Context:

India has adopted sovereign green bonds (SGrBs) as a key strategy to finance its transition to a low-carbon economy. However, these bonds have faced muted demand from investors, limiting the effectiveness of this funding source. Despite efforts to ease participation rules and attract foreign investors, the expected "greenium" (lower borrowing costs) remains weak, leading to funding shortfalls for vital green projects.

What are Sovereign Green Bonds?

Sovereign Green Bonds are issued by the government to raise capital for environmentally sustainable projects such as renewable energy, energy efficiency, and climate resilience. In India, the government established a framework for issuing these bonds in 2022. Since their introduction, India has raised nearly Rs 53,000 crore through eight issuances, with funds primarily allocated to projects like energy-efficient locomotives and metro developments.

Weak Investor Demand

Despite the government's efforts, India's SGrBs have struggled to attract investor interest. A significant issue is the limited greenium, which in India has only reached 2–3 basis points, far below the global average of 7–8 basis points. This lack of financial incentive makes these bonds less attractive compared to regular bonds. Additionally, small issue sizes and limited secondary market trading further discourage investors. Many bonds are held to maturity, stifling liquidity and market participation.

Impact on Green Initiatives

The weak demand for SGrBs has directly impacted the funding for critical green projects. Initially, India planned to raise Rs 32,061 crore from SGrB proceeds in 2024-25. However, after weak investor response, the revised estimate was reduced to Rs 25,298 crore, resulting in significant cuts to funding for projects such as grid-scale solar energy. The budget for grid-scale solar projects was slashed from Rs 10,000 crore to just Rs 1,300 crore. As a result, India is increasingly relying on general revenue to fill the funding gap.

Key Areas Affected by Funding Cuts

• Electric Locomotive Manufacturing: Rs 12,600 crore
• Metro Projects: Rs 8,000 crore
• Renewable Energy (including National Green Hydrogen Mission): Rs 4,607 crore
• Afforestation (National Mission for a Green India): Rs 124 crore

Challenges Contributing to Weak Demand

• Lack of Social Impact Funds: India lacks a robust ecosystem of social impact funds and responsible investment mandates, which are present in other markets and drive demand for green bonds.
• Liquidity Issues: Small bond issues and a lack of secondary market trading have made SGrBs less liquid and attractive to investors.
• Higher Yields in Other Investment Avenues: Investors are reluctant to accept the relatively low yields of SGrBs, as they offer little financial advantage over regular bonds.

Way Forward

To improve the attractiveness of SGrBs, India could explore the issuance of sustainability bonds, which fund both green and social projects, attracting a broader base of investors. Additionally, post-issuance transparency is crucial, with detailed allocation and impact reports needed to build investor confidence. The government can also collaborate with multilateral development banks like the World Bank to back its green bonds, enhancing their credibility and attracting investment.

Furthermore, enhancing liquidity and developing a more robust market for green finance are essential steps to ensure that India can achieve its climate goals. With proper strategy and structural changes, India can enhance investor confidence and ensure sustainable funding for its green initiatives.

In News:

India’s horticulture sector is crucial to its agricultural economy, encompassing the cultivation, production, processing, and marketing of fruits, vegetables, and ornamental plants. The sector includes sub-sectors like pomology (fruit cultivation), olericulture (vegetable cultivation), floriculture (flower cultivation), and arboriculture (cultivation of trees). India stands as the second-largest producer of fruits and vegetables globally, trailing only China.

In 2023-24, India’s horticultural production was estimated at 355 million tonnes, surpassing food grain production. The sector contributes 33% to the agricultural Gross Value Added (GVA), growing at an annual rate of 4-5%, outpacing cereal production.

Despite its size and importance, India’s horticulture sector faces several challenges. Post-harvest losses are significant, with about 8.1% for fruits and 7.3% for vegetables, translating into a loss of ?1.53 trillion annually. These losses are primarily due to inadequate cold storage and processing infrastructure, as well as fragmented value chains, where middlemen dominate, resulting in low farmer incomes. Farmers typically receive only 30% of the final consumer price for their produce.

Challenges in India’s Horticulture Sector

• Infrastructure Deficit: The absence of efficient logistics, cold storage, and warehousing facilities contributes to delays and wastage of perishable horticultural crops. The cold storage capacity is concentrated in just a few states, limiting access for farmers across the country.
• Small Operational Landholdings: Many farmers operate on small plots, limiting their ability to adopt sustainable practices and crop rotation, leading to reduced yields and soil degradation.
• Limited Value Addition: Only 10% of India’s fruits and vegetables are processed, compared to 60-70% in developed countries, leading to distress sales and low earnings for farmers.
• Market Linkages and Export Challenges: Indian farmers have limited access to direct markets, and the country’s export share in horticultural produce is low. Non-tariff barriers such as Sanitary and Phytosanitary (SPS) standards also hinder India's export growth.

Government Initiatives for Horticulture

Several initiatives have been launched to address these challenges:

• Mission for Integrated Development of Horticulture (2014) aims to foster holistic growth through cluster approaches and better linkages.
• Operation Greens, initially focused on specific crops like tomatoes, onions, and potatoes, has been extended to all horticultural crops to address price volatility.
• The Farmer Producer Organisation (FPO) model is being promoted to help farmers collectively bargain for better prices. As of August 2024, 8,875 FPOs have been established with a target of 10,000 by 2027.
• The Agriculture Infrastructure Fund (AIF) provides financial support for cold chains, warehouses, and processing units.

Case Study: Sahyadri FPO

A notable example of FPO success is the Sahyadri Farmer Producer Company Ltd (SFPCL) in Maharashtra, which started with 10 farmers in 2004 and has grown to include 26,500 farmers across 252 villages. With an annual turnover of ?1,549 crore (2023-24), SFPCL has become the largest grape exporter, with 90% of exports going to the EU and UAE. Farmers involved in the FPO receive 55% of the final export price, significantly higher than the typical 30% in traditional markets. This model demonstrates the potential of cooperative farming in enhancing farmers' incomes.

Way Forward: Scaling Up the Amul Model

To replicate the success of AMUL in the dairy sector, India’s horticulture sector must focus on:

• Strengthening FPOs: Support should be provided for working capital, infrastructure, and digital integration. Leveraging platforms like the Open Network for Digital Commerce (ONDC) can enhance market access for FPOs.
• Expanding Processing and Storage Infrastructure: Financial allocation for cold storage, processing facilities, and logistics must be increased under schemes like Operation Greens.
• Public-Private Partnerships (PPP): Encourage collaborations between the government and private sectors to enhance food processing, distribution, and retail linkages.
• Technology Integration: Adoption of technologies like blockchain for traceability and AI-driven price prediction models can improve market transparency and reduce distress sales.

By expanding successful models like Sahyadri FPO, India can transform its horticulture sector, enhance farmer incomes, ensure food security, and increase agri-export earnings. This approach could play a pivotal role in rural development and poverty alleviation, benefiting both farmers and consumers.

Context:

India’s Sovereign Green Bonds (SGrBs) are a key instrument to mobilize resources for climate-resilient infrastructure and sustainable development. However, despite their potential, the bonds have struggled to attract robust investor interest, thereby limiting the government’s ability to secure a meaningful greenium—a lower cost of borrowing that typically incentivizes green finance globally.

What are Sovereign Green Bonds?

SGrBs are debt instruments issued by the Government of India to raise capital for projects that contribute to environmental sustainability and low-carbon development. They are part of India’s broader green financing strategy to meet its Net Zero target by 2070. These bonds are issued by the Ministry of Finance, under the oversight of the Department of Economic Affairs (DEA), and are guided by India’s Green Finance Framework, aligned with global green bond principles.

Application of Funds:

The proceeds from SGrBs are earmarked exclusively for green projects, ensuring transparency and impact-based investment. Key sectors financed include:

• Electric Locomotive Manufacturing (largest beneficiary through the Ministry of Railways)
• Urban Mobility: Metro rail and public transport systems
• Renewable Energy: Solar, wind, and the National Green Hydrogen Mission
• Afforestation: Under the National Mission for a Green India
• Grid-Scale Solar Projects, though allocations here have been curtailed due to fiscal constraints

Performance and Allocation Trends:

India raised ?16,000 crore through SGrBs in FY 2022–23 and ?20,000 crore in FY 2023–24. For FY 2024–25, ?16,697 crore has been raised so far. However, due to muted investor demand, the revised fundraising estimate has been reduced from ?32,061 crore to ?25,298 crore. A fiscal gap of ?3,600 crore will be met through general revenue, reflecting limited success in expanding green finance.

Challenges:

• Weak Greenium: Indian SGrBs offer little to no financial advantage over conventional bonds, with greenium as low as 2–3 basis points. Globally, it averages 7–8 basis points, still modest but relatively attractive.
• Low Investor Demand: Several bond auctions witnessed under-subscription. For instance, ?7,443 crore worth of bonds were devolved to primary dealers in recent auctions due to high yield expectations from investors.
• Illiquid Secondary Market: Small issuance sizes and a trend of holding bonds till maturity restrict active trading, deterring market participants.
• Underdeveloped Sustainable Finance Ecosystem: India lacks dedicated ESG funds, responsible investment mandates, or regulatory incentives for green bond investments.

Recommendations:

• Enhance Credit Guarantees: Collaborate with multilateral institutions like the World Bank or IFC to back green bonds, enhancing their creditworthiness.
• Expand Domestic Green Investment Base: Promote ESG-focused mutual funds, offer tax incentives, and establish a regulatory framework to attract long-term green capital.
• Improve Market Liquidity: Increase bond issuance sizes and introduce market-making mechanisms to deepen secondary market activity.
• Leverage Public-Private Partnerships: Engage private players in project implementation to diversify and scale up green investment opportunities.

Conclusion:

India’s Sovereign Green Bonds symbolize a strategic shift toward sustainable development financing. While challenges persist, especially in market participation and pricing incentives, strengthening domestic financial ecosystems and leveraging global support can make green bonds a cornerstone of India’s climate financing roadmap.

In News:

India’s GDP is projected to nearly double from $3.7 trillion in 2023–24 to $7 trillion by 2030–31, driven by strong digital infrastructure, financial inclusion, and supportive fiscal policies. However, to sustain this growth, robust capital formation and increased credit flow are essential.

The current banking regulatory architecture—comprising Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), Liquidity Coverage Ratio (LCR), andPriority Sector Lending (PSL)—while ensuring stability, also constrains banks’ lending capacity, particularly for the private sector and MSMEs.

Investment Needs and Private Sector Slowdown

India needs $2.5 trillion in investments, demanding an investment-to-GDP ratio of 34%. Public investment alone is insufficient due to fiscal deficit constraints, necessitating greater reliance on private capital and household savings. However, the investment-to-operating cash flow ratio for the private sector has declined from 114% in 2008–09 to 56% in 2023–24, reflecting weakening investment appetite.

Challenges in Financial Intermediation

Banks’ share in household financial savings has declined from 50% to 40%, as savers turn to higher-yield options like mutual funds. Simultaneously, banks face high regulatory pre-emptions, holding nearly 30% of deposits as non-lendable reserves, including:

• SLR (~26%), exceeding the mandated 18% due to LCR constraints,
• CRR (4%), which earns no interest.

These requirements reduce lendable resources, raise borrowing costs, and constrain credit growth, especially for MSMEs. Further, upcoming LCR norms for digital deposits could require banks to allocate 2–2.5% more to liquid assets, limiting credit availability further.

Need to Rationalize Regulations

Globally, LCR is the standard liquidity norm, but India uniquely mandates both SLR and LCR, leading to excessive capital retention in low-yield instruments. Additionally, India’s exclusion of CRR from High-Quality Liquid Assets (HQLA) reduces bank profitability. While Basel III emphasizes flexible, institution-specific liquidity planning, the RBI’s rigid mandates hinder optimal resource deployment.

Liquidity Access and MSME Credit Gap

Large corporates can access capital via equity and bond markets, but MSMEs remain dependent on bank credit, facing persistent shortages. PSL norms, which account for over 60% of bank lending, can distort credit risk pricing and misallocate capital. A revision is needed to align PSL with India’s changing economic structure.

Credit Growth and Exchange Rate Management

India’s credit growth lags nominal GDP growth, signaling underinvestment and risks to financial stability. Revisiting the credit-to-deposit (CD) ratio can help banks raise capital more efficiently. Meanwhile, defending the rupee against a strong dollar has drained liquidity without addressing currency overvaluation, which continues to hurt export competitiveness.

Way Forward

• Rationalize SLR and LCR mandates to unlock liquidity and lower interest rates.
• Revise PSL norms to reflect new growth priorities.
• Stimulate private investment through policy stability and ease of doing business.
• Deepen bond markets to diversify capital sources.
• Align digital banking fees with global norms for viability.

Conclusion

India stands at a critical juncture in its economic transformation. Reforms in banking regulation, better financial intermediation, and improved credit access are pivotal to achieving the vision of a $7 trillion economy. A forward-looking regulatory framework will empower banks to act as true engines of inclusive and sustained growth.

In News:

In a landmark decision during its February 2025 meeting, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points, from 6.5% to 6.25%, marking the first rate cut in five years (since May 2020). This move follows the Union Government’s recent cut in personal income tax, aimed at boosting consumption.

What is the Monetary Policy Committee (MPC)?

The MPC is a six-member statutory body responsible for setting India’s monetary policy. Its primary objective is price stability while ensuring economic growth. It meets bi-monthly to assess economic indicators and modify key policy rates like the repo rate, which influences overall borrowing and lending costs in the economy.

Key Highlights from the MPC Decision:

Repo Rate Cut:

• Reduced to 6.25% from 6.5%.
• Objective: Stimulate credit growth, investment, and consumer demand.
• Expected Impact: Lower EMIs for borrowers, reduced interest rates on EBLR and MCLR-linked loans.

GDP Growth Outlook (FY26):

• RBI projects 6.7% GDP growth for FY26.
• This is slightly higher than the FY25 estimate of 6.4%, and in line with the Economic Survey’s projection of 6.3–6.8%.
• Growth recovery is attributed to calibrated fiscal consolidation and stable private consumption.

Inflation Projections (CPI-based):

• FY26 Inflation Estimate: 4.2%
  • Q1: 4.5%
  • Q2: 4.0%
  • Q3: 3.8%
  • Q4: 4.2%
• CPI inflation had already dropped to 5.22% in December 2024, aided by easing food prices.
• RBI emphasized continued transmission of past policy measures and food price moderation as drivers of disinflation.

Broader Monetary Policy Context

• RBI will maintain a “neutral” policy stance to remain flexible amid evolving macroeconomic conditions.
• RBI Governor Sanjay Malhotra stressed that the inflation-targeting framework has helped stabilize prices, especially post-pandemic.
• The policy space was created by the simultaneous drop in inflation and moderate growth, allowing support for the economy without derailing price stability.

Cybersecurity & Digital Measures

• Additional Factor Authentication (AFA) introduced for international digital payments.
• Launch of exclusive domains:
  • "bank.in" for Indian banks
  • "fin.in" for the wider financial sector

These aim to bolster digital transaction security amid rising cyber fraud.

Forex & External Sector Outlook

• RBI reiterated that it does not target exchange rate levels, intervening only to curb excessive volatility.
• Ongoing global challenges include:
  • Strengthening of the US dollar
  • Higher bond yields
  • Geopolitical tensions
  • Threat of trade wars
• These have led to capital outflows, currency depreciation, and increased financial market volatility.

Conclusion

The RBI’s rate cut signals a strategic shift towards supporting economic growth amid global uncertainties. With a moderate inflation outlook and improving macroeconomic indicators, the decision is expected to boost domestic demand and investment, while reinforcing RBI’s commitment to price and financial stability.

In News:

In the Union Budget 2025–26, the Finance Minister proposed a significant policy shift by increasing the investment and turnover limits for MSME classification by 2.5 and 2 times respectively. This move is expected to enhance the growth prospects and scalability of India’s micro, small, and medium enterprises (MSMEs).

Economic Significance:

The MSME sector forms the backbone of the Indian economy, contributing 30% to the GDP and nearly 45% to manufacturing output. With over 1 crore registered units employing 7.5 crore people, it is the largest source of non-agricultural employment in the country. It plays a pivotal role in inclusive development, offering livelihood opportunities to the rural, urban poor, and semi-skilled workforce.

The formalization drive has been significant, with over 4 crore MSMEs registered on the Udyam portal by March 2024. Key schemes like PM Vishwakarma Yojana (?13,000 crore) and Mudra Yojana (?5.41 lakh crore disbursed in FY24) have supported artisans and first-time entrepreneurs, particularly women and marginalized communities.

Boost to Trade and Innovation:

MSMEs account for 45.73% of India’s total exports in sectors like textiles, leather, and engineering goods. Their integration into Global Value Chains (GVCs) is being facilitated by reforms in trade logistics, the GeM portal, and PLI schemes. Digital transformation is advancing rapidly, with 72% MSME transactions now digital, supported by platforms like ONDC and the RBI’s Public Tech Platform.

Women and Rural Empowerment:

Women entrepreneurs constitute 20.5% of Udyam registrations, and 68% of Mudra loans benefit them. MSMEs are also catalyzing rural industrialization by promoting agro-processing and curbing rural-urban migration through schemes like the SRI Fund and Animal Husbandry Credit Guarantee Scheme.

Key Challenges:

Despite their potential, MSMEs face critical bottlenecks:

• Credit access remains limited; only 20% of units access formal finance. Payment delays amounting to ?10.7 lakh crore (2022) hinder working capital.
• Regulatory burdens, inadequate infrastructure, and poor digital skills further constrain productivity.
• Low awareness of schemes and limited integration into global ESG standards affect competitiveness.
• The sector remains largely informal, weakening labor rights and policy outreach.

Recent Reforms & Recommendations:

To unlock MSMEs’ potential, a multi-pronged reform strategy is underway:

• Credit Measures: Promotion of cash-flow based lending, expansion of CGTMSE, Vyapar Credit Cards, and enhanced TReDS-GeM integration.
• Ease of Doing Business: Single-window clearances, self-certification, and stronger MSME facilitation councils.
• Digital & Skill Upgradation: Launch of Digital MSME 2.0, apprenticeship hubs, and innovation incubators.
• Market Access: Expansion of cluster-based models, branding support, and ONDC-GeM integration.
• Green MSMEs: ESG-linked credit, circular economy incentives, and green certifications.
• Formalization Push: Linking benefits to Udyam registration, backed by SIDBI-led equity support.

Conclusion:
MSMEs are central to India’s vision of a $5 trillion economy and Viksit Bharat by 2047. With increased investment thresholds, focused policy interventions, and digital empowerment, India can build a resilient, inclusive, and globally competitive MSME ecosystem.

In News:

In January 2025, the Reserve Bank of India (RBI) announced its largest monetary easing since the COVID-19 pandemic, unveiling a multi-pronged plan to inject over ?1.5 lakh crore into the money markets.

This move aims to address liquidity shortfalls caused by RBI’s forex interventions and signal possible easing in the upcoming monetary policy review.

Context: Why Liquidity Infusion Was Needed

• Forex Intervention: RBI sold over $50 billion from its foreign exchange reserves to stabilise the rupee, in response to large-scale equity sell-offs by Foreign Institutional Investors (FIIs).
• Impact: These interventions reduced rupee liquidity, tightened short-term interest rates, and raised borrowing costs.
• Liquidity Deficit: Market estimates pegged the shortfall at ?3 lakh crore.

Key Liquidity Measures Announced by RBI

• Government Bond Buy-Back: ?60,000 Crore
  • Conducted in three tranches on January 30, February 13, and February 20, 2025.
  • Objective: To inject liquidity into the banking system by repurchasing government securities before maturity.
• 56-Day Variable Rate Repo Auction: ?50,000 Crore
  • Scheduled for February 7, 2025.
  • Enables banks to borrow short-term funds by offering government securities as collateral at a market-determined interest rate.
• USD/INR Buy-Sell Swap Auction: $5 Billion
  • A six-month forex swap in which RBI borrows dollars in exchange for rupees and agrees to buy them back later.
  • Helps stabilize the rupee without draining rupee liquidity.

Significance of the Measures

• Monetary Transmission: With adequate liquidity, any potential repo rate cut will be more effectively transmitted through lower lending rates, boosting investment and consumption.
• Financial Stability: By calming money markets and moderating borrowing costs, RBI strengthens confidence amid global uncertainties.
• Rupee Management without Liquidity Squeeze: The forex swap allows rupee liquidity to remain intact while addressing exchange rate volatility.

Governor’s Focus Areas:

In a meeting with private sector bank heads ahead of the February monetary policy review, RBI Governor Sanjay Malhotra highlighted the following priorities:

• Financial Stability & Inclusion
• Enhanced Digital Literacy and Credit Access
• Improved Customer Service & Grievance Redressal
• Cybersecurity & IT Risk Management
• Monitoring of Third-party Service Providers
• Countering Rising Digital Fraud

In News:

Union Minister for Finance and Corporate Affairs Smt Nirmala Sitharaman presented Union Budget 2025-26 in the Parliament.

Key Highlights:

Fiscal Policy and Macroeconomic Indicators

• Total Expenditure: ?50.65 lakh crore
• Total Receipts (excl. borrowings): ?34.96 lakh crore
• Fiscal Deficit: 4.4% of GDP
• Gross Market Borrowing: ?14.82 lakh crore
• Capital Expenditure: ?11.21 lakh crore (3.1% of GDP)

Agriculture and Allied Sectors

• Prime Minister Dhan-Dhaanya Krishi Yojana: 100 low-productivity districts targeted; 1.7 crore farmers to benefit.
• Mission for Aatmanirbharta in Pulses: 6-year mission on Tur, Urad, and Masoor; NAFED/NCCF to procure for 4 years.
• Vegetables & Fruits Program: Comprehensive initiative for production, pricing, processing, and logistics.
• Makhana Board: New board in Bihar for production, value addition, and export.
• National Mission on High Yielding Seeds: To commercialize over 100 high-yielding seed varieties.
• Cotton Mission: 5-year initiative to boost productivity and Extra Long Staple (ELS) varieties.
• Fisheries: New EEZ and High Seas Framework focusing on Islands.
• Credit through KCC: Loan limit increased from ?3 lakh to ?5 lakh.
• Urea Plant in Assam: New plant at Namrup (12.7 lakh MT annual capacity).

MSMEs and Startups

• MSME Classification: Investment and turnover limits doubled (2.5x & 2x).
• Credit Cards for Micro Units: ?5 lakh limit; 10 lakh cards in year one.
• ?10,000 Cr Fund of Funds for Startups
• First-Time Entrepreneurs Scheme: Loans up to ?2 crore for 5 lakh women, SC/ST entrepreneurs.
• Footwear & Leather Sector Scheme: Aims ?4 lakh crore turnover and 22 lakh jobs.
• Toy Manufacturing Support: High-quality, eco-friendly toy ecosystem.
• Food Tech Institute: To be established in Bihar.
• National Manufacturing Mission: Across small, medium, and large units.

Infrastructure and Investment

• PPP Pipeline: 3-year project pipeline to be announced.
• ?1.5 lakh crore 50-year interest-free loans to states for CapEx.
• Urban Challenge Fund: ?1 lakh crore outlay; ?10,000 crore for FY26.
• Asset Monetization Plan 2025–30: Capital recycling worth ?10 lakh crore.
• Jal Jeevan Mission: Extended to 2028 with enhanced outlay.
• UDAN 2.0: Targeting 120 new destinations, 4 crore passengers in 10 years.
• Maritime Development Fund: ?25,000 crore; up to 49% govt contribution.
• Nuclear Energy Mission: ?20,000 crore outlay for Small Modular Reactors (SMRs).
• Greenfield Airports: Announced for Bihar.

Welfare and Social Security

• Saksham Anganwadi & Poshan 2.0: Enhanced nutritional cost norms.
• Medical Education: 10,000 new MBBS seats; 75,000 in 5 years.
• Day Care Cancer Centres: In all district hospitals; 200 in FY26.
• PM SVANidhi Revamp: ?30,000 UPI-linked credit cards.
• Online Platform Workers: E-Shram ID, PMJAY coverage.
• Urban Livelihood Scheme: For sustainable urban worker incomes.

Education and Skilling

• 50,000 Atal Tinkering Labs: Govt schools in 5 years.
• Bharatiya Bhasha Pustak Scheme: Digital books in Indian languages.
• National Skilling Centres of Excellence: With global partners.
• AI in Education: Centre of Excellence with ?500 crore outlay.
• IIT Expansion: Additional capacity for 6,500 students.

Innovation and R&D

• ?20,000 crore Innovation Fund (private-led R&D).
• Deep Tech Fund of Funds: For next-gen startups.
• PM Research Fellowships: 10,000 fellowships with higher support.
• 2nd Gene Bank: 10 lakh germplasm lines for food security.
• National Geospatial Mission
• Gyan Bharatam Mission: Conservation of 1 crore+ manuscripts.

Exports and Trade

• Export Promotion Mission: With ministerial and sectoral targets.
• BharatTradeNet (BTN): Unified platform for trade finance and docs.
• GCC Framework: Promote Global Capability Centres in Tier-2 cities.

Financial Sector Reforms

• FDI in Insurance: Raised from 74% to 100% for domestic investment.
• NaBFID Credit Enhancement Facility: For infra bonds.
• Grameen Credit Score: For SHGs and rural borrowers.
• Investment Friendliness Index: To rank states in 2025.
• Jan Vishwas Bill 2.0: Decriminalization of 100+ provisions.
• Tonnage Tax Extended: To inland vessels.
• Startups: Tax benefit eligibility extended to incorporation by 1 April 2030.

Taxation Reforms

Direct Taxes

• No Personal Tax: Income up to ?12 lakh (?12.75 lakh for salaried) under new regime.
• Revised Tax Slabs (New Regime):
  • 0–4L: Nil | 4–8L: 5% | 8–12L: 10%
  • 12–16L: 15% | 16–20L: 20% | 20–24L: 25% | 24L+: 30%
• Standard Deduction: ?75,000
• Compliance Relief: Trusts registration extended to 10 years.
• TDS/TCS Rationalization: Fewer thresholds, higher limits for senior citizens and rent.
• Tax Certainty: Safe harbour rules, startup extensions, presumptive taxation for electronics.

Indirect Taxes

• Tariff Rationalization: Only 8 remaining tariff rates.
• Customs Relief: ?2,600 crore forgone, key lifeline drugs exempted.
• Support to Domestic Manufacturing:
  • EV/mobile battery manufacturing: 63 capital goods exempted
  • Ships: BCD exemption extended for 10 years
  • Marine, leather, textiles: Several BCD reductions/exemptions
• Voluntary Compliance Scheme: Without penalty for post-clearance corrections.

In News:

Geo-economic fragmentation refers to a policy-driven reversal of global economic integration, increasingly shaped by geopolitical alignments. It signifies a shift from globalization to strategically-driven economic blocs, where nations prioritize political alliances over market efficiency.

Key Characteristics

• Emergence of friend-shoring, re-shoring, and economic nationalism.
• Fragmentation of trade, capital flows, FDI, and migration.
• Retreat from multilateralism, with institutions like the WTO and IMF under stress.
• Strategic use of environmental, labor, and social standards by developed countries to impose uniform regulations, causing tensions.

Globalization to Fragmentation: Statistical Evidence

• Trade-to-GDP Ratio: Increased from 39% (1980) to 60% (2012); now threatened by rising protectionism.
• FDI Inflows: Rose from $54 billion (1980) to $1.5 trillion (2019); now increasingly concentrated among like-minded countries.
• Global Economy: Expanded from $11 trillion (1980) to over $100 trillion (2022).
• Trade Restrictions (WTO Report):
  • 2023–24: 169 new measures covering $887.7 billion in trade.
  • 2022–23: Covered $337.1 billion — shows a dramatic rise in protectionism.
• Over 24,000 new trade and investment restrictions imposed globally between 2020–24.

IMF on Costs of GEF

• Trade fragmentation could cause 0.2% to 7% GDP losses, especially for developing countries.
• Current fragmentation is more costly than Cold War era, as trade now constitutes 45% of global GDP (vs. 16% then).
• Less trade = less knowledge diffusion, innovation, and productivity gains.

Strategic Impacts: Global Supply Chains

China’s Dominance

• 80% of global battery manufacturing.
• 80% of solar panel components.
• 60% of wind turbine capacity.
• 70% of global rare earth mineral processing.
• Dominates EV supply chains, critical mineral refining, and clean energy manufacturing.

FDI Realignment

• FDI is increasingly relocating from China to India, Vietnam, Mexico, etc.
• Friend-shoring reduces capital access for emerging markets.
• Emerging economies face reduced FDI, slower growth, and technological decoupling.

India’s Strategic Response: Deregulation and Internal Growth

Policy Recommendations (Economic Survey 2024–25)

• Amplify deregulation to lower compliance costs and boost entrepreneurship.
• Empower SMEs to withstand global shocks and strengthen domestic manufacturing.
• Encourage inter-state learning for best practices in economic governance.
• Redouble efforts to boost exports and foreign investment amidst global volatility.

Rationale

• With the decline of global cooperation, internal engines of growth become crucial.
• Deregulation can unleash innovation, enhance productivity, and ensure resilient growth.
• India's response must be strategic, systematic, and state-inclusive to capitalize on this global transition.

In News:

• Released on 31st January 2025, a day before the Union Budget.
• Prepared by the Department of Economic Affairs, Ministry of Finance.
• Provides a comprehensive review of India’s macroeconomic trends, sectoral developments, and key policy challenges.
• Real GDP growth estimated at 6.4% in FY25 (close to decadal average); projected between 6.3–6.8% in FY26.
• Reflects India's resilience amidst global slowdown, supply chain disruptions, and geopolitical uncertainties.

Sector-wise Performance

Agriculture:

• Expected growth: 3.8% in FY25.
• Record Kharif foodgrain production: 1647.05 LMT (+5.7% YoY).
• Growth driven by horticulture, livestock, and fisheries.
• Supported by above-normal monsoons and robust reservoir levels.

Industry:

• Estimated growth: 6.2% in FY25.
• Construction, utilities, and mining contribute significantly.
• Challenges: Sluggish export demand, climate disruptions, and festival timing variations.
• Manufacturing PMI remains in the expansionary zone.

Services:

• Robust growth: 7.2% in FY25.
• Services exports up by 12.8% (April–Nov FY25) vs 5.7% in FY24.
• Growth led by finance, real estate, public administration, and professional services.

Inflation and Price Stability

• Retail inflation eased to 4.9% (Apr–Dec 2024) from 5.4% (FY24).
• Food inflation remains high at 8.4%, driven by pulses and vegetables.
• CPI expected to align with RBI's 4% target by FY26.

Investment and Infrastructure

• Capital Expenditure grew 8.2% YoY (Jul–Nov 2024); sustained increase since FY21.
• Infrastructure momentum:
  • 2031 km railways commissioned (Apr–Nov 2024).
  • 17 Vande Bharat trains introduced.
  • Port efficiency improved; container turnaround time reduced from 48.1 to 30.4 hours.
• Renewable energy capacity rose by 15.8% YoY (Dec 2024).

External Sector and Trade

• Overall exports grew by 6% (Apr–Dec 2024); merchandise exports up 1.6%.
• Services exports surged; India now 7th largest globally.
• FDI inflows: $55.6 billion (Apr–Nov FY25), +17.9% YoY.
• Forex reserves at $640.3 billion (Dec 2024), covering 10.9 months of imports and 90% of external debt.
• CAD contained at 1.2% of GDP in Q2 FY25.
• Strong remittance inflows support BOP stability.

Fiscal Health

• Gross Tax Revenue rose 10.7% YoY (Apr–Nov 2024).
• Stable deficit indicators allowed for developmental expenditure.
• State revenue expenditure grew 12%, with subsidies increasing by 25.7%.

Banking, Credit, and Financial Markets

• Gross NPAs dropped to 2.6% (lowest in 12 years).
• CRAR of scheduled banks at 16.7% (Sept 2024), well above regulatory norms.
• Stock market cap to GDP ratio: 136%, higher than China (65%) and Brazil (37%).
• Credit-GDP gap reduced to -0.3% in Q1 FY25 (from -10.3% in Q1 FY23).

Employment and Labour Market

• Unemployment rate declined to 3.2% (2023-24) from 6.0% (2017-18).
• Labour Force Participation Rate (LFPR) and Worker-Population Ratio (WPR) improved.
• Emphasis on AI skill development to future-proof labour markets.

Health, Education & Social Sector

• Government health expenditure rose from 29% to 48% of total health spending (FY15–FY22).
• Out-of-pocket expenditure dropped from 62.6% to 39.4% in the same period.
• Education reforms aligned with NEP 2020 via programs like Samagra Shiksha, DIKSHA, PM SHRI, etc.
• Social services spending grew at 15% CAGR (FY21–FY25).
• Decline in Gini coefficient indicates improving consumption equality.

Policy Recommendations and Reform Agenda

• Deregulation as central theme to boost productivity and EoDB.
• Advocates Ease of Doing Business 2.0, led by states, targeting:
  • Simplification of compliance norms.
  • Risk-based regulation.
  • Reduction in tariffs and licensing hurdles.
• ?50,000 crore Self-Reliant India Fund launched for MSME equity support.
• Need for long-term infrastructure investment to achieve Viksit Bharat@2047.

Global Backdrop

• Global GDP grew by 3.3% in 2023, with an average 3.2% growth projected over next five years (IMF).
• Weak global manufacturing; services sector remains stronger.
• Risks: Geopolitical tensions, trade policy fragmentation, energy transition dependence on China.

Way Forward

• Balanced outlook for FY26 with upside from:
  • Strong rural demand.
  • Agricultural recovery.
  • Easing food inflation.
• Challenges include:
  • Geopolitical tensions.
  • Global trade and commodity price volatility.
  • Delay in private investment materialisation.

What is the Union Budget?

The Union Budget, referred to as the Annual Financial Statement under Article 112 of the Constitution, outlines the government's estimated receipts and expenditure for a financial year. It serves as a crucial instrument for economic policy and governance.

The Budget Division of the Department of Economic Affairs under the Ministry of Finance is responsible for preparing the Union Budget.

Key Components of the Budget

1. Expenditure

Expenditure is classified on the basis of:

• Asset Creation and Liability Reduction:
  • Capital Expenditure: Increases assets or reduces liabilities (e.g., infrastructure, hospitals).
  • Revenue Expenditure: Does not create assets (e.g., salaries, subsidies, interest payments).
• Sectoral Impact:
  • General Services: Administrative functions, defence, interest payments.
  • Economic Services: Agriculture, transport, rural development, etc.
  • Social Services: Education, health, welfare.
  • Grants-in-Aid and Contributions.

Development Expenditure = Economic Services + Social Services, and it too can be capital or revenue in nature.

2. Receipts

Government receipts are classified into:

• Revenue Receipts: Do not create liabilities (e.g., tax and non-tax revenues).
• Non-Debt Capital Receipts: Do not involve liabilities (e.g., loan recovery, disinvestment).
• Debt-Creating Capital Receipts: Involve future liabilities (e.g., borrowings).

3. Deficit Indicators

• Fiscal Deficit = Total Expenditure - (Revenue Receipts + Non-Debt Capital Receipts)
• Primary Deficit = Fiscal Deficit - Interest Payments
• Revenue Deficit = Revenue Expenditure - Revenue Receipts

Fiscal deficit reflects the net borrowing requirement of the government.

Implications of the Budget on the Economy

1. Aggregate Demand

• Government Expenditure boosts aggregate demand.
• Tax and Non-Tax Revenue reduces disposable income, thereby contracting demand.

Policy Interpretations:

• Expansionary Fiscal Policy: Rise in expenditure-GDP ratio, increase in fiscal deficit.
• Contractionary Fiscal Policy: Increase in revenue-GDP ratio, reduction in fiscal deficit.

2. Income Distribution

• Revenue expenditure like food subsidies or MGNREGA supports lower-income groups.
• Corporate tax concessions benefit businesses. Both may increase deficits but differ in their distributional impact.

Fiscal Rules and Their Role

Fiscal rules define policy targets to maintain macroeconomic stability. They guide the government’s borrowing and spending behaviour.

Current Framework in India

India’s fiscal framework is guided by the N.K. Singh Committee Report, which recommended:

1. Stock Target: Maintain a specific Debt-to-GDP ratio.
2. Flow Target: Limit Fiscal Deficit-to-GDP ratio.
3. Composition Target: Maintain Revenue Deficit-to-GDP ratio.

Challenges in Implementation

• India’s tax rates are largely fixed and not adjusted frequently.
• To meet fiscal targets, the government primarily adjusts expenditure.
• This rigidity may constrain the ability to undertake expansionary fiscal policy, especially during economic downturns or rising unemployment.

Need for Re-examination

Given persistent issues like low growth and unemployment, current fiscal rules may hinder responsive policy action. A flexible and context-specific fiscal framework is essential for ensuring both macroeconomic stability and inclusive development.

Conclusion

The Union Budget is not merely a financial statement but a tool of economic management. A nuanced understanding of its formulation, components, and policy implications is vital for evaluating government priorities and their impact on the economy and society.

In News:

A recent State Bank of India (SBI) report highlights the evolving trends in investment activity and the increasing importance of External Commercial Borrowings (ECBs) in financing India's economic growth. It also reflects rising private sector participation and a robust capital formation trend.

Investment Trends in India:

• Total Investment Announcements reached ?32.01 lakh crore during April–December 2024 (9MFY25), up 39% from the same period in FY24.
• The private sector accounted for 70% of investments in 9MFY25, up from 56% in FY24, indicating rising business confidence.
• Gross block of Indian corporates rose to ?106.5 lakh crore (March 2024), from ?73.94 lakh crore in March 2020—an addition of over ?8 lakh crore annually.
• Capital Work in Progress stood at ?13.63 lakh crore, reflecting ongoing infrastructure and industrial projects.
• Household Net Financial Savings (HNFS) improved to 5.3% of GDP in FY24 from 5.0% in FY23.
• Investment-to-GDP ratio improved, with:
  • Government investment at 4.1% of GDP (FY23) — highest since FY12.
  • Private corporate investment rising to 11.9% in FY23, projected to reach 12.5% in FY24.

What are External Commercial Borrowings (ECBs)?

ECBs refer to loans raised by Indian entities from foreign lenders, including commercial banks, export credit agencies, and institutional investors. These borrowings are regulated by the Reserve Bank of India (RBI) and used for purposes like capital expansion, modernization, and infrastructure development.

Current Status of ECBs (as of Sept–Nov 2024):

• Outstanding ECBs stood at $190.4 billion (Sept 2024).
  • Private sector share: 63% (~$97.6 billion).
  • Public sector share: 37% (~$55.5 billion).
• Of the total, non-Rupee and non-FDI ECBs accounted for $154.9 billion.
• ECBs registered (April–Nov 2024): $33.8 billion, mainly for capital goods import, local capex, and new projects.
• Cost of ECBs declined to:
  • 6.6% average during April–November 2024.
  • 5.8% in November 2024, down by 71 basis points from the previous month.
• Hedging practices: Private companies hedge about 74% of their ECB exposure, essential for managing currency risk.

Why Are ECBs Important for India?

• Bridging Capital Gaps: Domestic markets may not meet the capital needs of large projects.
• Lower Interest Rates: ECBs often offer cheaper financing than domestic loans.
• Infrastructure Financing: Key source of funds for sectors needing long-term investment.
• Foreign Exchange Access: Supports imports, modernization, and technology adoption.
• Private Sector Expansion: Enables firms to grow, diversify, and remain globally competitive.

Challenges and Risks:

• Currency Risk: Rupee depreciation can raise repayment costs.
• Interest Rate Risk: Linked to global rates (e.g., LIBOR/SOFR), which can rise unpredictably.
• Hedging Costs: Though necessary, hedging adds to borrowing costs.
• Global Dependency: Exposure to international financial volatility.
• Regulatory Constraints: RBI norms on end-use, maturity, and cost ceilings can reduce flexibility.
• Over-Borrowing Risk: Mismanagement can lead to unsustainable debt levels and strain forex reserves.

Clarification on ECB Liability Data:

• Some media reports mistakenly cited India’s ECB stock as $273 billion.
• The actual ECBs, as per RBI (Sept 2024), stand at $190.4 billion.
• The inflated figure includes $72 billion in FPI (Debt), which should not be classified as ECBs.

Way Forward:

• Regulatory Refinement: Simplify ECB rules for strategic sectors and long-term projects.
• Encourage Hedging: Make risk management more affordable and accessible.
• Prudent Borrowing: Promote ECBs for infrastructure, exports, and modernization rather than working capital.
• Monitoring and Oversight: Ensure transparency and prevent over-leverage.
• Strengthen Domestic Financing: To reduce overdependence on foreign borrowing.

Introduction

India's transition towards clean energy has accelerated, with 2024 witnessing record-breaking renewable energy (RE) installations and policy innovation. With a vision to achieve 500 GW of non-fossil fuel capacity by 2030 and net-zero emissions by 2070, India is shaping itself as a global leader in sustainable development.

What is Renewable Energy?

Renewable energy is derived from naturally replenishing sources like solar, wind, hydropower, and biomass. It plays a vital role in:

• Reducing dependence on fossil fuels.
• Lowering greenhouse gas emissions.
• Ensuring long-term energy security.

India’s RE Targets and Progress

Parameter                                 Target/Status

2030 Target                              500 GW of non-fossil fuel capacity

Net Zero by                               2070

Current Status (Jan 2025)      217.62 GW of non-fossil fuel-based capacity

Short-term Goal                      50% energy capacity from renewable sources

2024: Year of Renewable Milestones

Solar Energy

• 24.5 GW added in 2024 — a 2.8x increase over 2023.
• 18.5 GW utility-scale solar: Rajasthan, Gujarat, Tamil Nadu contributed 71%.
• Rooftop Solar:
  • 4.59 GW added (↑53%)
  • 7 lakh installations under PM Surya Ghar: Muft Bijli Yojana.
• Off-grid Solar:
  • 1.48 GW added (↑182%), promoting rural energy access.

Wind Energy

• 3.4 GW added: Gujarat (1,250 MW), Karnataka (1,135 MW), Tamil Nadu (980 MW) = 98% of new capacity.

Hydropower & Others

• Existing hydropower plants modernized to improve efficiency.

Government Initiatives Driving Growth

Scheme/Initiative                                                Purpose

PM Surya Ghar: Muft Bijli Yojana                  Rooftop solar subsidies for households

Green Energy Corridor (GEC)                        Transmission infra for RE-rich states

Hydrogen Energy Mission                                Promote green hydrogen production

National Smart Grid Mission (NSGM)            Integration of variable RE sources into the grid

FAME Scheme                                                   Promote EV adoption, indirectly supporting RE usage

International Solar Alliance (ISA)                   Strengthen global cooperation in solar energy

Challenges in RE Expansion

• Land Acquisition: Resistance from locals, especially in solar park areas.
• Grid Stability: Intermittency of solar/wind leads to voltage and frequency issues.
• Storage Gaps: Lack of large-scale battery storage limits surplus utilization.
• E-Waste Concerns: Rising disposal of solar panels and batteries.
• Mineral Dependency: Import reliance on lithium, cobalt, etc.
• Regulatory Bottlenecks: Delay in approvals and lack of inter-state coordination.

Way Forward: Strategic Interventions

Technological Innovation

• Floating Solar Projects: Utilize reservoirs to save land and reduce evaporation.
• Decentralized Systems: Peer-to-peer trading via blockchain for energy democratization.
• Green Hydrogen: Use surplus RE for hydrogen fuel, develop hydrogen corridors.

Infrastructure & Manufacturing

• Renewable Energy SEZs: Promote local manufacturing and innovation.
• Smart Grid Development: Improve grid flexibility and real-time balancing.

Environmental Management

• Circular Economy for RE Waste: Design policies for solar panel and battery recycling.
• Urban Integration: Incentivize rooftop installations in urban centers.

Conclusion

India’s renewable energy revolution is at a crucial juncture. With 2024 setting a strong precedent through record installations and policy progress, the path to 2030 and beyond will require addressing infrastructural, financial, and regulatory challenges. A multi-pronged, inclusive, and technology-driven approach will help India lead the global clean energy transition.

Introduction:

The future of Indian agriculture is at a crossroads. With the shrinking of the agricultural workforce and the diversion of fertile farmlands for urbanization, ensuring the sustainability of farming is a strategic imperative. Among the various support mechanisms for farmers, the Minimum Support Price (MSP) remains a central point of debate. Should there be a legal guarantee for MSP? This question has gained prominence, especially with the rising challenges in agriculture, from unpredictable climate patterns to volatile market prices.

The Decline of Agriculture and Its Impact

India’s agricultural sector faces a dual crisis: loss of both land and human resources. Prime agricultural lands across river basins, such as the Ganga-Yamuna Doab or the Krishna-Godavari delta, are being repurposed for real estate, infrastructure, and industrial projects. Additionally, the number of "serious farmers" – those deriving at least half of their income from agriculture – is dwindling. The number of operational holdings may be 146.5 million, but only a small fraction of these farmers remains committed to agriculture.

This decline threatens the future of India’s food security, as the country will need to feed a population of 1.7 billion by the 2060s. To sustain farming and ensure long-term food security, we must secure farmers' livelihoods. Price security, particularly through MSP, plays a crucial role in this context.

The Role of MSP in Securing Farmers

MSP is the government-mandated price at which it guarantees the purchase of crops if market prices fall below a certain threshold. It provides a safety net for farmers against price volatility. The process of fixing MSP involves recommendations by the Commission for Agricultural Costs and Prices (CACP), which takes into account factors such as the cost of production and market trends. Once approved by the Cabinet Committee on Economic Affairs (CCEA), MSP is set for various crops, including rice, wheat, and sugarcane.

For farmers to stay in business, there must be a balance between production costs and returns. Farming is a risky business – yield losses can occur due to weather anomalies, pest attacks, or other natural factors. However, price risks can be mitigated with a guaranteed MSP. This would encourage farmers to invest in their land and adopt modern farming technologies, which would boost productivity and reduce costs.

Arguments for and Against Legal MSP Guarantee

Supporters of a legal MSP guarantee argue that it would provide financial security to farmers, protecting them from unpredictable market conditions. It would also promote crop diversification, encourage farmers to shift from water-intensive crops to those less dependent on irrigation, and inject resources into rural economies, thus addressing distress in rural areas.

However, critics highlight several challenges with a legal guarantee for MSP. The most significant concern is the fiscal burden it would impose on the government, potentially reaching Rs. 5 trillion. Furthermore, such a system could distort market dynamics, discouraging private traders and leading to a situation where the government becomes the primary buyer of agricultural produce. This could be economically unsustainable, especially for crops with low yields. Additionally, legal MSP guarantees could violate World Trade Organization (WTO) subsidy principles, adversely impacting India’s agricultural exports.

The Way Forward: A Balanced Approach

Given the challenges associated with a legal MSP guarantee, alternative measures should be explored. Price Deficiency Payment (PDP) schemes, such as those implemented in Madhya Pradesh and Haryana, could be expanded at the national level. These schemes compensate farmers for the difference between market prices and MSP, ensuring price security without the fiscal burden of procurement.

Additionally, the government can focus on improving agricultural infrastructure, such as cold storage facilities, to help farmers better access markets and increase price realization. Supporting Farmer Producer Organizations (FPOs) could also help farmers by enhancing collective bargaining power and ensuring better prices for their produce. Moreover, gradual expansion of MSP coverage to include a wider range of crops would encourage diversification, reducing the dominance of rice and wheat.

In News:

The Indian government has decided to extend the special subsidy on Di-Ammonium Phosphate (DAP) fertilizer for another year, a decision aimed at stabilizing farmgate prices and addressing the challenges posed by the depreciation of the Indian rupee.

Key Government Decision

• Extension of Subsidy: The Centre has extended the Rs 3,500 per tonne special subsidy on DAP from January 1, 2025 to December 31, 2025.
• Objective: This extension aims to contain farmgate price surges of DAP, India’s second most-consumed fertilizer, which is being impacted by the fall in the rupee's value against the US dollar.

Fertilizer Price Dynamics and Impact

• MRP Caps on Fertilizers: Despite the decontrol of non-urea fertilizers, the government has frozen the maximum retail price (MRP) for these products.
  • Current MRPs:
    • DAP: Rs 1,350 per 50-kg bag
    • Complex fertilizers: Rs 1,300 to Rs 1,600 per 50-kg bag depending on composition.
• Subsidy on DAP: The subsidy includes Rs 21,911 per tonne on DAP, plus the Rs 3,500 one-time special package.
• Impact of Currency Depreciation:
  • The rupee's depreciation has made imported fertilizers significantly more expensive.
    • The landed price of DAP has increased from Rs 52,960 per tonne to Rs 54,160 due to the rupee falling from Rs 83.8 to Rs 85.7 against the dollar.
    • Including additional costs (customs, port handling, insurance, etc.), the total cost of imported DAP is now Rs 65,000 per tonne, making imports unviable without further subsidy or MRP adjustments.

Industry Concerns and Viability Issues

• Import Viability:
  • Fertilizer companies face significant cost pressures due to rising import prices and the current MRP caps.
  • Without an increase in government subsidies or approval to revise MRPs upwards, imports will be unviable.
  • Even with the extended subsidy, companies estimate a Rs 1,500 per tonne shortfall due to currency depreciation.
• Stock Levels and Supply Challenges:
  • Current stock levels for DAP (9.2 lakh tonnes) and complex fertilizers (23.7 lakh tonnes) are below last year's levels.
  • With inadequate imports, there are concerns about fertilizer supply for the upcoming kharif season (June-July 2025).

Government’s Strategy and Fiscal Implications

• Compensation for Imports:
  • In September 2024, the government approved compensation for DAP imports above a benchmark price of $559.71 per tonne, based on an exchange rate of Rs 83.23 to the dollar.
  • With the rupee falling below Rs 85.7, these previous compensation calculations have become outdated.
• Fiscal Impact:
  • The extended subsidy will cost the government an additional Rs 6,475 crore. Despite this, political implications of raising the MRP are minimal, as only non-major agricultural states are facing elections in 2025.

Future Outlook and Priorities

• Immediate Priority: The government’s primary concern is securing adequate fertilizer stocks for the kharif season, focusing on ensuring sufficient imports of both finished fertilizers and raw materials.
• Balancing Factors: The government will need to navigate the complex balance of maintaining fertilizer affordability for farmers, ensuring the viability of fertilizer companies, and managing fiscal constraints.

As the subsidy extension is implemented, all eyes will be on the government's ability to ensure a stable supply of fertilizers while safeguarding both farmer interests and economic sustainability in the face of an increasingly challenging exchange rate environment.

In News:

Dr. Manmohan Singh, a distinguished economist, played a crucial role in shaping India’s economic trajectory. His leadership, as Finance Minister (1991–96) and Prime Minister (2004–14), is particularly noted for the economic liberalization and reform policies that transformed India’s economy.

India’s Economic Crisis of 1991

• Economic Collapse: India faced a severe balance of payments crisis, with dwindling foreign reserves and rising inflation.
• Key Challenges: Fiscal deficit, industrial stagnation, and trade imbalances worsened by the collapse of the Soviet Union.
• Urgent Measures: Dr. Singh was appointed Finance Minister during this crisis and initiated bold reforms to stabilize and grow the economy.

Key Reforms in 1991

• Devaluation of the Rupee
  • Aimed at making Indian exports competitive in global markets.
  • Reduced import tariffs and liberalized foreign trade.
• Industrial Policy Reforms
  • Abolition of Licence Raj: Deregulated the industrial sector, promoting private enterprises.
  • Reduced state control and encouraged foreign investment, leading to industrial growth.
• Banking and Financial Reforms
  • Reduced the statutory liquidity ratio (SLR) and cash reserve ratio (CRR).
  • Allowed for more credit flow, fostering economic expansion and banking sector efficiency.
• Global Integration
  • Introduced economic liberalization policies, integrating India with the global economy and attracting foreign investments.

Economic Growth and Social Welfare Initiatives

• Poverty Reduction: Reforms helped lift millions out of poverty by fostering job creation and industrial growth.
• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Launched in 2005, providing 100 days of wage employment to rural households.
• Right to Information (RTI) and Right to Education (RTE)
  • Empowered citizens by ensuring transparency and access to government information.
  • RTE guaranteed free and compulsory education for children aged 6-14.
• Financial Inclusion: Aadhar project introduced to facilitate welfare delivery and financial inclusion.

Legacy of Economic Liberalization and Growth

• Economic Growth: Under his leadership, India’s GDP grew at an average rate of 8%, establishing India as one of the fastest-growing economies.
• Shift to a Market-Driven Economy: Reforms dismantled socialist controls, facilitating the rise of the private sector.
• Attracting Foreign Investment: Economic liberalization and policy reforms made India an attractive destination for foreign capital.

Leadership During Political and Economic Challenges

• Reluctant Prime Minister
  • In 2004, Singh became Prime Minister despite initial reluctance, emerging as a unifying figure during coalition politics.
  • His tenure saw India’s rise as a global economic power, particularly from 2004–2009.
• Challenges
  • Singh’s second term was marred by allegations of corruption and policy paralysis, leading to criticism of his administration.
  • However, his personal integrity remained intact, and he maintained focus on governance.
• Historic India-US Nuclear Deal (2008)
  • The deal marked a significant shift in India’s foreign relations and energy policies, enabling civilian nuclear trade.

Conclusion

Dr. Manmohan Singh’s economic policies are central to India's modern economic framework. His vision transformed India from a closed, socialist economy to a vibrant, globalized economy, promoting inclusive growth and institutional reforms. Despite facing challenges and criticisms, his legacy remains a testament to strategic policymaking that continues to influence India’s economic landscape.

In News:

The Economic Advisory Council to the Prime Minister (EAC-PM) recently released a working paper revealing critical insights into the trends of female Labour Force Participation Rate (LFPR) in India from 2017-18 to 2022-23. The report highlights an overall increase in female LFPR, with rural areas experiencing more significant growth compared to urban areas. This article delves into the key findings, regional disparities, influencing factors, and government initiatives aimed at promoting female workforce participation.

Key Findings on Female LFPR

The period between 2017-18 and 2022-23 witnessed a notable rise in female LFPR, both in rural and urban regions, though rural areas saw higher gains.

Rural female LFPR surged by approximately 69%, from 24.6% to 41.5%, while urban female LFPR increased from 20.4% to 25.4%. This consistent growth was observed even after excluding unpaid family workers or household helpers, reinforcing the long-term trend of increased female workforce participation across India.

However, a significant point of discussion in the report was the regional variations in female LFPR. States like Bihar, Punjab, and Haryana have consistently reported low female LFPR, which is noteworthy considering that Punjab and Haryana are among India's wealthiest states, while Bihar is the poorest. This regional disparity suggests that economic prosperity does not automatically translate into higher female labour force participation, highlighting deeper socio-cultural and structural barriers.

Regional Disparities in Female LFPR

The report emphasizes the persistent challenges in northern and eastern India. Punjab and Haryana, despite their affluence, have struggled with low female LFPR. Cultural and societal norms in these regions may contribute to the underrepresentation of women in the workforce, particularly in rural areas where traditional gender roles are more entrenched.

On the other hand, Bihar, the poorest state in India, had the lowest female LFPR in the country, particularly in rural areas. However, there has been a significant improvement in recent years, especially among rural married women. This indicates a slow but positive shift in attitudes towards female employment in these states.

In contrast, northeastern states such as Nagaland and Arunachal Pradesh have shown significant improvements in female LFPR, particularly in rural areas. These states have demonstrated that regional and cultural factors can also create conducive environments for female workforce participation.

Demographic Factors Affecting Female LFPR

Several demographic patterns influence female LFPR, including marital status and age. The report notes that married men consistently exhibit higher LFPR compared to women. Marriage, however, has a detrimental impact on female LFPR, particularly in urban areas, where women often face greater familial and societal pressures to prioritize domestic responsibilities over formal employment.

Age dynamics also play a crucial role in female LFPR trends. The data reveals a bell-shaped curve for female participation, peaking around the age of 30-40 years and sharply declining thereafter. This is in stark contrast to male LFPR, which remains almost universally high between the ages of 30-50 before gradually declining. These trends underscore the challenges women face in sustaining their participation in the workforce due to familial responsibilities, especially after marriage and childbirth.

Government Initiatives and the Rise in Female LFPR

The government's focus on women-led development is evident through various schemes aimed at increasing female workforce participation. Programs like Mudra Loans, the Drone Didi Scheme, and the Deendayal Antyodaya Yojana have been particularly instrumental in empowering women, especially in rural areas. These initiatives provide women with access to financial resources, skill development opportunities, and avenues for entrepreneurship, all of which contribute to the rise in female LFPR.

The EAC-PM's analysis acknowledges the positive impact of these government schemes, but it also stresses the need for further research to evaluate their long-term effectiveness. While the descriptive analysis highlights a substantial increase in female LFPR between 2017-18 and 2022-23, especially in rural areas, there remains a need for continuous monitoring and assessment of these schemes to ensure their sustained impact.

Conclusion: A Positive Shift, but Challenges Remain

The increase in female LFPR across India from 2017-18 to 2022-23 signals a positive shift in employment trends, particularly in rural areas. However, regional disparities, societal norms, and demographic factors continue to pose challenges. The rise in female LFPR is encouraging, but it is essential to understand the deeper socio-economic factors that shape women's participation in the workforce.

Government schemes have contributed to this growth, but future research is necessary to gauge their long-term effects and ensure that women’s participation in the workforce is not just a short-term trend. It is crucial that the government continues to refine policies that support women in overcoming socio-cultural and economic barriers, especially in less prosperous states like Bihar, Punjab, and Haryana. Sustained efforts, including education, skill development, and gender-sensitive policies, will be key to ensuring that the rise in female LFPR is both inclusive and long-lasting.

The analysis by the EAC-PM provides an essential framework for policymakers to design more targeted interventions to address regional disparities and create a more inclusive labor market for women in India.

In News:

India’s manufacturing sector has shown remarkable signs of recovery and growth, thanks to strategic policy initiatives like the Production Linked Incentive (PLI) scheme. To fully capitalize on this momentum and become a global manufacturing hub, however, deeper reforms are needed.

The Success of the PLI Scheme: A Catalyst for Growth

The government’s PLI scheme has been instrumental in revitalizing key sectors like electronics, pharmaceuticals, automobiles, and textiles. It has not only boosted production but also increased exports and job creation. According to the Annual Survey of Industries (ASI) 2022-23, manufacturing output grew by an impressive 21.5%, while gross value added (GVA) increased by 7.3%. Sectors such as basic metals, refined petroleum products, food products, and motor vehicles, which are beneficiaries of the PLI scheme, contributed 58% of total manufacturing output, registering growth of 24.5%.

This success underlines the potential of India’s manufacturing sector, with the PLI scheme acting as a key enabler. However, while the recovery is promising, there are significant challenges to overcome to sustain long-term growth.

Expanding PLI Incentives to New Sectors

The PLI scheme has largely benefitted traditional industries like electronics and automotive manufacturing. To further accelerate growth, the scope of the scheme must be extended to labour-intensive sectors such as apparel, footwear, and furniture, which hold immense potential for job creation. Additionally, emerging sectors like aerospace, space technology, and maintenance, repair, and overhaul (MRO) services offer new avenues for growth. By diversifying the incentive structure to these sectors, India could establish a more robust and resilient manufacturing ecosystem.

In sectors like capital goods, where India is heavily import-dependent, the potential for reducing supply chain vulnerabilities is significant. Moreover, promoting green manufacturing and advanced technologies could further bolster India’s competitiveness in global markets.

Addressing the Divergence Between Output and Value Addition

Despite a surge in production, India’s gross value added (GVA) has not kept pace with output growth. The ASI data shows that input prices soared by 24.4% in 2022-23, indicating that while production volumes are up, industries are grappling with high input costs. A more streamlined import regime could mitigate these costs. Simplifying tariffs into a three-tier system (for raw materials, intermediates, and finished goods) would reduce input costs, enhance competitiveness, and improve integration into global value chains.

Regional Imbalance: A Barrier to Inclusive Growth

The manufacturing sector’s growth is heavily concentrated in a few states such as Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh, which account for over 54% of manufacturing GVA. This concentration not only restricts equitable development but also hampers the overall growth potential of the sector. To address this, it is crucial that states actively participate in India's manufacturing growth story by implementing market reforms in land, labour, and power. Additionally, infrastructure development and investment promotion in less industrialized regions could help balance growth and ensure that the benefits of manufacturing reach all corners of the country.

Fostering MSME Growth and Enhancing Female Workforce Participation

Micro, small, and medium enterprises (MSMEs) contribute about 45% of India’s manufacturing GDP and employ around 60 million people. To scale these businesses and integrate them into global value chains, PLIs should be tailored to accommodate their needs, such as lowering capital investment thresholds and reducing production targets.

Equally important is the enhancement of female workforce participation. Studies suggest that India’s manufacturing output could increase by 9% if more women enter the workforce. The development of supportive infrastructure, such as hostels and childcare facilities, can play a pivotal role in enabling women’s participation, thus driving inclusive growth.

Conclusion: The Path Forward

To transform into a developed economy by 2047, India must continue to focus on strengthening its manufacturing sector. According to industry estimates, manufacturing’s share in Gross Value Added (GVA) can rise from 17% to 25% by 2030 and further to 27% by 2047. Achieving this will require sustained efforts to enhance competitiveness through business reforms, cost reduction, and policy support. India is well-positioned to harness its manufacturing potential, but timely and focused interventions are necessary to turn this vision into reality.

Introduction

On December 2, 2024, the Indian government withdrew the windfall gains tax on domestic crude oil production and fuel exports (diesel, petrol, and aviation turbine fuel - ATF). This tax, initially imposed in July 2022, was introduced in response to the surge in global oil prices following Russia's invasion of Ukraine. Its removal reflects the current global oil market stability and the improved fuel supply situation in India.

What is Windfall Gains Tax?

Definition

A windfall tax is a levy imposed on unexpected profits that result from extraordinary events, such as geopolitical crises or market disruptions. In the case of India, the tax was applied to the super-normal profits of oil producers and fuel exporters due to the global energy turmoil.

Key Features

• Domestic Crude Oil: The Special Additional Excise Duty (SAED) was imposed on domestic crude oil production.
• Fuel Exports: A combination of SAED and Road and Infrastructure Cess (RIC) was levied on diesel, petrol, and ATF exports.

Rationale Behind the Windfall Gains Tax

Immediate Context

The tax was introduced during a period of soaring global crude oil prices, driven by the Russia-Ukraine conflict. India, which imports over 85% of its oil, faced concerns about the availability of fuels and the impact of rising prices on domestic consumption. The tax was seen as a way to:

• Ensure Domestic Fuel Supply: By discouraging excessive fuel exports during a period of global supply chain disruptions.
• Increase Government Revenue: The tax aimed to capture windfall profits and offset the duty cuts on domestic fuel sales.

Global Context

Other countries also implemented similar windfall taxes during this period, as energy companies saw record profits due to the price surge.

Decline in Windfall Gains Tax Revenue

Revenue Collection

The windfall gains tax initially raised significant revenue, but the amount has decreased over time due to falling global oil prices:

• FY 2022-23: Rs 25,000 crore
• FY 2023-24: Rs 13,000 crore
• FY 2024-25 (so far): Rs 6,000 crore

This decline, combined with reduced oil prices, led to the tax being effectively inactive before its formal withdrawal.

Withdrawal of the Windfall Gains Tax

Reasons for the Withdrawal

• Global Stabilization: Crude oil prices, which had exceeded $100 per barrel, have now stabilized under $75 per barrel, with no immediate signs of a significant price surge.
• Domestic Fuel Availability: There is now a robust fuel supply in the domestic market, making the tax less necessary.
• Declining Revenues: With the tax generating diminishing returns, it was no longer economically viable for the government to maintain it.

Impact of the Scrapping

The government's move to scrap the windfall gains tax is seen as a signal of stability and predictability in the taxation regime. It assures the oil industry that the government is confident in the stability of global oil prices and supply chains.

Criticism of the Windfall Tax

Industry Opposition

The windfall tax faced opposition from the oil industry, which argued that it:

• Reduced Profitability: The tax limited the profits of publicly listed companies like ONGC and Reliance Industries.
• Discouraged Oil Production: By making the taxation environment unpredictable, it deterred investment in oil exploration and production in a country that is heavily dependent on oil imports.
• Created Uncertainty: Frequent revisions of the tax led to an unstable business environment.

Conclusion

The scrapping of the windfall gains tax is a significant policy shift. It not only provides relief to oil companies but also signals a more predictable and stable taxation regime. By withdrawing the tax, the government is fostering a conducive environment for future investments in domestic oil production and signaling its confidence in the stability of global oil prices. This move is a crucial step in ensuring that India’s energy policies remain adaptable and aligned with the evolving global market conditions.

Introduction

India’s gig economy is experiencing rapid growth, with projections indicating it will significantly contribute to the national economy and employment generation. A recent report by the Forum for Progressive Gig Workers estimates the gig economy could reach $455 billion by the end of 2024, growing at a 17% compounded annual growth rate (CAGR). By 2030, it may add 1.25% to India’s GDP and create 90 million jobs.

What is the Gig Economy?

• Definition: The gig economy refers to a labor market based on short-term, flexible jobs, typically facilitated by digital platforms. Gig workers, also called freelancers or independent contractors, are compensated for each task they complete.
• Key Features:
  • Flexibility in work schedule and location.
  • Task-based employment through digital platforms.
  • Common sectors: e-commerce, transportation, delivery services, and freelance work.

Status of the Gig Economy in India

• Market Growth:
  • In 2020-21, India had 7.7 million gig workers, which is expected to grow to 23.5 million by 2029-30.
  • Key sectors contributing to growth include e-commerce, transportation, and delivery services.
• Driving Factors:
  • Digital Penetration: With over 936 million internet subscribers and 650 million smartphone users, digital infrastructure is a key enabler of the gig economy.
  • Startup and E-commerce Growth: The rise of startups and e-commerce platforms has increased demand for flexible labor.
  • Changing Work Preferences: Younger generations seek work-life balance, opting for flexible gig work.

Gig Economy and Employment Generation

• Contribution to GDP: The gig economy is expected to contribute 1.25% to India’s GDP by 2030.
• Job Creation:
  • The gig economy could create up to 90 million jobs by 2030.
  • It is estimated that by 2030, gig workers will comprise 4.1% of India’s total workforce.
• Benefits:
  • Women’s Empowerment: Gig work provides financial independence and flexibility, especially benefiting women in the workforce.
  • Regional Growth: Tier-II and Tier-III cities are seeing accelerated growth in gig work opportunities.

Challenges Faced by Gig Workers

• Job Insecurity: Many gig workers experience instability in their employment, especially in low-skilled jobs.
• Income Volatility: Earnings are unpredictable, and workers face difficulty in financial planning.
• Regulatory Gaps: There is no comprehensive legal framework to protect gig workers’ rights and ensure fair working conditions.
• Delayed Payments: A significant number of workers face delayed payments, affecting their financial well-being.
• Skill Development: Many workers report a lack of opportunities for career advancement and skill development.

Government Initiatives for Gig Workers

• Code on Social Security, 2020: Recognizes gig workers and aims to extend social security benefits, though it lacks comprehensive coverage.
• e-Shram Portal & Welfare Schemes: Initiatives like Pradhan Mantri Shram Yogi Maandhan Yojana and PMJJBY aim to provide financial security to gig workers.
• State-level Initiatives:
  • Rajasthan’s Platform-Based Gig Workers Act (2023) focuses on registration and welfare.
  • Karnataka’s bill mandates formal registration and grievance mechanisms.

The Way Forward

• Legal Reforms: India can draw from international models like California and the Netherlands, where gig workers are reclassified as employees to ensure protections such as minimum wages and regulated working hours.
• Portable Benefits System: Implementing a system where gig workers can access benefits like healthcare and retirement plans regardless of their employer.
• Skill Development: Strengthening collaborations with vocational institutions to enhance skills and improve earning potential.
• Technological Solutions: Establishing robust feedback mechanisms for workers to report exploitation and ensure fairness within the gig economy.

Conclusion

The gig economy in India is poised to become a significant driver of economic growth and job creation. However, addressing challenges such as income volatility, job insecurity, and regulatory gaps is crucial to ensuring sustainable growth.

In News:

The Union Cabinet recently approved the launch of the National Mission on Natural Farming (NMNF), marking a significant shift in the government's approach to agriculture. This initiative, a standalone Centrally Sponsored Scheme under the Ministry of Agriculture & Farmers' Welfare, aims to promote natural farming across India, focusing on reducing dependence on chemical fertilizers and promoting environmentally sustainable practices.

What is Natural Farming?

Natural farming, as defined by the Ministry of Agriculture, is a chemical-free agricultural method that relies on inputs derived from livestock and plant resources. The goal is to encourage farmers to adopt practices that rejuvenate soil health, improve water use efficiency, and enhance biodiversity, while reducing the harmful effects of fertilizers and pesticides on human health and the environment. The NMNF will initially target regions with high fertilizer consumption, focusing on areas where the need for sustainable farming practices is most urgent.

Evolution of Natural Farming Initiatives

The NMNF is not an entirely new concept but a scaled-up version of the Bhartiya Prakritik Krishi Paddhti (BPKP) introduced during the NDA government's second term (2019-24). The BPKP was part of the larger Paramparagat Krishi Vikas Yojna (PKVY) umbrella scheme, and natural farming was also promoted along the Ganga River under the NamamiGange initiative in 2022-23. With the renewed focus on natural farming following the 2024 elections, the government aims to extend the lessons learned from BPKP into a comprehensive mission mode, setting a clear direction for sustainable agriculture.

In Budget speech for 2024-25, it was announced a plan to initiate one crore farmers into natural farming over the next two years. The mission will be implemented through scientific institutions and willing gram panchayats, with the establishment of 10,000 bio-input resource centers (BRCs) to ensure easy access to the necessary inputs for natural farming.

Key Objectives

The NMNF aims to bring about a paradigm shift in agricultural practices by:

• Expanding Coverage: The mission plans to bring an additional 7.5 lakh hectares of land under natural farming within the next two years. This will be achieved through the establishment of 15,000 clusters in gram panchayats, benefiting 1 crore farmers.
• Training and Awareness: The mission will establish around 2,000 model demonstration farms at Krishi Vigyan Kendras (KVKs), Agricultural Universities (AUs), and farmers' fields. These farms will serve as hubs for training farmers in natural farming techniques and input preparation, such as Jeevamrit and Beejamrit, using locally available resources.
• Incentivizing Local Inputs: The creation of 10,000 bio-input resource centers will provide farmers with easy access to bio-fertilizers and other natural farming inputs. The mission emphasizes the use of locally sourced inputs to reduce costs and improve the sustainability of farming practices.
• Farmer Empowerment: 30,000 Krishi Sakhis (community resource persons) will be deployed to assist in mobilizing and guiding farmers. These trained individuals will play a key role in generating awareness and providing on-ground support to the farmers practicing natural farming.
• Certifications and Branding: A major aspect of the mission is to establish scientific standards for natural farming produce, along with a national certification system. This will help in creating a market for organically grown produce and encourage more farmers to adopt sustainable practices.

Targeting High Fertilizer Consumption Areas

The Ministry of Agriculture has identified 228 districts in 16 states, including Uttar Pradesh, Punjab, Maharashtra, and West Bengal, where fertilizer consumption is above the national average. These districts will be prioritized for the NMNF rollout, as they have high fertilizer usage but low adoption of natural farming practices. By focusing on these areas, the mission seeks to reduce the over-dependence on chemical fertilizers and foster a transition to more sustainable farming practices.

Benefits of Natural Farming

The NMNF aims to deliver multiple benefits to farmers and the environment:

• Cost Reduction: Natural farming practices can significantly reduce input costs by decreasing the need for costly chemical fertilizers and pesticides.
• Soil Health and Fertility: By rejuvenating the soil through organic inputs, natural farming improves soil structure, fertility, and microbial activity, leading to long-term agricultural sustainability.
• Climate Resilience: Natural farming enhances resilience to climate-induced challenges such as drought, floods, and waterlogging.
• Healthier Produce: Reduced use of chemicals results in safer, healthier food, benefitting both farmers and consumers.
• Environmental Conservation: The promotion of biodiversity, water conservation, and carbon sequestration in soil leads to a healthier environment for future generations.

Conclusion

The launch of the National Mission on Natural Farming represents a critical step toward transforming India's agricultural practices into a more sustainable and environmentally friendly model. By targeting regions with high fertilizer usage, providing farmers with the tools and knowledge for natural farming, and creating a system for certification and branding, the government hopes to make natural farming a mainstream practice. As India continues to grapple with the challenges of climate change, soil degradation, and health risks from chemical inputs, the NMNF provides a promising framework for sustainable agriculture that benefits farmers, consumers, and the environment alike.

Introduction

India’s urban population is projected to double from 400 million to 800 million by 2050. This demographic shift presents both challenges and opportunities for transforming the country’s urban infrastructure. To meet the growing needs of urban areas, India will require an investment of approximately ?70 lakh crore by 2036, a figure significantly higher than current spending levels.

Financial Challenges in Urban Infrastructure

• Investment Gap
  • The current annual investment in urban infrastructure stands at ?1.3 lakh crore, which is only 28% of the ?4.6 lakh crore needed annually.
  • A large portion of the existing investment, around 50%, is directed towards basic urban services, with the remainder allocated to urban transport.
• Municipal Finances
  • Municipal finances have remained stagnant at 1% of GDP since 2002.
  • Despite increased transfers from the central and state governments, municipal bodies face financial strain.
  • The contribution of municipal own-revenue has decreased from 51% to 43%, indicating a reduced financial independence.
• Revenue Collection Inefficiencies
  • Urban local bodies (ULBs) are collecting only a small fraction of their potential revenues, with property tax collections representing just 0.15% of GDP.
  • Cost recovery for essential services like water supply and waste management ranges between 20% and 50%, pointing to a significant funding gap.
• Underutilization of Resources
  • Cities like Hyderabad and Chennai utilized only 50% of their capital expenditure budgets in 2018-19.
  • Central schemes such as AMRUT and the Smart Cities Mission also showed suboptimal fund utilization, with utilization rates of 80% and 70%, respectively.
• Decline in Public-Private Partnerships (PPPs)
  • Investments through PPPs in urban infrastructure have seen a sharp decline, from ?8,353 crore in 2012 to ?467 crore in 2018.
  • This drop is attributed to limited project-specific revenues and inadequate funding mechanisms.

Structural and Administrative Challenges

• Weak Governance and Fragmented Management
  • Fragmented governance and limited administrative autonomy hinder effective urban planning and resource allocation.
  • Municipal bodies often lack the ability to undertake long-term planning and project execution due to these governance challenges.
• Climate Vulnerability and Sustainability: Urban areas are increasingly vulnerable to climate risks like floods and heatwaves. However, many urban infrastructure projects fail to incorporate climate resilience in their planning, exacerbating the long-term vulnerability of investments.
• Inadequate Land Management
  • There is poor coordination between land use planning and infrastructure development, resulting in urban sprawl and inefficient transportation systems.
  • Opportunities to capitalize on the land value generated by metro and rail projects remain underutilized.

Measures for Transforming Urban Infrastructure

• Streamline Revenue Collection: Leverage technology to improve property tax collection systems and enhance cost recovery in essential services.
• Enhance Fund Utilization: Strengthen municipal capacities for effective project planning and incentivize the timely use of allocated grants.
• Scale Public-Private Partnership (PPP) Investments: Develop a pipeline of bankable projects and create risk-sharing mechanisms to attract private sector investments.
• Decouple Project Preparation from Funding: Ensure that infrastructure projects are thoroughly prepared for financial, social, and environmental sustainability before seeking funding.
• Promote Urban Innovation: Establish urban innovation labs and encourage public-private-academic collaborations to foster the adoption of advanced technologies.
• Empower Municipalities: Grant municipalities greater financial autonomy, enabling them to raise capital through municipal bonds and other debt mechanisms.
• Integrated Urban Planning: Align infrastructure development with land use, transport, and housing requirements, while integrating climate resilience into planning.
• Capacity Building: Invest in the training of municipal staff to improve governance and financial management capabilities.

Conclusion

India’s expanding urban population presents a major opportunity for economic growth. However, addressing the financial and structural challenges in urban infrastructure is crucial for harnessing this potential. By adopting a combination of short-term actions, medium-term strategies, and long-term reforms, India can create sustainable, resilient urban infrastructure that meets the growing needs of its cities, fostering inclusive development and long-term prosperity.

In News:

England over the past two-and-a-half years, reflecting a strategic shift in its approach to safeguarding gold reserves. This move marks a significant increase in the RBI's domestic gold holdings.

Rise in the RBI's Domestic Gold Holdings

• Current Status (September 2024):The RBI's domestic gold reserves have grown to 510.46 metric tonnes, up from 295.82 metric tonnes in March 2022.
• Reduction in Gold Held Abroad:The gold held under the custodianship of the Bank of England has decreased to 324 metric tonnes from 453.52 metric tonnes in March 2022.
• Gold as a Share of Foreign Exchange Reserves:The proportion of gold in India's total foreign exchange reserves increased from 8.15% in March 2024 to 9.32% in September 2024.

Gold Kept in the Bank of England

• Overview of the Bank of England's Gold Vault:The Bank of England is home to one of the largest gold vaults in the world, second only to the New York Federal Reserve, housing around 400,000 bars of gold.
• India’s Gold Held Abroad:The RBI continues to retain 324 metric tonnes of its gold with the Bank of England and the Bank for International Settlements (BIS).
• Additional Gold Management:Around 20 tonnes of gold are managed through gold deposit schemes.
• Strategic Role of London’s Gold Market:Storing gold in London provides immediate access to the global London bullion market, enhancing liquidity for India’s gold assets.

Historical Context of India’s Gold Holdings

• 1991 Balance of Payments Crisis:During a financial crisis in 1991, India had to send 47 tonnes of gold to the Bank of England to secure loans for repaying international creditors.

RBI’s Strategy to Bring Gold Back to India

• Global Trend of Central Banks Buying Gold:Since the imposition of U.S. sanctions on Russia in 2022, central banks globally have been increasing their gold reserves as a hedge against inflation and to reduce reliance on the U.S. dollar. India has outpaced other G20 nations in this trend, surpassing Russia and China in gold purchases.
• De-dollarisation:This shift is part of a broader strategy of de-dollarisation, aiming to diversify away from the U.S. dollar amidst rising gold prices and growing geopolitical tensions.

Significance of Repatriating Gold to India

• Sign of Economic Strength
  • Recovery from the 1991 Crisis:The decision to repatriate gold reflects a significant improvement in India's economic position, a stark contrast to the 1991 economic crisis when India had to pledge gold for financial survival.
• Optimizing Financial Resources
  • Reducing Storage Costs:Storing gold domestically allows the RBI to save on storage fees paid to foreign custodians, such as the Bank of England.
• Strategic Significance
  • Enhanced Resilience Amid Global Instability:By repatriating its gold, India enhances its strategic autonomy and strengthens its economic position in a world of rising uncertainties and currency volatility.

RBI's Capacity to Safeguard Gold Domestically

• Increasing Domestic Storage Capacity:The RBI has been increasing its domestic capacity for gold storage to accommodate rising reserves and reduce dependence on foreign gold safekeeping facilities.
• Current Foreign Exchange Reserves:As of October 2024, India’s total foreign exchange reserves stand at $684.8 billion, sufficient to cover over 11.2 months of imports.

Diversification of Foreign Exchange Reserves

• Mitigating Currency Risks:By increasing gold reserves, India diversifies its foreign exchange holdings, reducing reliance on any single currency and shielding itself from global currency fluctuations and economic volatility.
• Gold as a Stable Asset:Gold serves as a stable asset, providing a safeguard against global economic shocks, and balances India’s reserves portfolio.

Gold as a Hedge against Inflation

• Preserving Wealth amid Inflation:Gold is traditionally viewed as a hedge against inflation, maintaining or appreciating in value when other currencies weaken. By increasing its gold reserves, India positions itself to better withstand the adverse effects of inflation and ensure long-term financial stability.

Conclusion

The repatriation of gold by the RBI reflects a strategic move to bolster India's economic strength and diversify its financial assets. The decision to bring gold back to India not only signifies an improvement in India's economic fundamentals but also aligns with global trends of central banks increasing their gold reserves to ensure long-term stability and reduce reliance on the U.S. dollar.

Overview

The Economic Advisory Council to the Prime Minister (EAC-PM)'s report titled "Relative Economic Performance of Indian States: 1960-61 to 2023-24" highlights an alarming trend of widening economic disparities across India's states, which is increasingly threatening the principles of federalism and national unity. The findings reveal significant regional imbalances in terms of contributions to the national income, per capita income, and overall economic development. This analysis delves into the key insights from the report and explores the broader implications for India's federal structure, governance, and policy approaches.

Key Insights from the Report

• Regional Economic Disparities:
  • Western and Southern States' Dominance: States such as Maharashtra, Gujarat, Tamil Nadu, and Karnataka have consistently outperformed others. These states have benefited from higher private investments, better infrastructure, and a more business-friendly environment. They also enjoy proximity to international markets, especially coastal regions like Gujarat and Tamil Nadu, which have access to ports and export markets.
  • Underperformance of Northern and Eastern States: On the other hand, northern states (with exceptions like Delhi and Haryana) and eastern states like Bihar, Odisha, and West Bengal lag behind in economic performance. These regions face challenges such as poor infrastructure, low levels of investment, and weak governance structures, which hinder their growth potential.
• Impact of Liberalization (1991):
  • The 1991 economic reforms marked a shift toward market-oriented growth, benefiting states that were already more industrialized or had better urban infrastructure. Southern states, in particular, adapted well to the liberalized environment, attracting higher levels of private investment and expanding their economies.
  • The liberalization process disproportionately favored urban centers like Delhi, Mumbai, Chennai, and Bengaluru, where investments were channelized into growing service sectors, technology, and industries, creating a feedback loop of wealth accumulation in these hubs. Meanwhile, the hinterland remained underdeveloped due to insufficient public investment and the lack of private sector interest in these regions.
• Investment Disparities:
  • Private Investment: Wealthier states attract a disproportionate share of private investment, which is driven by profitability and market opportunities. These states have better infrastructure, which reduces transaction costs and increases returns on investment. In contrast, underdeveloped states struggle to attract investment due to poor governance, inadequate infrastructure, and perceived higher risks.
  • Public Investment: While the public sector still plays a role in investment, the New Economic Policies (NEP) since 1991 have shifted the focus towards private sector-driven growth. This has further widened the investment gap, as the poorer states receive less public investment relative to their needs.
• Role of Infrastructure and Governance:
  • The availability and quality of infrastructure are significant determinants of economic performance. States with better roads, energy supply, ports, and communication networks tend to attract more investments. Additionally, good governance, characterized by reduced corruption, better policy implementation, and transparency, also plays a critical role in fostering economic development.
  • In contrast, states with weaker governance structures and poor infrastructure struggle to create an enabling environment for businesses, further compounding regional disparities.
• Impact on Federalism:
  • The growing economic divide is leading to tensions between the Centre and state governments, particularly in wealthier states that contribute significantly to national income but feel short-changed in resource allocation. These states argue that they are not receiving a fair share of national resources in return for their contributions, leading to growing dissatisfaction with the federal system.
  • The tension is exacerbated by political factors, such as accusations from opposition-led states that the Centre uses public investment to favor states aligned with the ruling party. The growing perception of politicization of resource allocation has the potential to undermine the spirit of cooperative federalism.

Structural Causes of Regional Inequality

• Economic and Investment Magnetism:
  • Wealthier states attract more private investments, as they offer better returns due to established markets, skilled labor, and urbanization. Cities like Mumbai, Delhi, and Bengaluru serve as economic magnets, drawing talent, technology, and capital, which further consolidates their economic dominance.
  • In contrast, states without such economic hubs or access to global markets struggle to attract investment. The absence of urban agglomerations and the concentration of wealth and resources in a few states perpetuate regional disparities.
• Policy and Investment Bias:
  • Post-liberalization policies have disproportionately benefited the organized sector, often at the expense of the unorganized sector, which is more prevalent in poorer states. The emphasis on industrial growth and infrastructure development has largely bypassed the rural and informal sectors, which are critical in underdeveloped states.
  • The organized sector has also benefited from government support, such as tax concessions and subsidized infrastructure, which have enabled these industries to thrive in already developed regions. This has widened the gap between the haves and the have-nots.
• Cronyism and the Black Economy:
  • Crony capitalism and the prevalence of the black economy in poorer states further exacerbate regional imbalances. In some cases, political patronage and corruption divert resources and investments from areas that need them most. This weakens the investment climate, especially in states with higher levels of informal and illegal economic activity.

Implications for Federalism

The growing economic disparity poses a serious threat to India's federal structure. The increasing dissatisfaction of wealthier states with the current fiscal arrangements and the growing demand for fairer resource allocation challenge the spirit of cooperative federalism. A well-functioning federal system relies on equitable distribution of resources and opportunities for all regions to develop.

Policy Recommendations

To address these disparities and strengthen India's federal framework, several policy measures need to be implemented:

• Enhancing Governance and Infrastructure in Lagging States:
  • Improved governance and reducing corruption are essential in attracting both private and public investments. Additionally, there must be a focus on developing critical infrastructure, such as roads, energy, and health facilities, which are essential for economic growth.
  • States need to increase public investment in sectors like education, healthcare, and social security to improve human capital and productivity.
• Focus on the Unorganized Sector:
  • A significant portion of the labor force in poorer states is employed in the unorganized sector. Policies should aim to formalize this sector by providing social security benefits, improving labor rights, and increasing productivity through skill development. This could help raise incomes and stimulate local demand, attracting more private investment.
• Balancing the Organized and Unorganized Sectors:
  • While the organized sector has benefited from liberalization, more attention should be given to the unorganized sector, which forms the backbone of the economy in many poorer states. A balanced approach to economic growth, which includes both organized and unorganized sectors, can help reduce disparities.
• Shifting Focus from Urban Centers to Hinterlands:
  • Private sector investment must be incentivized in underdeveloped regions through tax breaks, subsidies, and targeted infrastructure projects. This will encourage businesses to expand beyond the major urban centers, thus promoting a more balanced distribution of economic activities.

Conclusion

The widening economic divide in India, as revealed by the EAC-PM report, poses a significant challenge to the country's federalism and unity. To ensure inclusive and balanced development, policy reforms must focus on reducing regional disparities by improving governance, infrastructure, and investment in lagging states. A shift towards equitable growth, addressing the needs of both the organized and unorganized sectors, is essential to promoting national cohesion and ensuring sustainable economic progress across all regions.

Introduction

The Pradhan Mantri Mudra Yojana (PMMY) was launched by Prime Minister Narendra Modi on April 8, 2015, with the aim of providing financial support to non-corporate, non-farm small and micro enterprises in India. Through this initiative, loans are provided to individuals and small businesses who are unable to access formal institutional finance.

In the Union Budget 2024-25, Finance Minister Nirmala Sitharaman announced an increase in the loan limit under PMMY from ?10 lakh to ?20 lakh, with the introduction of a new loan category, Tarun Plus, aimed at fostering growth in the entrepreneurial sector.

Key Features of the Pradhan Mantri Mudra Yojana

Loan Limit Increase

• Loan Limit Raised: The loan limit has been increased from ?10 lakh to ?20 lakh for eligible entrepreneurs.
• New Loan Category: The newly introduced Tarun Plus category caters to entrepreneurs who have previously availed and successfully repaid loans under the Tarun category.
• Credit Guarantee: The Credit Guarantee Fund for Micro Units (CGFMU) will cover these enhanced loans, further ensuring the security of micro-enterprises.

Categories of MUDRA Loans

PMMY provides collateral-free loans through financial institutions like Scheduled Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Non-Banking Financial Companies (NBFCs), and Micro Finance Institutions (MFIs). These loans are provided for income-generating activities in sectors like manufacturing, trading, services, and allied agriculture activities.

Objectives of PMMY

1. Financial Inclusion: PMMY targets marginalized and socio-economically neglected sections of society, promoting financial inclusivity.
2. Support to Small Businesses: By providing affordable loans, the scheme encourages small-scale entrepreneurs, particularly women and minority groups, to establish and expand their businesses.
3. Fostering Entrepreneurship: PMMY aims to unlock the potential of India’s entrepreneurial spirit, especially in rural and underserved areas.

MUDRA: The Institutional Backbone

Role of Micro Units Development & Refinance Agency Ltd. (MUDRA)

MUDRA is the primary institution set up by the Government of India to manage and implement the Mudra Yojana. It acts as a refinancing agency that provides financial support to small and micro-enterprises by working through financial intermediaries, such as banks and micro-finance institutions.

Funding Sources

• Scheduled Commercial Banks
• Regional Rural Banks (RRBs)
• Small Finance Banks (SFBs)
• Non-Banking Financial Companies (NBFCs)
• Micro Finance Institutions (MFIs)

Application Process

Applicants can avail loans through any of the aforementioned financial institutions or apply online via the Udyami Mitra Portal.

Benefits of Pradhan Mantri Mudra Yojana

• Collateral-free Loans: No security is required to obtain loans, which reduces the financial burden on borrowers.
• Easily Accessible: PMMY loans are available across India, making them accessible to entrepreneurs in both rural and urban areas.
• Quick and Flexible Loans: Loans can be disbursed quickly with flexible repayment terms (up to 7 years).
• Empowering Women Entrepreneurs: The scheme offers special incentives for women entrepreneurs, helping them to establish and grow their businesses.
• Support to Rural Areas: Special emphasis on empowering rural enterprises and reducing regional disparities.
• MUDRA Card: The MUDRA Card is a RuPay debit card that allows borrowers to access funds through an overdraft facility, enhancing liquidity for businesses.
• No Default Penalty: In case of loan defaults due to unforeseen circumstances, the government will step in to reduce the burden on entrepreneurs.

Categories of Loans Under PMMY

1. Shishu Category: Loans up to ?50,000

• Targeted at micro-enterprises at the initial stage of their business journey.

2. Kishore Category: Loans between ?50,000 and ?5 lakh

• Targeted at enterprises looking to expand their operations and upgrade their infrastructure.

3. Tarun Category: Loans between ?5 lakh and ?10 lakh

• For established businesses that are in need of funds to scale up.

4. Tarun Plus: Loans between ?10 lakh and ?20 lakh

• A new category designed for entrepreneurs who have repaid loans under the Tarun category and wish to further expand their business.

Achievements of PMMY (2023-24)

• Total Loans Sanctioned: ?5.4 trillion across 66.8 million loans in FY 2023-24.
• Loans Disbursed: Significant amounts were disbursed under each category:
  • Shishu: ?1,08,472.51 crore
  • Kishore: ?1,00,370.49 crore
  • Tarun: ?13,454.27 crore
• Women Borrowers: A large share of loans have gone to women entrepreneurs, ensuring gender inclusivity.
• Minority Borrowers: The scheme also emphasizes financial empowerment of minority communities.
• NPA Reduction: The Non-Performing Assets (NPA) in Mudra loans have reduced to 3.4% in FY 2024, compared to higher levels in earlier years.

Digital Tools and Support Systems

MUDRA MITRA App

The MUDRA MITRA mobile app helps users access information about the PMMY scheme, loan application procedures, and other resources. The app is available for download on Google Play Store and Apple App Store.

Online Loan Application

Entrepreneurs can apply for loans online via portals such as PSBloansin59minutes and Udyamimitra, providing greater convenience and accessibility.

Steps to Improve Implementation

• Handholding Support: Assistance in submitting loan applications is available for applicants.
• Intensive Awareness Campaigns: The government conducts publicity campaigns to raise awareness about PMMY.
• Simplified Loan Process: The loan application forms have been simplified to encourage wider participation.
• Performance Monitoring: Regular monitoring of PMMY implementation to ensure its success.
• Interest Subvention: A 2% interest subvention is offered for prompt repayment of Shishu loans.