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Subject: Economics

  • CBDC Based Public Distribution System Launched in Gujarat

    Why in the News?

    The Union Home Minister launched a Central Bank Digital Currency based Public Distribution System in Gandhinagar, Gujarat. This marks the integration of digital currency into the food security delivery mechanism.

    What is CBDC?

    • Central Bank Digital Currency is a digital form of sovereign currency issued and regulated by a central bank.
    • In India, the digital rupee is issued by the Reserve Bank of India.
    • It is different from cryptocurrency because it is legal tender and backed by the government.

    What is the Public Distribution System?

    • The Public Distribution System is a food security system that distributes subsidised food grains to eligible beneficiaries under the National Food Security framework.
    • Around 80 crore beneficiaries receive free food grains under the scheme.

    Key Features of CBDC Based PDS

    1. Digital transfer and settlement using CBDC.
    2. Reduction of leakages and middlemen.
    3. Transparent and traceable transactions.
    4. Faster and automated grain dispensing via Annapurna machine.
    5. Planned nationwide rollout within 3 to 4 years.

    The Annapurna machine reportedly dispenses 25 kg of food grains in about 35 seconds.

    Governance Linkages

    • Linked to Digital India initiative.
    • Inspired by Direct Benefit Transfer model.
    • Reflects the principle of minimum government maximum governance.
    • Strengthens last mile delivery through technology.

    Related Schemes Mentioned

    • Pradhan Mantri Garib Kalyan Anna Yojana providing 5 kg free food grains per person per month.
    • PM SVANidhi providing working capital loans to street vendors.
    [2024] Consider the following statements in respect of the digital rupee: 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy. 

    2. It appears as a liability on the RBI’s balance sheet. 

    3. It is insured against inflation by its very design. 

    4. It is freely convertible against commercial bank money and cash. 

    Which of the statements given above are correct? 

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

  • India’s Power Generation Capacity Update

    Why in the News?

    India has added 52,537 MW of electricity generation capacity in the current financial year up to January 31, 2026. This is the highest ever annual capacity addition, taking total installed capacity to 5,20,510.95 MW.

    Key Data

    1. Total capacity addition (FY 2025-26 till Jan 31): 52,537 MW
    2. Previous record: 34,054 MW in FY 2024-25
    3. Total installed capacity (Jan 31, 2026): 5,20,510.95 MW
    4. Growth over last FY: More than 11 percent increase

    Breakup of Installed Capacity

    1. Renewable Energy:
      • 2,63,189.33 MW
      • Around 50.5 percent of total capacity
      • Solar: 34,955 MW added this year
      • Wind: 4,613 MW added
    2. Fossil Fuel Based:
      • 2,48,541.62 MW
      • Around 48 percent of total
    3. Nuclear Energy:
      • 8,780 MW
      • Around 1.6 percent

    Important Concepts for Prelims

    • Installed Capacity: Maximum electricity that can be generated under ideal conditions.
    • Renewable Energy Sources: Solar, wind, hydro, biomass etc.
    • Energy Mix: Composition of different energy sources in total generation capacity.

    Significance

    • India’s renewable share has crossed 50 percent of installed capacity.
    • Indicates progress toward climate commitments and energy transition goals.
    • Strengthens energy security and reduces fossil fuel dependence in long term.
    [2025] Consider the following statements about ‘PM Surya Ghar Muft Bijli Yojana’: I. It targets installation of one crore solar rooftop panels in the residential sector. 

    II. The Ministry of New and Renewable Energy aims to impart training on installation, operation, maintenance and repairs of solar rooftop systems at grassroot levels. 

    III. It aims to create more than three lakhs skilled manpower through fresh skilling and up-skilling, under scheme component of capacity building. 

    Which of the statements given above are correct? 

    (a) I and II only (b) I and III only (c) II and III only (d) I, II and III

  • NPS Equity Exposure Increased to 25% by FY27

    Why in the News?

    The Chairperson of the Pension Fund Regulatory and Development Authority announced that the National Pension System (NPS) will raise its equity exposure to 25 percent by FY2027, and that pension funds may begin investing in Alternative Investment Funds (AIFs) by March 2026.

    About the National Pension System

    • Launched in 2004 for government employees and extended to all citizens in 2009
    • Regulated by PFRDA
    • Defined contribution pension scheme
    • Market-linked returns
    • Two types:
      • Tier I: Mandatory retirement account
      • Tier II: Voluntary savings account

    Key Announcements

    • Increase in Equity Exposure

      • Equity cap in the Government Composite Scheme raised from 15 percent to 25 percent
      • Current equity exposure around 19 percent
      • Corporate bond exposure has reduced slightly
      • G Sec share remains largely stable
      • Objective: Improve long term returns while maintaining prudent risk levels.
      • Investment in AIFs: NPS to allow exposure to Alternative Investment Funds (AIFs) by March 2026

    • MARS Committee

      • PFRDA has constituted the Minimum Assured Return Scheme (MARS) committee
      • Exploring a pension product offering a guaranteed minimum return
    [2017] Who among the following can join the National Pension System (NPS)? (a) Resident Indian citizens only 

    (b) Persons of age from 21 to 55 only 

    (c) All State Government employees joining the services after the date of notification by the respective State Governments 

    (d) All Central Government Employees including those of Armed Forces joining the services on or after 1st April, 2004

  • The hidden cost of insurance distribution

    Why in the News?

    India’s life insurance industry paid ₹60,799 crore in commissions in FY2025, yet premium growth stood at only 6.7% while commission payouts increased by 18%. This divergence signals a structural imbalance between distribution costs and value creation. The Life Insurance Corporation (LIC) reduced its commission ratio from 5.45% to 5.17% despite premium growth of 2.8%, whereas private insurers increased commission ratios sharply to 7.21%-8.95%, leading to a 38.8% surge in commission payouts to ₹35,491 crore. Insurance penetration declined from 4% of GDP in FY2020 to 3.7% in FY2024. The issue marks a shift from episodic compliance concerns to a structural distribution faultline affecting financial stability and consumer welfare.

    Public-Private Structure of India’s Insurance Sector

    1. Life Insurance Composition: LIC, the sole public-sector life insurer, contributes 57.07% of total new business premiums (FY2024-25). The sector comprises 27 life insurers, including 26 private companies.
    2. General (Non-Life) Market Distribution: Private insurers hold approximately 64-66% market share, while Public Sector General Insurance Companies (PSGICs) account for 31-32%. The industry includes 34 non-life insurers, 6 public and 28 private (including standalone health and specialised insurers).
    3. Health Segment Significance: Health insurance constitutes 41.42% of gross direct premiums in FY2024-25, emerging as the largest non-life segment. Public sector general insurers’ premiums increased from ₹80,000 crore (2019) to approximately ₹1.06 lakh crore (early 2025).

    What Is the Structural Difference Between Public and Private Insurers?

    1. Channel Composition: LIC derives 95% of business from agency channels, enabling tighter commission control.
      1. Agency channels are individual agents appointed by an insurance company to sell its policies directly to customers.
    2. Commission Ratio Reduction: LIC reduced commission ratio from 5.45% to 5.17% despite 2.8% premium growth.
    3. Alternate Channel Dependence: Private insurers rely heavily on bancassurance, brokers, and marketing firms.
      1. Bancassurance is a distribution model where banks sell insurance products to their existing customers.
    4. Sharp Commission Escalation: Private commission ratios rose from 7.21% to 8.95% (174 basis points increase).
    5. Commission Outgo Surge: Private insurer commission payouts increased 38.8% to ₹35,491 crore from ₹25,564 crore.

    Why Does Distribution Cost Escalation Reflect Structural Market Imbalance?

    1. Bargaining Concentration: Twenty-six life insurers compete for access to banks operating over 4,00,000 branches, strengthening distributor leverage.
    2. High Switching Power: Banks and brokers control infrastructure and customer base, increasing negotiation power over insurers.
    3. Channel Dependence: Greater reliance on alternate channels directly increases commission payouts.
    4. Incentive Distortion: Competitive pressures push insurers to offer higher commissions to secure partnerships.
    5. Persistent Pattern: Rising commission ratios despite regulatory changes indicate systemic, not temporary, escalation.

    How Effective Have Regulatory Reforms Been?

    1. Product-Wise Caps: IRDAI introduced product-level commission ceilings to contain rising distribution payouts.
    2. Expense of Management (EOM) Consolidation: The regulatory framework later shifted to a unified Expense of Management structure, embedding commissions within overall expense limits.
    3. Competitive Structuring: Marketing tie-ups, infrastructure arrangements, and distribution negotiations limited the restraining effect of reforms.
    4. Structural Persistence: Commission escalation continued despite regulatory redesign, indicating unchanged bargaining asymmetry.

    What Changed in Expense of Management (EOM) Norms?

    1. Unified EOM Framework: 2023-24 reform merged management, acquisition, and commission expenses.
    2. Embedded Leverage: Commission expenses remained embedded within overall expense limits.
    3. Institutional Assertiveness: Institutions with bargaining power demanded higher payouts.
    4. Agent Retention Share: Agents retain approximately 35-40% of headline commissions after overrides and deductions.
    5. Concentration of Gains: Nearly ₹26,000 crore in FY2025 accrued to corporate intermediaries and large marketing firms.

    What Are the Consumer and Macroeconomic Implications?

    1. Limited Consumer Benefit: High distribution costs do not proportionately enhance policyholder value.
    2. Low Visibility Incentives: Informal rebates push transactions outside regulatory transparency.
    3. Penetration Decline: Insurance penetration declined from 4% (FY2020) to 3.7% (FY2024).
    4. Middle-Income Impact: High costs restrict sustainable inclusion for middle-income households.
    5. Financial Stability Concern: RBI flagged distribution cost sustainability concerns in the Financial Stability Report (December 2025).

    What Policy Correction Is Proposed?

    1. Outcome-Based Regulation: Focus on retention, service quality, and claim settlement ratios.
    2. Joint Oversight: IRDAI and RBI coordination on bancassurance governance.
    3. Commission Rebalancing: Shift from upfront commissions toward renewal-based income streams.
    4. Incentive Redesign: Align commissions with persistence and servicing metrics.
    5. Rational Cost Containment: Ensure sustainable penetration expansion.

    Conclusion

    Rising distribution costs signal a structural imbalance in India’s insurance ecosystem rather than a temporary market distortion. Regulatory recalibration under the amended IRDAI framework must prioritise cost efficiency, persistence-based incentives, and balanced public-private participation. Sustainable insurance penetration depends on correcting bargaining asymmetries while safeguarding financial stability and consumer interest.

    Value Addition

    Insurance Density 

    Key Figures & Trends: 

    1. Recent Density: Around $97 per person for 2024-25.
    2. Life Density: Increased to $72 in 2024-25.
    3. Non-Life Density: Stable at $25 in 2024-25.
    4. Growth: Gradual, steady increase observed since 2016-17.
    5. Comparison with Global Averages (Approximate):  India’s density ($97) is a fraction of the global average (around $874 in 2021-22).

    Insurance penetration 

    1. It in India stood at approximately 3.7% in FY25, remaining relatively stagnant and well below the global average of 7.3%. 
    2. Life insurance penetration dipped to 2.7%, while non-life insurance remained flat at 1.0%.

    PYQ Relevance

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

    Linkage: Recent amendments to the Insurance Regulatory and Development Authority Act have renewed focus on insurance sector reforms, making regulatory architecture and governance in insurance a high-priority area for GS II and GS III. The article’s discussion on distribution costs and bargaining asymmetry highlights why regulatory design under the revised IRDAI framework remains central to sectoral stability.

  • DAC Grants AoN Worth ₹3.6 Lakh Crore for Rafale, P-8I and Major Defence Modernisation Push

    Why in the News?

    The Defence Acquisition Council chaired by Rajnath Singh has granted Acceptance of Necessity for defence procurement proposals worth about ₹3.6 lakh crore, including 114 Rafale fighter jets and six P-8I aircraft.

    About Defence Acquisition Council

    • Apex decision making body for capital procurement in the Ministry of Defence after the Kargil War of 1999.
    • Headed by the Defence Minister
    • Grants Acceptance of Necessity, which is the first formal step in defence procurement
    • Functions under the framework of the Defence Acquisition Procedure 2020

    Composition 

    • The council is chaired by the Defence Minister (Raksha Mantri). Key members include the Chief of Defence Staff, the three Service Chiefs (Army, Navy, Air Force), and the Defence Secretary, with the Deputy Chief of Defence Staff (Planning & Procurement) as Member Secretary.

    Key Points: Recent procurement proposals: 

    • Acceptance of Necessity (AoN): First stage of capital procurement approval under Defence Acquisition Procedure 2020.
    • Indian Air Force: 114 Rafale Multi Role Fighter Aircraft, combat missiles, and High Altitude Pseudo Satellite for ISR and ELINT roles.
    • Indian Navy: Six P-8I long range maritime reconnaissance aircraft for anti submarine warfare and maritime strike capability.
    • Indian Army: Procurement of Vibhav anti tank mines and overhaul of T-72, BMP II and armoured recovery vehicles.
    [2024] Consider the following aircraft: 1. Rafael 

    2. MiG-29 

    3. Tejas MK-1 

    How many of the above are considered fifth generation fighter aircraft? 

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

  • New CPI Inflation Series (Base Year 2024): Food Weight Reduced to 37%

    Why in the news?

    India’s new Consumer Price Index (CPI) series with base year 2024 will reduce the weight of food and beverages from 45.86% to 36.75%, aligning the inflation basket with updated household consumption patterns from the 2023–24 Household Consumption Expenditure Survey (HCES).

    What is CPI?

    The Consumer Price Index (CPI) measures retail inflation by tracking changes in prices of goods and services consumed by households.

    It is:

    • The headline inflation measure in India
    • Used by the Reserve Bank of India for monetary policy
    • Based on periodic base year revision to reflect current consumption patterns

    Key Changes in the New CPI Series

    • Food Weight Reduced
      • From 45.86% → 36.75%
      • Reflects decline in food expenditure share
      • Based on Engel’s Law: As income rises, share of food expenditure falls
    • HCES Findings:
      • Rural food share: 52.9% (2011–12) → 47.04% (2023–24)
      • Urban food share: 42.62% → 39.68%
    • Housing Weight Increased
      • From 10.07% → 17.66%
      • Now includes: Water, Electricity, Gas and Other fuels
      • Methodological change: Employer provided accommodation excluded
      • This may exert upward pressure on inflation.
    • Basket Expansion
      • Items increased from 299 → 358
      • Reclassification of categories
      • Linking factor to be released for back series comparison

    Why Was High Food Weight a Concern?

    • Food inflation is often supply driven.
    • Monetary policy cannot control vegetable or cereal supply in short run.
    • High food weight caused:
      • Excess volatility in headline inflation
      • Constraints on repo rate decisions

    Example:

    • October 2025 CPI: 0.25%
    • Food inflation: (-)5.02%
    • Food price fall dragged headline inflation sharply lower

    Implications for RBI

    • The RBI follows Flexible Inflation Targeting (FIT):
      • Target: 4%
      • Tolerance band: 2–6%
      • Mandated under RBI Act amendment (2016)
    • Lower food weight may:
      • Reduce volatility
      • Give clearer signal of core inflation
      • Improve monetary policy transmission
      • However, higher housing weight may increase measured inflation.
    [2020] Consider the following statements: 1. The weightage of food in Consumer Price Index (CPI) is higher than that of Wholesale Price Index (WPI). 

    2. The WPI does not capture changes in the prices of services, which CPI does. 

    3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. 

    Which of the statements given above is/are correct? 

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

  • [12th Februrary 2026] The Hindu OpED: The CPI base revision exercise measures a slice of life

    PYQ Relevance[UPSC 2023] Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements. Linkage: Unemployment and inflation are core GS-3 macro indicators influencing growth and monetary policy. Just as CPI base revision affects inflation measurement, unemployment estimates depend on survey methodology (PLFS), shaping policy credibility and reform design.

    Why in the News?

    The Ministry of Statistics and Programme Implementation (MoSPI) has decided a comprehensive exercise for revision of the base year of Gross Domestic Product (GDP), Index of Industrial Production (IIP) and Consumer Price Index (CPI) to enhance their relevance, accuracy and international comparability. The proposed new base year for the GDP and IIP is 2022-23, and for CPI the proposed base year is 2024. The revision of CPI will be done using findings from the latest Household Consumption Expenditure Survey (HCES). The revision recalibrates expenditure weights to reflect structural shifts in consumption patterns over the past decade. Since CPI is the anchor for inflation targeting and monetary policy, changes in its composition directly influence measured inflation and policy response. The exercise also gains significance after gaps in consumption data, making representativeness and credibility central concerns.

    What is CPI and Why is it Important?

    Consumer Price Index (CPI) measures the average change over time in the retail prices of a fixed basket of goods and services consumed by households. It reflects retail inflation and serves as the nominal anchor under India’s inflation targeting framework.

    1. Retail Inflation Measure: Tracks price changes at the consumer level across goods and services.
    2. Inflation Target Anchor: Forms the basis of RBI’s flexible inflation targeting framework.
    3. Cost-of-Living Indicator: Reflects purchasing power of households.
    4. Policy Benchmark: Guides interest rate decisions, wage revisions and welfare indexation.
    5. Macroeconomic Signal: Influences investor expectations and economic outlook.

    Why Was Base Year Revision Necessary?

    1. Outdated Consumption Weights: 2012 basket no longer reflects current spending behaviour.
    2. Structural Economic Shift: Expansion of services sector and urbanisation since 2012.
    3. Consumption Diversification: Rising share of telecom, transport and service expenditures.
    4. Reduced Food Share: Relative decline in food and clothing weight in total expenditure.
    5. Data Discontinuity Concern: Delay in updated consumption data affected representativeness.

    How Does the CPI Basket Reflect Structural Changes in Society?

    1. Shift from Goods to Services: Higher expenditure on communication, transport and service-based consumption.
    2. Urbanisation Impact: Changing food habits, mobility patterns and housing expenditure.
    3. Changing Aspirations: Rising discretionary spending relative to subsistence consumption.
    4. Technology Integration: Inclusion of modern consumption categories such as telecom services.
    5. Rural-Urban Convergence: Updated survey captures evolving rural consumption patterns.
    6. Declining Engel Ratio: Reduced proportional spending on food indicates income progression.

    What Are the Macroeconomic Implications of CPI Base Year Revision?

    1. Inflation Recalibration: Weight changes can alter headline and core inflation trends.
    2. Monetary Policy Adjustment: RBI policy stance depends on CPI trajectory.
    3. Real Interest Rate Impact: Changes in measured inflation affect real returns.
    4. Fiscal Planning Effect: Influences subsidy indexation and welfare transfers.
    5. Market Signalling: Alters inflation expectations in financial markets.
    6. Credibility Enhancement: Strengthens confidence in official inflation statistics.

    Conclusion

    CPI base revision updates inflation measurement to reflect contemporary consumption patterns. It strengthens accuracy, improves macroeconomic signalling and supports effective monetary policy.

  • Taxpayer base more than doubled in the last decade

    Why in the News?

    India’s direct tax system has recorded sustained expansion in both individual and non-individual taxpayers. India’s taxpayer base has more than doubled over the last decade, with individual taxpayers rising from 3.26 crore in AY2013-14 to nearly 7.26 crore in AY2024-25, while the total base expanded to about 4.8 crore. Simultaneously, the cost of collecting direct taxes declined to 0.41% in FY2024-25 (provisional), the lowest in available data.The increase reflects administrative reforms, digitalisation of filing systems, and structural strengthening of compliance mechanisms.

    What is the scale of expansion in the taxpayer base?

    1. Individual taxpayers: Increased from 3.26 crore (AY2013-14) to nearly 7.26 crore (AY2024-25), more than doubling in a decade.
    2. Total taxpayer base: Expanded from about 2.9 crore in AY2013-14 to nearly 4.8 crore in AY2024-25.
    3. Growth rate: Registered a CAGR of approximately 5% over the period.
    4. Peak annual growth: 7.89% CAGR observed during the period.
    5. Pandemic disruption: Growth slowed sharply in FY2020-21 due to COVID-19-related economic disruption.
    6. Recovery phase: Growth rebounded in subsequent years, indicating durability of expansion.

    How has the composition of taxpayers evolved?

    1. Dominance of individuals: Individual taxpayers continue to dominate the system.
    2. Non-individual taxpayers: Includes firms, companies, LLPs, Association of Persons (AOPs), Body of Individuals (BOIs), local authorities, and artificial juridical persons.
    3. Steady growth in non-individuals: Growth remained more stable compared to individuals, without major pandemic volatility.
    4. Broader base expansion: Evidence suggests increasing formalisation across business entities.

    What institutional changes supported this expansion?

    1. Digital filing systems: Increased reliance on online return filing.
    2. Pre-filled returns: Reduced compliance burden and errors.
    3. Expanded third-party reporting: Strengthened information matching.
    4. Reduced face-to-face interactions: Enhanced transparency and minimised discretion.
    5. Compliance friction reduction: Enabled smoother onboarding of taxpayers.
    6. Administrative strengthening: Indicated by consistent year-on-year improvements.

    What does the cost of collection indicate?

    1. Declining cost of collection: Reduced from 0.61% of gross direct tax collections (FY2000-01) to 0.41% (FY2024-25 provisional).
    2. Lowest in available data series: Reflects sustained administrative efficiency.
    3. Pandemic spike: Temporary rise in FY2020-21 due to disruptions.
    4. Post-pandemic correction: Returned to declining trajectory.
    5. Efficiency gain: Indicates improved revenue mobilisation per rupee spent.

    What does this imply for fiscal capacity and governance?

    1. Structural strengthening: Evidence suggests durable expansion, not a one-time compliance surge.
    2. Formalisation of economy: Broader cross-section of taxpayers entering formal net.
    3. Revenue resilience: Supports fiscal planning and long-term budgeting.
    4. Administrative modernisation: Reflects digital governance success.
    5. Compliance culture: Indicates deeper tax participation.

    Conclusion

    The sustained expansion of the taxpayer base alongside declining cost of collection signals structural strengthening of India’s direct tax system. The evidence suggests institutional reform, digitalisation, and broader formalisation have enhanced fiscal resilience and administrative efficiency.

    PYQ Relevance

    [UPSC 2019] Enumerate the indirect taxes which have been subsumed in the goods and services tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017.

    Linkage: This question tests understanding of how tax reforms expand the revenue base and strengthen fiscal capacity, a core GS3 theme. The article shows how widening the taxpayer base and improving compliance are part of the same structural shift that GST triggered in India’s tax ecosystem.

  • Carbon Capture to Drive India’s Green Steel Transition

    Why in the News

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

    India’s Steel Sector at a Glance

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

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

    What is CCUS

    Carbon Capture, Utilisation and Storage involves:

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

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

    Government Measures

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

    Significance

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

    2. Oil refineries 

    3. Steel plants 

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

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

  • A reckoning for India’s aviation sector

    Why in the News?

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

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

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

    Why is India’s aviation sector facing operational stress?

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

    What explains the pilot shortage and regulatory strain?

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

    How does market concentration amplify systemic risk?

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

    How do infrastructure and fuel volatility impact viability?

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

    What role do new regional entrants play?

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

    Conclusion

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

    PYQ Relevance

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

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