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Subject: Economics

  • Niti Aayog proposes Presumptive Taxation for Foreign Companies

    Why in the News?

    NITI Aayog has released a working paper recommending the introduction of an optional presumptive taxation scheme for foreign companies operating in India.

    What is Presumptive Taxation?

    • Overview: Presumptive taxation allows taxpayers to declare income at a fixed percentage (presumed rate) of total turnover or receipts without maintaining detailed books of accounts.
    • Purpose: Simplifies taxation for small businesses or specific sectors by reducing compliance and administrative burden.
    • Domestic Example: Under the Income Tax Act, Sections 44AD, 44ADA, and 44AE permit presumptive taxation for small businesses, professionals, and transporters.
    • Key Feature:
      • Tax is levied on deemed profits instead of actual income.
      • Taxpayers opting for this scheme are exempt from detailed audits or complex record-keeping.

    What has NITI Aayog Proposed?

    • Scope: Extend the presumptive taxation concept to foreign companies operating in India.
    • Objective: To reduce litigation related to Permanent Establishment (PE) status and profit attribution in cross-border taxation.
    • Main Features:
      • Optional Scheme: Foreign companies can either choose the presumptive scheme for certainty or file regular returns if actual profits are lower.
      • Sector-Specific Rates: Different deemed profit rates for sectors such as manufacturing, digital services, and logistics.
      • Safe Harbour Clause: Once a company opts in, tax authorities cannot separately litigate the PE existence for that activity.
      • Alignment with Global Norms: Codify PE and attribution principles in domestic law consistent with OECD standards.
      • Administrative Reforms: Training of tax officials to ensure consistent application in digital and cross-border cases.

    Significance:

    • Provides tax certainty and simplicity for foreign investors.
    • Reduces disputes and promotes ease of doing business.
    • Balances India’s sovereign tax rights with the need for a predictable, investor-friendly regime.
    • Positions India as a more attractive FDI destination, aligned with its economic and tax reform agenda.
    [UPSC 2020] With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?

    1. It is introduced as a part of the Income Tax Act.

    2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

    Select the correct answer using the code given below:

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

     

  • [pib] BRO Project Swastik marks 65 years of service

    Why in the News?

    Border Roads Organisation (BRO) Project Swastik celebrated its 65th Raising Day on October 01, 2025.

    About Project Swastik:

    • Origin: Established in 1960 as Project DRAGON, renamed Project Swastik on 1 October 1963.
    • Organisation: A flagship initiative of the Border Roads Organisation (BRO) under the Ministry of Defence.
    • Mandate: Construction and maintenance of strategic roads, bridges, and tunnels in the high-altitude Himalayan terrain.
    • Area of Responsibility: Covers North and East Sikkim up to forward border areas, also parts of North Bengal. The region is prone to landslides, fragile geology (Phyllites, Schists), and extreme weather conditions.
    • Strategic Role: Provides vital support for Armed Forces mobility, disaster relief operations, and socio-economic connectivity for remote communities.

    Major Accomplishments:

    • Road & Bridge Network: Built and maintained over 1,412 km of roads and 80 major bridges since inception.
    • Recent Achievements: In the last decade, completed 350 km of new roads, 26 bridges, and 1 tunnel, ensuring year-round access to forward areas.
    • Key Road Links: Developed lifelines like the Gangtok–Chungthang and Gangtok–Nathula roads, critical for defence and civilian movement.
    • Disaster Response: Effectively restored connectivity after Glacial Lake Outburst Floods (GLOFs), cloudbursts, and Teesta River floods. Widely praised during the 2023 Sikkim flash floods.

  • More Women join the labour force, but are they really employed?

    Introduction

    The female labour force participation rate (FLFPR) is often viewed as a proxy for gender equality and economic dynamism. India’s FLFPR dropped from 31.2% in 2011-12 to 23.3% in 2017-18 but has dramatically risen to 41.7% in 2023-24. At first glance, this looks like a success story. However, closer scrutiny reveals that most women are being absorbed into agriculture, unpaid household enterprises, and low-paying self-employment, rather than formal or secure wage jobs. The paradox is clear: more women are being “counted” in the labour market, but their earnings and economic independence remain stagnant or declining.

    Why is female labour force participation in the news?

    1. Sharp rise in FLFPR: Jumped from 23.3% in 2017-18 to 41.7% in 2023-24.
    2. First-time reversal: After years of decline, the participation rate is rising again.
    3. Underlying concern: Despite more women “working,” earnings have fallen, and secure wage jobs remain elusive.
    4. Contradiction: Participation has grown, but instead of diversifying into services/industry, women are moving back into agriculture.

    What explains the rise in female participation?

    1. Rural women as drivers: Most of the rise is accounted for by women in rural India.
    2. Shift from domestic duties: Share of women reporting “domestic duties” fell from 57.8% (2017-18) to 35.7% (2023-24).
    3. Rise in unpaid helpers: Share of “helpers in household enterprises” rose from 9.1% to 19.6%.
    4. Self-employment increase: “Own account workers and employers” rose from 4.5% to 14.6%.

    Are women moving to better jobs?

    1. Agriculture dominance: Share of rural women in agriculture rose from 71.1% (2018-19) to 76.9% (2023-24).
    2. Decline in other sectors: Women’s share in both secondary (industry) and tertiary (services) sectors has fallen.
    3. Blurring boundaries: Women’s unpaid household work overlaps with helper roles in household enterprises, making it questionable whether this should count as “employment.”

    What about earnings and job quality?

    1. Declining real earnings: Except for casual workers, earnings have declined across categories—self-employed, salaried, and even employers.
    2. Vulnerability of self-employment: More women are reporting self-employment, but this has not translated into higher income.
    3. No wage expansion: Growth in FLFPR has not been accompanied by secure wage-based jobs.

    Why does this matter for India’s economy and gender equality?

    1. False signal of empowerment: Higher FLFPR without earnings security reflects distress-driven participation, not genuine empowerment.
    2. Economic vulnerability: Rising unpaid and low-paid work lowers household resilience and women’s autonomy.
    3. Policy challenge: Employment growth is not keeping pace with women’s entry into the workforce, pointing to structural issues in India’s labour market.

    Conclusion

    The sharp rise in India’s female labour force participation hides more than it reveals. Women are being pushed into unpaid or poorly paid work, especially in agriculture and household enterprises, while real earnings are falling. This suggests that India’s growth story is not translating into dignified employment for women. For true gender equality, the focus must shift from mere participation numbers to quality, security, and remuneration of women’s work. Only then will women’s economic empowerment become a reality.

    PYQ Relevance

    [UPSC 2023] Distinguish between ‘care economy’ and ‘monetized economy’. How can the care economy be brought into a monetized economy through women empowerment?

    Linkage: The article highlights women’s shift from domestic duties to unpaid helper roles, directly linking the care economy to the challenge of integrating it into the monetized economy through women’s empowerment.

  • Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme

    Why in the News?

    The Government has extended the Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme until March 31, 2026, providing relief and policy certainty to exporters.

    About the RoDTEP Scheme:

    • Launch & Context: Introduced on 1 January 2021 under the Foreign Trade Policy 2015–20, replacing the Merchandise Exports from India Scheme (MEIS) after India lost a case at the World Trade Organisation (WTO).
    • Administration: Managed by the Department of Revenue, Ministry of Finance, and implemented via the Central Board of Indirect Taxes and Customs (CBIC).
    • Objective: Refund hidden domestic taxes/duties on exports to ensure goods leave the country free of embedded levies, enhancing competitiveness and ensuring WTO compliance.
    • Coverage: Applicable to all Indian exporters (manufacturers and merchants) including SEZs, Export Oriented Units (EOUs), Advance Authorisation (AA) holders, and Domestic Tariff Area (DTA) units.
    • Timeline: Initially valid till 5 February 2025, restored in May 2025 for AA, EOU, and SEZ exports after industry lobbying, and now extended till 31 March 2026.

    Key Features:

    • Hidden Taxes Covered: Refunds duties such as electricity duty, mandi tax, fuel charges in transport, and local cesses.
    • Rebate Mechanism: Calculated as a percentage of the Free on Board (FOB) value of exports.
    • Refund Mode: Benefits disbursed as electronic scrips (e-scrips), stored in CBIC’s digital ledger.
    • Use of E-Scrips: Can be utilised to pay basic customs duty or transferred to other importers.
    • Sectoral Priority: Focus on labour-intensive industries like textiles, handicrafts, leather, etc.
    • Exclusion: Re-exported goods are not eligible under RoDTEP.
    • Budgetary Control: Operates strictly within annual budget allocations, as clarified by DGFT.
    • Policy Certainty: Extension till 2026 ensures stability for exporters facing global trade headwinds.
    [UPSC 2020] With reference to the international trade of India at present, which of the following statements is/are correct?

    1.  India’s merchandise exports are less than its merchandise imports.

    2. India’s imports of iron and steel, chemicals, fertilizers and machinery have decreased in recent years.

    3. India’s exports of services are more than its imports of services.

    4. India suffers from an overall trade/current account deficit.

    Select the correct answer using the code given below:

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

     

  • World’s highest bridge opens to traffic in China 

    Why in the News?

    The Huajiang Grand Canyon Bridge in Guizhou province, China, is now the world’s tallest bridge, standing 625 m above the Beipan River.

    World's highest bridge opens to traffic in China 

    About Huajiang Grand Canyon Bridge:

    • Height: Rises 625 m above the Beipan River, surpassing the previous record-holder, the Beipanjiang Bridge (565 m).
    • Connectivity: Links the Liuzhi Special District and Anlong Special District, reducing travel time from 2 hours to just 2 minutes.
    • Transport Network: Part of the Guizhou S57 Expressway and the 190 km Shantian–Puxi Expressway, boosting transport, economy, and tourism.
    • Engineering Hub: Guizhou, called the “bridge museum of the world”, now has nearly half of the world’s 100 tallest bridges, showcasing China’s leadership in high-altitude civil engineering.

    Key Features of the Bridge:

    • Height Record: Deck-to-water clearance of 625 m, taller than most skyscrapers.
    • Span & Length: Total length 2,890 m, with a 1,420 m suspension span, the longest in any mountainous region globally.
    • Construction: Began January 2022, completed in just over three years; final truss installed January 2025; load-tested with 96 trucks.

  • What an empty plate of food should symbolise

    Introduction

    Globally, nearly one-third of all food produced is lost or wasted, undermining both food security and climate action. For India, the cost of post-harvest losses is about ₹1.5 trillion every year, almost 3.7% of its agricultural GDP. Beyond economics, this wastage squanders nutrition, water, energy, and labour, aggravating the climate crisis. The problem is not consumer-driven, as in developed nations, but arises early in the value chain, in handling, processing, and distribution. International Day of Awareness of Food Loss and Waste (IDAFLW) highlights this as both a challenge and an opportunity: to build resilient, efficient, and climate-smart food systems.

    Why is Food Loss in the News?

    The recent FAO–NIFTEM–GCF study has provided the first sector-, state– and operation-wise estimates of greenhouse gas emissions from post-harvest losses and retail waste in India, covering 30 crops and livestock products. The findings are striking: even modest losses in cereals like paddy account for over 10 million tonnes of CO₂-equivalent emissions annually due to rice’s methane intensity. Overall, food loss generates more than 33 million tonnes of emissions every year. For a country aiming to balance food security with climate commitments, this is both alarming and unprecedented in scale.

    The Economic Burden of Food Loss

    1. ₹1.5 trillion annual cost: Post-harvest losses in India amount to nearly 3.7% of agricultural GDP.
    2. Sectoral vulnerability: Fruits and vegetables suffer 10–15% losses; even staples such as paddy (4.8%) and wheat (4.2%) are significantly affected.
    3. Farmer incomes at risk: Such losses reduce food availability and directly affect the livelihood security of millions of farmers.

    The Climate Connection

    1. Greenhouse gas emissions: Food loss from 30 key commodities produces 33 million tonnes of CO₂-equivalent emissions annually.
    2. Cereal losses critical: Paddy alone contributes over 10 million tonnes of emissions due to methane intensity.
    3. Livestock products’ footprint: Wastage in dairy and meat is equally damaging, given their heavy resource requirements.
    4. Link with SDGs: India has integrated SDG 12.3.1 (Global Food Loss and Waste) into its National Indicator Framework for systematic monitoring.

    Where Do the Losses Occur?

    1. Early supply chain stages: Losses in India occur during handling, processing, and distribution, unlike high-income countries where waste is consumer-driven.
    2. Infrastructure gaps: Lack of modern cold chains, refrigerated transport, and efficient storage are major bottlenecks.
    3. Fragmented supply chains: Weak value-chain integration adds to inefficiency and wastage.

    Practical Solutions in Sight

    1. Cold chain modernisation: Programmes like PM Kisan SAMPADA Yojana (PMKSY) focus on modernising storage, processing, and logistics.
    2. Affordable technologies: Solar cold storage, low-cost cooling chambers, and moisture-proof silos can reduce spoilage for smallholders.
    3. Digital interventions: IoT sensors, AI-driven forecasting, and tracking tools like the FAO Food Loss App (FLAPP) (launched in 2023, used in 30+ countries) improve efficiency.
    4. Circular economy practices: Redirecting surplus to food banks/community kitchens and converting unavoidable waste into compost, feed, or bioenergy.
    5. Policy support: Subsidies, credit guarantees, and low-interest loans are needed to scale up solutions.

    Shared Responsibility Across Stakeholders

    1. Government: Integrate food loss reduction in climate strategies and invest in infrastructure.
    2. Private sector: Adopt circular business models and scalable innovations.
    3. Civil society & academia: Drive awareness and research.
    4. Consumers: Practice mindful consumption and support redistribution mechanisms.

    Conclusion

    An empty plate should symbolise nourishment received, not the silent wastage of resources and opportunities. Reducing food loss in India is not just about saving food — it is about strengthening farmer incomes, ensuring food security, cutting emissions, and meeting global sustainability goals.

    PYQ Relevance

    [UPSC 2019] Examine the scope of the food processing industries in India. Elaborate the measures taken by the government in the food processing industries for generating employment opportunities.

    Linkage: Food loss and waste directly highlight the gaps in India’s food processing sector, where inadequate cold chains, fragmented supply chains, and weak storage infrastructure undermine both farmer incomes and climate goals, making this question highly relevant.

    Value Addition

    International Day of Awareness of Food Loss and Waste (IDAFLW): Observed on September 29; raises global attention to the issue of food loss and waste undermining food and climate security.

    Value Chain and Food Processing Sector in India

    Economic Significance

    1. Contribution to GDP : Food processing sector contributes about 10% of manufacturing GDP and nearly 13% of India’s exports.
    2. Employment Potential : Provides large-scale rural and semi-urban employment, with strong potential for women and smallholder farmers.

    Infrastructure and Policy Interventions

    1. Pradhan Mantri Kisan SAMPADA Yojana (PMKSY) : Umbrella scheme for cold chains, mega food parks, and agro-processing clusters.
    2. Mega Food Parks : Around 42 Mega Food Parks sanctioned across the country to integrate farm-to-market supply chains.
    3. Operation Greens (TOP to TOTAL) : Price stabilisation and value chain strengthening for perishable crops like tomato, onion, potato.
    4. PLI Scheme for Food Processing (2021) : ₹10,900 crore outlay to boost exports, ready-to-eat, organic, and marine food products.

    Post-Harvest Losses and Value Chain Gaps

    1. High Economic Losses : NABCONS (2022) estimated ₹1.5 trillion annual post-harvest losses, equivalent to 3.7% of agricultural GDP.
    2. Crop-wise Losses : Fruits and vegetables face 10–15% losses; paddy 4.8%; wheat 4.2%.
    3. Comparative Gap : Only 10% of India’s produce is processed, compared to 65–70% in developed nations.

    Technology and Innovation in Value Chains

    1. IoT and AI : Used for forecasting, tracking, and real-time storage monitoring.
    2. Affordable Storage Solutions : Solar cold storage, low-cost cooling chambers, and moisture-proof silos reduce wastage.
    3. Digital Platforms : FAO’s Food Loss App (FLAPP) (2023) monitors value-chain losses; adopted in 30+ countries.

    Sustainability and Circular Economy

    1. Resource Efficiency : Cutting losses conserves embedded water, energy, and labour.
    2. Surplus Redistribution : Food banks and community kitchens absorb edible surplus.
    3. Waste Conversion : Composting, animal feed, and bioenergy generation from unavoidable waste.
    4. Global Commitments : Strengthens India’s alignment with SDG 2 (Zero Hunger), SDG 12 (Responsible Consumption and Production), and SDG 13 (Climate Action).

    Case Study Box: Food Processing and Value Chain in India

    Case Study 1: Tumkur Mega Food Park, Karnataka

    • Launched : Under PMKSY.
    • Facilities : Cold storage, warehousing, quality control labs, logistics hubs
    • Impact :
      • Reduced post-harvest losses of perishable crops.
      • Generated ~5,000 direct and indirect jobs.
      • Enhanced farmer linkages with retail chains and exporters.

    Case Study 2: Operation Greens – Onion Price Stabilisation (Maharashtra, 2018–19)

    • Problem : Frequent onion price crashes and volatility in Maharashtra.
    • Intervention : Subsidised transport and storage under Operation Greens (TOP to TOTAL).
    • Impact :
      • Prevented distress sales by farmers.
      • Stabilised retail onion prices for consumers.
      • Demonstrated the role of value chain management in food security.

    Case Study 3: Amul Dairy Cooperative (Gujarat)

    • Model : Farmer-owned cooperative integrating production, processing, and distribution.
    • Impact :
      • Dairy farmers receive better price realisation.
      • Efficient cold chain logistics reduce milk spoilage.
      • Became a global model of agri-value chain success.

  • Analysing Indian State’s macro-fiscal health

    Introduction

    India’s federal system depends heavily on States for delivering core welfare, infrastructure, and development. For much of the 2000s, reforms and tax buoyancy allowed States to report surpluses, better spending, and healthier balance sheets. However, the COVID-19 pandemic marked a turning point: revenues plummeted while emergency spending skyrocketed, forcing States into unprecedented borrowing. The Comptroller and Auditor General (CAG)’s decade-long analysis highlights this transition, exposing systemic stress points in India’s fiscal federalism.

    Why is this issue in the news?

    India’s States, once showing signs of fiscal prudence with even surpluses, now find themselves trapped in a debt spiral. The pandemic alone pushed almost every State into record borrowing, reversing earlier trends. For example, Uttar Pradesh, once lauded for surplus budgets, reported a revenue surplus of only ₹2,000 crore, down sharply from ₹37,000 crore in FY20. Kerala, which borrowed ₹80,575 crore in 2020-22, saw its debt mount to unsustainable levels. The contrast is stark: States that earlier prospered through buoyancy and reforms are today weighed down by heavy fiscal deficits and repayment burdens.

    How has the States’ borrowing changed over time?

    1. Sharp rise post-pandemic: Borrowings spiked everywhere during the pandemic, with Kerala, Maharashtra, Andhra Pradesh, and Tamil Nadu reporting unprecedented debt levels.
    2. Uttar Pradesh’s decline: From a revenue surplus of ₹37,000 crore in 2019-20, UP fell to only ₹2,000 crore.
    3. Kerala’s crisis: Borrowed ₹80,575 crore between 2020-22 and exceeded ₹1.04 lakh crore later, making it one of the most indebted States.
    4. National trends: From 2017 to 2022-23, States’ gross borrowings rose from ₹5.6 lakh crore to ₹8.2 lakh crore, reflecting widespread fiscal strain.

    Why are States borrowing so heavily?

    1. Emergency spending: The pandemic forced huge expenditures on health, welfare, and relief, while revenues collapsed.
    2. Welfare paradox: Despite borrowing, States continue with high welfare commitments such as free electricity, pensions, and subsidies.
    3. GST regime pressures: Dependence on GST compensation and delayed transfers added strain to State finances.
    4. Capital expenditure trade-offs: More money went into welfare subsidies than infrastructure, raising concerns of long-term growth stagnation.

    What are the fiscal risks emerging?

    1. Debt sustainability: States like Punjab, Kerala, and Rajasthan carry some of the heaviest debt burdens relative to GSDP.
    2. Revenue shortfall: Weak own-tax revenues coupled with GST dependency reduce fiscal space.
    3. Deficit pressures: Gross fiscal deficit (GFD) levels remain elevated, restricting maneuverability.
    4. Crowding out growth: Excessive borrowing for subsidies diverts funds from capital creation, weakening long-term competitiveness.

    How are States coping with fiscal pressures?

    1. Raising borrowings: Kerala, Maharashtra, and Tamil Nadu remain among the largest borrowers.
    2. Cutting investments: Many States reduced capital expenditure to fund populist schemes.
    3. Seeking Centre’s support: GST compensation and Union transfers remain critical lifelines.
    4. Relying on lotteries and land: Kerala and other States turn to non-tax sources like lottery revenues or land monetisation.

    What is the way forward for States’ fiscal health?

    1. Prudent fiscal management: Focus on long-term debt sustainability instead of short-term populism.
    2. Rationalised welfare: Targeted subsidies over blanket schemes to avoid unsustainable fiscal stress.
    3. Strengthened GST framework: Ensure timely compensation and greater autonomy in tax mobilisation.
    4. Balanced expenditure: Redirect focus toward capital creation and infrastructure while safeguarding essential welfare.

    Conclusion

    The macro-fiscal health of Indian States has reached a critical juncture. The transition from buoyancy and surpluses in the 2000s to widespread borrowing and debt stress post-pandemic illustrates both structural vulnerabilities and political compulsions. While welfare commitments reflect democratic imperatives, unchecked populism coupled with weak revenue growth risks undermining fiscal stability. The future of India’s growth story rests not only on the Centre but equally on how States recalibrate their spending priorities and borrowing practices.

    PYQ Relevance

    [UPSC 2024] Examine the pattern and trend of public expenditure on social services in the post-reforms period in India. To what extent this has been in consonance with achieving the objective of inclusive growth?

    Linkage: The article’s discussion on States’ rising welfare spending, shrinking capital outlays, and mounting debt post-pandemic directly links to this PYQ by questioning whether such expenditure patterns genuinely advance inclusive growth.

  • [pib] The Indian Ports Act, 2025

    Why in the News?

    The Indian Ports Act, 2025 enacted in August, repealing the age-old Indian Ports Act of 1908 seeks to establish a more modern legal and institutional framework for India’s port sector.

    About Indian Ports Act, 2025:

    • Overview: Enacted in August 2025, replacing the Indian Ports Act of 1908 to modernize India’s port governance.
    • Aim: To integrate port law, tariff regulation, safety, environmental standards, and Centre–State cooperation into one comprehensive legal framework.
    • Vision: Aligns with broader maritime reforms alongside the Merchant Shipping Act, 2025 and Carriage of Goods by Sea Act, 2025.
    • Seeks to position India’s port sector for global competitiveness through transparency, sustainability, and efficient regulation.

    Key Features:

    • Maritime State Development Council (MSDC): Becomes a statutory consultative body to coordinate between Centre and States, advise on national port strategy, tariff transparency, data standards, and connectivity planning.
    • State Maritime Boards: Each coastal state must establish or recognize a board within 6 months to regulate non-major ports, manage licensing, tariffs, development, safety, and environmental compliance.
    • Tariff Setting:
      • Major Ports: Tariffs fixed by Port Authority Boards or Boards of Directors.
      • Non-Major Ports: Tariffs fixed by State Maritime Boards or concessionaires.
      • All tariffs must be electronically published for transparency.
    • Dispute Resolution: States must create Dispute Resolution Committees; appeals go directly to High Courts. Arbitration and ADR allowed.
    • Environmental Norms: Mandates waste management, pollution control, disaster preparedness, ballast water restrictions, and penalties for violations.
    • Applicability: Covers all existing and future ports, navigable channels, and vessels within port limits, except those serving armed forces, Coast Guard, or customs.
    [UPSC 2023] With reference to India, consider the following pairs:

    Port : Well Known as

    1. Kamarajar Port : First major port in India registered as a company

    2. Mundra Port : Largest privately owned port in India

    3. Visakhapatnam Port : Largest container port in India

    How many of the above pairs are correctly matched?

    (a) Only one pair (b) Only two pairs* (c) All three pairs (d) None of the pairs

     

  • [27th September 2025] The Hindu Op-ed: Incentives for shipbuilding must include longterm offtake possibilities

    PYQ Relevance:

    [UPSC 2013] Adoption of PPP model for infrastructure development of the country has not been free from criticism. Critically discuss the pros and cons of the PPP model.

    Linkage: India’s shipbuilding revival package too hinges on state support plus private shipowner participation, much like PPP projects, where delays, cost overruns, and weak ancillary ecosystems mirror the criticisms of PPP in other infrastructure sectors. Thus, the editorial’s concerns on viability and long-term offtake directly resonate with PPP model challenges.

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

    Linkage: Strengthening indigenous shipbuilding directly supports maritime security, as a larger and modern merchant fleet reduces reliance on foreign vessels, ensures secure energy transport, and complements India’s naval and coastal defence preparedness.

    Mentor’s Comment

    The Government’s announcement of a ₹69,725 crore package to revive India’s shipbuilding ecosystem marks a crucial moment for maritime infrastructure. With India building only a handful of merchant ships in the last decade despite global growth, the new push signals both opportunity and urgency. The challenge lies in transforming policy incentives into real competitiveness, something India failed to do under the 2015 package.

    Introduction

    India aspires to emerge as a global maritime power, but its shipbuilding sector has lagged far behind peers like China, Japan, and South Korea. While lucrative defence contracts have kept select shipyards active, India’s merchant ship production remains negligible. The new package seeks to expand capacity to 4.5 million gross tonnage, modernise yards, and create ancillary clusters. However, unless structural inefficiencies are addressed, ranging from delays in turnaround to absence of long-term offtake, the initiative risks becoming another missed opportunity.

    Why in the News

    The government has announced a massive ₹69,725 crore revival package to replace the expiring 2015 shipbuilding scheme. This is significant because, despite subsidies earlier, India produced only about half-a-dozen merchant ships in 10 years, a glaring failure when global yards deliver ships in just a year. The new plan aims to overcome these bottlenecks by upgrading infrastructure, ancillaries, and financing structures. The contrast between global efficiency (3–4 months keel to launch) and India’s 2–3 years turnaround highlights the magnitude of the problem.

    The Scale of the Problem

    1. Negligible merchant shipbuilding: Only half-a-dozen small ships built in the last decade.
    2. Long delays: Turnaround time of 2–3 years in India vs 1 year globally.
    3. Lack of competitiveness: Shipowners avoid Indian yards due to sunk capital and overruns.

    Global Best Practices in Shipbuilding

    1. Korea, Japan, China lead: Prefabricated component blocks welded in large assembly-line yards.
    2. High-capacity cranes: 1,000-tonne cranes enable block movement in foreign shipyards.
    3. Speed & efficiency: Keel-to-waterborne in 3–4 months; full build in about 1 year.

    India’s Bottlenecks

    1. Inadequate infrastructure: Indian yards too small, lack crane capacity and prefab space.
    2. Weak ancillary ecosystem: Absence of robust component manufacturing clusters.
    3. Finance limitations: Benefits of lower interest rates & extended repayment apply only to large vessels.

    Missed Opportunities in Policy Integration

    1. Green fuel projects: Kakinada & Kochi developing production for exports but no linkage with green shipbuilding.
    2. Lack of long-term offtake: Shipowners lack demand visibility; without assured contracts, newbuild investments stall.

    The Way Forward

    1. Cluster-based development: Establish ancillary industries around shipyards for supply chains.
    2. Capacity building: Training institutions on lines of China to create skilled manpower.
    3. Policy synergy: Link green shipping contracts with renewable fuel policies.
    4. Long-term contracts: Use State-owned utilities and oil companies’ chartering needs to guarantee orders.

    Conclusion

    India stands at a decisive moment. A robust maritime ecosystem can secure energy lifelines, generate employment, and project India’s presence as a global power. The ₹69,725 crore package is promising, but unless structural inefficiencies, ancillary gaps, and demand visibility issues are resolved, it risks going the way of the failed 2015 policy. Success lies not merely in incentives but in creating a seamless ecosystem of infrastructure, skills, finance, and guaranteed demand.

    Value Addition

    Data Points and Targets

    1. ₹69,725 crore package: A substantial commitment that signals government seriousness.
    2. Capacity goal: 4.5 million gross tonnage: Puts India on a higher trajectory, though still far below shipbuilding giants like China and South Korea.
    3. Current state: Only half-a-dozen merchant ships built in 10 years, showcasing India’s negligible share in global shipbuilding.

    Policy Continuity and Course Correction

    1. 2015 Shipbuilding Financial Assistance Policy: Provided subsidies and financing incentives but failed to attract private shipowners due to delays and lack of ancillary ecosystem.
    2. 2025 Package: Designed as a replacement, expiring in March 2026 → reflects a policy learning curve and government recognition that capital subsidy alone cannot solve systemic inefficiencies.

    Comparative Insights

    Global benchmarks:

    1. Korea/Japan/China → Keel-to-waterborne in 3–4 months; full build in 1 year.
    2. India → 2–3 years, meaning two additional years of sunk capital for shipowners.
    3. Infrastructure gap: Foreign yards use 1,000-tonne cranes and prefab assembly lines, while Indian yards lack such capacities.

    Linkage with Atmanirbhar Bharat & Make in India

    1. Strategic autonomy: India relies heavily on foreign-built merchant fleets; indigenous shipbuilding aligns with Atmanirbhar Bharat.
    2. Employment multiplier: Shipbuilding is a labour-intensive sector with downstream benefits in steel, electronics, design, and logistics.
    3. Ancillary clusters: Policy push for ecosystem development resonates with the cluster-based growth approach seen in auto and pharma sectors.

    Strategic and Security Relevance

    1. Energy lifelines: India’s crude oil and coal imports (~80% and ~45% dependence respectively) require long-term fleet security.
    2. Green transition: Linkage of shipbuilding with India’s green hydrogen/ammonia exports (Kakinada, Kochi projects) can make India a global hub for green shipping.
    3. Maritime security: A stronger indigenous merchant fleet reduces vulnerability to global freight disruptions and strengthens India’s position in the Indo-Pacific.

    Broader Economic Linkages

    1. Financing ecosystem: Recognising shipbuilding as “infrastructure” lowers cost of credit → aligns with long-term financing reforms.
    2. Trade competitiveness: Owning merchant ships reduces foreign exchange outflow in charter hire and freight payments.
    3. Technology upgradation: Push towards prefab block construction → spinoffs for other infrastructure and defence industries.

  • India at the Crossroads: Navigating WTO Pressures After China’s SDT Exit

    Introduction

    The World Trade Organisation (WTO) has long been a battleground where developing nations, including India and China, defended their need for lenient subsidy caps, longer compliance timelines, and tariff protections. China’s self-exit from Special and Differential Treatment (SDT) concessions, despite retaining its developing country tag, signals a dramatic shift in the global trade order. For India, which has depended on SDT since its 1995 WTO accession, this development comes amid escalating US trade pressures, Trump-era tariff wars, and growing criticism of India’s subsidy regimes. The question is not only about trade but about food security, farmer livelihoods, and future economic strategy.

    Why is this development significant?

    1. First-time shift: China, the world’s second-largest economy, has for the first time announced it will not seek SDT despite being classified as a developing country.
    2. Sharp contrast: Since 1995, SDT flexibilities have been central to India’s WTO negotiations; China’s withdrawal isolates India’s position.
    3. Big stakes: India subsidises around $50 billion annually to low-income farmers and channels over $40 billion into Minimum Support Price (MSP) schemes, directly impacting 1.4 billion people.
    4. Striking implications: If phased AMS (Aggregate Measurement of Support) cuts are enforced, subsidies may fall by 20–30% per decade, with a 10–15% rural income drop and worsening food insecurity.

    How has India historically benefited from SDT?

    1. Tariff flexibility: Allowed India to impose 100%+ tariffs on sensitive goods such as branded medicines, automobiles, and luxury goods.
    2. Agriculture support: Article 6.2 exemptions for low-income farmers and public distribution schemes like MSP ensured food and livelihood security.
    3. Special treatment: Shielded India from disputes, despite often breaching the 10% subsidy cap under AMS rules.
    4. Trade defence: Enabled India to resist developed country pressures, citing its developing nation status.

    What challenges does India face now?

    1. Coercive reduction: Phased AMS cuts threaten to undermine National Food Security Act (NFSA) provisions.
    2. Malnutrition risk: With 35% of children under five malnourished, subsidy rollback could worsen hunger and inequality
    3. Export vulnerability: Without SDT, India’s MSMEs and farmers face tougher competition in global markets.
    4. US/EU pushback: Developed nations already accuse India of trade distortion, citing examples like MSP and high farm subsidies.

    What options does India have?

    1. Recalibrate subsidies: Shift from price support to income support (direct cash transfers), reducing WTO disputes.
    2. Promote Green Box subsidies: Focus on R&D, extension services, and sustainability programs which are WTO-compliant.
    3. Negotiate transitional safeguards: Demand longer compliance windows to cushion the shift.
    4. Defend digital/data sovereignty: Push for data localisation rights and tiered tariff structures in new trade deals.

    What should India’s strategic plan look like?

    1. Phased tariff liberalisation: Gradually reduce non-essential SDT protections while safeguarding food security.
    2. Boost MSME competitiveness: Use the ONDC (Open Network for Digital Commerce) to integrate small businesses into global e-commerce.
    3. Intellectual property balance: Protect generic drug exports while resisting pressure for stronger IP regimes.
    4. Coalition building: Revive alliances like the G33 to collectively defend agricultural and food security concerns.
    5. Domestic reforms: Enhance farm productivity and diversify exports to reduce dependence on SDT shield.

    Conclusion

    China’s withdrawal from SDT marks a turning point in global trade politics. India now faces mounting pressure to reform its subsidy structure, align with WTO disciplines, and balance food security with competitiveness. The way forward lies not in clinging to outdated protections but in crafting innovative, WTO-compliant support systems that secure farmer welfare while projecting India as a responsible global player. Strategic coalition-building, calibrated reforms, and smart diplomacy will decide whether India emerges weakened or empowered in the new trade order.

    PYQ Relevance

    [UPSC 2018] What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India?

    Linkage: China stepping back from SDT intensifies calls for WTO reforms in subsidy rules, dispute settlement, and fair treatment of developing nations, directly testing India’s ability to safeguard food security and farmer support while pushing for a more equitable trade order.

    Value Addition

    WTO Agreement on Agriculture (AoA) – Article 6.2 Exemptions

    • Provision: Allows developing countries to provide investment subsidies and input subsidies to low-income or resource-poor farmers without it being counted under the AMS cap.
    • India’s Use: India justifies its fertilizer, electricity, and irrigation subsidies under this clause to protect small farmers who form nearly 85% of the farming community.
    • Relevance: Central to defending India’s MSP and food security programs in global negotiations.

    Aggregate Measurement of Support (AMS)

    • Definition: WTO’s metric for calculating trade-distorting farm subsidies (amber box), capped at 10% of the value of production for developing countries.
    • India’s Issue: With large MSP and food procurement under NFSA, India is often accused of breaching this cap. Example – Rice subsidies have repeatedly attracted scrutiny in WTO disputes.
    • Relevance: Reform of AMS rules is India’s key demand in WTO negotiations, arguing current methodology undervalues developing nations’ needs.

    Green Box vs Amber Box Subsidies

    • Amber Box: Trade-distorting subsidies (e.g., MSP, procurement at administered prices).
    • Green Box: Non-trade distorting subsidies like agricultural R&D, extension services, crop insurance, and environmental protection.
    • India’s Position: Heavy reliance on amber box through MSP and PDS; however, India is now trying to expand its green box spending on crop diversification, climate-resilient agriculture, and digital extension services.
    • Relevance: Diversifying support to green box can shield India from WTO disputes while modernising agriculture.

    G33 Coalition

    • About: A group of 47 developing countries led by India, China, and Indonesia, advocating flexibility in agriculture negotiations.
    • India’s Role: Spearheads demands for a ‘Special Safeguard Mechanism’ (SSM) and permanent solution for public stockholding (PSH) of food grains.
    • Relevance: Strengthens India’s negotiating leverage by projecting its subsidy and food stockholding as a collective developing-world concern, not just a national exception.

    National Food Security Act (2013) (NFSA)

    • Provision: Legally entitles 75% of rural and 50% of urban population to subsidised food grains through PDS.
    • Conflict with WTO: Heavy procurement at MSP and distribution under NFSA is seen as trade-distorting. Critics argue this exceeds the 10% AMS cap.
    • Relevance: WTO restrictions on subsidies could directly affect India’s food security safety net covering over 800 million people.

    ONDC (Open Network for Digital Commerce)

    • Concept: A government-backed initiative to democratise e-commerce by creating an open-source, interoperable digital network for buyers and sellers.
    • Trade Defence: Seen as India’s strategic response to global e-commerce giants (Amazon, Walmart-Flipkart), ensuring fair competition for MSMEs.
    • Relevance: In WTO’s ongoing e-commerce negotiations, ONDC is a shield for India to resist pressure for blanket liberalisation of digital trade and data flows, while protecting domestic digital sovereignty.