significance: States account for nearly two-thirds of public expenditure and about one-third of the general government debt.
    • Key finding: Most States recorded moderate fiscal performance, with significant variations across regions.
    • Recommendations: Improve own tax revenue, rationalise committed expenditure, strengthen capital expenditure, enhance public financial management, and ensure debt sustainability.

    What is the Fiscal Health Index (FHI)?

    • The Fiscal Health Index (FHI) is an annual report released by NITI Aayog to evaluate the fiscal performance of States using objective indicators. It promotes fiscal discipline, financial sustainability, and evidence-based policymaking while encouraging States to improve public financial management.

    Key Parameters of the Fiscal Health Index

    • Quality of Expenditure
    • Revenue Mobilisation
    • Fiscal Prudence
    • Debt Management

    Significance of the Fiscal Health Index

    • Encourages competitive and cooperative federalism.
    • Helps identify strengths and weaknesses in State finances.
    • Supports informed policy decisions and fiscal reforms.
    • Promotes sustainable public finances and efficient resource allocation.
    • Enhances transparency and accountability in fiscal governance.

    Challenges Highlighted by the Report

    • Low own tax revenue in several States.
    • High committed expenditure on salaries, pensions, and interest payments.
    • Rising debt burden in some States.
    • Limited fiscal space for developmental expenditure.
    • Regional disparities in fiscal performance.

  • AI data centres’ power load to nearly double government’s earlier estimate

    Why in News

    The Ministry of Power informed Parliament that AI-driven data centres are expected to add 26.3 GW of electricity demand by 2031-32, nearly double the earlier estimate of 13.56 GW. The additional demand is proposed to be met primarily through renewable energy.

    Key Highlights

    • Revised estimate: Additional power load projected at 26.3 GW by 2031-32, up from 13.56 GW estimated earlier.
    • Renewable-powered growth: The government plans to meet most of this demand through renewable energy.
    • Rapid expansion: India’s data centre capacity is projected to increase from 2.2 GW (2025) to 12 GW by 2030 (Wood Mackenzie).
    • Digital economy: India’s digital economy is valued at around ₹32 lakh crore, contributing nearly 12% of GDP.
    • AI demand: Growth is being driven by Generative AI, cloud computing, big data analytics, fintech, e-commerce and digital public infrastructure.

    Why Do AI Data Centres Consume So Much Power?

    • AI model training requires high-performance GPUs and specialised chips.
    • Large-scale 24×7 computing and data processing significantly increase electricity demand.
    • Cooling systems account for a substantial share of total energy consumption.
    • Continuous operation requires high reliability and uninterrupted power supply.

    Significance

    • Strengthens India’s position as a global digital and AI hub.
    • Encourages investment in renewable energy, grid infrastructure and energy storage.
    • Supports growth of Digital India, semiconductor manufacturing and cloud services.
    • Creates employment in IT, engineering, power and infrastructure sectors.

    [2022, GS3, 15M] Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify your answer. How will the shift of subsidies from fossil fuels to renewables help achieve the above objective? Explain.”

    [2020] With the print state of development, Artificial Intelligence can effectively do which of the following?
    1. Bring down electricity consumption in industrial units
    2. Create meaningful short stories and songs
    3. Disease diagnosis
    4. Text -to -Speech Conversion
    5. Wireless transmission of electrical energy
    Select the correct answer using the code given below:

    [A] 1, 2, 3 and 5 only

    [B] 1, 3 and 4 only

    [C] 2, 4 and 5 only

    [D] 1, 2, 3, 4 and 5

  • What’s behind the vault of India’s gold exchange

    Why in the News?

    India’s gold exchange ecosystem, built on Electronic Gold Receipts (EGR), now sits at the centre of how Indians hold and trade gold. The shift exposes a tension between gold as a physical, trust based asset and a dematerialised, exchange traded instrument.

    What is an Electronic Gold Receipt?

    • Definition: An Electronic Gold Receipt (EGR) is a Securities and Exchange Board of India (SEBI) regulated digital security representing actual physical gold stored in secure, accredited vaults.
    • Purpose: EGRs let investors buy, sell, and trade gold on exchanges such as the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE), without holding physical metal at home.

    How does an Electronic Gold Receipt actually work?

    • Vaulting: A depositor delivers physical gold to a SEBI accredited vault manager, who verifies purity and weight.
    • Dematerialisation: The vault manager issues an EGR, a dematerialised instrument representing the deposited gold. It is credited to the depositor’s demat account.
    • Exchange trading: The EGR then trades on the gold exchange like a security, separating the instrument’s liquidity from the physical gold’s custody.
    • Fungibility: Standardised purity and weight bands let EGRs from different depositors trade interchangeably, making the exchange function like a market rather than a set of individual claims.

    What problem does this solve that physical gold trading could not?

    • Price discovery: A centralised exchange produces a transparent, real time domestic gold price instead of fragmented jeweller quotes.
    • Storage risk: Vault custody by regulated managers removes the theft and storage burden from individual holders.
    • Import dependence: A liquid domestic exchange gives India a reference price less dependent on London or Dubai benchmarks.
    • Quality assurance: Mandatory purity verification and standardised weight bands remove the adulteration risk common in unorganised physical gold trade.
    • Two way convertibility: An EGR can convert back into physical gold and back again, allowing arbitrage that keeps the receipt aligned with physical gold prices.

    Challenges to Electronic Gold Receipts

    • Ecosystem complexity as due diligence burden: The EGR ecosystem distributes responsibility across vault managers, depositories, exchanges, clearing corporations, and brokers. An investor’s risk assessment must span multiple entities.
    • Early stage caution: Informed participation requires investors to understand this multi institutional framework before adoption.
    • Liquidity constraints: EGR trading volumes remain well behind Gold Exchange Traded Funds (ETF), resulting in thinner markets and wider bid ask spreads.
    • Ongoing holding costs: Vaulting, storage, and withdrawal fees continue as long as the gold remains deposited, unlike Gold ETFs and Sovereign Gold Bonds (SGB).
    • Vault manager risk: SEBI mandates minimum net worth, insurance, and a financial security deposit for every vault manager, but residual operational and financial risk remains.

    Conclusion

    The EGR system converts gold from an asset held on trust in a locker into a regulated, tradeable instrument. Its long term success depends on depositor confidence, vault managers, and depositories performing as certified.

  • Insurers seek first third party premium hike in four years

    Why in News?

    Non life insurers are pressing for their first motor third party premium hike in four years, citing a Supreme Court judgment recognising the economic value of homemakers’ unpaid domestic work.

    Key Highlights

    • In its 11 June 2026 judgment, the Supreme Court held that unpaid domestic work performed by homemakers has measurable economic value and must be fairly considered while awarding compensation under the Motor Vehicles Act, 1988.
    • Insurers argue that the ruling is likely to increase compensation payouts, adding to existing underwriting losses.
    • They have requested an upward revision in motor third party insurance premiums, the first such increase in four years.
    • The Central Government, in consultation with the Insurance Regulatory and Development Authority of India (IRDAI), notifies third party premium rates.

    Motor Third Party (TP) Insurance

    • Mandatory under the Motor Vehicles Act, 1988 for all motor vehicles operating in India.
    • Covers death, bodily injury, or property damage caused to a third party due to the insured vehicle.
    • Does not cover damage to the insured vehicle; that requires comprehensive motor insurance.
    • Premium rates are regulated by the Central Government, based on recommendations from IRDAI.

    Value Addition

    • IRDAI: Statutory regulator established under the Insurance Regulatory and Development Authority Act, 1999.
    • Motor Accident Claims Tribunal (MACT): Adjudicates compensation claims arising from road accidents under the Motor Vehicles Act, 1988.
    • Significance of the Supreme Court ruling: Strengthens recognition of the economic contribution of unpaid care work, advancing substantive gender equality and ensuring more equitable compensation in accident claims.

    [2026] With reference to different Committees in India, consider the following details :

    Sl. No.CommitteeObjectiveOrganization under which it was formed
    1R.N. Malhotra CommitteeComprehensive reforms of Insurance sector in IndiaInsurance Regulatory and Development Authority of India
    2L.C. Gupta CommitteePreparing a roadmap for the introduction of derivatives trading in IndiaSecurities and Exchange Board of India
    3Urjit R. Patel CommitteePreparing a roadmap for reforming bank lending to the Housing sectorReserve Bank of India
    4Y.H. Malegam CommitteePreparing a roadmap for reforms in Microfinance sector in IndiaReserve Bank of India


    In which of the above rows are all the details correctly matched ?

    [A] 2 only

    [B] 2 and 3

    [C] 1, 3 and 4

    [D] 2 and 4

  • Drawing parallels between A.P., TN airport projects

    Why in News?

    With the Prime Minister set to inaugurate the Bhogapuram Greenfield International Airport in Andhra Pradesh on August 1, an analysis compared its execution with Tamil Nadu’s stalled Parandur airport project.

    Key Highlights

    • Bhogapuram Greenfield International Airport is scheduled for inauguration on 1 August 2026.
    • Parandur Greenfield Airport in Tamil Nadu continues to face delays due to land acquisition and rehabilitation concerns.
    • Land acquisition, compensation, and rehabilitation of affected families remain the principal bottlenecks in large greenfield infrastructure projects.
    • The comparison highlights the importance of timely clearances, stakeholder consultation, and fair compensation for successful infrastructure development.

    Greenfield Airport

    • A new airport developed from scratch on previously undeveloped land, unlike a brownfield airport, which expands or upgrades an existing airport.
    • In India, greenfield airports are approved under the Greenfield Airports Policy, 2008.
    • Approval is granted by the Ministry of Civil Aviation after assessing:
      • Demand and traffic potential
      • Site suitability
      • Environmental and statutory clearances
      • Financial viability
    • Airports are generally developed through public, private, or Public-Private Partnership (PPP) models.

    Value Addition

    • Nodal Ministry: Ministry of Civil Aviation.
    • Airport Development Agency: Airports Authority of India (AAI) provides technical support and develops many airports.
    • Constitutional Basis for Land Acquisition: Governed by the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013, which mandates fair compensation, rehabilitation, and social impact assessment.
    • Significance: Greenfield airports improve regional connectivity under the UDAN (Ude Desh ka Aam Nagrik) scheme, promote tourism, attract investment, and support balanced regional economic development.

    [2024] Consider the following airports:

    1. Donyi Polo Airport

    2. Kushinagar International Airport

    3. Vijayawada International Airport.

    In the recent past, which of the above have been constructed as Greenfield projects?

    (a) 1 and 2 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3.

  • Maritime sector posts remarkable growth

    Why in News?

    An analysis of India’s port sector found capacity utilisation at about 60%, against a global benchmark of 70%, as Sagarmala 2.0 continues to expand port linked infrastructure.

    Key Highlights

    1. Port capacity utilisation stands at roughly 60%, below the 70% global benchmark.
    2. Sagarmala 2.0 is the next phase of the Sagarmala Programme, aligned with the Maritime Amrit Kaal Vision (MAKV) 2047.
    3. MAKV 2047 targets positioning India as a global maritime innovation hub.

    Sagarmala Programme

    • Launched in 2015 by the Ministry of Ports, Shipping and Waterways.
    • Vision: Port-led development to accelerate economic growth and reduce logistics costs.
    • Four key pillars:
      • Port modernisation and new port development
      • Port connectivity enhancement
      • Port-led industrialisation
      • Coastal community development

    [2026] Consider the following statements with reference to the Sagarmala Programme of the Government of India:

    I. The Sagarmala Programme seeks to achieve port led economic growth through cost effective and sustainable coastal infrastructure.

    II. The success of the Sagarmala Programme is reflected in significant growth in coastal and inland waterway shipping, along with improved global port rankings.

    III. Sagarmala 2.0 aims to position India as a global maritime innovation hub aligned with Atmanirbhar Bharat and Viksit Bharat 2047 visions.

    Which of the following relationships among the above statements is/are correct?

    (a) 1 only

    (b) 1 and 2

    (c) 2 and 3

    (d) 3 only

  • Investment Friendliness Index (IFI)

    Why in News?

    NITI Aayog launched the Investment Friendliness Index (IFI) to assess and improve the investment ecosystem across States and UTs through competitive and cooperative federalism.

    What is IFI?

    • A data driven index that benchmarks how effectively States and UTs attract and sustain investments by evaluating their policy, regulatory, institutional, and infrastructure ecosystem.

    Background

    • Proposed after the 9th NITI Aayog Governing Council Meeting (2024).
    • Announced in the Union Budget 2025-26.

    Key Features

    • Covers 28 States and 8 UTs.
    • Based on 84 indicators using: Secondary data and Investor perception survey.

    Eight Pillars

    • Infrastructure. Business Climate, Resources, Government Policy, Regulatory Ease, Institutional Environment, Financial Health, and Environmental Resilience

    Performance Categories

    • Top Performers: Above 50
    • Frontrunners: 45 to 50
    • Emerging Performers: 40 to <45
    • Aspiring States: Below 40

    Top Performers

    • Overall: Gujarat, Maharashtra, Tamil Nadu, Goa, Odisha.
    • Hilly & NE States: Uttarakhand.
    • UTs & City States: Goa.

    Significance

    • Promotes competitive and cooperative federalism.
    • Encourages State level reforms and ease of investment.
    • Supports Viksit Bharat @2047 and Viksit Rajya @2047.

    [2019] Which one of the following is not a sub-index of the World Bank’s ‘Ease of Doing Business Index’?

    [A] Maintenance of law and order

    [B] Paying taxes

    [C] Registering property

    [D] Dealing with construction permits

  • Can airport operator own airline? Concerns over fair access

    Why in the News?

    The Centre is weighing a policy relaxation that would let airport operators also own airlines, breaking a long standing separation between the two businesses. IndiGo has called the move a “massive conflict of interest,” setting airport neutrality against a shortage of investors willing to fund a new airline for years before it turns a profit.

    Is this a market access problem or a capital problem?

    1. Capital as the entry barrier: A new domestic airline must survive losses for about seven years against incumbents controlling two thirds of the market; the Adani and GMR groups already have that capital through their airport businesses.
    2. Existing ownership caps: Airport operators at Delhi (GMR, 74%) and Mumbai (Adani, 74%) are barred from holding more than 10% in a scheduled carrier, and the restriction runs in reverse for airlines holding airport stakes.
    3. Government’s stated objective: The Civil Aviation Ministry wants more competition against the IndiGo and Air India duopoly, which together hold over 90% of the domestic market.
    4. Adani’s denial: Adani Enterprises has denied evaluating any airline entry, even as reports say the relaxation follows the group’s own request for an enabling policy.

    Why does vertical integration between an airport and an airline invite regulatory caution?

    1. Airports as natural monopolies: A city typically has one major airport, so it must provide neutral, non discriminatory infrastructure and access to every carrier operating there.
    2. Slot allocation conflict: If the airport operator is also the slot coordinator, competing airlines cannot be certain that slot decisions are free of bias toward the operator’s own airline.
    3. Shared infrastructure dependence: Airlines rely on the airport for parking bays, check in counters, and aircraft stands, and any preferential treatment on these fronts would amount to an anti-competitive practice even without proven discrimination.
    4. The efficiency counter-argument: An airport’s revenue increasingly comes from footfall, so an airport that owns an airline may want more flights at lower fares rather than fewer at higher ones, an incentive that could align with, not against, competition.

    What do international precedents actually demonstrate?

    1. Dubai: Emirates and Dubai Airport are both government owned but kept as separate corporate entities with independent management.
    2. Abu Dhabi: Etihad and Abu Dhabi Airport follow the same government owned but corporately separate structure.
    3. Doha: Qatar Airways and Doha Airport are likewise state owned yet run as distinct entities.
    4. Singapore: Changi Airport and Singapore Airlines are linked only through the state’s investment ecosystem, with separate management and regulatory oversight.
    5. Limits of the comparison: Every one of these examples is a hub airport in a market with virtually no domestic air traffic and airline ownership concentrated in the state; India’s airports and airlines are almost entirely private, and its aviation market resembles Europe’s more than West Asia’s or Singapore’s.

    What safeguards would a relaxation require if it goes ahead?

    1. Structural separation: Independent boards and management teams for the airport and airline businesses.
    2. Information firewalls: Protection of competing carriers’ commercially sensitive information from the affiliated airline.
    3. Independent slot coordination: A slot coordinator insulated from the airport operator’s airline interests.
    4. Transparent allocation: Published, non discriminatory gate and terminal allocation policies.

    Conclusion

    The proposal tests whether India should solve a capital shortage in its airline sector by relaxing a structural safeguard designed to keep airports neutral. Global practice offers no true precedent for a private, multi-airline, multi-operator market like India’s, so any relaxation would need enforceable firewalls, not just a change in the equity cap, to prevent slot allocation and infrastructure access from tilting toward the airport operator’s own carrier.

    Back2Basics

    1. Slot coordination: The process by which take-off and landing time slots at a congested airport are allocated among competing airlines; India’s slot coordinators are expected to act as neutral third parties.
    2. Vertical integration: A firm’s ownership of successive stages of a supply chain (here, both the airport infrastructure and an airline that uses it), which competition regulators scrutinise because it can let a firm favour its own downstream business.

    PYQ Relevance

    [UPSC 2014] International civil aviation laws provide all countries complete and exclusive sovereignty over the airspace above the territory. What do you understand by airspace? What are the implications of these laws on the space above this airspace? Discuss the challenges which this poses and suggests ways to contain the threat.
    Linkage: The PYQ examines challenges in aviation infrastructure, market competition, and regulatory frameworks governing the civil aviation sector. The article discusses allowing airport operators to own airlines, highlighting concerns over competition, airport neutrality, and fair access to aviation infrastructure.

  • India paid $15 bn of imports in rupees in March-May

    Why in News?

    RBI data shows a sharp rise in rupee-denominated import payments, driven mainly by increased Russian crude oil purchases.

    Key Highlights

    • India settled imports worth ₹1.38 lakh crore (about $14.6 billion) in rupees during March-May 2026, accounting for 7.1% of merchandise imports.
    • This is a sharp increase from ₹42,506 crore (2.4% of imports) in December 2025-February 2026.
    • Russian crude imports reached $17.13 billion, up 30% YoY, aided by temporary US sanctions waivers.
    • Rupee-settled imports have steadily increased:
      • 2023-24: ₹99,680 crore
      • 2024-25: ₹1.13 lakh crore
      • 2025-26: ₹1.72 lakh crore
    • India’s merchandise trade deficit stood at $119 billion in 2025-26.
    • Benefits of Rupee Trade Settlement:
      • Reduces dependence on the US dollar.
      • Saves foreign exchange reserves.
      • Lowers exchange rate risk and transaction costs.
      • Promotes internationalisation of the Indian rupee.
    • Challenges:
      • Limited acceptance of the rupee by trading partners.
      • Persistent trade deficits reduce the recycling of rupee balances.

    Rupee Trade Settlement Mechanism (2022)

    • Introduced by the RBI in July 2022.
    • Enables invoicing, payment, and settlement of international trade in Indian rupees through Special Rupee Vostro Accounts (SRVAs).
    • Aims to facilitate trade, reduce dollar dependence, and strengthen the rupee’s global use.

    PYQ (2015, GS3, 12.5 Marks) Craze for gold in Indians have led to a surge in import of gold in recent years and put pressure on balance of payments and external value of rupee. In view of this, examine the merits of Gold Monetization Scheme.

    [2022] With reference to the Indian economy, consider the following statements:
    1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
    2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
    3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.
    Which of the above statements are correct?

    [A] 1 and 2 only

    [B] 1 and 2 only

    [C] 1 and 3 only

    [D] 1, 2 and 3

  • Govt. brings ₹3,030-cr. plan to set up three chemical parks

    Why in News?

    The Union Cabinet approved the BHAVYA-Rasayan Scheme to establish three chemical parks, aiming to boost domestic chemical manufacturing and attract private investment.

    Key Highlights

    • Cabinet approved the Bharat Audyogik Vikas Yojana Rasayan (BHAVYA-Rasayan).
    • Three chemical parks of at least 2,000 acres each.
    • Total outlay: ₹3,030 crore.
    • Each park is expected to attract ₹20,000 crore to ₹50,000 crore in private investment.
    • Parks will provide common infrastructure such as CETPs, hazardous waste management, utilities, and logistics.

    Value Addition

    • India is the 6th largest chemical producer globally and 3rd largest in Asia.
    • The sector contributes about 7% of GDP, 14% of industrial output, and 11% of merchandise exports.
    • Chemical parks promote cluster-based manufacturing, reduce logistics costs, improve environmental compliance, and enhance export competitiveness.

    BHAVYA-Rasayan Scheme

    • Union Government scheme approved in July 2026.
    • Outlay: ₹3,030 crore.
    • Objective: Develop integrated chemical manufacturing hubs, attract investment, reduce import dependence, and strengthen Make in India.

    PYQ (2023, GS3, 10 Marks) 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.

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

    1.India’s merchandise exports are less than its merchandise imports.
    2.India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
    3.India’s exports of services are more than its imports of services.
    4.India suffers from an overall trade/current account deficit.
    Select the correct answer using the code given below:
    a) 1 and 2 only
    b) 2 and 4 only
    c) 3 only
    d) 1, 3 and 4 only