In News:

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the world’s largest public employment programme, aimed at ensuring livelihood security through guaranteed rural employment. However, a recent report by the Parliamentary Standing Committee on Rural Development and Panchayati Raj (April 2025) underscores a critical challenge: the wage rates under MGNREGA are increasingly inadequate, failing to provide even subsistence-level income.

With over 25 crore registered workers, the scheme is central to rural welfare. Yet, its effectiveness is diluted due to systemic underpayment. For FY 2025–26, MGNREGA wages vary from ?241 in Nagaland to ?400 in Haryana, averaging only ?294 nationally—a meagre 5% increase from the previous year. In many states, this rate is significantly lower than the prevailing minimum wage, in some cases by over ?200, raising serious questions about wage fairness and constitutional obligations.

Legal and Policy Background

Section 6 of the MGNREGA Act permits the Centre to fix wage rates independently of the Minimum Wages Act, 1948, though the wage cannot be below ?60. Historically, from 2005 to 2009, NREGA wages matched each state’s minimum agricultural wage. However, the Centre capped NREGA wages at ?100 in 2009 due to financial concerns, leading to payments falling below statutory minimum wages—a move that the Karnataka High Court (2011) and Supreme Court (2012) found violative of labour rights.

In response to mounting concerns, wage indexation to the Consumer Price Index for Agricultural Labourers (CPI-AL) began in FY 2011–12, with 2009 as the base year. Nevertheless, CPI-AL is narrow in scope compared to CPI-Rural (CPI-R), which better reflects the cost of living for rural workers across sectors.

Ignored Recommendations and Institutional Apathy

Several expert bodies have urged wage revisions. The Jean Dreze Committee (2010) advocated aligning NREGA wages with state minimum wages or, at the very least, indexing them effectively. The Mahendra Dev Committee (2014) recommended CPI-R-based indexing with an updated base year, while the Anoop Satpathy Committee (2019) proposed a national floor wage of ?375 (at July 2018 prices). However, the Centre has largely disregarded these suggestions, citing fiscal constraints.

Only a few states, including Odisha and Himachal Pradesh, have supplemented NREGA wages from their own budgets. Most continue with the Centre’s insufficient rates, causing regional disparities and undermining the constitutional promise of equal pay for equal work (Article 39).

Need for Course Correction

The current wage structure risks violating Article 23 of the Constitution, as flagged in the Supreme Court’s 1983 Sanjit Roy vs State of Rajasthan verdict, which held that paying less than the minimum wage constitutes “forced labour.”

Moreover, stagnant wages have contributed to declining worker participation. The Standing Committee rightly argues that current wages do not meet basic daily expenses and recommends a minimum daily wage of ?400. Without wage parity and realistic indexation, the scheme fails to uphold its foundational promise of dignified rural employment.

Conclusion

MGNREGA is more than a welfare scheme—it is a statutory right. To realize its full potential in promoting rural livelihoods and inclusive growth, wage reforms are imperative. Revising NREGA wages to reflect minimum wage laws, inflation trends, and regional parity is not just an economic necessity—it is a constitutional obligation.

In News:

India’s transition to a green economy is not only central to achieving its environmental and climate goals but is also emerging as a powerful engine for economic growth and employment generation.

According to a recent report by NLB Services, India’s green sector is expected to generate approximately 7.29 million new jobs by FY2027–28, with the figure projected to rise to 35 million by 2047, aligning with India’s long-term net-zero commitments.

Understanding the Green Economy

A green economy encompasses sectors and activities that contribute to ecological sustainability, low-carbon development, and resource efficiency, while also promoting inclusive employment. It integrates environmental goals with economic planning, thus creating green jobs in areas such as renewable energy, electric mobility, sustainable construction, waste management, and green agriculture.

Sectoral and Regional Dynamics

The most significant employment potential lies in industries such as renewable energy, electric vehicles (EVs), green infrastructure, sustainable textiles, and waste-to-energy solutions. These sectors have witnessed rising investments and policy focus under national missions such as PM-KUSUM, Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME), and the National Hydrogen Mission.

While metropolitan areas like Mumbai, Bengaluru, and Delhi remain hubs for green employment, tier II and III cities are poised to play a crucial role in the decentralisation of the green economy. Cities such as Jaipur, Coimbatore, Bhubaneswar, Visakhapatnam, and Indore are projected to account for 35–40% of the green job creation by FY28, primarily in logistics, warehousing, sustainable agriculture, and urban waste management.

Evolving Skill Demands

The transition towards green employment is redefining workforce skill requirements. Modern green jobs demand a blend of environmental sustainability expertise and technological proficiency, particularly in AI, IoT, GIS, blockchain, and data analytics. This digital integration is reshaping job profiles and creating pathways for future-ready employment.

In response, industries are shifting hiring strategies to focus more on skill-based recruitment rather than conventional degrees. There is also a growing emphasis on industry-academia collaborations to align curricula with the evolving demands of the green economy, thus fostering climate-literate and digitally equipped professionals.

Gender Inclusion and Equity Challenges

Despite the promising employment potential, women currently constitute only 11–12% of the green workforce in India. Barriers include limited access to STEM education, workplace safety concerns, and socio-cultural constraints. However, progressive employers are increasingly adopting inclusive hiring practices, promoting women-centric skill development programmes, and partnering with training agencies to build a more diverse and equitable green talent pipeline. These efforts are expected to improve female participation by 12–15% in the next 5–6 years.

Economic Significance

India’s green economy is expected to contribute significantly to national GDP. Its valuation is projected to reach $1 trillion by 2030, and expand to $15 trillion by 2070, supporting India’s target of achieving net-zero emissions by 2070. Thus, it offers a dual dividend—economic prosperity and environmental security.

Conclusion:
India’s green transition presents a transformative opportunity to simultaneously address climate change, unemployment, and regional disparities. With appropriate policy support, capacity building, and inclusivity, the green economy can become the bedrock of sustainable and equitable growth.

In News:

Medium enterprises (MEs), a vital yet under-recognized segment of India’s MSME ecosystem, have long faced significant challenges, especially in accessing affordable and timely credit. Though they constitute only about 0.3% of registered MSMEs, medium enterprises contribute nearly 40% of MSME exports, highlighting their critical role in India’s industrial growth and global trade competitiveness.

Significance of Medium Enterprises in the Indian Economy

The MSME sector as a whole contributes around 29% to India’s GDP and employs over 60% of the workforce. However, while micro and small enterprises dominate in number (97% and 2.7% respectively), medium enterprises represent a minuscule share by count but a disproportionately large share in exports and innovation. Medium enterprises have a turnover range of ?100–500 crore and investment in plant and machinery between ?25–125 crore, as per the revised FY26 classification norms announced in the Union Budget 2025-26.

Credit Gap and Financing Challenges

NITI Aayog’s 2025 report, Designing Policy for Medium Enterprises, reveals a credit deficit of approximately $10 billion faced by medium enterprises. This gap stems from institutional biases and structural constraints. Unlike micro units that benefit extensively from priority sector lending, medium enterprises receive fewer such loans and face borrowing costs about 4% higher than those for large companies. Moreover, out of 18 government MSME schemes, only 8 specifically target medium enterprises, which receive less than 18% of total scheme funds (?5,442 crore overall). The absence of dedicated working capital schemes exacerbates liquidity issues, limiting growth and scale-up prospects.

NITI Aayog’s Key Policy Recommendations

• Working Capital Financing Scheme: A sector-specific loan scheme, administered by the Ministry of MSME, is proposed to provide medium enterprises with working capital loans capped at ?25 crore, with individual requests up to ?5 crore. Loans would be linked to enterprise turnover and offered at concessional interest rates, addressing their substantial capital needs.
• Medium Enterprise Credit Card: To meet immediate liquidity requirements—such as payroll, inventory, and equipment maintenance—a credit card facility with a pre-approved limit of ?5 crore is recommended. This facility would follow market interest rates but include a repayment grace period.
• Expedited Credit Disbursal via Retail Banks: Leveraging local retail banks for faster fund distribution under MSME ministry supervision aims to reduce bureaucratic delays and enhance timely access to credit.
• Technology and Skilling Initiatives: The report advocates transforming existing MSME technology centres into ‘India MSME 4.0 Competence Centres’ tailored to sectoral and regional demands, spanning industries like engineering, electronics, and specialized manufacturing. It also proposes incorporating medium enterprise-specific modules into entrepreneurship training and skilling programmes to bridge labour skill mismatches.
• Digital Access and Compliance Support: NITI Aayog recommends creating a dedicated sub-portal within the Udyam platform that facilitates scheme discovery, compliance guidance, and AI-powered navigation to help medium enterprises efficiently access government resources.

Broader Structural Challenges

Apart from financing, medium enterprises face low adoption of advanced technologies, limited R&D support, inadequate sector-specific testing infrastructure, and a disconnect between training programmes and industry needs. These gaps impede innovation and scalability.

Strategic Importance and Policy Outlook

NITI Aayog emphasizes that medium enterprises have the potential to be major employment generators and innovation drivers if provided focused policy attention and financial support. Drawing lessons from global examples like Germany’s Mittelstand and Italy’s fashion industry, the report envisions India’s medium enterprises evolving into globally competitive firms over the next decade.

The medium sector’s formal labour structure also makes it key to transitioning India’s economy from informal to formal. Therefore, a coordinated and inclusive policy framework focusing on finance, technology, skill development, and digital infrastructure is vital to unlock this segment’s full potential and enhance India’s industrial competitiveness, export growth, and self-reliance.

In News:

In a significant milestone for the Indian economy, India has officially surpassed Japan to become the 4th largest economy in the world in nominal GDP terms, as per the IMF World Economic Outlook (April 2025). According to NITI Aayog CEO B.V.R. Subrahmanyam, India’s GDP now stands at $4.19 trillion, marginally higher than Japan’s $4.18 trillion. This marks a historic moment, reflecting a shift in the global economic order and reaffirming India's rising stature on the world stage.

From Fifth to Fourth: A Decade of Accelerated Growth

India’s economic rise has been particularly notable over the past decade. From a GDP of $2 trillion in 2014, India has more than doubled its output to cross the $4 trillion mark in 2025. This rapid expansion has also been accompanied by a sharp rise in per capita income, which has grown from $1,438 in 2014 to $2,880 in 2025. In global rankings, India moved from the 5th position in 2024 to 4th in 2025, overtaking Japan and trailing only the United States, China, and Germany.

Factors Driving the Surge

India’s ascent is the result of multiple structural reforms and policy initiatives undertaken in recent years. Programs such as Digital India, Atmanirbhar Bharat, and the Production Linked Incentive (PLI) scheme have enhanced domestic manufacturing, boosted digital infrastructure, and encouraged self-reliance. The government’s focus on ease of doing business, tax reforms (GST, corporate tax rationalisation), and large-scale infrastructure investment under schemes like Gati Shakti have further catalysed growth.

Despite global trends towards supply chain diversification and reshoring, India continues to attract foreign companies due to its cost-effective labor, large consumer base, and improving logistics. For instance, companies like Apple continue to expand their operations in India, viewing it as a reliable manufacturing hub.

Strategic and Geopolitical Implications

India’s new economic position carries significant geopolitical weight. As the 4th largest economy, India’s influence in global financial institutions, climate negotiations, trade partnerships, and multilateral forums such as G20 and BRICS is set to grow. The achievement enhances investor confidence, thereby potentially increasing foreign direct investment (FDI) inflows.

Domestically, this growth presents an opportunity for addressing structural issues such as unemployment, regional disparities, and income inequality. The challenge ahead lies in ensuring that growth remains inclusive, sustainable, and innovation-driven.

Future Outlook

According to NITI Aayog, India is poised to surpass Germany within the next 2.5–3 years, potentially becoming the third-largest economy globally. For this, sustaining macroeconomic stability, boosting exports, enhancing skill development, and transitioning to a green economy will be crucial.

Conclusion

India’s rise to the 4th largest economy marks a defining moment in its development trajectory. It reflects not just statistical growth, but also the success of structural reforms, demographic potential, and policy resilience. As India prepares for its next leap, balancing economic dynamism with social equity will be the key to truly becoming a global economic leader.

In News:

According to the RBI’s latest Remittances Survey (2023–24), there has been a significant structural transformation in India's inward remittance patterns. Advanced Economies (AEs) — led by the United States, the United Kingdom, Canada, Singapore, and Australia — have overtaken the Gulf Cooperation Council (GCC) nations as the primary sources of remittances. This shift holds major implications for India’s migration, financial inflows, and socio-economic planning.

Changing Source Geography of Remittances

India’s total remittance inflow touched USD 118.7 billion in 2023–24, doubling since 2011. The United States alone accounted for 27.7%, followed by the UAE (19.2%), the UK (10.8%), Saudi Arabia (6.7%), and Singapore (6.6%). This marks a departure from the earlier dominance of the Gulf region, whose collective share has dropped to 38%, while Advanced Economies now contribute over 50%.

The top recipient states of these remittances in India are Maharashtra (20.5%), Kerala, and Tamil Nadu.

Factors Behind the Shift

1. Evolving Migration Trends:There has been a surge in professional, high-skilled Indian migrants heading to AEs, particularly in sectors like STEM, finance, and healthcare. These migrants tend to earn higher wages, have stronger job security, and remit more per capita compared to their low-skilled counterparts in the Gulf.

2. Declining Opportunities in the GCC:Several Gulf countries have implemented nationalisation policies like Saudi Arabia’s “Nitaqat,” which prioritise local hiring. Moreover, automation and economic diversification have reduced demand for foreign low-skilled workers. This, combined with COVID-19-induced job losses and return migration, has contributed to the decline in remittances from the region.

3. Education-Driven Migration:Countries like the UK, Australia, and Canada have emerged as popular education destinations. For instance, Indian migration to the UK tripled from 76,000 in 2020 to 250,000 in 2023. Post-study work opportunities and migration partnerships like the India-UK “Migration and Mobility Partnership” (2021) have bolstered this trend.

4. Cost and Mode of Transfers:Digitalisation has reduced remittance costs to India below the global average, although it still exceeds the SDG target of 3% for a US$200 transfer. Nonetheless, cash-based transactions remain significant for smaller amounts.

Economic and Policy Implications

1. Macroeconomic Importance:Remittances contribute about 3–3.5% of India’s GDP, consistently surpassing FDI and Official Development Assistance (ODA). They help finance nearly half of the merchandise trade deficit and act as buffers against external economic shocks.

2. Household-Level Impact:Remittances are pivotal for improving living standards, enabling expenditure on food, healthcare, and education. In Kerala, for instance, remittances account for over 36% of the state's domestic product.

3. Policy Challenges and Recommendations:

• Skill Alignment: Training systems must align with global job markets to prevent ‘wilful deskilling’ — where highly educated migrants take up low-skilled jobs.
• Migration Diplomacy: India must proactively negotiate bilateral/multilateral mobility agreements to secure rights, fair wages, and career progression for migrants.
• Diaspora Engagement: Policies should encourage productive use of remittances (e.g., investments, health, education) and tap diaspora networks for technology and knowledge transfer.

Conclusion

India’s remittance ecosystem is transitioning from Gulf-led low-skilled flows to knowledge-intensive, high-value contributions from Advanced Economies. Sustaining this trend will require strategic migration governance, skill reforms, and deepened engagement with the global Indian diaspora.

Context:

India is experiencing a paradoxical trend — despite a rapidly expanding working-age population and rising production capacity, the generation of formal employment opportunities remains insufficient. Since 2017–18, while the working-age population has increased by approximately 9 crore, formal sector jobs have grown by only 6 crore, indicating an annual shortfall of around 50 lakh jobs. This mismatch is further compounded by the dominance of self-employment and informal sector jobs, especially in rural areas, raising concerns about both the quality and sustainability of employment.

Structural Shift Towards Capital-Intensive Growth

The country’s production systems are increasingly exhibiting capital-intensive tendencies — even in traditionally labour-intensive sectors such as textiles and food processing. This phenomenon, often referred to as "skill-biased technological change," is driven by two broad factors:

• Demand-Side Factors: The pressure to enhance productivity and reduce costs incentivises adoption of automated and capital-intensive technologies, especially in high-value manufacturing and services.
• Supply-Side Constraints: A shortage of skilled and technically trained labour impedes the effective utilisation of labour resources. Less than 10% of India’s workforce has received formal vocational or technical training, and most youth entering the labour market lack industry-relevant skills.

The declining cost of technology, coupled with stagnant real wages and rigid labour laws in some states, further tilts the balance in favour of machines over human labour.

Policy Interventions and Challenges

The Government of India has initiated schemes such as the Production-Linked Incentive (PLI) Scheme and the Employment Linked Incentive (ELI) Scheme to address the employment deficit.

• PLI Scheme: While it aims to boost manufacturing output, the scheme is heavily focused on high-tech sectors like electronics, drones, and IT hardware — which are capital- and skill-intensive. Despite this, the highest job creation under the PLI has been observed in food processing and pharmaceuticals, suggesting a disconnect between investment focus and employment potential.
• ELI Scheme: Designed to subsidise the cost of hiring untrained workers in labour-intensive sectors, the ELI provides short-term financial support via EPFO contributions. However, its long-term efficacy in ensuring sustainable skilling and employment remains uncertain due to lack of outcome data and short subsidy duration (2–3 years).

Need for a Cohesive Labour-Capital Policy Framework

India’s employment challenge cannot be addressed through fragmented policies. A cohesive framework is required that integrates:

• Industrial Policy with Skilling Policy: Ministries responsible for industrial production, labour, and skilling must work in tandem to ensure the availability of a workforce with skills that are aligned with the demands of emerging sectors.
• Incentive Structuring: The current flat subsidies under ELI could be modified into a graded structure, where higher transfers are provided for higher levels of certified skill acquisition, encouraging continuous skill upgrading.
• Skill Supply Chain Reform: Skill development institutions like ITIs and vocational centres should be incentivised based on placement rates and wage outcomes, not just enrolments or certifications.
• Labour Law Flexibility: State-level reforms in labour regulations are essential to reduce the cost of employing formal workers and to encourage job creation, especially in micro, small, and medium enterprises (MSMEs).

Way Forward for a Viksit Bharat (Developed India)

As India transitions towards becoming a high-value production economy, it must simultaneously invest in its human capital. This requires:

• Dynamic Skill Development Programs: Adaptive skilling strategies must be designed to align with evolving technological trends such as Artificial Intelligence (AI), robotics, and green energy.
• Data-Driven Employment Policies: Regular labour market surveys and outcome tracking of employment schemes are critical for evidence-based policymaking.
• Support for Labour-Intensive Sectors: Focused support to industries with high employment elasticity, such as textiles, leather, food processing, tourism, and construction, can yield substantial job creation.

In conclusion, advancing the agenda of Viksit Bharat demands equal emphasis on capital and labour. Without a strong and skilled workforce, India's demographic dividend risks turning into a demographic burden. Therefore, employment generation must be at the core of India’s development policy, with a strategic vision that links skilling, production, and structural transformation.

In News:

The World Bank’s Spring 2025 Poverty and Equity Brief has lauded India for lifting 171 million people out of extreme poverty between 2011-12 and 2022-23, reducing the poverty rate from 16.2% to 2.3%. This achievement underscores India’s sustained commitment to inclusive development, driven by economic growth, targeted welfare interventions, and improved access to essential services.

Key Findings:

The Poverty and Equity Briefs (PEBs), published biannually by the World Bank, assess poverty trends using international benchmarks (USD 2.15/day for extreme poverty, USD 3.65/day for lower-middle-income poverty), and include multidimensional poverty indicators and Gini Index estimates for income inequality.

• Rural and Urban Progress:
  • Rural extreme poverty declined from 18.4% to 2.8%.
  • Urban extreme poverty fell from 10.7% to 1.1%.
  • The rural-urban poverty gap narrowed significantly, indicating more balanced regional development.
• Lower-Middle-Income Poverty (USD 3.65/day line):
  • National poverty fell from 61.8% to 28.1%, lifting 378 million people out of poverty.
  • Rural poverty declined from 69% to 32.5%, and urban from 43.5% to 17.2%.
• State-wise Contribution:Uttar Pradesh, Maharashtra, Bihar, West Bengal, and Madhya Pradesh—accounting for 65% of India’s poor in 2011—contributed two-thirds of the total poverty reduction by 2022-23.
• Multidimensional Poverty:
  • MPI fell from 53.8% (2005-06) to 16.4% (2019-21).
  • By 2022-23, it further reduced to 15.5%, indicating improvements in health, education, and living standards.
• Income Inequality:India’s Gini Index improved from 28.8 to 25.5, signaling a modest reduction in income disparities.

Employment and Structural Shifts

Employment growth has been robust post-2021:

• Female employment has increased, though still only 31%, with a 234 million gender gap in paid work.
• Urban unemployment declined to 6.6% in Q1 FY24-25, the lowest since 2017-18.
• A shift from rural to urban employment was noted among men, while rural women increasingly engage in agricultural self-employment.

Persistent Social Challenges

Despite progress, several social challenges persist:

• Marginalized communities (SCs/STs) face limited access to quality education, healthcare, and formal jobs.
• Malnutrition and health disparities remain despite schemes like POSHAN Abhiyaan.
• Water and energy poverty still affect large segments—49.8% of rural households lack piped water (NFHS-5), and many still rely on biomass despite the Ujjwala Yojana.
• Mental poverty due to chronic stress, unemployment (29% among graduates), and social stigma hinders productivity.
• Environmental degradation from unsustainable resource use affects the poorest most, worsening poverty cycles.

Policy Recommendations

To build on this progress, India must:

• Strengthen affirmative action and welfare delivery (e.g., PMJDY, DDU-GKY, Aadhaar-based targeting).
• Promote gender equality through effective implementation of BetiBachaoBetiPadhao, SSY, and gender-inclusive job creation.
• Expand clean energy and water access via solar microgrids and the Jal Jeevan Mission.
• Scale up mental health services using ASHA workers and awareness campaigns.

Conclusion

India’s success in drastically reducing poverty—both monetary and multidimensional—demonstrates the impact of focused development policies. However, the path ahead requires deeper reforms targeting inequality, gender disparity, and service delivery inefficiencies to ensure sustained, inclusive growth.

Context:

India’s e-retail sector has emerged as a global frontrunner, surpassing the United States in terms of online shopper base and attaining a Gross Merchandise Value (GMV) of $60 billion in 2024. Despite this milestone, the sector’s growth rate halved from historical averages of 20% to 10–12% in 2024. This deceleration is attributed primarily to macroeconomic headwinds—particularly high inflation and stagnation in real wages, which have also slowed private consumption growth from 11% (2017–19) to 8% (2022–24).

Structural Drivers and Government Support

Notwithstanding short-term sluggishness, India’s long-term e-retail outlook remains promising. Key government initiatives—such as Digital India, Make in India, Startup India, and Skill India—have laid a strong digital foundation. The Government e-Marketplace (GeM) crossed ?4 lakh crore GMV in FY24, reflecting growing public sector adoption of digital commerce.

Policy reforms have facilitated e-commerce expansion:

• 100% FDI in B2B e-commerce
• Implementation of Consumer Protection (E-commerce) Rules, 2020
• Strengthening digital infrastructure through 5G rollout
• The CSC-ONDC partnership aims to democratize access to digital markets in rural areas.

Key Growth Trends Shaping the Sector

The Flipkart–Bain & Company report identifies three transformative trends:

1. Quick Commerce:Quick commerce now commands over two-thirds of e-grocery orders and constitutes 10% of total e-retail spending. It is projected to grow at over 40% CAGR until 2030, driven by faster deliveries, increasing product categories, and geographic expansion into Tier-2 and Tier-3 cities.
2. Trend-First Commerce:Particularly dominant in fashion, this segment caters to consumers who prioritize latest trends and styles. Trend-first fashion alone is forecasted to grow fourfold to $8–10 billion by 2028, with more than half of the sales occurring online.
3. Hyper-Value Commerce:This model emphasizes ultra-low-priced assortments aimed at lower-middle-income consumers. Its share of e-retail GMV has increased from 5% in 2021 to over 12% in 2024, gaining momentum in smaller towns and cities.

Demographic and Regional Shifts

The e-retail customer and seller base is witnessing increasing diversification:

• Since 2020, 60% of new shoppers have emerged from Tier-3 or smaller cities.
• The Northeastern states show 1.2 times higher e-retail penetration compared to the national average.
• Similarly, 60% of new sellers since 2021 are from Tier-2 or smaller towns, indicating broad-based entrepreneurial participation.

Future Outlook

E-retail is expected to reach a GMV of $170–190 billion by 2030, growing at over 18% annually. A key inflection point will be when India’s GDP per capita crosses the $3,500–4,000 threshold, historically associated with significant upticks in discretionary digital spending. By 2030, one in ten retail dollars is projected to be spent online, with high-frequency categories such as grocery, lifestyle, and general merchandise accounting for two-thirds of e-retail expenditure.

Conclusion

India’s e-retail sector reflects the dynamic interplay of technology, policy, and socio-economic shifts. While macroeconomic challenges have tempered short-term growth, strong structural fundamentals and strategic disruptions position the sector for robust expansion. The transformation of digital commerce, particularly through inclusivity and value-driven models, is not only reshaping consumer behavior but also holds significant implications for employment, urbanization, and digital governance in India’s developmental journey.

Context:
India is undergoing a digital transformation powered by rapid expansion in mobile broadband. According to Nokia’s Mobile Broadband Index (MBiT) Report 2024, India’s average monthly data usage per user reached an all-time high of 27.5 GB. The exponential growth in 5G adoption, traffic, and device readiness reflects a critical shift in the country’s telecom and digital infrastructure landscape.

Key Trends in Data Consumption and 5G Expansion

The report highlights several key trends that underline India's accelerating digital momentum:

• Average Data Consumption: The average mobile user in India consumed 27.5 GB/month in 2024, underlining the growing demand for video streaming, social media, and real-time applications.
• Surge in 5G Traffic: 5G data traffic tripled over the past year, with projections indicating it will overtake 4G by Q1 2026. The shift is especially noticeable in urban areas.
• Metro-Centric 5G Usage: In India’s metro circles, 5G now accounts for 43% of total mobile broadband usage, up from 20% in 2023, suggesting early saturation and readiness in Tier 1 cities.
• Rural Uptake Rising: While metros lead the way, Category B and C circles are witnessing strong growth in 5G uptake, aided by affordable smartphones and increased network coverage.
• Device Readiness: There were 271 million active 5G devices in India in 2024, doubling year-on-year. By 2025, 90% of replaced smartphones are expected to be 5G-enabled, indicating widespread device transition.
• Fixed Wireless Access (FWA): Users with 5G FWA consume 12 times more data than typical mobile users, showing the potential of 5G in delivering high-speed home internet in underserved areas.

Implications for India’s Digital Future

• Economic Growth and Innovation: The 5G revolution is expected to unlock new avenues in fintech, ed-tech, health-tech, and smart manufacturing. Higher data speeds and lower latency will enhance productivity and efficiency across sectors.
• Bridging the Digital Divide: Increasing rural adoption of 5G, aided by government and private investments, can significantly reduce the urban-rural connectivity gap and foster inclusive development.
• Employment and Start-up Ecosystem: The emergence of a robust 5G ecosystem will create demand for new skills, boosting employment in AI, IoT, cloud computing, and edge technologies.
• Network Transformation: The transition from 4G to 5G marks a fundamental change in telecom infrastructure, requiring upgradation in backhaul capacity, spectrum efficiency, and fibre penetration.

Challenges and the Road Ahead

Despite rapid adoption, challenges remain. Ensuring affordable access in rural areas, addressing cybersecurity risks, and enhancing digital literacy are vital. Policy coherence, right-of-way (RoW) reforms, and spectrum management will determine the pace and inclusivity of 5G deployment.

Conclusion

India’s 5G journey marks a pivotal step toward becoming a digitally empowered society. With supportive policy frameworks, private sector innovation, and public investment in digital infrastructure, the country is well-positioned to leverage 5G as a tool for economic transformation, digital inclusion, and technological leadership.

In News:

The International Monetary Fund (IMF), in its report titled India Financial System Stability Assessment, has flagged significant vulnerabilities in India’s financial architecture, particularly arising from the Non-Banking Financial Companies (NBFCs) sector. Despite overall resilience post-pandemic, the increasing interconnectedness and exposure of NBFCs pose emerging systemic risks.

A major concern highlighted is the concentration of NBFC lending to the power sector. In FY 2024, 63% of power sector loans were provided by just three large Infrastructure Financing NBFCs—an increase from 55% in FY 2020. This overexposure, particularly by state-owned NBFCs such as IREDA, raises red flags given the inherent risks in infrastructure financing, including delays, cost overruns, and revenue shortfalls. The report notes that 56% of NBFC lending was financed by market instruments like corporate bonds and mutual funds, heightening the risk of contagion in case of financial distress.

NBFCs differ structurally from banks. They cannot accept demand deposits, lack deposit insurance coverage, and have no direct access to Reserve Bank of India (RBI) liquidity windows. Consequently, any shock in their repayment capacity can lead to asset-liability mismatches, potentially spilling over into banks, mutual funds, and bond markets, amplifying systemic risks.

The IMF also examined stress scenarios such as stagflation—a situation characterized by slow economic growth and high inflation. In such cases, public sector banks (PSBs) are particularly vulnerable. The Capital Adequacy Ratio (CAR) of PSBs could fall to the regulatory minimum of 9% under stress, threatening their ability to absorb losses. This is concerning, as the RBI mandates a minimum CAR of 12% for PSBs. The IMF recommends that PSBs retain earnings instead of paying dividends to strengthen their capital buffers and support credit flow during downturns.

While banks and NBFCs have shown broad resilience, ‘weak tails’ exist—non-systemic NBFCs and urban cooperative banks with below-minimum or even negative capital. This underscores the need for strengthened regulatory oversight, especially over state-owned NBFCs, which currently enjoy relaxed prudential norms. The IMF calls for uniform regulation across public and private NBFCs to ensure a level playing field and greater financial stability.

The report also emphasizes the need for improved data sharing and systemic risk monitoring, especially related to NBFC exposures, household credit, and climate-linked financial risks. Physical and transition risks remain moderate but are notable in monsoon-dependent agriculture and carbon-intensive industries like thermal power.

Recommendations include:

• Extending the cybersecurity risk framework to major NBFCs.
• Implementing IFRS-9 based credit risk assessments and countercyclical capital buffers.
• Improving insolvency and bankruptcy resolution mechanisms to reduce recovery time and enhance credit discipline.

India’s financial system is becoming more diverse and inclusive, with rising digital financial access and market participation. However, to sustain growth and resilience, proactive reforms in NBFC regulation, capital adequacy, and systemic risk management are essential.

Context:

India’s textile and apparel industry is one of the largest globally, contributing significantly to the economy through employment, exports, and industrial output. It accounts for 2.3% of India’s GDP (projected to rise to 5% by 2030), 13% of industrial production, and 12% of total exports. Employing over 4.5 crore people, it is second only to agriculture in job creation. Yet, despite its scale, India lags behind competitors like China, Vietnam, and Bangladesh in global exports.

Current Status and Strengths

India is the world’s second-largest producer of cotton and man-made fibres (MMFs) such as polyester and viscose. Cotton alone engages over 60 lakh farmers, mainly in Gujarat, Maharashtra, and Telangana. The country is also a global leader in jute and technical textiles. The textile and apparel market is projected to reach USD 350 billion by 2030.

FY24 exports stood at USD 35.9 billion, a marginal increase from USD 33.4 billion in FY20. Key destinations include the US, EU, and UAE. Yet, apparel exports have declined from USD 15.5 billion in FY20 to USD 14.5 billion in FY24. While cotton textile exports rose to USD 12.3 billion, growth has remained modest.

Challenges Holding Back the Sector

• Fragmented Supply Chains: India’s textile value chain is highly fragmented, concentrated in MSME clusters with regional specializations (e.g., Tiruppur for knitwear, Surat for polyester). This hampers integration and increases logistics costs. In contrast, competitors operate vertically integrated “fibre-to-fashion” hubs.
• High Raw Material Costs: Quality Control Orders (QCOs) on polyester and viscose restrict cheaper imports. As a result, domestic fibres are significantly costlier—polyester by 33–36% and viscose by 14–16% compared to China.
• Lack of FTAs: Unlike Vietnam and Bangladesh, India lacks preferential trade agreements with major markets like the EU and the US. This undermines price competitiveness and limits market access.
• Regulatory Burden: Complex customs and compliance procedures increase operational costs, particularly for small exporters. In contrast, simplified systems in competing nations reduce red tape.
• Sustainability Pressures: Global markets now demand higher environmental compliance—renewable energy use, water recycling, and traceability. EU regulations (2021–2024) affect 20% of India’s textile exports. MSMEs find it difficult to adapt without financial support.
• Low Per Capita Fibre Consumption: Despite being a major producer, India’s fibre consumption is just 5.5 kg per capita—half the global average.

Way Forward

• Supply Chain Integration: Develop MITRA textile parks and “fibre-to-fashion” hubs to reduce costs and improve efficiency.
• Raw Material Reforms: Reassess QCOs to allow controlled imports and reduce input prices.
• Trade Policy: Secure FTAs with key markets to enhance export competitiveness.
• Labour Productivity: Set up housing near textile clusters (as in China) to improve worker efficiency and reduce attrition.
• Boost MMF Usage: Promote domestic MMF consumption through targeted incentives.
• Green Transition: Provide financial and technical support to MSMEs to adopt sustainable practices and enter the recycled textile market, projected to reach USD 400 million in India.

With structural reforms and global alignment, India’s textile industry holds immense potential to emerge as a global leader while promoting sustainable, inclusive growth.

In News:

The Union Budget 2025 has seen a significant increase in the allocation for gender-responsive fiscal policies, with a record ?4,49,028.68 crore allocated to the Gender Budget (GB). This represents a 37.3% increase from the previous year, marking 8.86% of the total Budget. However, this increase is largely attributed to the inclusion of PM Garib Kalyan Anna Yojana, which constitutes 24% of the GB, rather than substantial investments in care infrastructure or gender-responsive schemes. This highlights the persistent underestimation of unpaid care and domestic work (UCDW) in India’s economic planning.

The Care Work Crisis: An Overlooked Economic Reality

Globally, women bear the brunt of unpaid care work (UCDW), spending an average of 17.8% of their time on such tasks. In India, this burden is particularly severe. Indian women spend 40% more time on UCDW compared to women in South Africa and China. As per the International LabourOrganisation (ILO), 53% of Indian women remain outside the labour force due to caregiving responsibilities, while only 1.1% of men face similar barriers. This deep-rooted gender inequality reinforces women’s economic disempowerment.

For marginalized women in low-income households, the burden is exacerbated. Many women juggle 17–19 hours of daily labour, balancing paid work with domestic duties, resulting in severe time poverty and poor health. Feminist economists from the Global South emphasize that in India, unpaid work extends beyond household care to include tasks such as family farming, water collection, and fuel gathering. Women often spend up to 73% of their time on these tasks due to limited infrastructure in basic services such as water, sanitation, and clean energy.

Missed Opportunities in the 2025 Budget

Despite the record increase in the Gender Budget, the 2025 Union Budgetmisses critical opportunities to address the care work crisis. The Economic Survey 2023-24 recognized care infrastructure as pivotal for women’s empowerment, yet the budget failed to translate this into significant fiscal commitments. The Jal Jeevan Mission (JJM), which aims to provide 100% potable water coverage by 2028, is a positive step but suffers from funding delays and implementation gaps. While the JJM budget increased by 195% over Revised Estimates, it saw a decline of 4.51% from last year’s Budget Estimates, underscoring allocation and spending mismatches.

Policy Recommendations: The Three R Framework

To address these systemic issues, the Economic Survey 2023-24 suggests that public investment of 2% of GDP in care infrastructure could generate 11 million jobs and reduce the care burden on women. The Three R framework — Recognise, Reduce, Redistribute, and Represent — provides a holistic approach to creating a more inclusive economy:

• Recognise: The first step is acknowledging the full extent of UCDW. India’s 2019 Time Use Survey revealed that women spend an average of seven hours daily on unpaid care tasks. Regular surveys, integrated into existing household surveys, can inform more effective policy-making.
• Reduce: The second step involves reducing the care burden by investing in time-saving technologies and affordable care infrastructure. Expanding childcare centres, eldercare support, and assistive technologies can facilitate women’s workforce participation. The Urban Challenge Fund announced in the 2025 Budget, with ?10,000 crore allocated for FY 2025-26, can finance urban redevelopment projects that integrate care infrastructure, inspired by successful models like Bogotá’s Care Blocks.
• Redistribute: Care responsibilities must be shifted from the household to the State and society. The Smart Cities Mission and the Urban Challenge Fund present opportunities to scale up care infrastructure in urban areas. This redistribution of care work can significantly ease the burden on women and encourage more equitable labor force participation.
• Represent: Women’s representation in decision-making is crucial for creating gender-transformative policies. Policies designed with women’s input are shown to be six to seven times more effective in achieving gender-equitable outcomes. Therefore, promoting female leadership in governance is essential for the success of gender-responsive policies.

Conclusion:

The Union Budget 2025 has made strides in gender-responsive fiscal policies but falls short in addressing the care economy. India has a significant opportunity to set a global example by recognizing unpaid care work, investing in care infrastructure, and redistributing caregiving responsibilities. A gender-sensitive economy, with women’s participation in decision-making, will not only uplift women but also ensure more inclusive growth for the country. The current budget highlights the need for a more deliberate, well-funded strategy to treat care work as a central pillar of India’s economic development.

In News:

The India Philanthropy Report 2025, a joint publication by Bain & Company and Dasra, presents an insightful overview of the evolving landscape of philanthropic giving in India. With private philanthropic funding projected to grow annually by 10–12% over the next five years, the report underlines the increasing role of family philanthropy and corporate social responsibility (CSR) in complementing public sector expenditure on social development.

Growth of Social Sector Funding

India's total social sector funding reached approximately ?25 lakh crore ($300 billion) in FY24, accounting for 8.3% of the GDP. Public funding continues to dominate, constituting 95% of the total with allocations towards flagship welfare schemes like MGNREGS and the Pradhan Mantri Awas Yojana. Private philanthropy, however, is steadily gaining ground, contributing ?1.3 lakh crore ($16 billion) in FY24, and is expected to grow significantly by FY29.

Despite this growth, a considerable funding gap persists—estimated at ?14 lakh crore in FY24 and projected to widen to ?16 lakh crore by FY29. Bridging this deficit is critical for meeting India's Sustainable Development Goals (SDGs) and the vision of Viksit Bharat@2047.

Rise of Family Philanthropy

Family philanthropy has emerged as a key driver of private social funding, accounting for around 40% of total private contributions. It spans diverse sectors including education, healthcare, gender equity, diversity and inclusion (GEDI), climate action, and social justice. Notably, 55% of family philanthropic initiatives are women-led, and around one-third involve next-generation leadership, indicating a shift towards more inclusive and innovative giving.

Structured philanthropy is becoming more prominent, with nearly 65% of family-run initiatives now managed by professional teams. The report projects that by building robust advisory infrastructure and tapping into family offices, India can unlock an additional ?50,000–55,000 crore ($6–$7 billion) in family philanthropy over the next five years.

Corporate Social Responsibility: Compliance and Concentration

Corporate Social Responsibility (CSR) spending, mandated under the Companies Act, is another critical pillar. CSR expenditure is growing at a projected 10–12% per annum, driven by increased compliance and strategic integration into corporate goals. The number of CSR-compliant firms rose from 12,000 in FY22 to around 15,000 in FY23.

Family-owned businesses contribute nearly 65%–70% of total private CSR spending, with major conglomerates like Tata, Adani, Birla, and Ambani alone accounting for ?800–1,000 crore each annually. However, the sector remains top-heavy: just 2% of family-owned firms are responsible for over half of all CSR contributions.

HNIs, UHNIs, and the Philanthropic Disparity

Despite the promising trends, Indian High-Net-Worth Individuals (HNIs) and Ultra-High-Net-Worth Individuals (UHNIs) still contribute a relatively small fraction of their wealth towards philanthropy. Indian UHNIs donate only 0.1%–0.15% of their wealth, compared to 1.2%–2.5% in the US, 0.5%–1.8% in the UK, and 0.5%–1.4% in China.

In FY24, average annual philanthropic contributions from UHNIs (net worth ?1,000 crore and above) hovered around ?5 crore, while HNIs (?200–1,000 crore) contributed ?0.4–?5 crore. This indicates a large untapped potential that can significantly bolster India's development financing.

Institutionalization and Diaspora Potential

The number of family offices—dedicated institutions managing family wealth and philanthropy—has increased from 45 in 2018 to 300 in 2024, with projections to cross 500 by 2029. Institutions like Dasra, Sattva, and Bridgespan have been instrumental in supporting structured and high-impact philanthropy.

India’s diaspora, growing from 18 million in 2019 to 35 million in 2024, also presents a significant but underutilized opportunity. While diaspora philanthropy is estimated at $130 billion currently, better awareness, simplified compliance norms, and digital platforms could enhance its impact and push the potential closer to $200 billion.

Challenges and the Way Forward

Despite the optimistic outlook, several challenges hinder the full realization of philanthropic potential in India:

• Persistent funding gaps in critical sectors like healthcare, education, and climate change.
• Regulatory and compliance barriers, especially affecting foreign and diaspora contributions.
• Fragmented infrastructure, with limited advisory services and high transaction costs.
• Short-term funding models, with only 23% of family philanthropies combining grants with direct program implementation, undermining sustainable impact.

To address these, the report suggests:

• Promoting long-term funding mechanisms, including multi-year grants.
• Professionalizing philanthropy through structured advisory services and capacity building.
• Unlocking diaspora contributions via simplified regulations and dedicated philanthropic platforms.
• Enhancing collaboration across stakeholders to amplify social impact and innovation.

Conclusion

The India Philanthropy Report 2025 underscores the transformative potential of private giving, particularly through family philanthropy and CSR. While public funding remains the bedrock of India’s social development agenda, strengthening the philanthropic ecosystem—by leveraging wealth, institutions, and global networks—is vital to achieving equitable growth and meeting national development goals.

In News:

India, currently classified as a lower-middle-income economy with a Gross National Income (GNI) per capita of USD 2,540 (2023), aspires to achieve high-income status by 2047, coinciding with the centenary of its independence. A recent World Bank report titled “Becoming a High-Income Economy in a Generation” outlines the necessary reforms, challenges, and growth scenarios India must navigate to meet this ambitious target.

Growth Imperatives and Economic Targets

To transition into a high-income economy, India must sustain an average real GDP growth rate of 7.8% annually until 2047, raising its GNI per capita nearly eightfold. Historically, India grew at 6.3% (2000–2024) and has become the world’s fifth-largest economy, doubling its global share to 3.4%. However, "business-as-usual" growth (6.6%) will fall short, and only accelerated reforms can enable a successful transition—something achieved by few countries like Chile and Poland.

Key Policy Areas for Reform

• Boosting Investment and Capital Formation:
  • Increase total investment from 33.5% to 40% of GDP by 2035 through public-private synergy.
  • Address infrastructure deficits, streamline land acquisition, and liberalize FDI norms.
  • Improve financial markets to support long-term infrastructure and SME financing.
• Enhancing Labor Force Participation:
  • Raise overall labor force participation from 56.4% to 65%.
  • Increase female workforce participation from 35.6% to 50% by addressing socio-economic barriers and improving childcare and safety infrastructure.
  • Target job-rich sectors like manufacturing, logistics, hospitality, and care economy to generate employment.
• Structural Transformation and Trade Integration:
  • Shift labor from agriculture (currently employing 45% of workforce) towards manufacturing and services.
  • Boost India's Global Value Chain (GVC) participation by reducing high tariffs and non-tariff barriers, particularly on intermediate and capital goods.
  • Simplify customs, improve regulatory clarity, and promote technological adoption across sectors.
• Promoting Balanced Regional Growth:
  • Support low-income states in developing healthcare, education, and infrastructure.
  • Deepen industrial reforms and trade competitiveness in developed states through federal programs like the Urban Challenge Fund.
• Strengthening Human Capital and Innovation:
  • Expand vocational training and R&D investments in emerging areas such as AI, biotechnology, and clean energy.
  • Encourage entrepreneurship and formalization to reduce the high informal employment rate (73%).

Challenges on the Path

India faces slowing investment rates (down from 35.8% in 2008 to 27.5% in 2024), low FDI inflows (just 1.6% of GDP), and declining trade openness (exports and imports fell from 56% of GDP in 2012 to 46% in 2023). Regulatory unpredictability and complex business processes hinder private investment.

Conclusion

India’s vision to become a high-income economy by 2047 is ambitious yet attainable, contingent on sustained growth, robust reforms, and inclusive development. Strategic policy execution in trade, labor, investment, and federal cooperation will be critical to transforming India's economic trajectory and positioning it as a global leader by its centenary year.

In News:

The Reserve Bank of India (RBI) conducted a comprehensive pan-India survey during May–July 2024 to assess the farmers’ share in consumer prices for 12 major rabi crops. The survey spanned mandis and villages across 86 centres in 18 states, and included detailed inputs from farmers, traders, and retailers, with over 10,699 respondents.

Key Findings:

• Farmers’ Share in Consumer Prices:
  • Ranged between 40% and 67% across rabi crops.
  • Wheat farmers received the highest share (67%), attributed to its status as a notified commodity under the public procurement system; about 25% of wheat farmers sold at Minimum Support Price (MSP).
  • Rice farmers received 52%, a figure consistent over previous surveys (49% in 2018, 45% in 2022), indicating stability.
  • In pulses, lentil (masoor) farmers earned 66%, and gram (chana) farmers earned 60% of the retail price.
  • In oilseeds, mustard farmers received 52%, slightly lower than the 55% found in a 2021 study.
• Perishables vs Non-Perishables:
  • Fruits and vegetables showed lower farmer share (40–63%), due to their perishability, seasonal production, and logistical challenges.
  • The combined markup of traders and retailers exceeded 50% in most perishable crops (except tomatoes).
  • Perishables face higher post-harvest losses, quality variation, and price volatility due to climate dependency and demand-supply fluctuations.

Supply Chain and Payments:

• The agriculture supply chain remains unorganized, especially for fruits and vegetables, with multiple intermediaries reducing transparency in pricing, logistics, and fund flows.
• Retailer markups were typically higher than those of traders. An empirical analysis showed that:
  • Higher transaction costs (e.g., transport, labour) reduce retailer markups.
  • High post-harvest losses in perishables allow markups to be passed on to consumers.

Digital Transactions:Though cash transactions still dominate, the adoption of electronic payments saw a significant rise in 2024 across all stakeholders compared to previous surveys in 2018 and 2022.

Policy Implications:

• A higher farmers’ share is essential to:
  • Enhance farm incomes
  • Incentivise crop diversification, particularly from cereals to pulses and oilseeds
  • Improve transparency in the agri-supply chain
• Strengthening public procurement, digital infrastructure, and organised logistics are vital for ensuring fair price realisation by farmers.

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.