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Subject: Economics

  • Apr-Jun unemployment at 5.4%, highest in 4 quarters

    Why in the News

    The unemployment rate for persons aged 15 years and above rose to 5.4% in April-June 2026, a four-quarter high, according to the Periodic Labour Force Survey (PLFS). Youth and urban women experienced the sharpest increase.

    What is PLFS?

    • PLFS: Periodic Labour Force Survey.
    • Conducted by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI).
    • Launched in 2017.
    • Replaced the earlier quinquennial Employment-Unemployment Surveys.
    • Provides regular employment and unemployment estimates.

    What did April-June 2026 PLFS Show?

    • Overall: 5.4% from 5.0% in the previous quarter.
    • Rural: 4.8% from 4.3%.
    • Urban: 6.7% from 6.6%.
    • Female: 5.7% from 5.3%.
    • Male: 5.3% from 4.8%.
    • Employed population: About 566 million, including 402 million males and 164 million females.

    Where is Joblessness Concentrated?

    • Youth (15-29 years): 15.9%, the highest in the current PLFS series.
    • Female youth: 19.6%, a series high.
    • Urban females: 8.7% compared with 6.1% for urban males.
    • Rural females: 4.7%, close to rural males at 4.8%.
      • Key takeaway: The headline unemployment rate masks much higher youth and urban female unemployment, pointing to problems of job quality, skills and labour-market absorption.

    About Unemployment

    • Unemployment refers to people in the labour force who are willing and able to work but do not have work.
    • Key Labour Indicators
      • Labour Force Participation Rate (LFPR): Labour force as a percentage of the working-age population.
      • Worker Population Ratio (WPR): Employed persons as a percentage of the population.
      • Unemployment Rate (UR): Unemployed persons as a percentage of the labour force.

    Types of Unemployment

    1. Structural: Skill or location mismatch with available jobs.
    2. Frictional: Temporary unemployment while changing jobs.
    3. Cyclical: Caused by economic downturns.
    4. Disguised: More workers employed than required, common in agriculture.
    5. Seasonal: Employment varies with seasons, especially agriculture.

    Back2Basics: PLFS

    • Full form: Periodic Labour Force Survey.
    • Conducted by: National Statistical Office (NSO).
    • Ministry: Ministry of Statistics and Programme Implementation (MoSPI).
    • Launched: 2017.
    • Coverage: Rural and urban India.
    • Key measures: Usual Status and Current Weekly Status (CWS).
    • Youth: Persons aged 15-29 years.

    Government Initiatives

    • MGNREGA: Mahatma Gandhi National Rural Employment Guarantee Act, providing up to 100 days of rural wage employment.
    • PMKVY: Pradhan Mantri Kaushal Vikas Yojana, promoting skill development.
    • Skill India Mission: Develops a skilled workforce.
    • Startup India & Stand-Up India: Promote entrepreneurship.
    • ELI: Employment Linked Incentive Scheme, encouraging formal employment creation.

    “[2023, GS3, 15 marks] Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements.”

    [2018] With reference to Pradhan Mantri Kaushal Vikas Yojana, consider the following statements :

    1. It is the flagship scheme of the Ministry of Labour and Employment.
    2. It, among other things, will also impart training in soft skills, entrepreneurship, financial and digital literacy.
    3. It aims to align the competencies of the unregulated workforce of the country to the National Skill Qualification Framework.
    Which of the statements given above is/are correct?

    (a) 1 and 3 only

    (b) 2 only

    (c) 2 and 3 only

    (d) 1, 2 and 3

  • Seamless digital payments have a price / UPI and the cost of policy reversal

    Why in the News

    Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, allowing a legal framework for possible charges on Unified Payments Interface (UPI) and RuPay debit card transactions. The debate centres on whether digital payments should remain free to promote inclusion or adopt a sustainable funding model.

    What is UPI?

    • UPI: Unified Payments Interface.
    • Enables instant bank-to-bank payments through mobile applications.
    • Operated by the National Payments Corporation of India (NPCI).
    • Processed 23.6 billion transactions in July.

    What is Merchant Discount Rate (MDR)?

    • MDR: Merchant Discount Rate.
    • A fee charged for processing digital payments, generally paid by merchants.
    • Credit-card MDR: around 1-3%.
    • Debit-card MDR: up to 0.9%.
    • UPI has followed a zero-MDR regime since 2020.

    What Does the 2026 Bill Do?

    • Amends Section 10A of the Payment and Settlement Systems Act, 2007.
    • Creates legal space for the government to notify charges on specified electronic payment modes.
    • A proposed MDR of 0.25-0.5% has been discussed for UPI transactions above ₹2,000.
    • This could cover about 5% of transactions by volume but around 65% by value.
    • The government has stated that consumers and small merchants will not bear MDR and the final framework is yet to be decided.

    Why is Zero-MDR Considered Unsustainable?

    1. Infrastructure costs: Huge transaction volumes require continuous investment.
    2. Fraud prevention: Cybersecurity and fraud-control systems require funding.
    3. Government support: ₹8,730 crore was provided through incentives during 2021-22 to 2024-25.
    4. Funding gap: This covered only a limited share of industry costs.
    5. Market concentration: PhonePe and Google Pay together account for around 80% of UPI transactions.

    What is a Two-Sided Market?

    • A platform connecting two groups whose participation reinforces each other.
    • UPI: Consumers ↔ Payment platforms ↔ Merchants
    • More users attract more merchants, while more merchants attract more users. Therefore, imposing a charge on one side may reduce the network effect.

    Why Could MDR Affect UPI?

    Arguments for charges

    • Provides sustainable revenue for infrastructure.
    • Supports innovation and fraud prevention.
    • May attract more competitors into the UPI ecosystem.

    Arguments against charges

    • Could discourage merchants and consumers from using digital payments.
    • Intermediaries may absorb the cost rather than pass it on.
    • Could weaken India’s financial inclusion and formalisation gains.
    • May encourage a shift back towards cash.

    About India’s Digital Payments Ecosystem

    • RBI: Reserve Bank of India, the regulator.
    • NPCI: National Payments Corporation of India, operator of major retail payment rails.
    • Banks and fintechs: Participate as payment service providers.
    • UPI: Real-time account-to-account payment system.
    • RuPay: India’s domestic card payment network.

    Statutory Framework

    • Payment and Settlement Systems Act, 2007: Regulates payment systems under RBI supervision.
    • Section 10A: Provides the framework for charges on specified electronic payment modes.
    • RBI Act, 1934: Establishes the Reserve Bank of India.
    • Information Technology Act, 2000: Provides legal recognition to electronic records and authentication.

    Back2Basics: NPCI

    • Full form: National Payments Corporation of India.
    • Established: 2008.
    • Nature: Not-for-profit company.
    • Promoted by: Banks under the guidance of RBI and Indian Banks’ Association (IBA).
    • Key systems: UPI, RuPay, Immediate Payment Service (IMPS), FASTag and Bharat Bill Payment System (BBPS).

    Government Initiatives

    • UPI Incentive Scheme: Supports the cost of low-value UPI transactions.
    • Digital India Programme: Expands digital infrastructure and inclusion.
    • BHIM: Bharat Interface for Money, NPCI’s UPI application.
    • RuPay: Domestic card network.
    • JAM: Jan Dhan-Aadhaar-Mobile trinity supporting digital transfers and financial inclusion.

    “[2026] Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is NOT correct?

    (a) UPI is a real-time payment system but Digital Rupee is akin to sovereign paper currency

    (b) In case of UPI, settlement for end users happens instantly; in case of Digital Rupee, wallet balance gets transferred to another wallet (no traditional settlement)

    (c) UPI transactions are recorded by banks and reflected in bank statements; in case of Digital Rupee, no data is captured in bank statements

    (d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks

  • Gujarat port concessions near expiry, reopening the BOOT debate

    Why in the News

    Concessions for Gujarat’s Pipavav and Mundra ports near expiry, reopening the debate on the Build-Own-Operate-Transfer (BOOT) model and how India structures private port infrastructure.

    What is the BOOT model?

    1. Definition: Under Build-Own-Operate-Transfer (BOOT), a private operator finances, builds, and runs an asset for a fixed concession period, then transfers it back to the public authority.
    2. Application: Gujarat’s 1997 BOOT framework let private players develop ports like Mundra and Pipavav on state maritime board land.

    What is at stake as concessions expire?

    1. Asset transfer terms: Expiry forces a decision on renewal, renegotiation, or transfer of high-value operating ports.
    2. Investment signal: The treatment of expiring concessions shapes confidence for greenfield private ports such as Vizhinjam and Dhamra.
    3. Federal split: Major ports fall under the Centre while non-major ports like Gujarat’s fall under state maritime boards, complicating policy.

    “[2026] Consider the following statements with reference to the Sagarmala Programme of the Government of India :
    I. The Sagarmala Programme seeks to achieve port-led economic growth through cost-effective and sustainable coastal infrastructure.
    II. The success of the Sagarmala Programme is reflected in significant growth in coastal and inland waterway shipping, along with improved global port rankings.
    III. Sagarmala 2.0 aims to position India as global maritime innovation hub aligned with Atmanirbhar Bharat and Viksit Bharat 2047 visions.
    Which of the following relationships among the above statements is/are correct?
    1. Statement II validates the effectiveness of the strategies envisioned in statement I.
    2. Statement III extends the objectives of statement I by embedding them into a future-oriented innovation framework.
    3. Statement I contradicts statement III by focusing only on traditional infrastructure instead of modern innovation.
    Select the answer using the code given below:

    [A] 1 only

    [B] 1 and 2

    [C] 2 and 3

    [D] 3 only

  • FDI approval threshold for CCEA clearance to rise sharply

    Why in the News

    The government plans to raise the FDI threshold requiring CCEA approval from ₹5,000 crore to ₹15,000 crore, reducing political-level scrutiny for large investments.

    What is the FDI Approval System?

    1. Automatic route: No prior government approval is required.
    2. Government route: Requires approval from the concerned ministry/department.
    3. CCEA layer: Very large proposals above the prescribed threshold require Cabinet Committee on Economic Affairs (CCEA) approval.

    What is the impact of Raising the Threshold?

    1. Fewer escalations: Investments between ₹5,000 crore and ₹15,000 crore can avoid CCEA clearance.
    2. Faster approvals: Reduces procedural delays and improves the ease of doing business.
    3. Greater investment autonomy: Gives ministries greater authority to clear large investments.
    4. Liberalisation: Continues India’s shift towards a simpler, faster FDI regime, following the abolition of FIPB in 2017.

    Back2Basics

    1. FDI: Investment by a foreign entity in an Indian enterprise with a lasting interest.
    2. FIPB: Abolished in 2017; its role was transferred mainly to the concerned ministries/departments.
    3. Key balance: Faster approvals must be accompanied by national security, competition and strategic-sector safeguards.

    PYQ Relevance

    [UPSC 2016] Justify the need for FDI for the development of the Indian economy. Why is there a gap between MoUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India.

    Linkage: The PYQ examines FDI as a driver of investment, growth and ease of doing business. Raising the approval threshold can reduce delays and help convert investment proposals into actual FDI inflows.

  • RBI holds repo rate; core versus headline inflation debate

    Why in the News

    The Reserve Bank of India (RBI) held the repo rate at 5.25%. Economists are divided over whether the central bank is anchoring policy to headline CPI or to core inflation, which strips out food and fuel.

    What is core inflation?

    1. Definition: Core inflation measures price change after removing volatile food and fuel components, showing the underlying, persistent trend.
    2. Why it matters: Monetary policy affects demand-driven prices, not a monsoon-driven food spike, so core is a cleaner signal for interest-rate decisions.

    Why is the anchor contested?

    1. Mandate is headline: The RBI’s legal target is headline retail inflation around 4%, not core, so leaning on core risks appearing to shift the goalpost.
    2. Food weight is large: Food is a large share of India’s consumption basket, so ignoring it understates the inflation households actually face.
    3. Credibility risk: Frequent redefinition of the operative measure weakens the predictability that anchors inflation expectations.

    Conclusion

    The rate hold reflects a judgement that underlying price pressure is easing even as headline stays elevated. The next milestone is whether food inflation cools enough to align headline with the target.

    PYQ Relevance

    [UPSC 2024] What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.

    Linkage: The PYQ examines the limits of monetary policy in controlling persistent food-driven inflation. The debate over headline versus core inflation highlights how the RBI balances its inflation mandate with supply-side food shocks.

  • India crosses 300 GW of non-fossil power capacity

    Why in the News

    India’s non-fossil fuel capacity has crossed 300 GW, achieving about 60% of the 500 GW target for 2030. The key challenge is converting installed capacity into actual electricity generation.

    What is the 500 GW Target?

    1. Panchamrit pledge: India committed at COP26, Glasgow (2021) to achieve 500 GW of non-fossil electricity capacity by 2030.
    2. Coverage: Includes solar, wind, hydro and nuclear capacity.
    3. Not total capacity: It excludes fossil-fuel capacity such as coal and gas.

    Why Capacity ≠ Generation?

    1. Capacity factors: Solar and wind are intermittent, so installed capacity does not translate proportionately into electricity generated.
    2. Storage gap: Batteries and pumped-storage hydropower are needed to provide reliable renewable power.
    3. Grid constraints: Transmission and grid-balancing infrastructure must expand alongside renewable capacity.
    4. Peak demand mismatch: Renewable generation may not coincide with periods of highest electricity demand.

    Value Addition

    • Panchamrit: 500 GW non-fossil capacity by 2030; 50% energy requirements from renewables; reduce projected carbon emissions by 1 billion tonnes; reduce emissions intensity by 45%; achieve net zero by 2070.
    • Key challenge: Shift from capacity addition → reliable, dispatchable clean power.

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

    [2026] Consider the following statements with reference to India’s response to climate change:
    I. India’s Long-Term Low Emission Development Strategy (LT-LEDS) is a crucial tool for achieving net-zero emissions by 2070
    II. India’s 4th Biennial Update Report (BUR-4) submitted in December, 2024 recorded around 8% decrease in Greenhouse gas emissions in 2020 over 2019.
    III. Climate-resilient development necessarily depends on quick and short-term achievement of emission reduction targets.
    Which of the following relationships among the above statements is/are correct?
    1. Statement I is empirically supported by statement II.
    2. Statement III contradicts the approach implicit in statement I.
    3. Statement I and statement III together establish the premise of long-term sustainability.
    Select the answer using the code given below:

    [A] 1 only

    [B] 1 and 2

    [C] 2 and 3

    [D] 3 only

  • Government moves toward charges on UPI, sparking an MDR debate

    Why in the News

    A government move that could permit charges on Unified Payments Interface (UPI) transactions has revived the question of a Merchant Discount Rate (MDR). The tension is between funding the rising cost of a free public payments rail and preserving the zero cost model that drove its mass adoption.

    What is the Merchant Discount Rate (MDR)?

    1. Definition: The MDR is the fee a merchant pays a bank for accepting a digital payment from a customer.
    2. Current position: MDR on UPI and RuPay debit card payments has been zero since 2020, shifting the settlement cost onto the system.

    How would the proposed charge actually work?

    1. Large merchants only: Any MDR would apply to person to merchant (P2M) payments above a threshold, not to small traders.
    2. Enabling law: The change is routed through the Taxation and Other Laws (Amendment) Bill 2026.

    What is the case against charging for UPI?

    1. Adoption risk: A fee could push small merchants back toward cash and reverse formalisation gains.
    2. Alternative funding: The RBI’s surplus could subsidise the payments rail instead of a merchant levy.

    What are the pressures forcing the question?

    1. Scale cost: Processing billions of monthly transactions imposes real infrastructure and settlement costs on banks.
    2. Sustainability: A permanently free model leaves no revenue to maintain and expand the network.

    “[2018] Which one of the following best describes the term ‘Merchant Discount Rate’ sometimes seen in news?
    (a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
    (b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
    (c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.
    (d) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.

  • RBI holds the repo rate for a fourth straight review

    Why in the News

    The Reserve Bank of India (RBI) kept its repo rate unchanged at 5.25% for a fourth consecutive Monetary Policy Committee (MPC) meeting. The decision exposes the tension between reviving growth through cheaper credit and defending price stability while inflation sits above target.

    What is the Monetary Policy Committee (MPC)?

    1. Statutory body: The MPC is the six member committee that sets the benchmark repo rate to keep retail inflation within a legislated band.
    2. Mandate: It is tasked with holding Consumer Price Index (CPI) inflation at 4%, within a tolerance range of 2% to 6%.

    Why has the RBI chosen to hold rather than cut?

    1. Inflation above target: Retail inflation has stayed above the 4% midpoint, removing headroom for a rate cut.
    2. Geopolitical spillover: The bank flagged the West Asia conflict and crude price risk as reasons to preserve policy space.
    3. External buffer: Protecting foreign exchange reserves and the rupee against capital outflows outranked a growth focused easing.

    What are the risks in a prolonged hold?

    1. Growth drag: A sustained high rate raises borrowing costs for firms and households and can slow investment.
    2. Transmission gap: Banks may not pass rate signals through fully, weakening the policy’s real economy effect.
    3. Fiscal friction: Elevated rates raise the government’s own interest burden on fresh borrowing.

    Conclusion

    The RBI is prioritising price and currency stability over a growth stimulus while inflation remains above target. The next MPC review will turn on whether inflation cools back toward 4% and whether the external environment stabilises.

    Back2Basics: Repo Rate

    1. Definition: The rate at which the RBI lends short term funds to commercial banks against securities.
    2. Function: It is the primary tool of monetary policy transmission; a higher repo rate raises the cost of money and cools demand.

    Matching Previous Year Question

    “[2017] Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?
    1. It decides the RBI’s benchmark interest rates.
    2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
    3. It functions under the chairmanship of the Union Finance Minister.
    Select the correct answer using the code given below:
    (a) 1 only
    (b) 1 and 2 only
    (c) 3 only
    (d) 2 and 3 only
    Answer: (a)”

  • Why households pledge gold instead of selling it

    Why in the News

    India’s gold market is witnessing a structural shift as investment demand and gold backed loans grow rapidly, while jewellery demand declines. The trend has also highlighted the limited success of the Gold Monetisation Scheme (GMS), 2015 in mobilising idle household gold.

    What is the Gold Monetisation Scheme (GMS), 2015?

    • Objective: Mobilise idle gold held by households and institutions into the formal financial system.
    • Mechanism: Individuals and institutions deposit physical gold with authorised banks and earn interest on the deposits.
    • Challenges: Limited participation due to taxation concerns, sentimental attachment to gold and procedural complexities.

    How is India’s gold demand changing?

    • Overall Demand: Total gold demand increased 2% year on year to 282 tonnes in the first half of the year.
    • Jewellery Demand: Fell 17.1% to 141.2 tonnes, among the weakest first quarter levels since 2000.
    • ETF Investment: Gold Exchange Traded Funds (ETFs) recorded a net inflow of 20 tonnes in the first quarter.
    • Bars and Coins: Demand rose 21.3% in volume and 105.5% in value during the first half of FY27.
    • Price Rise: Domestic gold prices have increased more than fivefold over the past decade.

    Why are households pledging gold instead of selling it?

    • Collateral Preference: Households increasingly use gold as collateral for loans rather than selling it.
    • Gold Loan Growth: Outstanding gold loan portfolios reached about Rs 5.4 lakh crore by June 2026.
    • Retail Loans: Bank loans backed by pledged jewellery touched about Rs 4.3 lakh crore by February 2026.
    • Limited Recycling: Despite record high prices, households continue to retain gold, resulting in low recycled supply.
    • External Stability: Household gold holdings and central bank gold purchases have supported India’s external balance and moderated pressure on the rupee.

    What are the concerns?

    • Financial Stability: Rapid expansion of gold loans requires close regulatory monitoring.
    • RBI Measures: Borrowers must fully repay principal and interest before the same gold can be repledged.
    • Price Risk: A sharp decline in gold prices could affect lenders through lower collateral values.

    [2016] What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?
    1. To bring the idle gold lying with Indian households into the economy.
    2. To promote FDI in the gold and jewellery sector.
    3. To reduce India’s dependence on gold imports.
    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

  • Taxation and Other Laws (Amendment) Bill and the UPI levy

    Why in the News

    The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026 on 6 August 2026. The Bill gives legal backing to modify the zero charge regime on some digital payments. Analysis links the move to United States trade pressure over digital payment barriers.

    What is the zero Merchant Discount Rate regime on UPI and RuPay?

    1. Merchant Discount Rate (MDR): the fee a merchant pays to banks and card networks for processing a digital payment.
    2. Zero MDR rule: since 2020 India has barred any charge on Unified Payments Interface (UPI) and RuPay debit card transactions.
    3. Effect on users: UPI stays free at the point of payment, which drove mass adoption.
    4. Bill change: the amendment removes the link between the Payment and Settlement Systems Act, 2007 and the Income Tax Act, and lets the government modify the zero charge regime.
    5. Scope: any charge would apply to merchants, not end users, and the steering committee headed by the National Payments Corporation of India (NPCI) is yet to decide.

    What else does the Bill do?

    1. Manufacturing: it aims to promote domestic electronics manufacturing.
    2. Foreign capital: it replaces a June ordinance that exempted interest income and capital gains earned by Foreign Portfolio Investors from government securities.

    Why is the change linked to United States trade demands?

    1. Section 301 lever: the United States Trade Representative (USTR) runs a Section 301 investigation, a tool to act against foreign trade barriers.
    2. Barrier tag: in March 2026 USTR classified India’s digital payment policies as favouring domestic players.
    3. Lost business: Visa and Mastercard cite lost potential business as Indian consumers shifted to free UPI.
    4. Market cap concern: USTR flagged that two United States owned providers processed over 80 percent of UPI transactions, alongside the 30 percent cap on third party apps.
    5. Precedent: India earlier scrapped the 6 percent equalisation levy on digital services under similar pressure.

    What are the concerns around the levy?

    1. Adoption risk: charges could slow UPI use if passed to merchants and then to prices.
    2. Policy autonomy: critics read the change as a concession under trade negotiation rather than domestic reform.
    3. Revenue pool: an interoperable zero cost platform limits card network fee income, which the change could restore.

    [2026] Which one of the following best describes the key objective of India’s ‘Open Network for Digital Commerce’ (ONDC) initiative?
    (a) To allow digital government control over all digital commerce transactions
    (b) To replace private e-commerce players
    (c) To break the dominance of large e-commerce platforms by enabling interoperability across networks
    (d) To mandate UPI-based payments for all online transactions