💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Economics

  • RBI Announces ₹1 Trillion OMO Purchase

    Why in the News?

    The Reserve Bank of India announced a ₹1 trillion Open Market Operation purchase along with a 5 billion dollar rupee swap to inject durable liquidity into the banking system amid rupee weakness beyond 90 per dollar and foreign capital outflows.

    What is an Open Market Operation Purchase

    • An OMO purchase is when the RBI buys government securities from banks and financial institutions
    • Objective is to inject durable and long term liquidity into the financial system
    • Leads to an increase in bank reserves and eases short term interest rates

    Purpose of OMO Purchases

    • Inject durable liquidity into the banking system
    • Improve monetary policy transmission so lending rates align with repo rate changes
    • Stabilise money market rates such as the Weighted Average Call Rate
    • Support financial stability during periods of currency and capital flow stress

    Significance of the Recent OMO

    • Offsets rupee liquidity drain caused by foreign portfolio outflows
    • Supports monetary transmission during external sector stress
    • Prevents sharp spikes in government bond yields
    • Strengthens lending capacity of banks for businesses and households

    Prelims Pointers

    • OMO is a quantitative monetary policy tool
    • OMO purchase injects liquidity while OMO sale absorbs liquidity
    • Operation Twist reshapes the yield curve
    • Durable liquidity differs from short term tools like repo and reverse repo
    [2013] In the context of Indian economy, ‘Open Market Operations’ refers to 

    (a) borrowing by scheduled banks from the RBI 

    (b) lending by commercial banks to industry and trade 

    (c) purchase and sale of government securities by the RBI 

    (d) None of the above

  • Electronics Components Manufacturing Scheme 

    Why in the News?

    The Ministry of Electronics and Information Technology approved 22 additional projects under the Electronics Components Manufacturing Scheme involving an investment of ₹41,863 crore.

    About Electronics Components Manufacturing Scheme

    • A flagship incentive scheme to promote domestic manufacturing of electronic components, sub assemblies and capital equipment
    • Implemented by the Ministry of Electronics and Information Technology
    • Aims to reduce import dependence in India’s electronics sector

    Target Segments

    • Printed Circuit Boards, Camera modules, Copper clad laminates, Polypropylene films and Electronics capital equipment.

    Performance Linked Features

    • Incentives linked to incremental production
    • Employment generation based payouts
    • Early movers receive higher benefits

    Strategic Manufacturing Targets

    • 100 percent domestic demand for copper clad laminates
    • 20 percent domestic demand for printed circuit boards
    • 15 percent domestic demand for camera modules

    Ecosystem Linkages

    • Complements Production Linked Incentive Scheme for Electronics
    • Supports India Semiconductor Mission
    • Strengthens the electronics manufacturing ecosystem

    Prelims Pointers

    • ECMS focuses on electronics components rather than finished products
    • Copper clad laminates are critical for PCB manufacturing
    • Scheme uses performance based incentives
    • Electronics manufacturing is a priority sector under Atmanirbhar Bharat
    [2023] Consider the following statements: 

    Statement-I: India accounts for 3.2% of global exports of goods. 

    Statement-II: Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-linked Incentive’ scheme. 

    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 Statement-II is correct

  • Land Acquisition and Infrastructure Development 

     Why in the News?

    At the 50th meeting of PRAGATI, the Cabinet Secretary highlighted land acquisition as a major bottleneck in infrastructure development. The meeting was chaired by Narendra Modi.

    About PRAGATI (Pro Active Governance and Timely Implementation)

    • A digital and institutional mechanism for monitoring major infrastructure projects
    • Chaired by the Prime Minister
    • Ensures coordination among Central Ministries, State governments and local authorities
    • Focuses on expediting project implementation and resolving bottlenecks

    Key Data from 50th PRAGATI Meeting

    • Total projects reviewed Over 3,300
    • Total project value Approximately ₹85 lakh crore
    • Issues raised 7,735
    • Issues resolved 7,156

    Major Causes of Project Delays

    • Land acquisition 35 percent
    • Forest, wildlife and environment clearances 20 percent
    • Right of use or right of way 18 percent
    • Other causes Law and order issues, construction delays, power utility approvals and financial constraints

    Important Observations

    • Several long pending projects initiated as early as the 1990s were completed after PRAGATI was introduced
    • Government has not quantified financial savings from timely monitoring
    • States across political lines have cooperated in resolving issues
    • Complex issues are escalated from Ministry level to PRAGATI for final resolution

    Prelims Pointers

    • PRAGATI is a Prime Minister chaired project monitoring platform
    • Land acquisition is the single largest cause of infrastructure delays in India
    • Environmental and forest clearances are the second biggest bottleneck
    • PRAGATI promotes inter ministerial and Centre State coordination
    [2019] With reference to land reforms in independent India, which one of the following statements is correct? 

    (a) The ceiling laws were aimed at family holdings and not individual holdings. 

    (b) The major aim of land reforms was providing agricultural land to all the landless. 

    (c) It resulted in cultivation of cash crops as a predominant form of cultivation. 

    (d) Land reforms permitted no exemptions to the ceiling limits.

  • Energy transition will need more than chasing the sun or the wind

    Introduction

    India’s renewable energy transition has reached a critical inflection point. While solar and wind installations have expanded rapidly, the electricity system was originally designed for centralised, predictable, fossil-based generation. Without parallel reforms in distribution companies, tariff structures, demand-side management, and wholesale power markets, the energy transition risks becoming fiscally unsustainable and operationally inefficient.

    Why in the News?

    India has crossed 180 GW of renewable energy capacity, positioning itself as a global leader in clean energy expansion. Yet, despite rapid capacity addition, there remains a systemic bottleneck: electricity distribution and market design remain unreformed. This marks a sharp contrast with earlier phases where generation capacity was the primary constraint. The problem is large in scale, state-owned DISCOMs remain financially stressed, demand response remains underutilised, and wholesale markets are fragmented, threatening grid stability as renewable penetration rises. A key success noted is the installation of nearly 40 million smart meters, but the failure lies in inadequate institutional and pricing reforms to leverage them effectively.

    Why is renewable capacity expansion no longer sufficient?

    1. Structural mismatch: The electricity grid is optimised for stable baseload power, not intermittent solar and wind generation.
    2. System constraints: Distribution networks and market rules have not evolved to manage variability and decentralised generation.
    3. Outcome: Renewable energy risks curtailment and inefficiency despite surplus capacity.

    Why are DISCOMs the central bottleneck in India’s energy transition?

    1. Financial stress: State-owned DISCOMs face persistent losses due to high fixed costs and inadequate tariff recovery.
    2. Cross-subsidisation: Agricultural and household consumers pay low tariffs, shifting the burden to commercial users.
    3. Distorted incentives: High-paying consumers invest in rooftop solar or efficiency measures, eroding DISCOM revenues further.
    4. Outcome: A feedback loop of declining revenues and rising financial risk.

    How do current tariff structures limit system efficiency?

    1. Flat and time-invariant tariffs: Consumers face no price signals to shift usage away from peak demand.
    2. Limited demand response: Consumers lack incentives to reduce or reschedule consumption during stress periods.
    3. Outcome: Peak demand continues to drive costly capacity additions instead of behavioural adjustment.

    What role do smart meters play, and why is their impact limited?

    1. Infrastructure success: Around 40 million smart meters installed, with rapid scaling underway.
    2. Unrealised potential: Absence of complementary tariff reforms limits their effectiveness.
    3. Operational constraint: Manual coordination persists despite availability of real-time data.
    4. Outcome: Smart meters remain underutilised as instruments of system flexibility.

    Why is demand-side management critical for renewable integration?

    1. Cost-effectiveness: Demand response lowers peak demand at lower cost than building new generation.
    2. System flexibility: Enables balancing of short-duration renewable fluctuations.
    3. Equity challenge: Requires protection for low-income consumers from price volatility.
    4. Outcome: Essential but politically and institutionally underdeveloped.

    What weaknesses exist in India’s wholesale power markets?

    1. Fragmentation: Majority of power procured through long-term contracts.
    2. Limited spot markets: Constrains efficient price discovery.
    3. Regulatory gaps: Centralised dispatch and market coupling remain incomplete.
    4. Outcome: Renewable power cannot flow seamlessly across regions.

    How does captive power generation affect market efficiency?

    1. Rising trend: Industries invest in captive plants to bypass high grid tariffs.
    2. Revenue erosion: Reduces DISCOM demand base.
    3. Market distortion: Limits competition in wholesale markets.
    4. Outcome: Weakens grid integration and increases system costs.

    Conclusion

    India’s clean energy transition has outgrown a generation-centric approach. The editorial underscores that distribution reform, cost-reflective pricing, demand responsiveness, and integrated power markets are no longer optional but foundational. Without these, renewable energy risks becoming economically and operationally fragile rather than transformative.

    PYQ Relevance

    [UPSC 2022] 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?

    Linkage: This question is directly relevant to GS Paper III (Energy Infrastructure and Sustainable Development) as it assesses India’s ability to translate renewable capacity targets into reliable, affordable, and inclusive energy supply.

  • Central Excise Amendment on tobacco products

    Why in the news?

    The Centre has notified the Central Excise Amendment Act 2025 along with related tax changes on tobacco products. The changes will come into force from February 1, 2026. The move ends the GST compensation cess on tobacco and revises excise duties to meet fiscal and public health goals.

    Central Excise Amendment Act 2025

    The Act amends the Central Excise Act 1944 to revise excise duties on tobacco and tobacco related products, which continue to remain outside the complete GST framework.

    Key features

    Revision of excise duties

    The Act revises central excise rates to maintain and increase the overall tax burden after the withdrawal of GST compensation cess.

    Revised excise duty rates

    • Unmanufactured tobacco increased from 64 percent to 70 percent
    • Chewing tobacco increased from 25 percent to 100 percent
    • Hookah and gudaku tobacco increased from 25 percent to 40 percent
    • Smoking mixtures for pipes and cigarettes increased from 60 percent to 325 percent
    • Cigarettes increased from ₹200 to ₹735 per thousand sticks to ₹2,700 to ₹11,000 per thousand sticks

    Public health objective

    The higher duties aim to raise real tobacco prices faster than income growth, in line with global public health recommendations to discourage consumption.

    GST restructuring on tobacco

    • Beedis placed under 18 percent GST
    • All other tobacco products placed under 40 percent GST
    • New valuation mechanism introduced
       GST value to be calculated on the retail sale price declared on the package for products such as chewing tobacco, gutkha, khaini and jarda

    GST compensation cess

    What it is

    An additional levy imposed on select goods to compensate States for revenue losses due to GST implementation.

    Key points

    • Introduced in July 2017 along with GST
    • Initially meant for five years till June 2022
    • Extended till March 31, 2026 due to pandemic related revenue shortfall
    • Used mainly to repay about ₹2.7 lakh crore borrowed to compensate States
    • Levied over and above GST and central excise on tobacco
    • Being completely phased out from February 1, 2026

    Items covered under the cess

    • Tobacco and tobacco products
    • Pan masala
    • Aerated and caffeinated drinks
    • Luxury cars
    • Motorcycles above 350 cc
    • Specified firearms

    Prelims pointers

    • Tobacco products remain partly outside the GST framework
    • Central excise continues on tobacco even after GST
    • GST compensation cess ends from February 1, 2026
    • Higher tobacco taxation serves both revenue and public health objectives
    [2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’? 

    1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India. 

    2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves. 

    3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future. 

    Select the correct answer using the code given below: 

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

  • Market Access Support (MAS) Intervention  

    Why in the News?

    The Government of India has launched the Market Access Support (MAS) Intervention under the Export Promotion Mission to strengthen global market access for Indian exporters, especially MSMEs and first time exporters.

    About Market Access Support (MAS) Intervention

    The Market Access Support (MAS) Intervention is a government backed programme providing financial and institutional support to Indian exporters for accessing and expanding international markets through structured trade and buyer engagement activities.

    Implemented Under

    • NIRYAT DISHA sub scheme
       • Export Promotion Mission (EPM)

    Implementing Ministries

    • Department of Commerce
     • Ministry of MSME
     • Ministry of Finance

    Aim

    • Strengthen global market access for Indian exporters
       • Support MSMEs, first time exporters, and priority sectors
       • Promote export diversification into new and emerging markets
       • Enable predictable, outcome driven export promotion

    Key Features

    • Market access activities: Support for Buyer Seller Meets, Mega Reverse BSMs, international trade fairs, exhibitions, and trade delegations
       • Advance planning: 3 to 5 year rolling calendar of approved events for continuity
       • MSME focus: Minimum 35 percent MSME participation in supported events
       • Financial rationalisation:
       ◦ Revised cost sharing norms
       ◦ Event wise financial ceilings
       ◦ Partial airfare support for exporters with turnover up to ₹75 lakh
       • Digital governance: End to end online processes through trade.gov.in
       • Outcome tracking: Mandatory online feedback on buyer quality, leads generated, and market relevance
       • Technology push: Upcoming support for Proof of Concepts and product demonstrations in sunrise and tech intensive sectors

    Significance

    • Enhances global competitiveness of Indian exports
       • Reduces entry barriers for MSMEs and new exporters
       • Supports India’s goal of export diversification beyond traditional markets
       • Improves market intelligence and buyer connectivity

    Prelims Pointers

    • MAS is not a direct export subsidy
       • Focus on market access, not production incentives
       • Mandatory MSME participation norm
       • Fully digitally monitored scheme
       • Linked to Export Promotion Mission
    Consider the following statements: [2023]

    Statement-I: India accounts for 3.2% of global exports of goods. 

    Statement-II: Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-linked Incentive’ (PLI) scheme. 

    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 Statement-II is correct.

     

  • Too good to last: The headwinds facing the economy are not going away soon

    Introduction

    Industrial growth in November 2025 presents a paradox. While headline numbers suggest recovery, disaggregated analysis reveals that the drivers are temporary and non-replicable. The data underscores the disconnect between short-term industrial momentum and longer-term macroeconomic constraints such as weak consumption, sluggish investment, and external pressures.

    Why in the News

    India’s Index of Industrial Production (IIP) recorded 6.7% growth in November 2025, the fastest in 25 months, with manufacturing expanding by 8%, also a 25-month high. This marked a sharp reversal from October 2025, when industrial growth fell to a 14-month low. The surge appeared significant as it coincided with rebounds in consumer durables (10.3%), non-durables (7.3%), and mining (5.4%).

    Does the November IIP surge reflect a structural turnaround?

    1. IIP Growth Spike: Recorded 6.7% growth, the fastest in 25 months, reversing October’s slowdown.
    2. Manufacturing Expansion: Grew by 8%, reflecting short-term production acceleration.
    3. Temporal Contrast: October 2025 marked a 14-month low, underscoring volatility rather than trend reversal.

    What factors drove the temporary industrial acceleration?

    1. Seasonal Restocking: Sellers replenished inventories after festive-season depletion.
    2. GST Timing Effect: Government synchronized GST rate reductions with the festive period, creating a demand spike.
    3. Inventory Rebuilding: Festive sales eroded stocks, necessitating replenishment-driven production.

    Which sectors contributed most to the November rebound?

    1. Consumer Durables: Grew 10.3%, the highest in 12 months, driven by festive purchases.
    2. Consumer Non-Durables: Expanded 7.3%, a 25-month high, reflecting short-term consumption.
    3. Mining Sector: Recorded 5.4% growth, rebounding after two months of contraction due to an extended monsoon.
    4. Electricity and Mining Sensitivity: Output remained dependent on weather conditions, limiting sustainability.

    Why is the growth unlikely to be sustained?

    1. Seasonality Constraint: Festive demand is non-recurring; next cycle only in October-November 2026.
    2. Demand Weakness: Consumer demand remains sluggish beyond seasonal effects.
    3. GST Impact Fading: Industry reports indicate the GST-led boost is already ebbing.
    4. Weather Dependence: Mining and electricity outputs remain vulnerable to climatic variability.

    What does long-term data reveal about industrial health?

    1. April-November IIP Growth: Averaged only 3.3%, the weakest in post-pandemic years.
    2. Consumer Non-Durables Contraction: Declined 1% over the same period, signalling weak mass consumption.
    3. Statistical Anomaly: November growth appears as an outlier rather than trend confirmation.

    How do macroeconomic headwinds reinforce the slowdown?

    1. RBI Growth Outlook: Q3 growth projected at 7%, down from 8% average in H1; Q4 projected at 6.5%.
    2. Trade Barriers: 50% U.S. tariffs continue to constrain export competitiveness.
    3. Investment Sluggishness: Private investment remains subdued.
    4. Capital Outflows: Foreign capital withdrawal pressures domestic liquidity.
    5. Currency Depreciation: Weak rupee raises import costs in an import-dependent economy.
    6. Real Wage Stagnation: Wage growth insufficient to support sustained consumption.

    Conclusion

    The November 2025 industrial surge masks deeper structural weaknesses. Seasonal demand, fiscal timing, and weather normalization explain the rebound, while longer-term indicators confirm persistent headwinds. Without revival in consumption, investment, and external demand, industrial growth risks remaining episodic rather than transformational

    PYQ Relevance

    [UPSC 2017]  “Industrial growth rate has lagged-behind in the overall growth of Gross-Domestic-product (GDP) in the post-reform period.” Give reasons. How far are the recent changes in Industrial-policy capable of increasing the industrial growth rate? 

    Linkage: This PYQ directly examines the structural weakness of industrial growth vis-à-vis GDP. The editorial highlights this through episodic IIP spikes without sustained demand revival.

  • [30th December 2025] The Hindu OpED: The quiet foundations for India’s next growth phase

    PYQ Relevance

    [UPSC 2013] Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard.

    Linkage: It is directly linked to GS-III industrial and MSME reforms. The article shows how compliance reduction, labour reforms, logistics and energy security support MSME-led manufacturing growth.

    Mentor’s Comment

    This article analyses the structural reforms underpinning India’s economic transition as 2025 concludes. It focuses on cumulative, process-oriented governance changes rather than headline reforms. The article evaluates how administrative simplification, legislative consolidation, logistics modernisation, energy reforms, and regulatory certainty together create conditions for sustained private investment and long-term growth.

    Introduction

    As 2025 draws to a close, India’s economic narrative is shaped less by dramatic announcements and more by incremental institutional repair. India crossed $4.1 trillion in nominal GDP, overtook Japan to become the world’s fourth-largest economy, and secured a BBB sovereign rating upgrade after 18 years, signalling durability rather than episodic growth. These developments mark a transition from reform intent to reform absorption.

    Why in the News?

    India’s reform momentum in 2025 is significant because it departs from episodic, personality-driven policy shifts towards systemic, cumulative governance correction. For the first time, reforms span the full policy cycle, legislation, administration, dispute resolution, infrastructure, and energy security, rather than isolated sectors. Over 47,000 compliances were removed, 8.29 lakh approvals processed digitally, and ₹76 lakh crore worth of projects monitored centrally, marking a structural break from discretion-heavy governance. This contrasts sharply with earlier reform phases where intent outpaced implementation. The scale of reforms addresses India’s chronic problems of regulatory uncertainty, logistics inefficiency, and capital hesitation, converting macro-stability into micro-level execution capacity.

    How is India reducing procedural friction in governance?

    1. Compliance Reduction: Eliminates over 47,000 compliances, lowering transaction costs and regulatory fatigue.
    2. Digital Approvals: Processes 8.29 lakh approvals via the National Single Window System, ensuring time-bound decision-making.
    3. Project Monitoring: Tracks 3,000+ projects valued above ₹76 lakh crore through a central monitoring group, improving execution discipline.
    4. Infrastructure Planning: Opens PM GatiShakti National Master Plan to the private sector, enabling coordinated logistics and infrastructure investments.

    How do trade agreements support export-led growth?

    1. UK FTA: Provides duty-free access and clearer mobility pathways for Indian goods, services, and skilled labour.
    2. Oman CEPA: Expands strategic trade coverage across goods, services, and investment corridors.
    3. New Zealand FTA: Extends market access to high-value economies, reinforcing India’s rule-based trade positioning.
    4. Export Scale: Records $825.25 billion in total exports (2024-25), registering over 6% annual growth.

    How is better legislation improving regulatory certainty?

    1. Statute Rationalisation: Repeals 71 obsolete laws through the Repealing and Amending Bill, 2025.
    2. Labour Code Consolidation: Merges 29 central labour laws into four codes, covering wages, industrial relations, social security, and occupational safety.
    3. Securities Reform: Strengthens SEBI’s enforcement capacity, introduces specialised market courts, and ensures time-bound grievance redressal.
    4. Investment Climate: Enhances predictability, supporting long-term portfolio and manufacturing investments.

    How is logistics reform strengthening competitiveness?

    1. Trade Dependence: Accounts for 95% of trade volume and 70% of trade value through maritime routes.
    2. Ports Act, 2025: Replaces colonial-era legislation, introduces modern governance tools, and enables state-level dispute resolution.
    3. Shipping Law Updates: Updates Merchant Shipping and Carriage of Goods Acts to align with contemporary maritime commerce.
    4. Shipbuilding Support: Approves ₹69,725 crore package, including ₹25,000 crore Maritime Development Fund.

    Why are energy reforms central to long-term growth?

    1. Hydrocarbon Reform: Introduces single petroleum lease across project lifecycle, reducing approval redundancies.
    2. Open Acreage Licensing: Offers 25 blocks covering 0.2 million sq km, expanding deepwater exploration.
    3. Energy Security: Launches National Deep Water Exploration Mission focusing on domestic capability development.
    4. Nuclear Push: Allocates ₹20,000 crore for small modular reactors under Nuclear Energy Mission.
    5. Capacity Target: Sets 100 GW nuclear capacity by 2047 and five indigenous SMRs by 2033.
    6. Grid Stability: Strengthens low-carbon baseload power availability and manufacturing resilience.

    Conclusion

    India’s recent reform trajectory underscores a move from headline announcements to steady institutional strengthening. Through regulatory simplification, labour and logistics reforms, and long-term energy investments, the economy is being positioned for sustained, investment-led and manufacturing-driven growth.

  • Passenger Assistance Control Room (PACR)  

    Why in the News?

    • To ensure faster grievance redressal for air passengers, the government has operationalised the Passenger Assistance Control Room (PACR).

    About PACR

    • Launched by the Ministry of Civil Aviation, Government of India
    • Objective: Prompt, effective and coordinated resolution of air traveller grievances

    Key Features

    • Functions as an integrated control hub at Udaan Bhawan, New Delhi
    • Brings together officials from:
      • Directorate General of Civil Aviation (DGCA)
      • Airports Authority of India (AAI)
      • Airline operators and other aviation stakeholders
    • Operates 24×7
      • Continuous monitoring of aviation operations
      • Real time passenger assistance
      • On the spot grievance coordination
    Consider the following airports: (2024) 

    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

  • [29th December 2025] The Hindu OpED: A grand vision and the great Indian research deficit

    PYQ Relevance

    [UPSC 2024] What is the present world scenario of intellectual property rights with respect to life materials? Although India is second in the world to file patents, still only a few have been commercialised. Explain the reasons behind this less commercialization.

    Linkage: This question links global debates on patenting of life forms (biotech, genes, microorganisms) with India’s weak innovation-to-market ecosystem. The article’s focus on low R&D investment, poor industry-academia linkage, risk-averse private sector directly explains why high patent filings in India do not translate into economic value.

    Mentor’s Comment

    India’s aspiration to emerge as a global economic and technological power is constrained by a persistent and structural deficit in research and development (R&D). This article examines the scale, causes, and consequences of India’s underinvestment in R&D, highlights systemic weaknesses across government, industry, and academia, and evaluates the urgency of reform to sustain India’s innovation-led growth ambitions.

    Introduction

    India stands at a critical juncture in its development trajectory, marked by demographic strength and expanding economic scale. However, this ambition is undermined by chronic underinvestment in research and development. Despite housing 17.5% of the world’s population, India accounts for only 3% of global research output and spends merely 0.6-0.7% of GDP on R&D. This structural gap threatens India’s capacity to generate high-value innovation, sustain technological leadership, and translate growth into long-term economic sovereignty.

    Why in the News?

    The issue has gained prominence due to the widening gap between India’s global ambitions and its innovation capacity. While countries such as China, the United States, and Israel invest between 2.4% and over 5% of GDP in R&D, India’s stagnation below 1% highlights a failure to prioritize research as a national mission. 

    How Large is India’s R&D Deficit?

    1. Scale of Investment: R&D expenditure remains at 0.6-0.7% of GDP, far below innovation-driven economies.
    2. Global Comparison: China spends ~2.4%, the US ~3.5%, and Israel over 5% of GDP on R&D.
    3. Corporate Benchmark: Huawei’s 2023 R&D spending of $23.4 billion exceeds India’s total national R&D outlay.
    4. Population-Output Mismatch: India holds 17.5% of global population but contributes only 3% of global research output.

    What Does Intellectual Property Data Reveal About Innovation Weakness?

    1. Patent Filings: India ranked 6th globally in patent filings in 2023 with 64,480 applications, reflecting growth momentum.
    2. Global Share: India accounted for only 1.8% of 3.55 million global patent applications.
    3. Innovation Intensity: Per-million patent filings remain low, placing India 47th globally, indicating limited population-level innovation diffusion.
    4. Structural Insight: Rising filings signal potential, but weak conversion into scalable innovation reflects systemic constraints.

    Why is the Government the Primary R&D Funder in India?

    1. Funding Composition: Government contributes ~63.6% of R&D expenditure.
    2. Private Sector Share: Industry accounts for only ~36.4%, unlike developed economies where private industry dominates.
    3. Institutional Spread: Central government, state governments, higher education institutions, and public sector units drive most R&D.
    4. Structural Outcome: Excessive public dependence limits market-oriented, disruptive, and commercially scalable research.

    Why is Private Sector Participation in R&D Limited?

    1. Investment Pattern: Industry prioritises incremental innovation over disruptive research.
    2. Technology Strategy: Preference for technology licensing over indigenous development.
    3. Risk Profile: Aversion to long-term, uncertain R&D investments.
    4. Policy Environment: Limited incentives and delayed approvals reduce private R&D appetite.

    What Explains the Academia-Industry Disconnect?

    1. Institutional Silos: Universities operate in isolation from market-driven needs.
    2. Research Orientation: Academic research remains largely theoretical.
    3. Collaboration Deficit: Weak mechanisms for joint industry-academia research projects.
    4. Comparative Gap: Unlike the US, Indian firms rarely fund university-led applied research.
    5. Innovation Flow Failure: Absence of structured pathways from laboratories to marketplaces.

    How Does Brain Drain Deepen the R&D Crisis?

    1. Human Capital Output: India produces a large number of PhDs and engineers annually.
    2. Talent Migration: Skilled researchers migrate due to better funding, infrastructure, and career prospects abroad.
    3. Domestic Constraints: Limited high-end research facilities and lower salary benchmarks.
    4. Administrative Barriers: Bureaucratic delays restrict research autonomy and efficiency.

    What Structural Bottlenecks Impede Long-Term Research?

    1. Project Approval Delays: Excessively long sanctioning timelines.
    2. Fund Release Issues: Staggered and unpredictable disbursement cycles.
    3. Execution Impact: Disrupts continuity of long-term and mission-oriented research programmes.
    4. Systemic Outcome: Weakens confidence in India’s research ecosystem.

    What is the Proposed Path Forward?

    1. National Investment Target: Raising R&D expenditure to at least 2% of GDP within 5-7 years.
    2. Fiscal Strategy: Large-scale public spending combined with tax incentives and grants.
    3. Private Sector Goal: Increasing industry share to 50% of total R&D expenditure.
    4. Institutional Reform: Launch of the ₹1 lakh crore Research Development and Innovation (RDI) Fund.
    5. Mission Orientation: Focus on semiconductors, AI, quantum computing, advanced materials, and green energy.
    6. Outcome Framework: Long-term funding with measurable national security and economic outcomes.

    What Role Must Universities Play in India’s Innovation Ecosystem?

    1. Institutional Transition: Shift from teaching-centric to research-intensive institutions.
    2. Funding Expansion: Increased support for PhD programmes and competitive research grants.
    3. Faculty Development: Creation of globally competitive research positions.
    4. Infrastructure: Investment in advanced laboratories and incubation ecosystems.
    5. Collaboration Platforms: Institutionalised industry-sponsored research chairs and innovation hubs.

    Why is Intellectual Property Culture Critical?

    1. Process Simplification: Faster patent filing and approval mechanisms.
    2. Enforcement Strengthening: Improved IP protection to incentivise innovation.
    3. Financial Incentives: Attractive returns for inventors and commercialised research.
    4. Innovation Outcome: Conversion of research outputs into economic assets.

    Conclusion

    India’s ambition to emerge as a global innovation leader cannot be realised without correcting its structural deficit in research and development. Persistently low R&D investment, excessive reliance on government funding, weak private sector participation, and a fragile academia-industry interface have limited the conversion of knowledge into marketable innovation. Unless India decisively shifts towards mission-oriented research, strengthens intellectual property culture, and creates robust pathways from laboratories to markets, its demographic and economic potential will remain underutilised. A sustained, well-governed, and adequately financed R&D ecosystem is therefore indispensable for achieving technological self-reliance and long-term economic sovereignty.