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Subject: Economics

  • IMF releases World Economic Outlook (WEO)

    Why in the News?

    The International Monetary Fund (IMF) has released the July 2025 update to its World Economic Outlook (WEO).

    IMF releases World Economic Outlook (WEO)

    About World Economic Outlook (WEO):

    • Published By: International Monetary Fund (IMF)
    • Frequency: Biannual (April, October) + updates in January and July
    • Purpose: Provides global forecasts on GDP, inflation, trade, and policy trends
    • Data Sources: IMF consultations with member nations and internal models
    • Audience: Governments, institutions, investors, researchers
    • July 2025 Update Title: “Global Economy: Tenuous Resilience amid Persistent Uncertainty”

    Key Highlights – July 2025 Update:

    • Global Growth Projections:
      • 2025: 3.0% (↑ from 2.8% in April)
      • 2026: 3.1% (↑ from 3.0%)
    • Despite multiple shocks—COVID-19, the Ukraine war, tariff increases—global growth continues.
      However, resilience remains fragile due to:

      • US–China tariff tensions and rising protectionism
      • Conflicts in Ukraine and the Middle East
      • High public debt in advanced economies is raising interest rates
    • Country Forecasts for 2025:  United States: 1.9%,  China: 4.8% (↑ from 4.0%),  Euro Area: 1.0%,  Germany: 0.1%,  United Kingdom: 1.2%,  Japan: 0.7%,  Russia: 0.9%,  Pakistan: 2.7%.

    India – The Bright Spot:

    • Growth Rate: 2023: 9.2%;  2024: 6.5%;  2025: 6.4% (strongest among major economies).
    • Drivers of Growth:
      • Robust domestic demand
      • Strong services and manufacturing output
      • Effective inflation and monetary policy management
    • Strategic Position:
      • Set to overtake several advanced economies in GDP size
      • Viewed globally as a “bright spot” amid persistent uncertainties
    [UPSC 2014] Which of the following organisations brings out the publication known as ‘World Economic Outlook?

    Options: (a) The International Monetary Fund * (b)The United Nations Development Programme (c) The World Economic Forum (d) The World Bank

     

  • What are Skill Impact Bonds (SIB)?

    Why in the News?

    Skill Impact Bonds (SIB) were recently highlighted by the Skill Development Ministry.

    About the Skill Impact Bond:

    • Launched: November 2021
    • Nature: India’s first Development Impact Bond (DIB) focused on employment-linked skill development
    • Lead Agency: National Skill Development Corporation (NSDC), under the Ministry of Skill Development and Entrepreneurship
    • Collaborators: British Asian Trust, HSBC India, Michael & Susan Dell Foundation
    • Target: Train and place 50,000 youth over 4 years, with 62% women participation
    • How it Works:
      • Risk Investors: Provide upfront capital to training providers
      • Training Providers: Deliver skill training and ensure job placements
      • Outcome Funders: Repay investors only if job outcomes are achieved
      • Evaluators: Independently assess outcomes via CATI surveys and document verification

    Key Features:

    • Outcome-Focused Approach: Measures success by certification, placement, and 3-month retention, not just enrolment
    • Eligibility Criteria:
      • Age: 18–40 years; Education: Undergraduate or below
      • Status: Unemployed or earning below ₹15,000/month, or household income below ₹25,000/month
    • Sectoral Coverage: Retail, Healthcare, Apparel, Logistics, Information Technology & IT-enabled Services, Banking, Financial Services & Insurance.
    • Women-Focused Design: Ensures 62% female participation to bridge the gender employment gap
    [UPSC 2018] With reference to Pradhan Mantri Kaushal Vikas Yojana, consider the following statements:

    1. It is the flagship scheme of the Ministry of Labour and Employment.

    2. It, among other things, will also impart training in soft skills, entrepreneurship, financial and digital literacy.

    3. It aims to align the competencies of the unregulated workforce of the country to the National Skill Qualification Framework.

    Which of the statements given above is/are correct?

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

     

  • [pib] Digital Payments Index (DPI)

    Why in the News?

    According to the Reserve Bank of India (RBI), digital payments registered a 12.6% year-on-year rise as of March 31, 2024, as measured by the RBI’s Digital Payments Index (DPI).

    About RBI’s Digital Payments Index (DPI):

    • Launched by: Reserve Bank of India (RBI) in January 2021
    • Purpose: Measures the extent of digital payment adoption across India
    • Base Period: March 2018 (Index value = 100)
    • Release Frequency: Semi-annually (with a 4-month lag)
    • Objective: Track usage, infrastructure, and growth in digital payments
    • Key Parameters (with Weightage): These evaluate infrastructure readiness, transaction volume, user adoption, and innovation.
      1. Payment Enablers – 25%
      2. Payment Infrastructure – Demand Side – 10%
      3. Payment Infrastructure – Supply Side – 15%
      4. Payment Performance – 45%
      5. Consumer Centricity – 5%

    Growth Highlight:

    • Growth Trends in RBI-DPI: DPI grew nearly 5 times from 100 in March 2018 to 493.22 in March 2025, reflecting India’s rapid digital payment adoption.
    • Nearly 5× increase from the base value in 7 years
    • Driven by rapid expansion of Unified Payments Interface (UPI), mobile wallets, and QR code infrastructure
    [UPSC 2024] Consider the following countries:

    I. United Arab Emirates II. France III. Germany IV. Singapore V. Bangladesh

    How many countries amongst the above are there other than India where international merchant payments are accepted under UPI?”

    Options: (a) Only two (b) Only three* (c) Only four (d) All the five

    Answer: (b) Only three (UAE, France, Singapore)

     

  • Interrupted growth Industrial growth is still tied to government spends on infrastructure 

    Why in the News?

    India’s Index of Industrial Production (IIP) recorded a 10-month low growth of 1.5% in June, primarily due to a sharp decline in mining (–8.7%) and electricity output (–2.6%).

    What caused the IIP slowdown in June?

    • Sharp contraction in mining and electricity output: Mining activity declined by –8.7%, and electricity generation fell by –2.6%, significantly dragging overall growth. These two sectors jointly account for 22.3% of the IIP weightage.
    • Erratic monsoon and waterlogging in key mining belts: Early and uneven southwest monsoon caused flooding in mining areas of Odisha, Jharkhand, and West Bengal, disrupting production and logistics.
    • Damage to infrastructure and supply chain disruptions: Waterlogging led to damage in power distribution infrastructure and interrupted supply chains, resulting in subdued industrial activity and power demand.

    How did climate events contribute?

    • Disruption of mining activities: Heavy rainfall and waterlogging in mineral-rich regions like Jharkhand, Odisha, and West Bengal hindered extraction and transportation of key minerals. Eg: Jharkhand received 504.8 mm rainfall (against a normal of 307 mm), affecting coal and iron ore production.
    • Damage to power infrastructure: Flooding led to breakdowns in electricity distribution systems, especially in rural and semi-industrial belts. Eg: Widespread inundation disrupted power supply, lowering electricity output by –2.6% in June.
    • Supply chain interruptions: Climate irregularities caused logistical delays and increased input costs, hampering industrial flow.

    Why is India reluctant to link climate events with economic data like IIP or GDP?

    • Institutional hesitation and narrative control: Key agencies like the Ministry of Statistics and RBI prefer attributing economic fluctuations to factors like high base effects, global demand shifts, or input cost variations, avoiding politically sensitive climate linkages.
    • Complexity of climate attribution: Linking specific events (like heavy rain or drought) to climate change requires scientific modelling and probabilistic data, which are resource-intensive and not yet integrated into mainstream reporting.
    • Fear of politicisation and accountability: Acknowledging climate-linked economic slowdowns could invite policy criticism and demand for corrective action, making policymakers cautious.

    How do climate disruptions in mining and power affect industrial output?

    • Halted Mining Operations: Extreme rainfall leads to waterlogging and flooding in mining belts, making extraction unsafe and unviable. Eg: In June, mining activity contracted by –8.7% due to excessive rainfall in Odisha, Jharkhand, and West Bengal.
    • Damage to Power Infrastructure: Climate events like floods and storms disrupt power transmission lines and generation facilities, leading to reduced electricity output. Eg: Electricity production shrank by –2.6% in June, which lowered industrial productivity across sectors.
    • Supply Chain Disruptions: Delays in the supply of raw materials (like coal) due to climate-induced transport and logistical breakdowns affect the manufacturing cycle. Eg: Sluggish industrial output growth of 3.9% in June, despite some sectoral growth, was partly due to such disruptions.

    What can India learn from global practices in integrating climate risk into economic reporting?

    • Mainstream Climate Risk in Macroeconomic Analysis: Institutions like the European Central Bank (ECB) and Bank of England incorporate climate risk assessments into their economic forecasts and financial stability reports. Eg: The ECB uses climate stress tests to estimate the impact of extreme weather on GDP and inflation projections, helping shape responsive monetary and fiscal policies.
    • Develop Probabilistic Climate Attribution Models: Global agencies invest in scientific and data-driven models to link specific climate events to broader economic outcomes. Eg: The UK Met Office partners with economic bodies to assess how floods or heatwaves influence sectoral output and employment, ensuring better policy alignment and risk preparedness.

    Why is climate attribution important for informed economic policymaking?

    • Enables Targeted Risk Mitigation and Resource Allocation: Understanding the economic impact of specific climate events helps policymakers design sector-specific interventions, such as improved infrastructure in flood-prone mining regions or energy grid resilience plans.
    • Strengthens Long-term Economic Planning and Resilience: Integrating climate attribution allows for accurate forecasting and budgeting, ensuring that climate-linked disruptions (e.g., to power or mining) are factored into growth strategies, insurance frameworks, and industrial policies.

    Way forward: 

    • Integrate Climate Risk Frameworks into Economic Reporting: Agencies like the Ministry of Statistics and RBI should formally include climate-related variables in metrics like IIP and GDP, using probabilistic models and event attribution tools to capture the economic impact of extreme weather events.
    • Build Institutional Capacity for Climate-Economic Analysis: Establish a dedicated national climate-economic observatory or task force to monitor, assess, and publish regular reports on how climate disruptions affect different sectors, drawing inspiration from institutions like the European Central Bank.

    Mains PYQ:

    [UPSC 2021] Investment in infrastructure is essential for more rapid and inclusive economic growth.”Discuss in the light of India’s experience.

    Linkage: This question is highly relevant as it directly addresses the crucial role of “investment in infrastructure” for “economic growth.” The article explicitly states that “the robust growth in capital (3.5%), intermediate (5.5%) and infrastructure (7.2%) goods output, indicates that much of industrial growth continues to hinge on the government’s infrastructure spends”.

  • Adopt formalisation to power productivity growth 

    Why in the News?

    India’s manufacturing sector is facing renewed scrutiny due to the rising contractualisation of labour, which has grown from 20% in 1999-2000 to 40.7% in 2022-23, according to the Annual Survey of Industries. 

    What drives the rise of contract labour in formal manufacturing?

    • Cost Minimization: Employers hire contract workers to reduce wage bills and avoid social security contributions. Eg: In large firms, contract workers often earn up to 31% less than regular employees.
    • Bypassing Labour Laws: Contracting allows firms to circumvent regulations under the Industrial Disputes Act, 1947, such as rules on retrenchment and notice period.  
    • Operational Flexibility: Firms use contract labour to scale up or down quickly with demand without long-term obligations. Eg: Seasonal industries like textiles use short-term contract workers during peak export periods.
    • Third-Party Shielding: Outsourcing through contractors protects the principal employer from legal accountability for employment terms. Eg: Automobile assembly lines often outsource non-core work to manpower agencies.
    • Sector-Wide Trend Across Sizes: The rise in contract labour is not limited to small firms; it extends to large and capital-intensive industries. Eg: Between 2000 and 2022, contract labour share doubled from 20% to 40.7% across all industries.

    Why does contract labour hurt long-term productivity?

    • Low Skill Development: Contract workers are rarely given training or upskilling opportunities, limiting their efficiency and innovation. Eg: In India’s electronics manufacturing sector, companies like Dixon Technologies rely heavily on contract labour, leading to a shortage of skilled technicians for precision assembly.
    • High Attrition and Turnover: Contract workers frequently change jobs due to lack of job security, resulting in loss of institutional knowledge. Eg: In food processing units in Punjab, annual turnover among contract workers exceeds 70%, disrupting workflow continuity.
    • Reduced Worker Motivation: Absence of benefits like promotion, pension, or medical cover leads to low morale and reduced effort. Eg: In government-run power plants, studies have shown that contract workers contribute less to maintenance efficiency than permanent staff, affecting overall plant performance.
    • Weak Industrial Relations: Contract workers are often excluded from grievance redressal mechanisms or unions, increasing workplace tensions and risking disruptions. Eg: Maruti Suzuki’s Manesar plant witnessed violent unrest in 2012, partly attributed to discontent between permanent and contract workers.
    • Quality Compromise and Rework: Contract workers may lack the ownership mindset, resulting in errors and product rework, which lowers productivity. Eg: In garment export hubs like Tiruppur, repeated quality rejections from overseas buyers have been traced to inconsistent output from untrained contract labour.
    • Wage and cost gaps act as a disincentive
      • Unequal pay for equal work: Contract workers often earn much less than permanent workers for doing the same job, violating fairness.
         Eg: In PSUs like ONGC, contract workers earn up to 50% less than permanent employees for the same technical work.
      • Avoidance of social security: Employers save costs by not contributing to Provident Fund, gratuity, or health benefits, increasing worker insecurity.
         Eg: A CAG audit of private thermal power plants found 30–40% labour cost savings due to evasion of statutory benefits.

    What are the existing policy?

    • Contract Labour (Regulation and Abolition) Act, 1970: This law aims to regulate the employment of contract labour in certain establishments and abolish it in specific cases where work is perennial in nature. However, enforcement is weak, and many employers bypass provisions through sub-contracting.
    • Code on Occupational Safety, Health and Working Conditions (OSH Code), 2020: Consolidates 13 labour laws, including those related to health, safety, and working conditions of workers (including contract labour). It mandates registration of establishments and welfare facilities, but monitoring and implementation remain inconsistent.
    • Fixed Term Employment (FTE) provision under the Industrial Relations Code, 2020: Legalises short-term employment contracts with a provision for equal pay for equal work. But in practice, social security benefits and job security are often denied to such workers.

    Way forward: 

    • Ensure Universal Social Protection: Extend mandatory social security coverage (e.g., ESIC, EPF) to all contract and gig workers, with portable benefits and employer accountability, regardless of tenure or contract type.
    • Improve Legal Enforcement and Transparency: Strengthen labour law enforcement through digital compliance portals, randomised inspections, and public disclosure of contract employment data to prevent misuse and promote accountability.

    Mains PYQ:

    [UPSC 2024] Discuss the merits and demerits of the four ‘Labour Codes’ in the context of labour market reforms in India. What has been the progress so far in this regard?

    Linkage: The article talks about the “labour code on industrial relations” introduced in 2020 which is related to the demand of the question. This code, awaiting implementation, aims to provide greater flexibility in hiring and firing by allowing firms to directly hire non-regular workers on fixed-term contracts without third-party contractors. However, it also seeks to curb exploitation by mandating basic statutory employment benefits.

  • Amrit Bharat Station Scheme (ABSS)

    Why in the News?

    PM recently stated that 77 stations in Tamil Nadu are being redeveloped under the Amrit Bharat Station Scheme (ABSS), positioning the state as a hub for railway transformation.

    About the Amrit Bharat Station Scheme (ABSS):

    • Launch: 2022 by the Ministry of Railways.
    • Goal: Modernise and develop railway stations through phased, long-term upgrades.
    • Master Plans: Each station gets a tailored roadmap for future improvements.
    • Focus Areas: Multimodal integration, seamless passenger movement, and upgraded amenities.
    • National Significance: Integral to India’s infrastructure push under the Viksit Bharat vision.

    Key Features of ABSS:

    • Passenger Comfort: Larger waiting halls, clean toilets, executive lounges, lifts, escalators, free Wi-Fi, and business-meeting zones.
    • Accessibility & Connectivity: Expanded circulating areas, barrier-free access for persons with disabilities, and smooth links to other transport modes.
    • Aesthetic Upgrades: Modern façades, clear signage, landscaping, and consistently clean premises.
    • Technology & Information: Digital displays, real-time train info, and self-service e-ticketing kiosks.
    • Sustainability: Energy-efficient systems, green-building elements, and water-conservation measures.
    • Customised Development: Station facilities scaled to local footfall and needs—no one-size-fits-all approach.
    [UPSC 2024] Consider the following statements:

    I. Indian Railways have prepared a National Rail Plan (NRP) to create a future ready railway system by 2028. II. ‘Kavach’ is an Automatic Train Protection system developed in collaboration with Germany. III. ‘Kavach’ system consists of RFID tags fitted on track in station section.

    Which of the statements given above are not correct?

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

     

  • Financial Inclusion Index, 2025

    Why in the News?

    The Reserve Bank of India (RBI) has announced that the Financial Inclusion Index (FI-Index) for Financial Year (FY) 2025 has risen to 67.0, up from 64.2 in FY 2024.

    About Financial Inclusion Index (FI-Index):

    • Developer: Created by the Reserve Bank of India to assess the extent of financial inclusion in India.
    • First Release: Published in August 2021 for the financial year ending March 2021.
    • Coverage: Encompasses five key sectors—banking, investments, insurance, postal services, and pensions.
    • Scoring Scale: Ranges from 0 (total exclusion) to 100 (full inclusion).
    • Update Cycle: Updated annually in July; cumulative index with NO base year.
    • Indicators: Based on 97 indicators across all five sectors to ensure comprehensive assessment.
    • Key Parameters:
      1. Access (35%): Measures availability of financial infrastructure like bank branches, automated teller machines, and postal outlets.
      2. Usage (45%): Tracks frequency of use of services like savings, loans, insurance, and pension schemes.
      3. Quality (20%): Assesses financial literacy, consumer protection, equity, and service reliability.

    India’s Performance Over the Years:

    • March 2017: Index at 43.4, reflecting the initial phase of inclusion efforts.
    • March 2021: Rose to 53.9, due to the expansion of banking and digital infrastructure.
    • March 2024: Improved to 64.2, with broader access and increased adoption of financial services.
    • March 2025: Reached 67.0, driven by digital transactions, better service quality, and financial literacy campaigns.
    [UPSC 2016] The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?

    1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks

    2. Payment Banks can issue both credit cards and debit cards

    3. Payment Banks cannot undertake lending activities

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

     

  • Redeeming India’s nuclear power promise

    Why in the News?

    The Union Budget 2025–26 marked a major policy shift by announcing India’s ambitious target of 100 GW nuclear power capacity by 2047, up from the current 8.18 GW. It also allocated ₹20,000 crore for developing five indigenously designed Small Modular Reactors (SMRs) by 2033.

    Why is nuclear energy vital for India’s low-carbon future?

    • Provides Reliable Base-load Power: Unlike solar and wind, which are intermittent, nuclear power offers continuous, stable electricity essential for industrial growth and urbanisation. Eg: In 2024, despite renewables making up nearly 50% of installed capacity, they produced only 240 TWh, while coal contributed 75% of generation due to its reliability. Nuclear can help replace coal-based base-load.
    • Supports India’s Net-Zero and Energy Goals: India has committed to net-zero emissions by 2070, 500 GW non-fossil capacity by 2030, and reducing carbon intensity by 45% over 2005 levels. Eg: Small Modular Reactors (SMRs), with ₹20,000 crore allocated in the 2025-26 Union Budget, are being developed as clean alternatives to replace captive thermal power plants (~100 GW) over two decades.
    • Globally Recognized as Key Low-Carbon Technology: The world is increasingly viewing nuclear energy as essential to climate goals, making it easier to attract investmentand international cooperation. Eg: At COP28 (Dubai, 2023), over 20 countries, including India, endorsed the Declaration to Triple Nuclear Energy, recognizing it as vital to reducing fossil fuel dependency.

    How has past nuclear policy shaped India’s current capacity?

    • Early Vision, Delayed Progress: India had an early start with the establishment of Apsara reactor in 1956 and Dr. Homi Bhabha’s vision of 8 GW by 1980. However, geopolitical events like the 1974 Peaceful Nuclear Explosion (PNE) and India’s refusal to join the NPT (1968) led to international isolation, slowing progress and pushing targets further.
    • Indigenisation of Reactor Technology: Due to technology denial regimes, India focused on developing its own Pressurised Heavy Water Reactors (PHWRs). Starting with 220 MW units, India scaled them up to 540 MW (2005-06) and later to 700 MW (Kakrapar, 2024), building a strong indigenous design and manufacturing base.
    • Limited International Collaboration Post-CLNDA: The 2008 NSG waiver post-India–U.S. nuclear deal enabled resumption of fuel and technology imports. However, the Civil Liability for Nuclear Damage Act (2010) imposed supplier liability, deterring foreign companies. As a result, only Russia has partnered with India at Kudankulam, limiting the scale of international cooperation.

    What hurdles limit private participation in nuclear energy?

    • Restrictive Legal Framework: The Atomic Energy Act, 1962 allows only government entities to operate nuclear power plants. Private companies cannot own or control nuclear facilities, limiting their role to ancillary services unless the Act is amended.
    • Supplier Liability under CLNDA, 2010: The Civil Liability for Nuclear Damage Act places liability not just on the operator (NPCIL) but also on equipment suppliers, making private and foreign companies reluctant to invest due to the high risk exposure.
    • Lack of Financial and Regulatory Clarity: There is no independent nuclear regulator — the AERB is not a statutory body and reports to the Department of Atomic Energy, raising concerns about impartial oversight. Additionally, the absence of a transparent tariff mechanism and nuclear power being excluded from “renewable” status limits access to green financing and incentives.

    Why is an independent nuclear regulator necessary?

    • Ensures Credible and Impartial Safety Oversight: With the proposed entry of private players into nuclear energy, there is a need for transparent and independent safety regulation to ensure public trust and prevent conflicts of interest. The current Atomic Energy Regulatory Board (AERB), though “autonomous”, is not a statutory body and functions under the Department of Atomic Energy, creating institutional dependency.
    • Meets Global Standards and Commitments: According to International Atomic Energy Agency (IAEA) norms, a legally independent regulator is essential to uphold nuclear safety, licensing, and environmental safeguards. This will also improve India’s credibility in international collaborations and foreign investment.
    • Supports Sectoral Expansion with Accountability: As India aims for 100 GW nuclear capacity by 2047, regulatory functions will become more complex, especially with new technologies like Small Modular Reactors (SMRs). An independent authority can better handle licensing, monitoring, safety audits, and dispute resolution without bureaucratic delays.
    • Revives Dormant Reforms: A draft bill to create a Nuclear Safety Regulatory Authority was introduced in 2011 but lapsed. Reviving this reform is crucial to align with the growing scale and diversity of the nuclear energy programme.

    What reforms are needed to meet India’s 100 GW nuclear goal by 2047? (Way forward)

    • Legislative and Regulatory Overhaul: Amend the Atomic Energy Act, 1962 and the Civil Liability for Nuclear Damage Act, 2010 to allow private sector participation, define clear liability norms, and permit foreign direct investment (up to 49%) while maintaining Indian ownership and control. Establish an independent statutory nuclear regulator to ensure safety and build investor confidence.
    • Financial and Institutional Reforms: Classify nuclear energy as a green energy source to make it eligible for green finance, tax incentives, and viability gap funding. Streamline land acquisition, simplify licensing for PHWR and SMR deployment, and facilitate public-private joint ventures (e.g., NPCIL-NTPC) to scale up infrastructure and domestic supply chains.

    Mains PYQ:

    [UPSC 2023] With growing scarcity of fossil fuels, the atomic energy is gaining more and more significance in India. Discuss the availability of raw material required for the generation of atomic energy in India and in the world.

    Linkage: This question directly addresses the increasing importance of atomic energy in India due to fossil fuel scarcity, which aligns with the nuclear power as a “major pillar in India’s energy mix” for achieving economic growth and “net zero emissions by 2070”.

  • India’s FDI challenge: In a world of shrinking investment, rising competition, capital will chase confidence, clarity

    Why in the News?

    India is in the spotlight as recent UNCTAD data reveals a significant decline in net FDI inflows, falling to a 15-year low in FY24, even though gross inflows remain strong.

    What are the key reasons behind the global decline in FDI flows, particularly to EMDEs?

    • Geopolitical Instability: Rising geopolitical tensions such as the Russia-Ukraine war, Middle East conflicts, and US-China rivalries have weakened investor confidence, especially in Emerging Markets and Developing Economies (EMDEs) due to increased risk perception. Eg: After the Ukraine war, many European investors pulled out from Eastern European nations due to security concerns.
    • Protectionist Policies: Countries have adopted more protectionist measures, including tighter FDI regulations, screening laws, and withdrawal from bilateral investment treaties (BITs), limiting foreign investor access. Eg: India terminated several Bilateral Investment Treaties post-2016, including with the Netherlands and Germany, leading to investor uncertainty.
    • Supply Chain Realignment: Due to disruptions from the COVID-19 pandemic and rising geopolitical tensions, companies are shifting towards nearshoring and friend-shoring, bypassing many EMDEs. Eg: Several U.S. firms moved manufacturing from China to Mexico or Vietnam rather than to India or African countries.

    Why has India experienced a sharp fall in net FDI despite rising gross inflows?

    • High Repatriation of Earnings: While gross FDI inflows have increased, foreign investors are repatriating more profits, dividends, and disinvestments, leading to a decline in net FDI. Eg: In FY24, gross inflows were around $71 billion, but outflows (disinvestment/repatriation) rose sharply, reducing net FDI to $10.6 billion.
    • Increased Disinvestment by Foreign Investors: Foreign companies have sold off stakes or exited Indian ventures due to regulatory uncertainties or global consolidation strategies. Eg: Vodafone’s reduction in stake in Vodafone Idea and exits by foreign private equity firms.
    • Shift in Investment Strategy: There is a growing trend toward private equity and venture capital, which often involves short-term investments and quicker exits compared to traditional FDI. Eg: Start-up funding peaked in 2021–22 but many investors exited via IPOs or mergers within 2–3 years.

    How can trade agreements and FTAs boost India’s FDI inflows and global integration?

    • Market Access and Investor Confidence: Trade agreements and FTAs offer preferential market access, reduce tariff and non-tariff barriers, and provide a stable regulatory environment, encouraging foreign investors. Eg: The India-UAE CEPA (2022) led to a 34% rise in bilateral trade and boosted UAE investments in sectors like logistics and infrastructure.
    • Integration into Global Value Chains (GVCs): FTAs help India plug into regional and global supply chains, making it a more attractive hub for FDI in manufacturing and exports. Eg: The India-ASEAN FTA improved electronics and automobile component exports, drawing FDI from Japan and South Korea into India.
    • Legal and Dispute Resolution Frameworks: Comprehensive FTAs often include investment protection clauses and dispute resolution mechanisms, which reduce investor risk and boost inflows. Eg: India’s negotiation of Investment Protection Agreements (IPAs) with the EU has raised interest among European investors in clean energy and pharma.

    Why is state-level reform crucial in India’s strategy to enhance FDI inflows?

    • Ease of Doing Business at Ground Level: State-level reforms simplify land acquisition, labour regulations, and approval processes, making local environments more investor-friendly. Eg: Andhra Pradesh ranked top in the Business Reforms Action Plan (BRAP) 2020 for streamlining industrial approvals and digitizing services.
    • Sector-Specific Policy Innovation: States can tailor sectoral incentives, infrastructure, and skill policies to attract targeted FDI in areas like textiles, electronics, or renewable energy. Eg: Tamil Nadu’s Electric Vehicle Policy attracted investments from Ola Electric and Hyundai in the EV sector.
    • Healthy Inter-State Competition: Reform-oriented states create competitive pressure, encouraging others to improve investment climates, creating a national uplift in FDI appeal. Eg: Gujarat’s proactive approach in renewable energy prompted states like Rajasthan to fast-track their solar park approvals.

    Way forward: 

    • Institutionalize Competitive Federalism: Strengthen the ranking framework for states based on FDI-related reforms (like BRAP), and link a portion of central incentives or grants to reform performance.
    • Build State-Capacity for Investor Facilitation: Enhance training for state-level bureaucrats, establish single-window clearance systems, and promote public-private dialogue platforms to address investor concerns proactively.

    Mains PYQ:

    [UPSC 2014] Though 100 percent FDI is already allowed in non news media like a trade publication and general entertainment channel, the Government is mulling over the proposal for in creased FDI in news media for quite some time. What difference would an increase in FDI make? Critically evaluate the pros and cons.

    Linkage:  Evaluating the “pros and cons” necessitates an understanding of the challenges and opportunities associated with foreign investment inflows, reflecting a part of India’s FDI challenge in attracting and managing capital effectively. This question directly related to the implications of increasing FDI in a specific sector.

  • MoSPI to integrate 8th Economic Census with 16th Population Census

    Why in the News?

    The Ministry of Statistics and Programme Implementation (MoSPI) is preparing for India’s 8th Economic Census by integrating it with the upcoming 16th Population Census.

    About the Economic Census:

    • Conducting Body: Ministry of Statistics and Programme Implementation (MoSPI).
    • Purpose: Creates a detailed database of non-agricultural economic establishments in India.
    • Key Data Captured: Covers location, clustering, ownership, employment size, and type of economic activity.
    • Unorganised Sector Inclusion: Includes informal units, vital for understanding employment dynamics.
    • Historical Background:
      • Economic Enquiry Committee: Proposed by Visvesvaraya Committee (1925); Setup by Bowley-Robertson Committee (1934).
      • Outcome: Led to the creation of the Central Statistical Office (CSO) in 1951 and national statistical systems.
      • First Census: Conducted in 1977 (excluding Lakshadweep), targeting non-agricultural units with at least one hired worker.
    • Timeline of Economic Censuses:
      • Years Conducted: 1980, 1990, 1998, 2005, 2013, and 2019–21 (7th Census).
      • Integration with Population Census: 2nd and 3rd rounds were aligned with the 1981 and 1991 Population Censuses.
      • 7th Census Status: Completed in 2021, but results pending due to COVID-related data quality issues.
      • Execution Support: MoSPI partnered with the CSC (Common Service Centre) network for grassroots-level implementation.

    Integration with the 16th Population Census:

    • Objective: Improve efficiency and reduce costs by leveraging shared field operations.
    • Data Collection: Enumerators will note household-based economic activity for MoSPI processing.
    • Census Schedule:
      • Oct 1, 2026: Snow-bound and remote regions (e.g., Ladakh, J&K, HP, Uttarakhand).
      • Mar 1, 2027: Rest of the country.
    • Preparatory Work: State and district committees have been formed to plan the 8th Census.
    [UPSC 2018] As per the NSSO 70th Round “Situation Assessment Survey of Agriculture Households”, consider the following statements:

    1.Rajasthan has the highest percentage share of agriculture households among its rural households.

    2.Out of the total households in the country, a little over 60 percent being to OBCs.

    3.In Kerala, a little over 60 percent of agriculture households reported to have received maximum income from sources other than agriculture activities.

    Which of the statements given above is/are correct?

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