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Subject: Economics

  • Why low inflation is the problem

    Introduction

    Inflation in India has sharply declined in recent months, with CPI inflation at 2.27% (Aug 2024) and WPI inflation at just 0.52%. While households welcome subdued prices, this development has unsettled the government’s fiscal math. Nominal GDP growth, which forms the base for budget projections, has weakened. As a result, targets for revenue, deficit, and debt are under stress. This shift highlights the complex relationship between inflation, nominal GDP, and fiscal sustainability.

    The Problem with Low Inflation

    Why is low inflation in the news?

    India is currently witnessing one of the weakest inflation trajectories in recent years, with both CPI and WPI at historic lows. This is striking because inflation had been consistently higher earlier, often troubling households and RBI alike. Now, for the first time in years, inflation is falling so low that it is below the government’s own expectations, threatening fiscal stability. While consumers benefit from cheaper goods, the government risks losing lakhs of crores in projected revenue.

    Breaking Down the Fiscal Arithmetic

    What is the link between inflation and government finances?

    1. GDP measure: Nominal GDP = monetary value of goods/services at current prices, before adjusting for inflation.
    2. Government’s reliance: Budget estimates are framed on nominal GDP, not real GDP.
    3. Importance: Nominal GDP forms the denominator for deficit and debt ratios, making it central to fiscal health.

    How is low inflation disrupting budget math?

    1. Union Budget FY25-26 assumption: Nominal GDP growth at 10.5%, implying GDP of ₹357 lakh crore.
    2. Reality: Q1 nominal GDP growth just 8%, well below target.
    3. Revenue impact: FY26 central govt. net tax revenue projected at ₹33.1 lakh crore; lower inflation could cut receipts by ₹57,314 crore.

    Why is nominal GDP growth so crucial?

    1. Fiscal deficit & debt ratio: Targets (fiscal deficit 4.4%, debt-GDP ratio 56.1%) are achievable only if nominal GDP grows as expected.
    2. Current scenario: With weak inflation, nominal GDP falls, making deficit/debt appear larger relative to GDP.
    3. Result: Fiscal stress and need for adjustments in spending or borrowing.

    Is low inflation always bad?

    1. Positive side: Consumers enjoy stable prices, reduced cost of living, relief from food price spikes.
    2. Negative side: Weak inflation = lower nominal GDP = poor revenue realization for the government.
    3. RBI view: Deputy Governor (May 2024) warned that while lower prices help consumers, oversupply and weak pricing power can dampen private investment and industrial margins.

    What are the long-term risks?

    1. Corporate health: Lower pricing power can affect profits, discouraging capex.
    2. Employment: Weak demand growth can limit job creation.
    3. Cycle of slowdown: Weak inflation → lower nominal GDP → fiscal squeeze → reduced spending → slower growth.

    Conclusion

    Low inflation, though a blessing for households, poses structural challenges for India’s fiscal health. When inflation falls below government assumptions, it erodes revenue potential and distorts deficit ratios, threatening fiscal sustainability. Policymakers thus face the paradox of balancing consumer welfare with fiscal prudence. For India, the task ahead is not merely curbing inflation but maintaining it at an optimal, stable level to sustain growth, revenue, and investment.

    PYQ Relevance

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

    Linkage: The question assumes that low inflation alongside steady GDP growth indicates economic strength. However, as the article shows, low inflation with weak nominal GDP growth can actually strain fiscal math, reduce revenues, and slow investment. Thus, while consumers benefit, the economy may not necessarily be in “good shape” if fiscal sustainability and growth momentum are undermined.

  • Centre to simplify Quality Control Order (QCO) framework

    Why in the News?

    A NITI Aayog panel has proposed easing India’s Quality Control Orders (QCOs) by simplifying certification, assessments, and inspections to support MSMEs amid domestic and global criticism.

    About Quality Control Orders (QCOs):

    • Overview: Issued under the Bureau of Indian Standards (BIS) Act, 2016, QCOs make Indian Standards compulsory for specific products in public interest (health, environment, security, fair trade).
    • Voluntary vs. Mandatory: Normally BIS certification is voluntary, but under QCOs manufacturers/importers must obtain a BIS licence or Certificate of Conformity before production, imports, or sales.
    • Standard Mark: Products under QCOs carry the ISI mark (or Hallmark for jewellery) to indicate conformity.
    • Legal Backing: Governed by BIS (Conformity Assessment) Regulations, 2018; violation punishable with fines or imprisonment.
    • Imports: Applies equally to foreign manufacturers via the Foreign Manufacturers Certification Scheme (FMCS).
    • Coverage: Of ~23,000 BIS standards, only 187 QCOs covering 770 products exist; 84 QCOs covering 343 products issued in the last three years.
    • Example: QCOs for compressors & ACs (2023) boosted compressor output from <2 million (2021–22) to 8 million (2023–24); ACs to 12 million+ units.

    Challenges Related to QCOs:

    • High Costs: Certification involves inspections, documents, and assessments—burdening MSMEs.
    • Non-Tariff Barrier Issues: US, EU, UK, NZ claim India’s QCOs exceed global norms. USTR (2025) flagged BIS marks even for chemicals, requiring site visits.
    • Industry Pushback: MSMEs fear inflationary costs; imports of cheaper raw materials/components restricted.
    • Limited Enforcement: Only 187 of 23,000 standards notified, mainly steel, electronics, chemicals.
    • Implementation Delays: Licence approvals slow; procedures disrupt production and supply chains.
    • Conflicting Views: Some MSMEs benefit (e.g., Birla Aircon turnover jumped ₹7 crore to ₹42 crore after QCO on water coolers), others call it “malign intervention” (NITI Aayog VC Suman Berry).

    Steps Taken by Government:

    • Digitisation: Simplified certification covering 750+ products; licences granted in 30 days.
    • MSME Outreach:
      • Jan Sunwai: Online open-house thrice weekly.
      • Manak Manthan: BIS field initiative for MSME support.
      • Regional Conferences: Led by Department of Consumer Affairs to resolve issues.
    • Capacity Building: Of 50,753 BIS certifications, ~40,000 (≈80%) issued to MSMEs; 24,625 voluntarily obtained for credibility/exports.
    • Trade Readiness: Govt projects QCOs as tools to raise quality and global competitiveness.
    • WTO Consistency: Justified if linked to health, safety, environment, deceptive trade, or security, in line with WTO Technical Barriers to Trade (TBT) Agreement.
    [UPSC 2017] With reference to `Quality Council of India (QCI)’, consider the following statements:

    1. QCI was set up jointly by the Government of India and the Indian Industry.

    2. Chairman of QCI is appointed by the Prime Minister on the recommendations of the industry to the Government.

    Which of the above statements is/are correct?

    Options: (a) 1 only (b) 2 only (c) Both 1 and 2* (d) Neither 1 nor 2

     

  • [19th Septmeber 2025] The Hindu Op-ed: Equalising Primary Food Consumption in India

    PYQ Relevance

    [UPSC 2019] What are the reformative steps taken by the Government to make food grain distribution system more effective?

    Linkage: The article’s proposal to restructure the PDS by trimming excess cereal entitlements and expanding pulse distribution directly links with UPSC 2019’s question. It highlights how reformative steps—like targeted subsidies, rationalised stocking by FCI, and focus on nutritional security beyond cereals—can make the food grain distribution system more effective. Thus, it connects poverty reduction with sustainable and equitable food security reforms.

    Mentor’s Comment

    The recent NSS household consumption survey, coupled with World Bank estimates, has painted a contrasting picture of India’s poverty and food deprivation. While global narratives celebrate the near-eradication of extreme poverty, ground-level consumption data tells a more sobering story, half of rural India still struggles to afford two simple thalis a day. This article unpacks the deeper meaning of food security beyond calorie intake, critiques the existing Public Distribution System (PDS), and explores how restructuring subsidies, especially towards pulses, can equalise food consumption in India. For UPSC aspirants, the debate is not only about statistics but also about welfare priorities, distributional justice, and the role of the state in ensuring dignified living standards.

    Introduction

    India has long battled poverty and hunger, but the release of the 2024 NSS Household Consumption Survey and the World Bank’s Poverty and Equity Brief (2025) has reshaped the debate. The World Bank report claims that extreme poverty has fallen from 16.2% in 2011-12 to just 2.3% in 2022-23, a historic achievement if true. Yet, when food consumption is measured through the “thali index” rather than calorie-based poverty lines, stark disparities emerge: 50% of rural India and 20% of urban India could not afford two thalis a day in 2023-24. This contradiction raises a crucial policy question—how can India ensure not just calorie intake but nutritional adequacy and equal access to primary food consumption?

    The contrasting narratives of poverty in India

    1. World Bank Estimate: Extreme poverty has “virtually disappeared,” with only 2.3% living below $2.15/day.
    2. Thali Index Reality: Despite rising incomes, half of rural India could not afford two balanced meals (thalis) daily in 2023-24.
    3. Deprivation Gap: The difference arises because food is residual expenditure after households spend on essentials like rent, health, and transport.

    Why measure poverty through the thali meal?

    1. Beyond Calories: Traditional poverty lines only measure calorific intake, ignoring nutrition and satisfaction.
    2. Balanced Meal: A thali (rice, dal, roti, vegetables, curd, salad) represents a self-contained, nutritious unit of food consumption.
    3. Cost Factor: Crisil estimates a home-cooked thali costs ₹30. Many households fall short of affording even two thalis/day per person.

    How effective is the Public Distribution System?

    1. Food Deprivation with PDS: Even after including PDS food supplies, deprivation persists—40% rural and 10% urban cannot afford two thalis daily.
    2. Subsidy Distribution: In rural India, a person in the 90–95% expenditure class receives 88% of the subsidy given to the poorest 5%, despite much higher consumption capacity.
    3. Urban Progressivity: The PDS is more progressive in urban areas, but still, 80% receive subsidised or free food, including those not in need.

    Why are cereals not enough

    1. Equalised Cereal Consumption: Both the poorest and richest consume similar amounts of rice and wheat, showing PDS success but also its limits.
    2. Expenditure Share: Cereals now account for only 10% of average household expenditure, so increasing cereal subsidy has diminishing returns.
    3. Need for Protein: Pulses consumption is half in the poorest 5% compared to the richest 5%, highlighting protein inequality.

    Policy path: Equalising food consumption through pulses

    1. Expand PDS Coverage: Redirect subsidies towards pulses, the main protein source for many Indians.
    2. Rationalise Cereals Subsidy: Trim excess rice/wheat entitlements, especially for better-off groups, reducing stocking costs for FCI.
    3. Compact and Targeted PDS: By focusing on pulses and eliminating subsidies beyond the “two thali/day” norm, the system becomes both cost-effective and equitable.
    4. Global Significance: Achieving equalised food consumption across social classes would be a unique welfare success story worldwide.

    Conclusion

    The thali index reveals a hidden crisis of food deprivation that headline poverty numbers obscure. While cereal consumption has been equalised through decades of PDS efforts, the next frontier lies in ensuring protein security via pulses distribution. Rationalising subsidies and targeting them effectively can not only optimise public spending but also equalise primary food consumption across India, a feat that would stand as a benchmark in global welfare policy.

  • What is PM MITRA Park?

    Why in the News?

    Prime Minister recently laid the foundation stone for India’s first PM MITRA (Mega Integrated Textile Region and Apparel) Park in Dhar, Madhya Pradesh.

    About PM MITRA Scheme:

    • Overview: Introduced by the Ministry of Textiles in 2021, the scheme aims to strengthen India’s textile sector by creating 7 world-class integrated parks.
    • Concept: Designed on the vision “Farm to Fibre to Factory to Fashion to Foreign”, each park consolidates the entire textile value chain—spinning, weaving, dyeing, processing, printing, and garment-making—within a single ecosystem.
    • Sites Selected: Tamil Nadu (Virudhunagar), Telangana, Karnataka, Maharashtra, Gujarat, Madhya Pradesh (Dhar), and Uttar Pradesh (Lucknow).
    • Timeline: All parks are targeted to be established by 2026–27, with each covering around 1,000+ acres.
    • Implementation Structure:
      • Special Purpose Vehicle (SPV): Each park will be developed by an SPV jointly owned by the Centre and State Governments, operating in Public–Private Partnership (PPP) mode.
      • Development Capital Support (DCS): Up to ₹500 crore per park provided by the Centre to SPVs.
      • Competitive Incentive Support (CIS): Up to ₹300 crore per park offered to manufacturing units to encourage rapid implementation.

    Key Features and Benefits:

    • Integrated Value Chain: All stages of textile production are located in one hub, reducing transport costs, delays, and inefficiencies.
    • World-Class Infrastructure: Includes incubation centres, design/testing labs, effluent treatment plants, reliable utilities, logistics facilities, and worker hostels.
    • Employment Generation: Each park expected to create ~1 lakh direct and ~2 lakh indirect jobs, especially benefiting women and rural youth.
    • Investment Boost: Scheme aims to attract over ₹70,000 crore in investments in the textile sector.

  • Govt to push Geothermal Pilots under New Policy

    Why in the News?

    The Ministry of New & Renewable Energy (MNRE) has launched its first National Policy on Geothermal Energy, aiming to create a regulatory and developmental framework for tapping geothermal resources.

    Govt to push Geothermal Pilots under New Policy

    India’s Geothermal Policy, 2025: Key Highlights

    • Launch: India’s first National Policy on Geothermal Energy was officially notified in September 2025 by the Ministry of New and Renewable Energy (MNRE).
    • Alignment with Goals: The policy is designed to support Net Zero by 2070, dovetailing with India’s renewable energy targets.
    • Scope: Applies to both power generation and direct-use applications such as district heating, agriculture, aquaculture, spa tourism, and industrial cooling.
    • Implementation Agency: MNRE is the nodal agency; other ministries, state governments, oil & gas firms, and academic institutions will collaborate.
    • Financial & Regulatory Support:
      • Tax incentives, grants, concessional financing, long-term leases (up to 30 years).
      • Viability Gap Funding (VGF) to offset high upfront costs (₹36 crore per MW).
      • Open access waivers, must-run status, and parity with other renewables.
    • Repurposing Wells: A strong focus on repurposing abandoned oil & gas wells for geothermal energy; MNRE already working with ONGC, Vedanta Ltd’s Cairn Oil & Gas, Reliance.
    • Global Collaboration: Partnerships with Iceland, Norway, US, and Indonesia for R&D, Enhanced Geothermal Systems (EGS) and Advanced Geothermal Systems (AGS).
    • Pilot Projects: Five sanctioned projects for resource assessment and demonstration across multiple regions.

    Geothermal Energy Scenario in India:

    • Potential: Estimated at 10.6 GW (10,600 MW), as identified by the Geological Survey of India (GSI).
    • Mapping: Over 381 hot springs mapped with surface temperatures ranging 35°C – 89°C.
    • Global Context: According to the International Energy Agency (IEA), India, US, and China together account for 75% of global potential for next-gen geothermal.
    • Projects & Status:
      • NO grid-connected geothermal plants yet; focus is on pilot, demo, and R&D projects.
      • 20 kW pilot binary-cycle plant commissioned at Manuguru, Telangana.
      • Ongoing pilots: Puga (Ladakh), Chhumathang (Ladakh), Cambay (Gujarat), Barmer (Rajasthan).
      • IIT Madras + Vedanta project: retrofitting abandoned oil wells in Barmer to generate 450 kWh of electricity.
    • Future Roadmap:
      • 10 GW target by 2030, ~100 GW potential by 2045.
      • Vision 2047: Viksit Bharat, hybrid solar-geothermal projects, and heating for cold regions (Ladakh, NE, Andamans).

    Govt to push Geothermal Pilots under New Policy

    Major Geothermal Sites in India

    Region/State Site/Province Key Features & Notes
    Ladakh (Himalayan Province) Puga Valley High-temperature hot springs; identified by US ITA (2024) as most promising; pilot projects underway.
    Chhumathang Similar potential as Puga; targeted for power generation and direct heating applications.
    Himachal Pradesh Manikaran Popular hot spring zone; suitable for pilot geothermal plants and tourism-linked heating.
    Satluj, Beas, Spiti Valleys Multiple geothermal spots mapped by GSI; moderate-to-high potential.
    Uttarakhand Tapoban & Alaknanda Valley Himalayan geothermal systems; identified for research and pilot use.
    Gujarat Cambay Graben Abandoned oil wells available for repurposing (ONGC, Reliance, Vedanta pilots).
    Lasundra (Vadodara) Known hot spring site; potential for direct-use applications.
    Chhattisgarh Tattapani Field Well-studied geothermal site; suitable for direct heat use and demonstration projects.
    Jharkhand / West Bengal Damodar Valley Identified geothermal prospects; part of GSI mapping.
    Surajkund (Jharkhand) Among hottest springs in India (85–87°C).
    Andaman & Nicobar Islands Volcanic geothermal fields High geothermal promise; strategic as islands rely on costly power (₹30–32/unit → could drop below ₹10–11).
    Telangana Manuguru 20 kW pilot binary-cycle geothermal power plant commissioned.
    Other States Madhya Pradesh, Odisha, Maharashtra, Meghalaya Multiple small hot spring clusters mapped by GSI; low-to-moderate potential.

     

    [UPSC 2013] Consider the following:

    1. Electromagnetic radiation

    2. Geothermal energy

    3. Gravitational force

    4. Plate movements

    5. Rotation of the earth

    6. Revolution of the earth

    Which of the above are responsible for bringing dynamic changes on the surface of the earth?

    (a) 1, 2, 3 and 4 only (b) 1, 3, 5 and 6 only (c) 2, 4, 5 and 6 only (d) 1, 2, 3, 4, 5 and 6 *

     

  • Launch of Bima Sugam Portal

    Why in the News?

    Bima Sugam, envisioned as the world’s largest online marketplace for insurance, was officially launched by the Bima Sugam India Federation (BSIF) at the IRDAI headquarters in Hyderabad.

    What is Bima Sugam?

    • Overview: World’s largest unified digital marketplace for insurance products and services, initiated by the Insurance Regulatory and Development Authority of India (IRDAI).
    • Coverage: Includes life, health, motor, travel, property, agricultural, and commercial insurance.
    • Function: Works like Unified Payments Interface (UPI) for insurance, providing common infrastructure for purchase, renewal, management, and claims.
    • Stakeholders: Brings together insurers, intermediaries, agents, brokers, banks, and customers on a single platform.
    • Governance: Operated by the Bima Sugam India Federation (BSIF) with equity participation from insurance companies.
    • Policy Goal: Forms part of India’s Digital Public Infrastructure (DPI), aligned with the vision of Insurance for All by 2047.
    • Working:  The simplified way for a user on the platform would be as follows:
      • Registration: A person can register using Aadhaar-based KYC or other valid ID.
      • e-Bima Account Creation: A secure, integrated insurance repository has been created.
      • Policy search and comparison: Products from all registered insurance companies are listed with standardized information for easy comparison.
      • Purchase: Policies can be purchased digitally with instant e-documentation and secure payments.
      • Service: Policyholders can renew, update, port, or cancel policies and receive real-time assistance.
      • Claims: Users can submit claims and track the process; insurance companies and TPAs will use backend access for faster verification and settlement.

    Key Features:

    • Phased Rollout: Begins as an information and guidance hub; full transactions enabled gradually.
    • Low-Cost Model: Minimal user charges, unlike private aggregators that rely on high commissions.
    • Centralised Database: Enables policy comparison, customer query resolution, and faster product adoption.
    • Secure Digital Storage: Provides safe policy storage with robust security and compliance standards.
    • Inclusive Ecosystem: All insurers mandated as members, ensuring transparency and fair access.
    [UPSC 2014] With reference to “Aam Admi Bima Yojana”. Consider the following statements:

    1. The member insured under the scheme must be the head of the family or earning member of the family in a rural landless household.

    2. The member insured must be in the age group of 30 to 65 years.

    3. There is a provision for free scholarship for up to two children of the insured who are studying between classes 9 and 12.

    Which of the statements given above is/are correct?

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

     

  • In news: Almatti Dam

    1. Why in the News?

    Karnataka govt. has approved Upper Krishna Project Phase-III to raise Almatti dam height, while Maharashtra warned of moving the Supreme Court against it.

    Why is Maharashtra opposing it?

    • Fears submergence of villages and agricultural land in its territory if water levels rise further.
    • Worries about reduced water availability downstream, affecting its irrigation and drinking water projects.

    About Almatti Dam:

    • Overview: It is a hydroelectric and irrigation project built on the Krishna River in North Karnataka.
    • Completion: July 2005, as part of the Upper Krishna Irrigation Project (UKP).
    • Dimensions: Height 52.5 m, length 3.5 km.
    • Power Generation: A 290 MW station using vertical Kaplan turbines (five of 55 MW and one of 15 MW).
    • Two separate powerhouses: Almatti I and II generate power before releasing water into the Narayanpur Reservoir.
    • Functions: Provides irrigation, potable water, hydroelectric power, and helps in flood management.

    Back2Basics: Krishna River

    In news: Almatti Dam

    • Origin: Near Mahabaleshwar (Satara, Maharashtra), in the Western Ghats.
    • Length: ~1,300 km, second-longest river in peninsular India after Godavari.
    • Course: Flows through Maharashtra (303 km), Karnataka (480 km), Telangana, and Andhra Pradesh, before emptying into the Bay of Bengal.
    • Major Tributaries:
      • Right-bank: Ghatprabha, Malprabha, Tungabhadra.
      • Left-bank: Bhima, Musi, Munneru.
    • Hydropower & Irrigation Projects: Includes Koyna, Tungabhadra, Srisailam, Nagarjuna Sagar, Almatti, Narayanpur, Bhadra.

     

    [UPSC 2005] The Almatti Dam is on the river:

    Options: (a) Godavari (b) Cauvery (c) Krishna* (d) Mahanadi

     

  • Unified Pension Scheme (UPS)

    Why in the News?

    The Centre has approved the Unified Pension Scheme, starting Apr 2025, with NPS employees allowed to switch till Sept 30, 2025.

    About Unified Pension Scheme (UPS):

    • Launch & Applicability: Announced in August 2024; implemented from 1 April 2025. Applicable to central govt employees who joined service after 1 January 2004 (those under NPS).
    • Nature: Hybrid pension system combining features of the assured benefit of OPS and the contributory model of NPS.
    • Assured Pension: 50% of the average basic pay drawn in the last 12 months before retirement, with minimum 25 years of service.
    • Minimum Pension: ₹10,000/month assured after 10 years of service.
    • Family Pension: 60% of pension last drawn, payable to spouse on retiree’s death.
    • Contributions: Employee contributes 10% of basic pay + Dearness Allowances (DA); govt contributes 10% + an additional 8.5% towards a pooled corpus.
    • Lump Sum at Retirement: 1/10th of last pay + DA for every completed six months of service, in addition to gratuity.
    • Inflation Indexation: DA-linked relief on pensions, tied to CPI-IW.
    • Flexibility: Employees may choose between NPS and UPS, but once shifted, re-entry into UPS is not allowed.

    Difference between OPS, NPS and UPS:

    Old Pension Scheme (OPS) National Pension System (NPS) Unified Pension Scheme (UPS)
    Type Defined Benefit Defined Contribution (market-linked) Hybrid (Defined + Contribution)
    Employee Contribution None 10% of Basic + DA 10% of Basic + DA
    Govt Contribution Entire burden on govt 14% of Basic + DA 10% + 8.5% pooled corpus
    Assured Pension 50% of last drawn pay + DA None; depends on market returns 50% of avg. basic pay (last 12 months)
    Minimum Pension Not fixed, but effectively higher None ₹10,000 after 10 years’ service
    Family Pension 50% of pension last drawn Depends on accumulated corpus 60% of pension last drawn
    Lump Sum Commutation of up to 40% pension (reduces monthly pension) 60% withdrawal of accumulated corpus at retirement Lump sum = 1/10th of last pay + DA for every 6 months of service; pension unaffected
    Indexation (DA link) Full DA linked Market-driven returns; no DA link DA-linked inflation relief
    Fiscal Burden High, unfunded Lower, market-based Moderate (partially funded + assured)

     

    [UPSC 2021] With reference to casual workers employed in India, consider the following statements:

    1. All casual workers are entitled to Employees Provident Fund coverage.

    2. All casual workers are entitled to regular working hours and overtime payment.

    3. The government can, by notification, specify that an establishment or industry shall pay wages only through its bank account.

    Which of the above statements are correct?

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

     

  • [15th September 2025] The Hindu Op-ed: Improving Macros: Period of low inflation and relatively high growth

    PYQ Relevance

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

    Linkage: The present scenario of low inflation (2.1%) coupled with high growth directly resonates with the 2019 PYQ, as it exemplifies how such a macro mix strengthens household purchasing power and policy space. However, just as in 2019, questions about data reliability and sustainability remain valid. Thus, India’s current economic outlook offers both affirmation and nuance to the earlier debate.

    Mentor’s Comment

    India’s macroeconomic trajectory has taken a remarkable turn, shifting from the troubling “low growth, high inflation” trap of last year to a far more favorable “high growth, low inflation” outlook. With inflation dipping within RBI’s comfort band and food prices contracting sharply, the macro story is compelling and holds lessons for India’s policy and global positioning. This article unpacks the nuances of the recent data, explores what it means for the future, and situates it within the UPSC Mains framework with value addition, practice questions, and micro-themes.

    Introduction

    The August 2025 retail inflation numbers marked a critical juncture in India’s economic narrative. Retail inflation, though it rose slightly, stood at 2.1%, comfortably within the Reserve Bank of India’s (RBI) target range of 2%-6%. This snapped a nine-month declining streak but did not trigger alarm. Food inflation remained subdued, with striking contractions of 15.9% in vegetable prices and 14.5% in pulses. Combined with welfare provisions under the National Food Security Act, this ensured affordability of essential items. With low inflation across housing, fuel, and clothing, India’s macroeconomic picture looks vastly different from last year, when high inflation coupled with low growth defined the economic outlook. The gap between growth and inflation has widened from 2.1 percentage points last year to 5.5 percentage points now—an enviable reversal.

    Understanding the Current Inflation Trends

    1. Retail inflation at 2.1%: Marginally within RBI’s comfort zone of 2%-6%, reflecting stability despite global uncertainty.
    2. Food prices contracting sharply: Vegetables fell by 15.9% and pulses by 14.5%, easing household expenditure.
    3. Other necessities stable: Housing, clothing, footwear, and fuel inflation are all lower in August than in July.
    4. Welfare cushioning: Free foodgrains under the NFSA ensure food affordability despite global volatility.

    How Has the Macro Picture Changed Since Last Year?

    1. From high inflation to low inflation: Inflationary pressures last year eroded purchasing power, but now they remain subdued.
    2. From sluggish growth to robust growth: Growth has accelerated, giving policymakers breathing room.
    3. Growth–inflation differential widened: From 2.1 percentage points last year to 5.5 points this year, a striking macro improvement.
    4. Comparability holds: Concerns about data integrity existed last year too, hence the relative improvement is valid.

    What Role Do Global and Domestic Policies Play?

    1. Russian oil purchases: Even if India abandons Russian crude under U.S. pressure, the inflationary impact will be limited due to already-low global crude prices.
    2. GST rate cuts: Effective September 22, lower GST rates are expected to reduce consumer prices further.
    3. RBI’s cautious optimism: While Q1’s low inflation-high growth dynamic raises hopes of a rate cut, global uncertainties may push this decision to December instead of September.

    What Lies Ahead for India’s Economic Outlook?

    1. Benign inflation trajectory: Indicators point to sustained price stability.
    2. Limited global oil shock risk: Declining discounts from Russia and stable crude prices mean less volatility for India.
    3. Prospects for rate cuts: The Monetary Policy Committee may consider easing monetary policy in December, enhancing growth.
    4. Strengthened fiscal space: Low inflation allows government welfare and investment measures to operate without inflationary spirals.

    Conclusion

    India’s macroeconomic outlook in 2025 is a story of resilience and reversal. The sharp transition from a vulnerable high-inflation, low-growth setup to a robust high-growth, low-inflation phase underscores effective price stabilization and cushioning mechanisms like NFSA. While global uncertainties remain, the benign inflation trajectory coupled with strong growth provides a foundation for India’s economic policy to focus on sustainable and inclusive development.

  • PLI Scheme for White Goods

    Why in the News?

    The Centre has announced reopening of the application window for the Production-Linked Incentive (PLI) Scheme for White Goods, following the strong response and success of earlier rounds.

    Note: White goods refer to large household appliances like refrigerators, washing machines, and air conditioners, so named because they were traditionally white.

    About the PLI Scheme for White Goods:

    • Objective: To create a complete component ecosystem for ACs and LED lights, integrating India into global supply chains and boosting domestic manufacturing.
    • Approval: Cleared by the Union Cabinet in April 2021; implemented by the Department for Promotion of Industry and Internal Trade (DPIIT).
    • Duration: Implemented over seven years (FY 2021–22 to FY 2028–29) with a total outlay of ₹6,238 crore.
    • Incentives: Provides 4–6% incentive on incremental turnover (over base year 2019–20) for both domestic sales and exports, applicable for five years to eligible companies.
    • Eligibility:
      • Applicant must be a company incorporated under the Companies Act, 2013.
      • Eligibility depends on achieving threshold levels of incremental sales and investments.
      • Entities availing benefits under any other PLI scheme for the same products are not eligible.
    • Beneficiaries So Far: 83 companies with committed investment of ₹10,406 crore have been approved under the scheme, covering AC and LED components across the entire value chain.
    • Employment and Exports: Expected to create jobs, expand exports, and enhance self-reliance in components that were earlier imported.
    [UPSC 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 *