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Subject: Economics

  • Unified Pension Scheme (UPS)

    Why in the News?

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

    About Unified Pension Scheme (UPS):

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

    Difference between OPS, NPS and UPS:

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

     

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

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

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

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

    Which of the above statements are correct?

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

     

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

    PYQ Relevance

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

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

    Mentor’s Comment

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

    Introduction

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

    Understanding the Current Inflation Trends

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

    How Has the Macro Picture Changed Since Last Year?

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

    What Role Do Global and Domestic Policies Play?

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

    What Lies Ahead for India’s Economic Outlook?

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

    Conclusion

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

  • PLI Scheme for White Goods

    Why in the News?

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

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

    About the PLI Scheme for White Goods:

    • Objective: To create a complete component ecosystem for ACs and LED lights, integrating India into global supply chains and boosting domestic manufacturing.
    • Approval: Cleared by the Union Cabinet in April 2021; implemented by the Department for Promotion of Industry and Internal Trade (DPIIT).
    • Duration: Implemented over seven years (FY 2021–22 to FY 2028–29) with a total outlay of ₹6,238 crore.
    • Incentives: Provides 4–6% incentive on incremental turnover (over base year 2019–20) for both domestic sales and exports, applicable for five years to eligible companies.
    • Eligibility:
      • Applicant must be a company incorporated under the Companies Act, 2013.
      • Eligibility depends on achieving threshold levels of incremental sales and investments.
      • Entities availing benefits under any other PLI scheme for the same products are not eligible.
    • Beneficiaries So Far: 83 companies with committed investment of ₹10,406 crore have been approved under the scheme, covering AC and LED components across the entire value chain.
    • Employment and Exports: Expected to create jobs, expand exports, and enhance self-reliance in components that were earlier imported.
    [UPSC 2023] Consider the following statements:

    Statement I: India accounts for 3.2% of global exports of goods.
    Statement II: Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-linked Incentive’ scheme.
    Which one of the following is correct in respect of the above statements?
    (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
    (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
    (c) Statement-I is correct but Statement-II is incorrect
    (d) Statement-I is incorrect but Statement-II is correct *

     

  • PM inaugurated India’s first Bamboo-based Ethanol Plant

    Why in the News?

    PM has inaugurated the world’s first bamboo-based ethanol plant in Golaghat district, Assam, marking a significant step in India’s green energy journey.

    Note: Ethanol is prepared from bamboo using a multi-step biochemical conversion process that transforms its rich cellulose content into fermentable sugars, which are then fermented and distilled into ethanol.

    About Assam Bioethanol Plant:

    • Overview: World’s first 2G bamboo-based bioethanol facility, developed jointly by Numaligarh Refinery Limited (NRL), Fortum (Finland), and Chempolis OY.
    • Feedstock: Uses 5 lakh tonnes of green bamboo annually, sourced from Assam, Arunachal Pradesh, and other NE states.
    • Production Capacity: Generates 48,900 MT ethanol, 11,000 MT acetic acid, 19,000 MT furfural, and 31,000 MT food-grade CO₂ per year.
    • Benefits: Adds ~₹200 crore annually to Assam’s rural economy; supports farmers and tribal communities with assured markets.
    • Policy Enabler: Reclassification of bamboo (no longer a tree) allowed free cultivation and harvesting, unlocking industrial potential.

    Back2Basics: Regulation of Bamboo in India

    • Earlier Status: The Indian Forest Act, 1927 classified bamboo as a “tree”, though botanically it is a grass.
    • Regulatory Impact: Even in non-forest areas, felling, cutting, and transport of bamboo required permits like timber, discouraging farmers and traders.
    • 2017 Amendment: The Act was amended to remove “bamboos” from the definition of “tree” under Section 2(7), but only for non-forest areas.
    • Policy Goal: Intended to ease regulatory burdens, promote bamboo cultivation and trade, and strengthen agroforestry.
    • Current Rule: Bamboo on private/agricultural land can now be freely grown, cut, and transported without permits; bamboo in forest areas remains regulated.
    • Scientific Alignment: Recognises bamboo correctly as a grass (Poaceae family).
    • Significance: Supports rural farmers, artisans, and tribal communities by making bamboo a viable cash crop.

     

    [UPSC 2023] According to India’s National Policy on Biofuels, which of the following can be used as raw materials for the production of biofuels?

    1. Cassava 2. Damaged wheat grains 3. Groundnut seeds 4. Horse gram 5. Rotten potatoes 6. Sugar beet

    Select the correct answer using the code given below:

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

     

  • What is Decentralised Finance (DeFi)?

    Why in the News?

    Decentralised Finance (DeFi) is rapidly expanding as a global financial innovation, enabling direct peer-to-peer transactions without intermediaries such as banks.

    What is DeFi?

    • It is a financial system that runs on blockchains like Ethereum.
    • It allows people to send, borrow, lend, invest, and trade money directly without banks.
    • All transactions happen using smart contracts (computer programs) and apps called dApps.
    • Anyone with a phone + internet can use it; no bank account or KYC needed.

    Features of DeFi:

    • No middlemen: Works without banks or brokers.
    • Smart contracts: Deals happen automatically once rules are met.
    • Open access: Anyone in the world can join with just a digital wallet.
    • Transparency: Every transaction is recorded on a blockchain for all to see.
    • Cross-border: Can be used internationally, without currency or banking restrictions.
    • Low cost & fast: Cheaper and quicker than traditional banking.
    • Anonymous: Many platforms don’t ask for ID, making it open but risky.

    DeFi in India:

    • Adoption: India ranks third globally in DeFi value (Chainalysis Global Crypto Adoption Index 2024).
    • Growth Drivers:
      • Large youth population and widespread smartphone use.
      • Strong digital payments ecosystem (UPI, JAM trinity).
      • Increasing retail investor interest in crypto-assets.
    • Uses: Indian users engage in lending, trading, yield farming, and staking via DeFi platforms like Aave, Compound, and SushiSwap.
    • Market Size: Projected to reach USD 1.7 billion by 2025.
    • Challenges: Regulatory uncertainty, risks of money laundering and terror financing, cyber vulnerabilities, and lack of investor protection.

  • [10th September 2025] The Hindu Op-ed: The long march ahead to technological independence

    PYQ Relevance

    [UPSC 2023] What is the status of digitalization in the Indian economy? Examine the problems faced in this regard and suggest improvement.

    Linkage: The article highlights that while India has rapidly digitalised its economy, dependence on foreign software, cloud, and hardware exposes vulnerabilities. This reflects the structural problems of inadequate indigenous technology and lack of sovereignty. Achieving technological independence through open-source and hardware self-reliance is a crucial improvement pathway.

    Mentor’s Comment

    On India’s 79th Independence Day, Professor P.J. Narayanan reminds us that freedom today is no longer defined by political borders alone, but by technological sovereignty. As cyber wars, AI dependency, and cloud vulnerabilities reshape geopolitics, India must undertake its own “long march” towards self-reliance in both software and hardware. This article critically explores the risks of dependence, the promise of open source, and the urgent need for collective will to achieve true independence.

    Introduction

    India’s hard-won political freedom was achieved through decades of struggle, but in the 21st century, sovereignty extends beyond flags and constitutions. Technology is now the true battlefield, with wars fought in cyberspace, economies run by software, and critical infrastructure dependent on a handful of global corporations. This dependence poses a strategic vulnerability. The call for technological independence, therefore, is not just a matter of pride but of survival and security.

    The renewed urgency of technological sovereignty

    India’s 79th Independence Day has highlighted a pressing reality: while politically independent, the nation remains technologically dependent on foreign companies that control critical digital infrastructure. With modern conflicts increasingly fought through cyberspace, and with real incidents of cloud service disruptions causing harm, the vulnerability is no longer hypothetical. For the first time, technology dependence is being discussed in terms of national sovereignty, marking a paradigm shift from past concerns that were limited to strategic sectors.

    The Geopolitical Risks of Technology Dependence

    1. Cyber wars: Modern conflicts are less about bombs and more about software, drones, and cyberattacks.
    2. Critical infrastructure: Banks, trains, and power grids are run on ICT largely controlled by a few foreign firms.
    3. National diktat risks: If cloud/AI services are switched off under pressure from foreign governments, India’s economy and security could face paralysis.
    4. Real precedent: A recent stoppage of cloud services to a company proved this is not a theoretical danger.

    Defining technological sovereignty in the Indian context

    1. Lack of foundational software: India has no indigenous operating system, database, or foundational software it can fully trust.
    2. Open-source pathway: Linux, Android, and Hadoop show that community-driven, transparent solutions are possible.
    3. Challenge of sustainability: Success requires long-term support, continuous updates, and a large user base.
    4. Role of IT professionals: India’s tech community must unite to develop, maintain, and secure indigenous systems.

    Hardware sovereignty as the bigger challenge

    1. Semiconductor fabs: Require massive, long-term investments and expertise in design, manufacturing, and supply chains.
    2. Strategic prioritisation: India should start with specific hardware components, chip design, and assembly even if fabrication remains outsourced.
    3. Global lessons: Countries like Taiwan and South Korea built expertise over decades through patient national strategies.

    Open-source solutions for technological independence

    1. Gift of society: Open-source is not about opposition, but about self-support and resilience.
    2. Current limitations: Even though Android, Linux, and Hadoop are open-source, control lies with centralised cloud companies.
    3. Social movement: Just as India’s freedom was driven by collective will, a people-led movement for open-source adoption is needed.
    4. Business viability: The model must go beyond government/private funds and become self-sustaining, with people explicitly paying for trusted software.

    Immediate steps towards technological sovereignty

    1. Assemble crack teams: Develop client-side tools (database, email, calendar) and server-side tools (cloud, web, email).
    2. Product model: Teams must function like professional product-development units, not academic research groups.
    3. Mission approach: A dedicated national mission should be set up for implementation, backed by strong engineers and project managers.
    4. Enabling role of government: Focus on building a self-sustaining ecosystem with business incentives and regulatory support.

    Conclusion

    The 20th century saw India march towards political freedom; the 21st century demands a march towards technological freedom. Dependence on foreign systems is a strategic vulnerability that could cripple the nation in times of crisis. With its talent pool, thriving IT ecosystem, and democratic will, India has both the capacity and urgency to achieve technological sovereignty. The call of the hour is collective resolve, sustained investment, and a mission-driven approach.

  • [8th September 2025] The Hindu Op-ed: A complex turn in India’s FDI story

    PYQ Relevance

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

    Linkage: The article highlights that although India records high gross inflows ($81 bn in FY 2024–25), massive repatriations and outward FDI reduce net retained capital, weakening industrial growth, directly reflecting the gap between headline FDI figures and actual developmental impact, just like the MOU–FDI gap in the question. Structural barriers such as regulatory opacity, policy unpredictability, and weak infrastructure explain why capital commitments don’t translate into long-term projects. The remedial steps suggested, simplified regulations, policy consistency, and infrastructure upgrades, align with the measures demanded in the UPSC 2016 question.

    Mentor’s Comment

    Foreign Direct Investment (FDI) has long been celebrated as one of the most powerful engines of India’s growth since the reforms of 1991. It brought in capital, technology, and global linkages. Yet, beneath the shining surface of record inflows lies a disquieting reality, unprecedented outflows, disinvestments, and a shift away from long-term industrial commitments. This article explores the nuanced challenges in India’s FDI ecosystem, the divergence between inflows and outflows, and the urgent need for reforms.

    Introduction

    FDI has been central to India’s growth story, particularly after liberalisation in 1991, modernising industries and integrating India into global markets. While e-commerce and IT saw transformative capital inflows, recent years mark a complex shift. Despite India recording $81 billion in gross FDI inflows in FY 2024–25, net retained capital fell drastically due to massive repatriations and rising outward investments by Indian firms. This has profound implications for industrial growth, job creation, and long-term economic resilience.

    Divergence Between Inflows and Outflows

    1. Gross inflows: $81 billion in FY 2024–25, up 13.7% from last year.
    2. Sharp withdrawals: Disinvestments surged by 51% in FY 2023–24 to $44.4 billion and further to $51.4 billion in FY 2024–25.
    3. Net retained capital: Fell to just $0.4 billion after accounting for outflows, a stark erosion of confidence.
    4. Investor behaviour shift: From long-term commitments to short-term tax arbitrage and profit-seeking.

    The Decline of Manufacturing in FDI Trends

    1. Declining share: Manufacturing’s share in FDI dropped to a mere 12% of total inflows.
    2. Short-term focus: Preference for rent-seeking sectors such as financial services, hospitality, and energy distribution.
    3. Weak multiplier effects: Unlike manufacturing or infrastructure, these sectors do not create broad-based industrial or technological growth.

    The Surge of Indian Capital Abroad

    1. Outward FDI: Rose from $13 billion in FY 2011–12 to $29.2 billion in FY 2024–25.
    2. Reasons cited: Regulatory inefficiencies, infrastructure gaps, and unpredictable policies.
    3. Destinations: Nearly half of outflows directed toward developed economies with stable tax regimes and strategic resources.

    Structural Barriers in India’s Investment Climate

    1. Regulatory opacity: Complex compliance requirements discourage investors.
    2. Legal unpredictability: Frequent policy shifts undermine confidence.
    3. Governance inconsistencies: Contrast between reforms on paper and actual execution.
    4. Dominance of tax havens: Mauritius and Singapore continue to account for bulk inflows, driven by treaty-based tax strategies.

    Why the Long Term Matters

    1. FDI as stability cushion: Supports balance of payments, currency stability, and external accounts.
    2. Declining net inflows: Curtails India’s monetary policy flexibility.
    3. RBI’s concern: Outflows align with global emerging market trends but pose systemic risks if unchecked.
    4. Need for committed capital: Advanced manufacturing, clean energy, and technology sectors require sustained inflows.

    What Needs to Be Done

    1. Simplify regulations: Reduce compliance burden and procedural delays.
    2. Ensure policy consistency: Long-term clarity to build investor trust.
    3. Upgrade infrastructure: Logistics, energy, and digital backbones to attract manufacturing FDI.
    4. Strengthen institutions: Predictable legal frameworks and efficient governance.
    5. Invest in human capital: Education and skilling to meet industry demands.

    Conclusion

    India’s FDI story is at a crossroads. Gross inflows remain high, but capital is no longer staying long enough to catalyse industrial growth. The rising tide of disinvestment by foreign firms and outward FDI by Indian companies reflects systemic inefficiencies, weak confidence, and policy unpredictability. If India aspires to be a global investment hub, reforms must focus on quality, durability, and alignment of capital with national developmental goals.

    Value Addition

    Official Definition of FDI

    • IMF/UNCTAD definition: A cross-border investment where a resident entity in one economy obtains a lasting interest and a significant degree of influence in the management of an enterprise in another economy.
    • India (RBI): “Investment by a person resident outside India in the capital of an Indian company under Schedule 1 of FEMA Regulations, 2000.”

    Foreign Direct Investment (FDI) Routes in India

    • Automatic Route: No prior approval required; investor only informs RBI after investment.
      • Examples: 100% FDI in e-commerce marketplace model, renewable energy, and computer software.
    • Government Route: Prior approval of the Government of India required.
      • Examples: FDI in multi-brand retail, defence beyond 74%, and print media.

    Regulation of FDI in India

    • Ministry of Commerce and Industry: Frames FDI policy, announced via Consolidated FDI Policy Circular.
    • Department for Promotion of Industry and Internal Trade (DPIIT): Nodal body for policy formulation and coordination.
    • RBI: Governs reporting, inflows, and compliance under FEMA, 1999.
    • Sectoral Regulators: Defence, Insurance, Banking, Telecom, etc. may impose additional conditions.

    Barriers to FDI in India

    • Regulatory opacity: Complex rules and compliance increase transaction costs.
    • Policy unpredictability: Frequent changes in taxation (e.g., retrospective tax) weaken investor trust.
    • Infrastructure gaps: Logistics bottlenecks, power shortages, and urban congestion raise costs.
    • Legal uncertainties: Contract enforcement and dispute resolution remain weak.
    • Governance challenges: Land acquisition, bureaucratic delays, and inconsistent state-level policies.

    Global Comparative Analysis

    • China: Strong manufacturing-centric FDI policies, large SEZs, predictable incentives, and world-class infrastructure helped it emerge as the world’s largest FDI recipient.
    • Vietnam: Stable policy frameworks, competitive labour costs, and integration into global supply chains (electronics, textiles) made it a hub for relocated investments.
    • Singapore & Mauritius: Dominant sources of FDI into India, largely due to tax treaty advantages rather than productive investment.
    • India: Despite being among the top FDI destinations (UNCTAD report), outflows and repatriations remain high, reflecting weak long-term retention.

  • [pib] Incentive Scheme to Promote Critical Mineral Recycling

    Why in the News?

    The Union Cabinet approved a ₹1,500 crore Incentive Scheme to promote recycling of critical minerals from secondary sources such as e-waste and battery scrap.

    About Critical Mineral Recycling Incentive Scheme:

    • Launch: Approved under the National Critical Mineral Mission (NCMM).
    • Outlay: ₹1,500 crore over 6 years (FY 2025–26 to FY 2030–31).
    • Objective: Build domestic recycling capacity for critical minerals (lithium, cobalt, nickel, copper, rare earths) from secondary sources.
    • Rationale: Provides a near-term solution to supply chain challenges as mining projects require long lead times.
    • Targets:
      • 270 kilotonnes annual recycling capacity.
      • 40 kilotonnes minerals yield per year.
      • ₹8,000 crore investment mobilised.
      • ~70,000 jobs created.

    Key Features:

    • Beneficiaries: Large recyclers, small/new recyclers, start-ups; one-third funds reserved for small/new entrants.
    • Feedstock Sources: E-waste, lithium-ion battery scrap, catalytic converters, other industrial scrap.
    • Coverage: Support for new units, as well as expansion, modernisation, and diversification of existing plants.
    • Capex Subsidy: 20% subsidy on plant & machinery for timely commissioning; reduced rates for delays.
    • Opex Subsidy: Tied to incremental sales over FY 2025–26 base year.
      • 40% subsidy released in FY 2026–27.
      • 60% subsidy released in FY 2030–31.
    • Incentive Caps:
      • Large entities: ₹50 crore cap (₹10 crore max for opex).
      • Small entities: ₹25 crore cap (₹5 crore max for opex).
    • Eligibility Restriction: Only for firms engaged in actual mineral extraction, not just intermediate “black mass” processing.
    [UPSC 2021] Consider the following statements:

    I. India has joined the Minerals Security Partnership as a member.

    II. India is a resource-rich country in all the 30 critical minerals that it has identified.

    III. The Parliament in 2023 has amended the Mines and Minerals (Development and Regulation) Act, 1957 empowering the Central Government to exclusively auction mining lease and composite license for certain critical minerals.

    Which of the statements given above are correct?

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

     

  • BHARATI Initiative

    Why in the News?

    The Agricultural and Processed Food Products Export Development Authority (APEDA) has launched the BHARATI initiative — Bharat’s Hub for Agritech, Resilience, Advancement and Incubation for Export Enablement.

    About BHARATI Initiative:

    • Launched by: APEDA (Agricultural and Processed Food Products Export Development Authority) in September 2025.
    • Purpose: To incubate and empower 100 agri-food and agri-tech startups, making them export-ready.
    • Target: Support APEDA’s vision of reaching US$ 50 billion (₹4.4 lakh crore) in agri-food exports by 2030.
    • Focus Areas: Export enablement, innovation, incubation, and addressing challenges like perishability, logistics, quality compliance, and sustainability.
    • Policy Alignment: Linked to Atmanirbhar Bharat, Start-Up India, Vocal for Local, and Digital India.

    Key Features:

    • Targeted Products: GI-tagged items, organic foods, superfoods, AYUSH products, processed foods, livestock-based products.
    • Technology Integration: AI-based quality control, blockchain-enabled traceability, IoT-based cold chains, and agri-fintech solutions.
    • Acceleration Model: 3-month programme to build export readiness, ensuring compliance with international food safety and quality standards.
    • Partnership Ecosystem: Collaboration with state boards, IITs/NITs, universities, industry bodies, and accelerators.
    • Scalability: Designed for annual expansion, gradually increasing the number of supported startups.
    [UPSC 2011] With what purpose is the Government of India promoting the concept of “Mega Food Parks”?

    1. To provide good infrastructure facilities for the food processing industry.

    2. To increase the processing of perishable items and reduce wastage.

    3. To provide emerging and

    eco-friendly food processing technologies to entrepreneurs.

    Select the correct answer using the code given below:

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

     

  • [5th September 2025] The Hindu Op-ed: GST 2.0 is a landmark in India’s Tax Journey

    PYQ Relevance

    [UPSC 2020] Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal tensions?

    Linkage: The GST (Compensation to States) Act, 2017 was meant to assure states of revenue stability post-GST rollout, but COVID-19 strained the fund, creating federal tensions over delayed compensation. In contrast, GST 2.0 reflects cooperative federalism, with consensus on slab rationalisation, inverted duty correction, and GSTAT. This marks a shift from fiscal disputes to collaborative reform, strengthening trust in India’s tax federalism.

    Mentor’s Comment

    The 56th meeting of the Goods and Services Tax (GST) Council has ushered in a decisive set of reforms, marking a new chapter in India’s fiscal federalism. By moving towards a simplified two-rate structure and addressing long-standing distortions, GST 2.0 promises to reshape consumption patterns, boost competitiveness, and build a fairer system. For UPSC aspirants, this development offers lessons on economic governance, cooperative federalism, social security, and inclusive growth.

    Introduction

    The 56th GST Council meeting (September 3, 2025) has been hailed as a watershed in India’s taxation history. For the first time since the rollout of GST in 2017, the complex multi-slab structure has been significantly rationalised. The new structure introduces just two core slabs, 18% (Standard Rate) and 5% (Merit Rate), with a 40% demerit rate for a few goods, while several essentials are exempt. These reforms are not limited to technical tax changes; they are a “people’s reform” with direct impact on households, farmers, industries, and the healthcare sector.

    The significance of GST 2.0 reforms

    1. Historic simplification: Earlier GST had 5%, 12%, 18%, and 28% slabs. The new 2-rate system with exemptions marks the biggest simplification since 2017.
    2. People-centric relief: Daily-use goods like soap, shampoo, bicycles, and kitchenware now taxed at 5%; essentials like milk, paneer, parathas exempt. This makes taxation citizen-friendly.
    3. Social security boost: All life and health insurance products are exempted from GST for the first time, improving affordability and raising insurance penetration.
    4. Correcting distortions: Long-pending inverted duty structures, particularly in textiles and fertilizers, have been corrected.
    5. Institutional strengthening: The announcement of GST Appellate Tribunal (GSTAT) by year-end promises faster dispute resolution.

    Impact of reforms on households and social security

    1. Cheaper essentials: Items like soap, shampoo, toothpaste, bicycles, and kitchenware moved to the 5% slab.
    2. Exemptions on food: UHT milk, paneer, chapatis, and parathas exempt, easing burden on middle and low-income families.
    3. Insurance relief: GST exemption on life and health insurance makes coverage accessible to senior citizens and low-income groups.
    4. Healthcare affordability: Cancer drugs, medicines for rare diseases, and critical devices made cheaper through exemptions and cuts.

    Benefits of GST 2.0 for farmers and rural India

    1. Lower cultivation cost: Fertilisers, sulphuric acid, and ammonia shifted from 18% to 5%.
    2. Cheaper farm equipment: Tractors and machinery brought to 5% slab, improving productivity and rural income.
    3. Structural correction: By rationalising inputs and outputs, GST 2.0 reduces price distortions and supports agricultural sustainability.

    Implications for industries and employment

    1. Labour-intensive sectors: Handicrafts, marble, granite, and leather goods get rate reductions, boosting employment.
    2. Textile competitiveness: GST on man-made fibres and yarn reduced to 5%, resolving a major inverted duty issue. This is expected to improve exports and domestic value-addition.
    3. Infrastructure multiplier: Cement rate cut from 28% to 18% to spur housing and infrastructure.
    4. Green economy boost: Cuts on renewable energy devices and auto components support sustainable growth.

    Institutional reforms under GST 2.0

    1. Operationalisation of GSTAT: To be functional by year-end, ensuring quicker dispute resolution and taxpayer confidence.
    2. Process reforms: Provisional refunds for inverted duty structures, risk-based compliance, and harmonised valuation rules reduce business uncertainty.
    3. Ease of doing business: These reforms align India’s tax system with global best practices and make compliance less cumbersome.

    Phased rollout and implementation strategy

    1. Gradual rollout: Effective from September 22, 2025, reforms are phased to balance fiscal stability and consumer benefits.
    2. Revenue neutrality: Phasing prevents sudden fiscal shocks while stimulating demand and investment.
    3. Stakeholder partnership: Council’s decisions reflect responsiveness to industry, consumers, and state governments.

    Conclusion

    GST 2.0 represents not just a fiscal reform but a societal shift. By rationalising slabs, correcting distortions, and easing compliance, it strengthens the foundation for a Viksit Bharat 2047. The reforms are inclusive, covering farmers, workers, households, and industries alike, while building institutions like GSTAT. The success of these reforms will ultimately depend on smooth implementation and sustained cooperative federalism.

    Value Addition

    Economic Reforms: GST 2.0 and Global Best Practices

    Two-rate model adoption: GST 2.0 moves from a complex four-slab structure (5%, 12%, 18%, 28%) to a simplified two-rate system (5% Merit Rate and 18% Standard Rate), with a 40% demerit rate for select goods. This mirrors global practices where most advanced economies prefer fewer slabs for simplicity.

    International parallels:

    1. Canada follows a dual rate Goods and Services Tax/Harmonized Sales Tax model, with exemptions for essentials like food and healthcare.
    2. Australia operates a uniform GST at 10% but exempts basic food, health, and education, similar in spirit to India’s exemptions on milk, paneer, chapati, and healthcare.
    3. Singapore maintains a single GST rate (currently 9%) with targeted exemptions.

    Benefits of convergence:

    1. Ease of compliance: Fewer slabs reduce classification disputes and litigation.
    2. Predictability for businesses: Encourages investment by aligning India’s tax structure with global investors’ expectations.
    3. Revenue neutrality with inclusivity: Exemptions for essentials ensure equity while maintaining fiscal stability.

    Reform trajectory: GST 2.0 represents a shift towards global standards without fully copying them, adapting the model to India’s socio-economic realities — balancing growth, inclusion, and fiscal prudence.