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Subject: Economics

  • India Post’s DHRUVA Framework

    Why in the News?

    Department of Posts has proposed the Digital Hub for Reference and Unique Virtual Address (DHRUVA) as a Digital Public Infrastructure (DPI), supported by a draft amendment to the Post Office Act, 2023.

    What is DHRUVA?

    DHRUVA stands for Digital Hub for Reference and Unique Virtual Address. It aims to standardise and digitally share physical addresses through virtual labels similar to email IDs.

    Nature

    Digital Public Infrastructure (DPI) similar to Aadhaar and UPI. Based on consent based address sharing.

    Key Components

    • Digital Label: Proxy address like name@dhruva instead of full physical address.
    • DIGIPIN: 10 digit alphanumeric geo coded location pin developed by India Post.
    • Coverage: Every 12 square metre area in India has a unique DIGIPIN.

    Institutional Ecosystem

    • Address Service Providers: Generate virtual address labels.
    • Address Validation Agencies: Authenticate address information.
    • Address Information Agents: Manage user consent and sharing.
    • Governing Entity: NPCI like body to oversee the framework.

    How It Works

    • User authorises sharing of the virtual address label.
    • Platform receives descriptive address and geo coded DIGIPIN.
    • Ensures controlled access to address data.

    Major Use Cases

    • Logistics and delivery services.
    • E commerce platforms and gig economy platforms.
    • Consent based data sharing of addresses.
    • Seamless address updates during relocation.
    • Service discovery for doorstep services.

    Importance

    • Improves last mile delivery, especially in rural areas.
    • Reduces errors from incomplete or informal addresses.
    • Enhances user control over personal address data.

    Concerns and Criticism

    • Relies on personal data and user consent, unlike structure based address systems used globally.
    • May create incomplete datasets for urban planning if consent is denied.
    • Needs clear legislative backing.

    Associated Initiative

    • DIGIPIN: Open sourced, location coordinate based addressing system by India Post.

    Relevant Law

    • Post Office Act, 2023 and its proposed amendment.

    Prelims Pointers

    • DHRUVA proposed by Department of Posts.
    • DIGIPIN is location based, not a traditional PIN code.
    • DHRUVA links addresses to individuals, not surveyed structures.
    • Consent framework is the core feature.
    Consider the following: (2022)

    1. Aarogya Setu 

    2. CoWIN 

    3. DigiLocker 

    4. DIKSHA 

    Which of the above are built on top of open-source digital platforms? 

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

  • New Insurance Bill: Major reforms it seeks to bring

    Introduction

    The Union Cabinet has approved the Insurance Laws (Amendment) Bill, 2025 to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the IRDAI Act, 1999. The Bill seeks to modernise regulation, attract global capital, strengthen insurer solvency, and improve consumer protection. However, dilution or exclusion of critical reforms, such as composite licensing, has limited its transformative potential.

    Why in the News?

    The Bill proposes raising the Foreign Direct Investment (FDI) limit in insurance companies from 74% to 100% for the first time. This represents a decisive shift from partial foreign ownership to full foreign control in a strategically sensitive financial sector. 

    Core Reforms Introduced by the Bill

    Foreign Capital Liberalisation

    1. FDI expansion: Raises foreign ownership limit from 74% to 100%, enabling complete foreign control.
    2. Capital inflow facilitation: Enables insurers to access long-term global capital for solvency strengthening.
    3. Operational impact: Supports advanced underwriting, digital claims processing, and risk analytics.

    Regulatory Powers and Enforcement

    1. Enhanced IRDAI authority: Expands powers to impose penalties, recover illegal gains, and regulate intermediaries.
    2. Punitive alignment: Brings enforcement powers closer to SEBI-style regulatory deterrence.
    3. Market discipline: Ensures compliance through predictable penalty criteria.

    Operational Flexibility for Insurers

    1. LIC expansion: Permits LIC to enter new lines of business without prior government approval.
    2. Administrative efficiency: Reduces approval delays and improves market responsiveness.
    3. Global alignment: Enables LIC to align with regulatory norms of international markets.

    Capital and Solvency Norm Reforms

    1. Reduced capital threshold: Lowers minimum paid-up capital for new insurers.
    2. Risk-based approach: Facilitates entry of niche and region-specific insurers.
    3. Competition enhancement: Encourages diversification in products and pricing.

    Reinsurance and Risk Distribution

    1. Lower retention limits: Reduces compulsory retention of premium within India.
    2. Global reinsurance access: Facilitates risk diversification through international reinsurers.
    3. Market depth: Broadens reinsurance participation in catastrophe and health insurance.

    Key Proposals Missing or Diluted

    Composite Licensing Exclusion

    1. Licensing rigidity: Retains separation between life and general insurance businesses.
    2. Cost inefficiency: Prevents bundled insurance products under a single entity.
    3. Global mismatch: Diverges from international insurance market practices.

    Captive Insurance Silence

    1. Regulatory omission: No provision for captive insurers despite global demand.
    2. Corporate disadvantage: Limits cost optimisation for large firms managing complex risks.
    3. Missed competitiveness: Reduces India’s attractiveness as an insurance domicile.

    Product and Distribution Constraints

    1. Limited cross-selling: Restricts insurers from offering mutual funds, loans, or credit cards.
    2. Revenue limitation: Constrains diversification of income streams.
    3. Consumer integration gap: Prevents one-stop financial service platforms.

    Sectoral Impact Assessment

    Insurance Market Structure

    1. Market expansion: Likely entry of foreign insurers and niche domestic players.
    2. Competitive pressure: Improves product variety and pricing efficiency.

    Policyholder Outcomes

    1. Service quality: Enhances claims efficiency and underwriting sophistication.
    2. Coverage expansion: Supports insurance access for underserved populations.

    Regulatory Architecture

    1. Stronger oversight: Reinforces IRDAI’s supervisory role.
    2. Structural incompleteness: Retains fragmentation in licensing and product design.

    Conclusion

    The Insurance Laws (Amendment) Bill, 2025 advances liberalisation through higher FDI limits, enhanced regulatory powers, and greater operational flexibility, strengthening capital availability and market efficiency in the insurance sector. However, the absence of deeper structural reforms, such as composite licensing and integrated regulation, limits its transformative impact, underscoring the need for a coherent, convergence-oriented regulatory framework to support long-term financial sector stability and inclusion.

    PYQ Relevance

    [UPSC 2013] The product diversification of financial institutions and insurance companies, resulting in overlapping of products and services strengthens the case for the merger of the two regulatory agencies, namely SEBI and IRDA.

    Linkage: The Insurance Laws (Amendment) Bill, 2025 expands and diversifies insurance products, increasing overlap with capital market instruments regulated by SEBI. This directly aligns with the UPSC question examining whether such product convergence justifies closer coordination or merger of SEBI and IRDAI to address regulatory fragmentation.

  • [13th December 2025] The Hindu OpED: The Indian Ocean as cradle of a new blue economy

    PYQ Relevance

    [UPSC 2022] What are the maritime security challenges in India? Discuss the organizational, technical and procedural initiatives taken to improve the maritime security.

    Linkage: This question aligns with the article’s argument that maritime security now includes ocean governance, ecosystem degradation, and IUU fishing, beyond naval or territorial concerns.It reflects the article’s “security through sustainability” lens.

    Introduction

    The Indian Ocean has historically shaped global trade, civilizations, and maritime norms. India’s early advocacy during the UNCLOS negotiations to treat areas beyond national jurisdiction as the “common heritage of mankind” laid the normative foundation for today’s ocean governance debates. Half a century later, climate change, biodiversity loss, and unregulated exploitation have intensified pressures on marine ecosystems. The article argues that India now carries both opportunity and responsibility to lead a new Blue Economy paradigm rooted in stewardship, resilience, and inclusive growth.

    Why in the News?

    The article gains significance amid the BBNJ Agreement (2023), renewed focus on Blue Economy financing, and India’s expanding role in Indian Ocean governance following UNCLOS negotiations and recent UN Ocean Conferences. For the first time, the Indian Ocean is being projected not merely as a geopolitical theatre but as a laboratory for sustainability, climate resilience, and equitable growth. This marks a shift from security-centric maritime approaches toward ecosystem-based ocean governance. 

    Reimagining the Indian Ocean Blue Economy

    Normative Foundations of India’s Ocean Vision

    1. Common Heritage Principle: Positions the Indian Ocean as a shared global commons rather than a contested geopolitical space.
    2. Continuity of Leadership: Builds on India’s early UNCLOS advocacy for equity and fairness in ocean governance.
    3. Shift in Maritime Thinking: Reframes oceans from extractive zones to sustainability laboratories.

    What is the Blue Economy?

    1. Sustainable Ocean-Based Economic Model: Integrates economic use of ocean resources with long-term conservation of marine ecosystems.
    2. Human-Ocean Balance: Aligns livelihoods, trade, and development with ecological thresholds and regeneration capacity.
    3. Global Commons Perspective: Treats oceans as shared resources requiring collective governance rather than unilateral exploitation.

    How the Blue Economy Differs from Past Interpretations

    From Extraction to Stewardship

    1. Earlier Approach: Focused on maximum extraction of fisheries, offshore hydrocarbons, and seabed minerals.
    2. Blue Economy Shift: Prioritises ecosystem health, biodiversity protection, and regulated resource use.

    From Sectoral Growth to Integrated Planning

    1. Earlier Approach: Treated shipping, fishing, energy, and tourism as isolated sectors.
    2. Blue Economy Shift: Integrates marine sectors through ecosystem-based and spatial planning frameworks.

    From Security-Centric Oceans to Sustainability-Centric Oceans

    1. Earlier Approach: Viewed oceans primarily as strategic spaces for naval dominance and sea-lane protection.
    2. Blue Economy Shift: Redefines maritime security to include climate resilience, coastal livelihoods, and ocean health.

    From Short-Term Gains to Intergenerational Equity

    1. Earlier Approach: Emphasised immediate economic returns with limited concern for long-term impacts.
    2. Blue Economy Shift: Embeds intergenerational equity and long-term resilience into ocean governance.

    From National Control to Cooperative Governance

    1. Earlier Approach: Prioritised sovereign exploitation within EEZs.
    2. Blue Economy Shift: Strengthens multilateralism through UNCLOS, BBNJ Agreement, and regional cooperation mechanisms.

    Why This Shift Matters for India and the Indian Ocean?

    1. Climate Vulnerability: Indian Ocean region faces disproportionate exposure to sea-level rise and extreme weather.
    2. Livelihood Dependence: Millions depend on marine resources for food security and employment.
    3. Strategic Leadership: Enables India to lead through norms, sustainability, and inclusive regional partnerships rather than power projection.

    Stewardship as the First Pillar

    1. Ecosystem Restoration: Prioritises biodiversity protection, habitat conservation, and sustainable fisheries management.
    2. Regulated Resource Use: Counters illegal, unreported, and unregulated (IUU) fishing undermining livelihoods and food security.
    3. Shared Ocean Ethic: Positions India as a trustee rather than a dominant maritime power.

    Resilience in a Climate-Stressed Ocean Basin

    1. Climate Vulnerability: Indian Ocean houses over one-third of humanity and includes some of the most climate-exposed regions.
    2. Adaptation Imperative: Strengthens preparedness against sea-level rise, extreme weather, and ecosystem collapse.
    3. Regional Cooperation: Supports small island developing states through technology transfer and capacity building.

    Inclusive Growth and the Blue Economy

    1. Equitable Prosperity: Extends economic benefits to all littoral states, not just major powers.
    2. Green Sectors: Advances green shipping, offshore renewable energy, and sustainable marine biotechnology.
    3. Livelihood Protection: Links marine conservation with coastal employment and social stability.

    Financing the Blue Economy Transition

    1. Global Financial Momentum: Finance in Common Ocean Coalition mobilised $8.7 billion in commitments.
    2. Public-Private Synergy: Balances public pledges ($5.7 billion) and private investment ($2.5 billion).
    3. Institutional Architecture: Converts ocean pledges into implementable projects through MDBs and philanthropy.

    Security Through Sustainability

    1. Expanded Security Concept: Redefines maritime security beyond navigation and sea lanes.
    2. Ecosystem-Security Link: Addresses IUU fishing, coral degradation, and coastal erosion as security threats.
    3. SAGAR Doctrine: Anchors India’s maritime strategy in “Security and Growth for All in the Region.”

    Multilateralism and Global Ocean Governance

    1. BBNJ Agreement: Establishes governance for biodiversity beyond national jurisdiction.
    2. UNCLOS Continuity: Reinforces rule-based maritime order.
    3. Equity Focus: Integrates climate finance, technology access, and capacity building for developing states.

    India’s Diplomatic Responsibility in the IOR

    1. Leadership with Restraint: Emphasises stewardship over dominance.
    2. Consultative Approach: Aligns India’s diplomacy with shared prosperity.
    3. Global Messaging: Positions the Indian Ocean as a model for cooperative global commons governance.

    Conclusion

    The Indian Ocean is no longer merely a strategic maritime space but a critical global commons where climate stress, ecological degradation, and development aspirations intersect. India’s approach, grounded in stewardship, sustainability, and inclusive growth, positions the Blue Economy as a pathway to secure oceans through resilient ecosystems and cooperative governance. By aligning UNCLOS principles, the BBNJ framework, and the SAGAR vision, the article underscores that the future stability of the Indian Ocean and its prosperity will depend on security rooted in sustainability rather than dominance.

  • Savings shift reshapes India’s markets

    Introduction

    India’s markets are being reshaped by a decisive movement from volatile foreign capital to sticky domestic savings. Mutual funds, SIPs, and household equity ownership are expanding rapidly, providing stability. But they also reveal problems linked to market asymmetry, inexperienced investors, uneven access, promoter dominance, and structural vulnerabilities. The issue is now central to India’s economic trajectory as the country moves toward Viksit Bharat 2047.

    Why in the news?

    India’s equity markets have reached a turning point as domestic household savings now overshadow foreign institutional flows, marking the largest shift in market behaviour in years. SIPs continue hitting record highs, household equity ownership has reached ₹2.6 lakh crore, and over 1 lakh crore raised this fiscal through IPOs. Yet this boom masks rising risks, making it a defining moment for investor protection and financial governance.

    How is domestic money reshaping India’s markets?

    1. Rise of domestic inflows: Household savings, SIPs, and direct retail investments now comprise nearly 19% of the market, rising consistently even as FPI flows decline.
    2. Record equity ownership: Households’ net equity wealth grew to ₹2.6 lakh crore, reducing dependence on volatile foreign capital.
    3. Lower FPI share: FPI ownership has fallen to a 15-month low, shifting market stability foundations from external to internal investors.
    4. Policy spillover: Lower inflation, RBI’s monetary stance, and reduced FPI volatility allow India to prioritise consumption-led growth over external vulnerability.

    What explains the boom in India’s primary markets?

    1. Strong domestic confidence: Primary market fundraising crossed ₹1 lakh crore, aligning with new retail enthusiasm.
    2. High retail participation: Retail share of IPO applications rose to over 7%, showing deeper democratization of access.
    3. High valuation appetite: Companies like Lenskart and Nykaa drew investors despite expensive valuations.
    4. Promoter behaviour as signal: Promoter holdings in NIFTY 50 at a 23-year low of 40%, raising questions on whether selling reflects real capital raising or opportunistic exits.

    Why are structural risks rising despite more participation?

    1. Performance problem: More activity does not guarantee better returns, especially for new investors entering during market highs.
    2. Unequal outcomes: Loss concentration among inexperienced investors undermines long-term trust.
    3. Access asymmetry: Limited access to low-cost passive funds, low indexing literacy, and inadequate disclosures weaken investor protection.
    4. Volatility exposure: New investors face market corrections without adequate safeguards or financial education.

    What issues stem from unequal participation and distribution?

    1. Wealth concentration: Financial returns skewed toward higher-income groups widen inequality.
    2. Market capture: A small segment of active managers disproportionately influences market outcomes.
    3. IPO valuation asymmetry: Over-enthusiasm coupled with limited financial capability poses downside risks to retail wealth.
    4. Regional inequality: Lack of location-specific strategies excludes women and underrepresented groups from financial markets.

    How can India strengthen investor protection and market stability?

    1. Fixing access asymmetry: Better disclosure norms, low-fee passive investing, and indexing education are essential.
    2. Regulatory nudges: Incentivising low-cost funds and transparent product design protects everyday investors.
    3. Deep structural reforms:
      1. Strengthening promoter governance
      2. Ensuring capital raising reflects business expansion
      3. Disincentivising opportunistic disinvestment
    4. Targeted inclusion: Gender- and region-specific interventions can bridge participation gaps and widen financial deepening.

    Conclusion

    India’s market shift toward domestic savings presents both opportunity and risk. Stability rises when markets rely less on foreign capital, but without strong investor protection, transparency, and inclusive access, democratization may turn into vulnerability. For India’s financial deepening and long-term economic resilience, governance reforms, structured investor education, and asymmetry correction must accompany rising participation.

    PYQ Relevance

    [UPSC 2017] Among several factors for India’s potential growth, the savings rate is the most effective one. Do you agree? What are the other factors available for growth potential? 

    Linkage: Rising domestic household savings reshaping India’s capital markets directly connects to the role of savings in economic growth, stability, and financial deepening.

  • ‘Your Money, Your Right’ Movement  

    Why in the News?

    The Prime Minister recently urged citizens to actively participate in the ‘Your Money, Your Right’ movement, a national initiative to help people reclaim their unclaimed financial assets.

    About the Movement

    • Launched by the Central Government in October 2025.
    • Objective: Enable citizens to locate and recover unclaimed deposits, insurance proceeds, dividends, mutual fund amounts, and other financial assets.

    Scale of Unclaimed Funds in India

    • Banking sector: Rs 78,000 crore unclaimed.
    • Insurance companies: Rs 14,000 crore unclaimed.
    • Mutual funds: Rs 3,000 crore unclaimed.
    • Dividends: Rs 9,000 crore unclaimed.
    • Deposits lying idle for 10 years or more are classified as unclaimed deposits.

    Dedicated Portals for Easy Access

    • Unclaimed bank deposits
       • Regulatory Body: Reserve Bank of India
       • Portal: UDGAM Portal
    • Unclaimed insurance proceeds
       • Regulatory Body: Insurance Regulatory and Development Authority of India
       • Portal: Bima Bharosa Portal
    • Unclaimed mutual fund amounts
       • Regulatory Body: Securities and Exchange Board of India
       • Portal: MITRA Portal
    • Unpaid dividends and unclaimed shares
       • Regulatory Body: Ministry of Corporate Affairs
       • Portal: IEPFA Portal
    Pradhan Mantri Jan-Dhan Yojana’ has been launched for (2015)

    (a) providing housing loan to poor people at cheaper interest rates 

    (b) promoting women’s Self-Help Groups in backward areas 

    (c) promoting financial inclusion in the country 

    (d) providing financial help to the marginalized communities

  • Is India’s 8.2% growth rate sustainable?

    Introduction

    India’s growth figures highlight strong quarterly momentum driven by manufacturing revival, domestic demand, and fiscal support. However, the sustainability of this growth depends on addressing long-standing structural bottlenecks, improving capital productivity, widening the export base, and navigating global volatility.

    Why in the News? 

    India’s GDP surged 8.2% to ₹84.8 lakh crore, placing the economy on a significantly higher productivity trajectory and projecting post-pandemic momentum. The IMF has assigned India a “Grade C” rating, warning that despite strong quarterly numbers, structural weaknesses, low private investment, weak export engine, uneven manufacturing recovery, and demand imbalances, could undermine long-term growth stability. This contrast between record headline growth and deep structural fragilities makes the issue critical for policymakers and analysts.

    What Is Driving the Current Growth Momentum?

    1. Higher GDP Output: Reflects strong post-pandemic momentum and productivity shift highlighted by the jump to ₹84.8 lakh crore output.
    2. Manufacturing Uptick: Growth driven by industrial demand, base effects, and sectors like construction (growing at 9.9%).
    3. GVA Expansion: ₹83.4 lakh crore GVA, driven by agriculture, industry, and services, with increased value addition.
    4. Investment-Led Trends: Fixed capital formation rising, indicating capacity expansion and infrastructure push.
    5. Private Consumption Boost: Supported by fiscal measures, higher rural incomes, and improved sentiment.

    What Explains the Strength in Sectoral Performance?

    1. Industrial Revival: Manufacturing and construction displayed a significant rebound after years of sluggishness.
    2. Services Resilience: High-growth areas include trade, transportation, communication, and financial services.
    3. Electricity & Utilities: Strong 4% growth driven by improved output and demand.
    4. Export-Linked Sectors: Remain subdued due to uncertain global markets.

    What Are the Structural Weaknesses Behind the Headline Growth?

    1. Private Investment Weakness: Corporate balance sheets show improved profits, but capacity expansion remains limited.
    2. Low Export Competitiveness: India’s export growth remains inadequate, weakening long-term sustainability.
    3. Agricultural Stress: Rural sector faces weather volatility, erratic monsoons, and stagnant productivity.
    4. Employment Concerns: Growth not accompanied by proportionate labour productivity improvements.
    5. Demand Imbalances: High-income consumption rising faster than mass consumption.

    What Do IMF’s “Grade C” Red Flags Indicate?

    1. Growth Quality Concerns: Strong numbers, but capital formation, labour productivity, and structural depth remain weak.
    2. Sustainability Risks: Fiscal burden, external shocks, and global volatility challenge long-term growth.
    3. Macro Vulnerabilities: Uneven export engine and high dependence on domestic demand.
    4. Policy Gaps: Need for reforms in taxation, industrial competitiveness, and labour markets.

    How Do Global Headwinds Affect India’s Growth Outlook?

    1. Trade Protectionism: Affects export-driven sectors such as textiles, electronics, and engineering goods.
    2. Geopolitical Tensions: Disrupt supply chains and energy markets, raising import bills.
    3. Oil Price Uncertainty: High import dependence makes India vulnerable to price shocks.
    4. Financial Volatility: Impacts FPI flows, exchange rates, and corporate borrowing.

    Conclusion

    India’s 8.2% growth demonstrates powerful economic momentum, yet it conceals vulnerabilities in investment, exports, productivity, and sectoral balance. For growth to remain sustainable, India must transition from cyclical recovery to structural transformation, anchored in manufacturing competitiveness, export diversification, resilient agriculture, and robust private investment.

    PYQ Relevance

    [UPSC 2021] Do you agree that the Indian economy has recently experienced V-shaped recovery? Give reasons in support of your answer. 

    Linkage: This PYQ aligns with the article’s theme of strong headline growth masking deeper structural weaknesses and questioning the quality of recovery. It allows analysis of base effects, uneven sectoral revival, and sustainability concerns highlighted by the IMF’s Grade-C assessment.

  • Unified Payments Interface (UPI)

    Why in the news?

    An IMF report has recognized UPI as the worlds largest real time retail fast payment system by transaction volume. As per ACI Worldwide (Prime Time for Real Time 2024), UPI accounts for about 49 percent of global real time payment transactions.

    Note: UPI accounts for 85% of all digital payments within India.

    Key Facts

    • Global leadership
    • India: 129.3 billion transactions
    • 49 percent share of global real time payment volume
    • Followed by: Brazil 14 percent, Thailand 8 percent, China 6 percent and South Korea 3 percent
    • Developed by National Payments Corporation of India (NPCI)
    • Regulatory oversight Reserve Bank of India and Ministry of Finance support policy push
    • Government support initiatives
      • Incentive scheme for low value BHIM UPI transactions
      • PIDF (Payments Infrastructure Development Fund) for merchant infrastructure in Tier 3 to 6 areas
      • Expansion of RuPay UPI acceptance across transport, ecommerce, and public services

    Infrastructure Growth: 5.45 crore digital touch points deployed through PIDF in Tier 3 to 6 centers (as of Oct 2025)

    • 56.86 crore QR codes deployed to approx 6.5 crore merchants (FY 2024-25)
    Which one of the following links all the ATMs in India? (2018)

    (a) Indian Banks’ Association 

    (b) National Securities Depository Limited 

    (c) National Payments Corporation of India 

    (d) Reserve Bank of India

  • Why the rupee has a capital account problem

    Why in the news

    The rupee’s recent fall is not driven by a widening current account deficit, as traditionally believed, but by an unprecedented decline in net foreign capital inflows, which have turned sharply negative for the first time in years. During April-September 2025, India saw a net outflow of $7.6 billion, a stark reversal from the $25.3 billion net inflow in the same period of 2024. This contrast signals a structural shift where India’s strong services surplus can no longer offset the sharp rise in the goods deficit alongside shrinking foreign investments, making this a serious macroeconomic turning point

    Introduction

    India’s external sector is undergoing a structural change where the merchandise trade deficit continues to expand, the invisibles surplus remains strong, but the capital account, especially foreign investment inflows, has weakened significantly. As a result, the rupee’s pressure today arises primarily from capital account weakness, not the current account alone, reshaping India’s macroeconomic stability narrative.

    Why is India’s current account under persistent pressure?

    1. Widening Merchandise Trade Deficit: India’s goods trade deficit more than doubled from $91.5 bn (2007-08) to $191 bn (2022-23) and is expected to cross $300 bn in 2024-25.
    2. Strong but Insufficient Invisibles Surplus: Remittances, software exports and professional services push invisibles surplus to record highs, yet not enough to neutralise the merchandise gap.
    3. Sticky Imports & Slow Exports: Energy, electronics, and gold imports remain elevated; global demand conditions weaken export earnings.

    How have invisibles cushioned the external sector so far?

    1. Record Remittances: Private transfers and remittances remain robust—India continues as a top global recipient.
    2. Soaring Software & IT Services Surplus: Services exports support the current account and contribute to India’s “invisible strength.”
    3. Investment Income Outflows: Rising payments on interest/dividends reduce the net benefit of the invisibles surplus.

    What explains India’s capital account problem today?

    1. Sharp Fall in Net Capital Inflows: April-September 2025 saw $7.6 bn net outflow vs $25.3 bn inflow in 2024, the biggest recent reversal.
    2. Weakening Foreign Investment: FDI inflows into new factories, infrastructure, and physical assets have dropped sharply.
      1. FDI: $43 bn (2020-21), $22 bn (2022-23),  $8 bn (2023-24) till December.
    3. Portfolio Flows Turning Volatile: FY23-24 saw equity outflows of $23 bn, reversing the earlier inflow phase.
    4. India’s Relative Growth Advantage Narrowing: High global interest rates and stronger USD attract capital away.

    Why does the rupee weaken despite manageable CAD?

    1. Capital Outflows Overpower CAD Position: Even a moderate CAD becomes hard to finance when capital inflows dry up.
    2. Pressure from USD Shift: Rupee slid from ₹83.47 to ₹89.39 per USD within the year as yen, won, and yuan also weakened.
    3. Financing Gap: CAD remains dependent on capital inflows, weak capital flows lead to excess demand for foreign currency.

    What are the macroeconomic consequences of the capital account strain?

    1. External Financing Stress: Lower FDI and portfolio inflows reduce India’s ability to fund domestic growth.
    2. Exchange Rate Volatility: Persistent rupee pressure increases import costs, especially energy and intermediate goods.
    3. Growth Impact: Rupee weakness raises inflationary pressures and complicates monetary policy management.
    4. Policy Trade-offs: RBI must balance FX stability, inflation control, and capital flow management.

    CONCLUSION

    India’s external account stresses now stem less from trade imbalances and more from capital inflow shortages. A resilient services surplus continues to stabilise the CAD, but declining foreign investments, both FDI and portfolio, expose the currency to sharper volatility. Addressing this requires strengthening domestic manufacturing competitiveness, improving investment climate, and ensuring predictable macroeconomic policies that reclaim India’s attractiveness for global capital.

    UPSC Relevance

    [UPSC 2021] Do you agree that the Indian economy has recently experienced V-shaped recovery? Give reasons in support of your answer.

    Linkage: Capital account inflows, forex stability, and investment revival are key determinants of macroeconomic recovery. The article’s data on shrinking capital inflows and rupee pressures directly challenge the sustainability of a V-shaped path.

  • PMFME Scheme 

    Why in the news?

    As of 31 October 2025, the Pradhan Mantri Formalisation of Micro Food Processing Enterprises (PMFME) Scheme has expanded rapidly nationwide.

    Latest Achievements

    • 1,62,744 loans sanctioned under credit-linked subsidy
    • 3,65,935 SHG members approved for seed capital assistance
    • Infrastructure support approvals:
      • 101 Common Infrastructure Facility proposals
      • 76 Incubation centers
      • 27 proposals for Branding and Marketing support

    Objective of PMFME

    To formalize and enhance the competitiveness of micro food processing enterprises in India through:

    • Credit support
    • Skill development
    • Market linkages
    • Infrastructure and branding assistance

    Features

    • Promotes Atmanirbhar Bharat and food processing entrepreneurship
    • Focus on women, SC/ST, and rural micro units
    • Supports ODOP (One District One Product) approach for product specialization
    • Capacity building through technical and entrepreneurial training

    UPSC Notes

    • Implemented by: Ministry of Food Processing Industries (MoFPI)
    • Launched under: Atmanirbhar Bharat Abhiyan in 2020
    • Targets 2 lakh micro food processing units for formalisation
    How does the National Rural Livelihood Mission seek to improve livelihood options of rural poor? (2012)

    1. By setting up a large number of new manufacturing industries and agri-business centres in rural areas 

    2. By strengthening ‘Self-Help Groups’ and providing skill development 

    3. By supplying seeds, fertilizers, diesel pump-sets, and micro-irrigation equipment free of cost to farmers 

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

  • Raajmarg Infra Investment Trust (RIIT) – NHAI Public InvIT

    Why in the news?

    SEBI has granted in-principle approval to National Highways Authority of India (NHAI) for registering Raajmarg Infra Investment Trust (RIIT) as an Infrastructure Investment Trust (InvIT) under SEBI (InvIT) Regulations, 2014. It will support asset monetisation of national highways.

    What is an InvIT

    • A collective investment structure similar to REITs but for infrastructure
    • Allows ownership of income-generating infrastructure assets
    • Investors receive regular returns from toll/usage revenues
    • Regulated by SEBI

    About RIIT

    • Sponsored by NHAI
    • Part of NHAI’s Public InvIT strategy to attract wider retail and domestic participation
    • Operated through Raajmarg Infra Investment Managers Pvt Ltd (RIIMPL)
    • RIIMPL ownership: SBI, PNB, NaBFID, Axis Bank, Bajaj Finserv Ventures, HDFC Bank, ICICI Bank, IDBI Bank, IndusInd Bank, Yes Bank

    InvITs and SARFAESI Act, 2002

    Infrastructure Investment Trusts (InvITs) are considered borrowers under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

    What this means

    • When InvITs raise debt from banks or financial institutions, the lenders receive enforceable security
    • If InvITs default on repayment, lenders can:
      • Take over the secured assets
      • Manage or sell the assets to recover dues
      • Enforce security interest without court intervention

    SEBI (Infrastructure Investment Trusts) Regulations, 2014

    Objective
     To provide a regulated framework for pooling funds from investors into revenue-generating infrastructure assets and ensure transparency, investor protection, and efficient monetization.

    Key Features

    • Sponsors, Trust, Trustee, Investment Manager as major participants
    • InvITs can own completed or under-construction infrastructure projects
    • Public InvITs must be listed on stock exchanges
    • Mandatory regular distribution of income to unit holders (at least 90 percent of net distributable cash flow)
    • Minimum 80 percent of the value of assets must be in completed and operational projects for publicly listed InvITs
    • Leverage limits specified to maintain financial stability
    Consider the following statements : (2023)

    Statement-I : Interest income from the deposits in Infra-structure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable. 

    Statement-II : InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’. 

    Which one of the following is correct in respect of the above statements? 

    (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I 

    (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I 

    (c) Statement-I is correct but Statement-II is incorrect 

    (d) Statement-I is incorrect but State-ment-II is correct