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Subject: Economics

  • Carbon Capture to Drive India’s Green Steel Transition

    Why in the News

    The Prime Minister shared an article highlighting the role of Carbon Capture, Utilisation and Storage in decarbonising India’s steel sector, aligning with India’s Net Zero 2070 commitment.

    India’s Steel Sector at a Glance

    • India is the world’s second largest crude steel producer.
    • Production: Around 152 million tonnes in FY 2024-25.
    • Target under National Steel Policy 2017:
      • 300 million tonnes by 2030-31
      • 500 million tonnes by 2047

    Note: Steel production contributes nearly 10 to 12 percent of India’s total greenhouse gas emissions due to coal based blast furnace and direct reduced iron routes.

    What is CCUS

    Carbon Capture, Utilisation and Storage involves:

    • Capturing carbon dioxide from industrial processes
    • Utilising it for industrial applications or
    • Storing it underground to prevent atmospheric release

    It helps address process emissions that cannot be eliminated through energy efficiency or renewable power alone.

    Government Measures

    • Green Steel Taxonomy:Defines emission intensity benchmark: Less than 2.2 tonnes of CO2 equivalent per tonne of finished steel
      • Introduces star rating framework
    • National Green Hydrogen Mission: ₹455 crore allocated for pilot projects in steel sector
    • Union Budget Allocation: ₹20,000 crore for piloting CCUS across five sectors including steel

    Significance

    • Helps decarbonise existing steel plants without immediate asset replacement
    • Enhances global competitiveness amid carbon border measures
    • Supports Net Zero 2070 target
    • Encourages industrial ecosystems around carbon transport and storage
    [2023] Consider the following heavy industries: 1. Fertilizer plants 

    2. Oil refineries 

    3. Steel plants 

    Green hydrogen is expected to play a significant role in decarbonizing how many of the above industries? 

    (a) Only one (b) Only two (c) All three (d) None

  • A reckoning for India’s aviation sector

    Why in the News?

    India’s aviation sector is under scrutiny following operational failures, rising safety incidents, and declining passenger confidence. This sector is the world’s third-largest domestic aviation market carrying over 350 million passengers annually. The December crisis marked the first large-scale disruption for IndiGo, exposing systemic stress in the country’s largest airline, which controls nearly 60% of the domestic market. Simultaneously, pilot shortages, FDVT violations, high ATF volatility, and congestion at 85+ airports operating beyond capacity have intensified vulnerabilities. The sector faces a structural reckoning as new regional carriers enter an already overstretched ecosystem.

    What is the growth and economic significance of India’s Aviation Sector?

    1. Market Size Expansion: India is the world’s third-largest domestic aviation market, with airports increasing from 74 (2014) to 163 (2025).
    2. Economic Multiplier Effect: Aviation generates over three times economic activity for every rupee invested and supports more than six times employment in allied sectors.
    3. Employment Contribution: The sector supports over 7.7 million jobs, including 369,000 direct jobs.
    4. Traffic Growth: Domestic passenger traffic has grown at an annual rate of 10-12% over the past decade.
    5. Global Integration: India has over 116 bilateral Air Service Agreements, strengthening international connectivity.
    6. Industrial Linkages: Aviation drives FDI inflows, technology transfer, and growth in aircraft manufacturing, MRO, and ground handling services under Make in India.

    Why is India’s aviation sector facing operational stress?

    1. Scale without proportional capacity: Carries 350+ million passengers annually with over 840 aircraft, but expansion has outpaced structural preparedness.
    2. December disruption as stress test: First large-scale disruption affecting IndiGo exposed systemic fragility.
    3. Airport congestion: 85 airports operating beyond capacity; 102 new routes planned under UDAN 2025-26.
    4. Network dependency risk: High route concentration increases vulnerability to cascading delays and cancellations.

    What explains the pilot shortage and regulatory strain?

    1. Pilot-to-aircraft imbalance: India’s ratio remains below global benchmark of 18-20 pilots per aircraft; IndiGo at 14, Air India at 36 (group level including subsidiaries), Air India Express at 15.
    2. FDVT violations: DGCA issued 19 safety violation notices in 2025 citing breaches of flight duty time limitations, lapses in quality assurance, and expired emergency equipment use.
    3. Training pipeline constraints: CPL issuance inconsistent with estimated annual requirement of 7,000 pilots; issuance around 5,700 between 2020-24.
    4. Operational fatigue risks: Regulatory exemptions for scheduling rather than structural hiring reforms.

    How does market concentration amplify systemic risk?

    1. Duopoly structure: IndiGo (63-65%) and Air India group (27%+) together control nearly 90% of the domestic market.
    2. Route concentration: IndiGo dominant on 600 monopoly routes and 200 duopoly routes.
    3. Financial vulnerability: Past airline failures-Jet Airways (2019), Kingfisher Airlines (2012), Air Deccan collapse, Go First (2023-24), demonstrate systemic contagion risk.
    4. Passenger dependency: 60.4% of domestic capacity concentrated under a single carrier.

    How do infrastructure and fuel volatility impact viability?

    1. ATF volatility: Aviation Turbine Fuel priced in U.S. dollars; exposes airlines to exchange rate fluctuations.
    2. High cost structure: ATF remains one of the largest operational expenditures.
    3. Infrastructure bottlenecks: Congested metro airports; Tier-2 and Tier-3 airports underdeveloped despite UDAN push.
    4. Limited hedging mechanisms: Absence of systematic fuel hedging increases cost unpredictability.

    What role do new regional entrants play?

    1. New NOCs (December 2025): Shankh Air, Al Hind Air, and Fly91 approved.
    2. Regional connectivity expansion: Planned routes include Noida International Airport linkages and underserved regions such as Kochi and Shankh Air’s Uttar Pradesh focus.
    3. Deconcentration potential: Entry could reduce excessive dependence on major carriers.
    4. Structural risk persists: New entrants operate in an already capacity-stressed environment.

    Conclusion

    India’s aviation sector has evolved into a strategic growth engine, combining infrastructure expansion, employment generation, and global integration. Sustained capacity augmentation, regulatory strengthening, and balanced regional connectivity will determine whether the sector can translate its rapid growth into long-term economic resilience and inclusive development.

    PYQ Relevance

    [UPSC 2024] What is the need for expanding the regional air connectivity in India? In this context, discuss the government’s UDAN Scheme and its achievements.

    Linkage: It falls under GS Paper III-Infrastructure (Airports), Regional Connectivity, Inclusive Growth and Balanced Regional Development. Airport congestion and traffic concentration make regional connectivity expansion essential for decongestion and balanced growth.

  • Why Manufacturing Growth Has Not Led to Broad Employment

    Why in the News?

    Union Budget 2026 reinforces the existing manufacturing strategy, especially through Production Linked Incentive schemes and customs duty rationalisation. However, analysts note that manufacturing growth has not translated into large scale job creation.

    Core Issue: Growth Without Jobs

    1. Stagnant Share in GDP

    • Manufacturing share remains 14 to 17 percent for decades.
    • Successful industrialisers in East Asia reached 25 to 30 percent before stabilising.
    • Indicates incomplete structural transformation.

    2. Jobs Growth Disconnect

    • Organised manufacturing employs about 1.96 crore workers.
    • Only about 57 lakh jobs added in the last decade.
    • Total manufacturing employment around 5.44 crore, with two thirds in informal units.

    Note: Organised factories are productive but create few jobs. Unorganised units absorb labour but remain low productivity and low wage.

    3. Capital Intensive Expansion

    • Firms rely on automation and capital deepening.
    • Output rises faster than employment.
    • Job elasticity of growth remains low.

    4. Skills Mismatch

    • Firms struggle to find job ready workers.
    • Weak firm level training and apprenticeship ecosystem.
    • Skill programmes poorly linked to industry demand.

    5. MSME Constraints

    • MSMEs contribute 35 percent of manufacturing output and about half of exports.
    • Credit expansion improves liquidity but not productivity.
    • Weak technology adoption, poor supply chain integration, limited scaling.
    [2020] With reference to the Indian economy after the 1991 economic liberalization, consider the following statements: 

    1. Worker productivity (Rupee per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas. 

    2. The percentage share of rural areas in the workforce steadily increased. 

    3. In rural areas, the growth in non-farm economy increased. 

    4. The growth rate in rural employment decreased. 

    Which of the statements given above is/are correct? 

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

  • SC tells RBI to bring in stricter checks to stop online frauds

    Why in the News? 

    A Bench led by the Chief Justice of India directed the Reserve Bank of India (RBI) and the Union Government to strengthen safeguards against online financial frauds. The Supreme Court has flagged the siphoning of over ₹52,000 crore between April 2021 and November 2025 through online frauds such as “digital arrests,” calling it nothing short of “absolute robbery or dacoity.” In a sharp judicial intervention, the Court questioned why no alarm is triggered when unusually large sums like ₹50 lakh are withdrawn from a retiree’s account. It has directed the RBI and the Home Ministry to tighten suspicious transaction norms and formally implement Standard Operating Procedures for cyber fraud coordination. The scale of fraud and the Court’s direct push for systemic banking reforms make this a significant moment in India’s cyber-financial governance framework.

    What Triggered the Supreme Court’s Concern?

    1. ₹52,969 crore siphoned (April 2021-November 2025): The Court noted large-scale cyber-enabled frauds, including “digital arrests.”
    2. Characterisation as ‘absolute robbery or dacoity’: The Bench emphasized the severity and scale of financial losses.
    3. Pattern of large withdrawals: The Court questioned why no alert is triggered when ₹50 lakh is withdrawn from a retiree’s account, especially when monthly withdrawals are typically ₹10,000.
    4. Judicial scrutiny of RBI: The Court stated it was time for the central banker to ensure stronger protective mechanisms for depositors.

    Why Did the Court Question Suspicious Transaction Monitoring?

    1. Definition expansion required: The Court stated that the definition of “suspicious transaction” must be broadened.
    2. Banking business model shift: Justice Bagchi noted banks are largely in “business mode,” facilitating swift and seamless transfers.
    3. Digital efficiency aiding crime: Faster transactions enable quick movement of stolen money.
    4. Accountability query: The Bench sought explanation on misappropriation based on official reporting.

    What Directions Were Issued to the Government?

    1. Formal SOP implementation: Directed the Home Ministry to adopt and implement nationwide the SOP issued on January 2.
    2. Inter-agency coordination: Ensures structured coordination in cyber-enabled fraud cases.
    3. Victim identification mechanism: Mandates identification of defrauded parties.
    4. Notification of implementation rules: Ordered formal notification of required regulatory framework.

    What Institutional Mechanisms Are Being Strengthened?

    1. Memorandum of Understanding (MoU): Government finalising MoU for suspect registry sharing.
    2. Data sharing architecture: Facilitates exchange of suspect registry data.
    3. Mule account detection tools: Strengthens identification of accounts used for fraudulent transfers.
    4. Preventive and responsive tools: Supports blocking of fraudulent transactions.

    How Big is the Problem?

    1. Scale of fraud: ₹52,969 crore misappropriated in less than five years.
    2. Targeted vulnerability: Retirees and ordinary account holders vulnerable.
    3. Systemic gaps: Absence of automatic red-flag triggers for abnormal withdrawals.
    4. Judicial intervention: Indicates inadequacy of existing regulatory safeguards.

    Conclusion

    The Supreme Court’s intervention underscores the systemic risks posed by cyber-enabled financial frauds in an increasingly digital banking ecosystem. The scale of misappropriation and the absence of robust red-flag mechanisms reveal gaps in regulatory vigilance and inter-agency coordination. Strengthening suspicious transaction definitions, enhancing data-sharing frameworks, and ensuring proactive oversight by the RBI and enforcement agencies are essential to safeguard depositor trust and preserve financial stability.

    Value Addition

    What is a digital arrest?

    • It is a sophisticated cyber scam where fraudsters impersonate law enforcement (police, CBI, etc.) or government officials to instill fear and extort money or data from victims.
    • It makes the victims believe they are under arrest for serious crimes like money laundering or drug trafficking, often using fake documents, video calls with fake police station backgrounds, and high-pressure tactics to force compliance. 
    • It’s a form of online fraud, not a real legal process, designed to manipulate victims into paying fines or revealing personal information to avoid (fake) arrest, leading to financial loss or identity theft.

    PYQ Relevance

    [UPSC 2020] Discuss different types of cyber crimes and measures required to be taken to fight the menace.

    Linkage: The question addresses the rising threat of cyber crimes in India and the need for institutional, regulatory, and technological measures to combat them under GS-3 (Internal Security and Cyber Security).

  • Gross NPAs of SCBs at Historic Low

    Why in the News

    The Finance Ministry informed that the gross non performing assets ratio of Scheduled Commercial Banks has declined to a historic low of 2.15 percent as of September 30, 2025, the lowest level seen in more than a decade.

    Key Facts 

    • Gross NPA ratio of SCBs: 2.15 percent
    • Trend: Continuous decline for the last eight financial years
    • Comparison: Lower than the level seen in 2010-11

    Bank wise Gross NPA Ratio as on Sept 30, 2025

    • Public Sector Banks: 2.50 percent
    • Private Sector Banks: 1.73 percent
    • Foreign Banks: 0.80 percent

    Reasons for Decline in NPAs

    • Asset Quality Review initiated by Reserve Bank of India in 2015
    • Government’s 4R strategy
      • Recognition of NPAs
      • Resolution and recovery
      • Recapitalisation of PSBs
      • Reforms in banking and financial ecosystem
    • Improved underwriting standards
    • Stronger balance sheets and sustained profitability of banks
    [2019] What was the purpose of the Inter-Creditor Agreement signed by Indian banks and financial institutions recently? (a) To lessen the Government of India’s perennial burden of fiscal deficit and 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

  • Why borrowings have now begun biting govts

    Why in the News?

    Government borrowing costs are rising even after successive repo rate cuts by the Reserve Bank of India (RBI). Since February 2025, the RBI has reduced the repo rate by 100 basis points from 6.5% to 5.5%. However, yields on 10-year government securities have increased from 6.66% to 6.73% during the same period.

    This divergence is significant because bond yields typically soften after rate cuts. Instead, governments are now paying 0.4-0.5 percentage points more to borrow compared to 10-15 years ago. The issue affects both the Centre and States, which together budgeted gross market borrowings exceeding ₹40 lakh crore in 2025-26. Rising yields increase interest burdens and crowd out developmental expenditure.

    Why Are Borrowing Costs Rising Despite Repo Rate Cuts?

    1. Limited Monetary Transmission: Repo rate reduced from 6.5% to 5.5% since February 2025. 10-year G-sec yields increased from 6.66% to 6.73% during the same period.
    2. Higher Risk Premium: Markets demand higher yields due to elevated debt levels and fiscal pressures.
    3. Liquidity Tightening: RBI reduced bond purchases and ended aggressive liquidity injections.
    4. Foreign Outflows: Net FPI outflows of $12.5 billion during April-September 2025 reduced bond demand.

    How Large Is the Government Borrowing Programme?

    1. Gross Borrowing (Centre): ₹14.90 lakh crore budgeted for 2025-26.
    2. Gross Borrowing (States): ₹18.14 lakh crore budgeted.
    3. Combined Gross Borrowing: Exceeds ₹40 lakh crore.
    4. Net Borrowing (Centre): ₹11.73 lakh crore in 2025-26.
    5. Net Borrowing (States): ₹10.75 lakh crore in 2024-25.

    What Is the Status of Outstanding Liabilities?

    1. Centre’s Liabilities: Increased from 48.1% of GDP (2015-16) to above 55% in 2025-26.
    2. States’ Liabilities: Increased from 22.3% (2015-16) to 29.2% in 2025-26.
    3. Combined Liabilities: Exceed 80% of GDP.
    4. Interest Burden: Governments now pay 0.4-0.5 percentage points more compared to 10-15 years ago.

    What Role Has Liquidity Played?

    1. Pandemic Liquidity Surge: RBI expanded liquidity during 2020-22 to manage economic slowdown.
    2. Subsequent Tightening: RBI reversed bond purchases and injected limited liquidity.
    3. Foreign Exchange Dynamics: RBI sold dollars to stabilize the rupee, reducing domestic liquidity.
    4. Capital Inflows: Net foreign capital inflows modest at $18 billion during April-September 2025.

    How Does This Affect Fiscal Management?

    1. Higher Interest Payments: Expands revenue expenditure commitments.
    2. Reduced Fiscal Space: Limits developmental and capital spending.
    3. Crowding-Out Effect: High government borrowing absorbs financial resources.
    4. State-Level Stress: States face similar yield pressures amid large borrowing programmes.

    Conclusion

    Rising borrowing costs despite repo rate cuts indicate structural stress in India’s fiscal and financial architecture. Elevated debt levels, reduced liquidity support, and weak monetary transmission have increased the interest burden on both the Centre and States.

    Sustained high yields risk expanding revenue expenditure, compressing capital spending, and constraining developmental priorities. The situation underscores the need for calibrated fiscal consolidation, improved debt management, and better coordination between monetary and fiscal policy to ensure macroeconomic stability without compromising growth.

    PYQ Relevance

    [UPSC 2019] The public expenditure management is a challenge to the Government of India in context of budget making during the post liberalization period. Clarify it.

    Linkage: The question examines fiscal discipline, debt sustainability, and expenditure prioritisation under the post-liberalisation framework. The article highlights rising borrowing costs and elevated liabilities, which intensify interest burdens and constrain public expenditure management, making budget balancing more complex.

  • India’s central bank holds interest rates steady: What drove the policy decision

    Why in the News?

    The Reserve Bank of India has chosen to hold the repo rate steady after cutting it by 25 bps in December to 5.25%, completing a cumulative reduction of 125 bps in 2025. The pause follows the Union Budget and signals that the central bank sees no immediate urgency for further easing. This is significant because inflation remains within the tolerance band, growth projections have been revised upward to 7.4% for FY26, and global geopolitical tensions continue to intensify. The decision marks a cautious “wait-and-watch” approach rather than aggressive monetary easing, which reflects confidence in domestic resilience and acknowledges rising external headwinds.

    Why Did the Monetary Policy Committee Pause the Rate Cuts?

    1. Cumulative Easing Completed: Repo rate reduced by 25 bps in December to 5.25%, bringing total reduction in 2025 to 125 bps.
    2. Favourable Inflation Outlook: CPI inflation projected at 4% in Q1 and 4.2% in Q2 of next fiscal year; remains below the tolerance band.
    3. Underlying Inflation Low: Core inflation trends remain moderate despite price pressures in precious metals (60-70 bps contribution).
    4. Strong Domestic Momentum: Robust consumption projected to expand by about 7% in FY26.
    5. Budgetary Support: Income tax cuts and GST rationalisation announced in FY26 Budget expected to support demand.
    6. Statistical Support: Low GDP deflator effect strengthens first-half growth figures.

    How Do Trade Deals Influence Monetary Stability?

    1. Strategic Trade Agreements: India signed or concluded negotiations with US, EU, Oman, and New Zealand.
    2. External Shock Cushioning: Trade pacts expected to soften global uncertainties.
    3. Export and Investment Boost: US trade deal seen as supportive of India’s exports and investment flows.
    4. Geopolitical Vigilance: External headwinds have intensified since last policy review; requires close monitoring.

    What Is the Updated Growth and Inflation Outlook?

    1. Revised GDP Forecast: FY26 growth raised to 7.4% from earlier 7.3%.
    2. Government Estimate Alignment: First advance estimate places FY26 real GDP slightly above 7.4%.
    3. Improved Economic Momentum: Growth described as strong and stable.
    4. Marginal Inflation Revision: Slight upward revision due to precious metal prices.
    5. Target Anchoring: Inflation continues to align with the medium-term 4% target.

    What Is the Impact on Lending and Deposit Rates?

    1. Repo-Linked Loans Stable: No immediate change in EMIs for repo-linked borrowers.
    2. Marginal Cost of Funds based Lending Rate (MCLR) Flexibility: Banks may revise MCLR-based lending rates depending on liquidity and funding conditions.
    3. Deposit Rates Steady: Rates expected to remain stable unless liquidity pressures intensify.
    4. Funding Cost Sensitivity: Deposit pricing may adjust if sustained funding stress emerges.

    What Does the RBI’s Approach Indicate?

    1. Cautious Pause: No urgency to alter rates amid stable growth and controlled inflation.
    2. Wait-and-Watch Stance: Close monitoring of geopolitical developments.
    3. Fiscal-Monetary Coordination: Budget measures complement monetary stance.
    4. Macro Stability Signal: Reinforces stability in credit markets and repayment obligations.

    Conclusion

    The RBI’s decision reflects calibrated policy management amid stable domestic fundamentals and rising external uncertainties. Growth remains firm at 7.4%, inflation anchored near 4%, and trade agreements offer external cushioning. The pause signals confidence in macroeconomic stability while retaining policy flexibility.

    Value Addition

    Impact of a Steady Repo Rate

    Impact on Borrowers

    1. EMI Stability: Keeps repo-linked loan EMIs unchanged; ensures repayment certainty.
    2. Credit Continuity: Maintains lending momentum without tightening financial conditions.
    3. Investment Predictability: Supports business planning by reducing policy volatility.
    4. MCLR Flexibility: Allows banks to adjust marginal cost-based lending rates depending on liquidity and funding costs.

    Impact on Depositors

    1. Deposit Rate Stability: Prevents immediate reduction in fixed deposit returns.
    2. Liquidity Sensitivity: Deposit pricing adjusts only if sustained funding pressures arise.
    3. Savings Behaviour: Maintains incentive structure between savings and consumption.

    Impact on Banking System

    1. Net Interest Margin Stability: Preserves spread between lending and deposit rates.
    2. Balance Sheet Planning: Supports funding cost predictability.
    3. Liquidity Management: Enables calibrated response to evolving liquidity conditions.

    Impact on Inflation

    1. Anchored Expectations: Signals confidence that inflation remains near 4% target.
    2. Demand Containment: Avoids excessive demand stimulation.
    3. Transmission Pause: Allows earlier 125 bps cumulative easing to transmit fully into the economy.

    Impact on Growth

    1. Growth Support: Maintains accommodative stance without overheating.
    2. Consumption Boost Alignment: Complements Budget measures such as income tax cuts and GST rationalisation.
    3. External Stability: Provides cushion amid intensified geopolitical headwinds.

    What Happens If Repo Rate Increases? (Tightening Cycle)

    Inflation Control

    1. Demand Compression: Reduces aggregate demand through higher borrowing costs.
    2. Expectations Management: Signals anti-inflation commitment.
    3. Currency Support: Strengthens domestic currency by attracting capital inflows.

    Credit Impact

    1. Higher EMIs: Raises repayment burden for floating-rate borrowers.
    2. Investment Slowdown: Discourages capital expenditure.
    3. Housing and Auto Demand Impact: Sensitive sectors experience contraction.

    Banking Effects

    1. Higher Deposit Rates: Banks raise deposit rates to attract funds.
    2. Credit Growth Moderation: Loan disbursement slows.

    Macroeconomic Trade-off

    1. Lower Growth: Tight monetary stance reduces GDP momentum.
    2. Improved Current Account Stability: Reduced imports due to lower domestic demand.

    What Happens If Repo Rate Decreases? (Easing Cycle)

    Growth Acceleration

    1. Lower Borrowing Cost: Stimulates investment and consumption.
    2. Credit Expansion: Encourages loan uptake across sectors.
    3. Multiplier Effect: Boosts demand-driven sectors such as housing and MSMEs.

    Inflation Risk

    1. Demand-Pull Inflation: Excess liquidity may raise price levels.
    2. Asset Price Inflation: Risk of stock and real estate overheating.

    External Sector

    1. Currency Depreciation Risk: Lower rates may reduce foreign capital inflows.
    2. Export Competitiveness: Depreciation may support exports.

    Financial Stability

    1. Liquidity Expansion: Increases systemic liquidity.
    2. Potential Asset Bubbles: Excess credit may distort asset markets.

    PYQ Relevance

    [UPSC 2019] Do you agree that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons.

    Linkage: The question evaluates whether steady GDP growth and low inflation indicate macroeconomic stability, focusing on the growth-price balance central to monetary policy. The RBI’s steady repo rate, after cumulative cuts, reflects confidence that 7.4% growth and ~4% inflation remain balanced, signalling macro stability.

  • DISCOMs and the road ahead

    Why in the News?

    India’s power distribution companies (DISCOMs) have recorded a decisive turnaround after years of mounting losses. India has 72 DISCOMs (44 State-owned, 16 private, 12 power departments). The sector earlier was subjected to AT&C losses and a persistent ACS-ARR gap. Now it has reported a positive Profit After Tax (PAT) of ₹2,701 crore in FY 2024-25, compared to a loss of ₹67,962 crore in 2013-14. AT&C losses declined from 22.62% to 15.04%, and the Average Cost of Supply-Average Revenue Realised Gap (ACS-ARR) gap narrowed from 78 paise to 6 paise per unit,  marking a sharp contrast to earlier years of financial distress. However, the improvement is uneven, with several utilities still reliant on tariff subsidies and State government support, underscoring the scale and complexity of the reform challenge.

    What Was the Historical Problem with DISCOMs?

    1. Rising Aggregate Technical & Commercial Losses (AT&C) Losses: Aggregated Technical and Commercial losses widened significantly over the years.
    2. Widening ACS-ARR Gap: Gap increased from ₹0.78 per unit (2020-21) before reducing to ₹0.06 per unit.
    3. Escalating Debt: Outstanding debt rose from ₹5.5 lakh crore to ₹6.47 lakh crore; subsequently increased to ₹7.26 lakh crore.
    4. Non-Cost Reflective Tariffs: Tariffs did not cover actual supply cost.
    5. Delayed State Subsidies: Payment delays worsened liquidity stress.
    6. Section 59 Violation: Law required 3% profit or zero loss; utilities continued losses.
    7. Legacy Dues: Outstanding legacy dues reached ₹1,39,947 crore by March 2023.

    What Explains the Recent Turnaround?

    1. Positive PAT: ₹2,701 crore profit in FY 2024-25.
    2. AT&C Reduction: Declined from 22.62% to 15.04%.
    3. ACS-ARR Improvement: Reduced from 78 paise to 6 paise per unit.
    4. Revamped Distribution Sector Scheme (RDSS) Implementation: Ensures operational efficiency and financial sustainability.
    5. Electricity Rules Amendments: Strengthened accountability.
    6. Late Payment Surcharge (LPS) Rules: Enables structured EMI-based clearance (39 EMIs).
    7. Debt Clearance: Legacy dues reduced to ₹4,927 crore; DISCOMs now paying current dues on time.

    Is the Improvement Uniform Across States?

    1. State Sector Variation: Tamil Nadu received ₹15,772 crore tariff subsidy and ₹16,107 crore loss takeover; recorded ₹2,073 crore profit.
    2. Persistent Loss Example: TANGEDCO reported ₹14,034 crore loss in PFC’s 14th Integrated Rating Exercise.
    3. Gujarat Example: Improved performance with ₹92 crore profit; ₹11,625 crore subsidy and ₹2,540 crore loss takeover.
    4. Risk of Reversal: Revenue surplus may be transient due to future employee pay revisions.

    What Structural Concerns Persist?

    1. Dependence on Subsidies: Turnaround largely driven by tariff subsidies and State loss takeover.
    2. Cross-Subsidisation: Agricultural and domestic segments distort cost structure.
    3. Unmetered Power Supply: Especially in Tamil Nadu; impedes accurate consumption data.
    4. Feeder Segregation Gaps: Ongoing in Rajasthan, Andhra Pradesh, Gujarat, Karnataka, Maharashtra; incomplete elsewhere.
    5. Agricultural Power Burden: Political reluctance to rationalize free power.

    What Is the Way Forward?

    1. Feeder Segregation: Ensures accurate agricultural consumption measurement.
    2. Metering Reform: Enables real cost accounting.
    3. Solar Pump Promotion: Reduces power procurement costs.
    4. Financial Discipline: Sustains gains under RDSS framework.
    5. Political Will: Resists universal free electricity policies.
    6. Public-Spirited Bureaucracy: Ensures transformation into viable entities.

    Conclusion

    The power distribution sector demonstrates measurable operational improvement. However, sustainability depends on structural tariff reforms, subsidy rationalisation, metering expansion, and political commitment to financial discipline. Without these, the risk of reverting to revenue deficit remains significant.

    Keywords and their definitions:

    1. AT&C Losses (Aggregate Technical & Commercial Losses): Total losses incurred by DISCOMs due to technical losses (transmission & distribution inefficiencies) and commercial losses (theft, faulty metering, billing inefficiency).
    2. ACS-ARR Gap (Average Cost of Supply-Average Revenue Realised Gap): Difference between the average cost incurred to supply electricity and the average revenue actually realised per unit.
    3. Reflective Tariffs (Cost-Reflective Tariffs): Electricity tariffs that reflect the actual cost of supply, including power purchase, transmission, distribution, and operational expenses.
    4. Section 59, Electricity Act, 2003: Mandates that distribution licensees must maintain financial discipline, ensuring revenues are adequate to cover operational costs and leave a reasonable surplus. Objective:
      1. Prevent chronic losses
      2. Promote commercial viability
      3. Enforce tariff rationalisation
    5. Electricity (Amendment) Rules, 2022: Significance:
      1. Mandated timely payment of subsidies by State governments
      2. Prevented DISCOMs from carrying subsidy burden indefinitely
      3. Linked power supply obligation with subsidy payment
    6. Late Payment Surcharge (LPS) Rules, 2022
      1. Structured repayment of legacy dues
      2. Prevented cascading debt in power sector
    7. Revamped Distribution Sector Scheme
      1. Launched by: Ministry of Power
      2. Outlay: ₹3.03 lakh crore; Objective:
        1. Reduce AT&C losses to 12-15%
        2. Eliminate ACS-ARR gap
        3. Smart metering & infrastructure upgradation
      3. Nature: Reform-linked, results-based funding mechanism.
    8. Cross-Subsidisation: Practice of charging higher tariffs to industrial/commercial consumers to subsidise agricultural and domestic consumers.
    9. Feeder Segregation: Separation of agricultural and non-agricultural electricity feeders.

    PYQ Relevance

    [UPSC 2022] Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify. How will the shift of subsidies from fossil fuels to renewables help achieve the objective?

    Linkage: It falls under GS-III (Infrastructure: Energy, Subsidies, Sustainable Development) and tests understanding of renewable transition, fiscal prioritisation, and energy economics. The DISCOM article highlights issues directly impacted by shifting subsidies from fossil fuels to renewables to improve distribution sector sustainability.

  • How did the space sector fare in the budget?

    Why in the News

    The Union Budget shows stable funding for the space sector after post-pandemic adjustments, following a 182% increase in allocations over the last decade. This reflects a shift from rapid expansion to fiscal consolidation. For the current year, the Budget has maintained broadly similar allocations for space activities, ensuring continuity for ISRO’s core programmes rather than announcing a major increase. However, industry bodies such as SatCom Industry Association (SIA)-India and Indian Space Association (ISpa) note that this stability has come without structural reforms, particularly in GST rationalisation, downstream enablement, and private sector incentives. The article highlights a gap between India’s space liberalisation framework, led by IN-SPACe, and the limited fiscal and regulatory support provided in the Budget.

    Has budgetary support for the space sector stabilised?

    1. Stabilised Allocations: Reflect a post-pandemic correction after a 182% increase in space spending over the past decade, signalling fiscal consolidation rather than retrenchment.
    2. Institutional Continuity: Ensures operational stability for ISRO, whose budget had earlier faced compression during COVID-19 years.
    3. Limited Expansion Signal: Indicates absence of new large-scale mission announcements or funding surges, reinforcing a maintenance-oriented fiscal posture.

    Does the Budget address structural reforms in the space ecosystem?

    1. Reform Gap: Ignores long-standing demands raised by SIA-India for taxation and policy rationalisation to support private and downstream firms.
    2. Public-sector Bias: Continues to prioritise ISRO’s upstream capabilities while underplaying ecosystem-wide enablement.
    3. Missed Alignment: Fails to integrate fiscal measures with the institutional role of IN-SPACe, which was created precisely to facilitate private participation.

    How does GST affect space industry competitiveness?

    1. GST Burden: High GST incidence on specialised inputs and imported components raises production costs for satellite and launch manufacturers.
    2. Cash-flow Stress: Refund delays under GST disproportionately affect private firms and startups operating under thin margins.
    3. Export Competitiveness: Weakens India’s cost advantage in global launch and satellite service markets, a concern explicitly flagged by industry bodies.

    What challenges exist for downstream space applications?

    1. Neglect of Applications: Budgetary focus remains skewed towards upstream launch and satellite programmes, with minimal fiscal support for applications.
    2. Commercial Bottlenecks: Affects communication, navigation, earth observation, and data analytics sectors that rely on satellite services.
    3. Innovation Constraints: Absence of PLI-type incentives for space manufacturing and services limits scale-up and market absorption.

    Is private participation adequately supported?

    1. Policy-Finance Disconnect: While liberalisation has been institutionalised through IN-SPACe, fiscal incentives remain absent.
    2. Investment Uncertainty: The Budget does not build upon the ₹1,000 crore venture capital fund announced in the previous Budget, offering no clarity on deployment or expansion.
    3. Ecosystem Imbalance: Growth remains anchored to state-led capabilities rather than a diversified commercial space economy.

    Conclusion

    The Budget secures stability for India’s space programme but does not translate liberalisation intent into fiscal or regulatory support. By overlooking GST reform, downstream incentives, and private investment facilitation, it risks slowing the transition from an ISRO-centric model to a competitive, market-driven space economy.

    PYQ Relevance

    [UPSC 2016] Discuss India’s achievements in the field of Space Science and Technology. How has the application of this technology helped India in its socio-economic development?

    Linkage: Space science and technology is a recurring GS-III theme, testing India’s indigenous technological capacity and its role in national development. The current Budget debate on space highlights the shift from mission achievements to ecosystem sustainability, making the socio-economic application and commercialisation of space technologies a critical evaluative dimension.

  • SBI launches CHAKRA for financing sunrise sectors

    Why in the News?

    The State Bank of India (SBI) has launched CHAKRA, a Centre of Excellence (CoE) to finance eight sunrise sectors critical for India’s sustainable and technology led growth.

    What is CHAKRA?

    • CHAKRA stands for Centre of Excellence for financing sunrise sectors
    • An institutional platform by SBI to build sector specific expertise
    • Aims to improve flow of capital, risk assessment, and innovative financing
    • Focus on capital intensive, future oriented industries

    Sunrise Sectors Covered

    • Renewable Energy (RE)
    • Advanced Cell Chemistry and Battery Storage
    • Data Centre Infrastructure
    • Smart Infrastructure
    • Electric Mobility
    • Green Hydrogen
    • Semiconductors
    • Decarbonisation

    Investment Significance

    • These sectors together require nearly Rs 100 lakh crore investment over five years
    • Expected to be key drivers of India’s economic future

    Key Features of CHAKRA

    • Supports specialised project financing structures
    • Strengthens risk evaluation for emerging technologies
    • Facilitates co financing and foreign capital inflows
    • Enables engagement with DFIs, multilateral agencies, banks, NBFCs, start ups, academia, and policy think tanks

    International and Institutional Partnerships

    • SBI has signed MoUs with around 21 financing institutions
    • Project finance teams to be co located at SBI CHAKRA
    • Major foreign partners include MUFG and Sumitomo Mitsui Banking Corporation
    • Helps mobilise international debt capital and expertise
    [2023] With reference to green hydrogen, consider the following statements: 1. It can be used directly as a fuel for internal combustion. 

    2. It can be blended with natural gas and used as fuel for heat or power generation. 

    3. It can be used in the hydrogen fuel cell to run vehicles.

    How many of the above statements are correct? 

    (a) Only one (b) Only two (c) All three (d) None