Economy

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Informalisation within the Formal Sector

Context: In recent decades, India has witnessed a sharp rise in the use of contract labour within the formal manufacturing sector.

Relevance of the Topic: Prelims: Concept of Contractualisation. Mains: Informalisation with formal sector - Reasons, Impact, Way Forward.

According to the Annual Survey of Industries (ASI), the share of contract workers in the manufacturing workforce has doubled from 20% in 1999-2000 to 40.7% in 2022-23.

This trend reflects the informalisation of the formal sector, raising concerns over worker exploitation, wage inequality, and declining productivity.

What is Contractualisation?

It refers to the employment of workers on temporary, often third-party contracts, rather than permanent, directly employed roles.

Why Firms Prefer Contract Labour?

Operational Flexibility: Allows firms to hire or fire workers based on market demand.
Cost Savings: Wages and benefits are significantly lower than for permanent workers.
Regulatory Evasion: Firms bypass rigid labour laws and industrial regulations.
Short-Term Efficiency: Contract workers may fill temporary skill gaps or meet seasonal demand.

However, these apparent benefits mask deeper structural challenges and long-term inefficiencies.

Challenges associated with Contractualisation:

Legal Exclusion & Vulnerability: Contract workers are generally excluded from key protections under the Industrial Disputes Act, 1947, such as safeguards against arbitrary dismissals and retrenchment. Hired through third-party contractors, they lack bargaining power and often face exploitative work conditions.
Wage Disparities: In 2018-19, on an average, the contract workers earned 14.47% less than regular employees. In some sectors, employers' labour cost on contract workers was up to 85% lower than on regular workers.
Impact on Labour Productivity: Though intended to provide flexibility, over-reliance on contract labour can undermine productivity, especially in labour-intensive and small-to-medium enterprises. ASI Plant-Level Data (1999-2019) shows that Contract Labour-Intensive (CLI) enterprises had 31% lower productivity than Regular Labour-Intensive (RLI) enterprises.

Why Productivity Declines?

Principal-Agent Problem: Contractors may not align with the firm's long-term interests.
Moral Hazard: Low job security may lead to worker disengagement.
Poor skill development: Frequent exit and replacement of workers in a company or industry over a short period of time prevents skill development and innovation.
No On-the-Job Training: Firms avoid investing in temporary workers.

Exceptions:

Labour productivity was 5% higher in high-skill Contract Labour-Intensive (CLI) enterprises when compared to their low-skill counterparts, with the productivity advantage increasing significantly to 20% in large high-skill CLI enterprises.
Similarly, large-size capital-intensive CLI enterprises recorded a 17% gain in labour productivity.

However, such types of enterprises account for only about 20% of the total formal manufacturing. The remaining 80% of the enterprises were adversely affected by contractualisation.

Policy Landscape and Reforms:

Labour Code on Industrial Relations 2020:

The code allows firms to hire non-regular workers on fixed-term contracts directly without third party contractors. Aims to provide greater flexibility in hiring and firing.
It also seeks to curb the exploitation of non-permanent workers by mandating the provision of basic statutory employment benefits.
Yet to be fully implemented; trade unions fear it may further increase informalisation.

Pradhan Mantri Rojgar Protsahan Yojana (2016-2022):

Aim: To incentivise job creation in the formal sector by bearing employer’s contribution (12%) to Employees’ Pension Scheme (EPS) and Employees’ Provident Fund (EPF).
Though over one crore employees benefitted from the scheme, it was discontinued in 2022.

Way Forward

Policymakers can incentivise firms to adopt reasonably longer fixed-term contracts by offering concessions in social security contributions or subsidised access to government skilling programmes. This could enhance workforce stability and support skill accumulation, while also assuaging labour union fears about the potential rise in the precarious employment.
Reviving and extending support under the PMRPY could help curb the misuse of contract labour and promote formalisation in the manufacturing sector.

RBI's Financial Inclusion Index hits 67 in FY25

Context: The Reserve Bank of India’s Financial Inclusion Index (FI Index) improved to 67 in March 2025 from 64.2 in March 2024.

Relevance of the Topic: Prelims: Key facts about Financial Inclusion Index.

Financial Inclusion Index

Financial Inclusion Index (FI Index) captures the extent of financial inclusion across the country. The comprehensive index includes data from various sectors such as banking, investments, insurance, postal services, and pensions, making it a comprehensive measure of financial inclusion in the country.
The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.
The FI Index comprises of three broad parameters:
- Access (having a weight of 35% in the index)
- Usage (weight 45%)
- Quality ( weight 20%). Quality parameter captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services.
The weight of each parameter comprises various dimensions, which are calculated based on a number of indicators.
The Index has been constructed without any base year and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion.
RBI published the first FI index in 2021 for FY21 (FI Index 53.9).

Decoding the rise in FI Index

As per RBI, the improvement in FI Index in FY25 is largely due to usage and quality dimensions, reflecting deepening of financial inclusion, and sustained financial literacy initiatives.
India has made significant strides in expanding financial inclusion through initiatives like:
- Pradhan Mantri Jan Dhan Yojana: Under the scheme, over 558 million accounts have been opened in rural and semi-urban areas. Notably, 311 million of these accounts have been opened in the name of female beneficiaries.
- JAM Trinity: The pillar of financial inclusion is JAM (Jan Dhan, Aadhaar, Mobile) trinity which has expanded the coverage of direct benefit transfers.
- Unified Payments Interface (UPI) and Aadhaar-enabled Payment System (AePS)
- Payments Banks; Business Correspondent Model
- Pradhan Mantri Mudra Yojana
- Pradhan Mantri Jeevan Jyoti Bima Yojana
- Pradhan Mantri Suraksha Bima Yojana
- Atal Pension Yojana
- Sukanya Samriddhi Yojana
- Stand Up India Scheme
- Financial Literacy Programmes like Pradhan Mantri Gramin Digital Saksharta Abhiyan.

Also Read: Financial Inclusion

Index of Eight Core Industries

Context: The Index of Eight Core Industries grew at 1.7% in June 2025, as compared to 5% in June 2024. IIP had registered a growth of mere 0.5% in April 2025, its lowest in the last eight months. The output of eight core infrastructure sectors makes up 40% of the country's industrial production.

Relevance of the Topic: Prelims: Key facts about Index of Eight Core Industries.

Index Of Eight Core Industries

Index of Eight Core Industries (ICI) measures combined and individual performance of production of eight core sectors in India, comprising- coal, crude oil, natural gas, petroleum refinery products, fertilisers, steel, cement and electricity.
These eight core industries constitute 40.27% of the total index of industrial production (IIP).
This index is prepared by the Office of the Economic Advisor, Ministry of Commerce and Industry.
It is published monthly with the base year as 2011-12.

Weightage of different sectors in the Index:

Highest Weightage: Refinery products.
Lowest Weightage: Fertilisers.

India’s Silent Crisis: Poor Soil Health and Hidden Hunger

Context: Despite achieving food self-sufficiency, India continues to face widespread malnutrition largely due to declining soil health and imbalanced fertiliser use.

Relevance of the topic:

Prelims: Key facts and schemes related to Food security and Soil Health.

Mains: State of Soil Health and its impact.

India’s Progress in Food Security

Once dependent on food imports under the US PL-480 programme in the 1960s, India has today become self-sufficient in food production:

In FY25, India exported 20.2 million tonnes (MT) of rice in a global market of 61 MT.
India runs the world’s largest food distribution programme, the PM-Garib Kalyan Yojana (PMGKY), providing 5 kg of free rice or wheat per person per month to more than 800 million people.
The Food Corporation of India holds about 57 MT of rice- the highest stock in 20 years and nearly four times the buffer norm of 13.54 MT as of July 1, 2025.

Poverty has receded significantly:

The extreme poverty head count (those earning less than $3/day at 2021 PPP) dropped from 27.1% in 2011 to just 5.3% in 2022.

Persistent Challenge of Malnutrition:

Despite food self-sufficiency, malnutrition remains a major concern. The National Family Health Survey (NFHS 5) (2019-21) reports that :
- 35.5% of children under five years of age are stunted,
- 32.1% are underweight, and
- 19.3% are wasted.
One critical and often overlooked factor behind malnutrition is the health of soils.

Status of Indian Soils

Less than 5% of Indian soils have high or sufficient nitrogen (N).

Only 40% have sufficient phosphate (P).
Only 32 % have sufficient potash (K).
Just 20% are sufficient in soil organic carbon (SOC) - a critical component of soil fertility and nutrient absorption
Our soils also suffer from a deficiency of sulphur, as well as micronutrients like iron, zinc and boron.

Imbalanced Fertiliser Use:

For example, In Punjab, nitrogen use exceeds recommendations by 61%, while potassium use is short by 89%, and phosphorus use is short by 8%.
Only 35-40% of Nitrogen from granular urea is absorbed by crops, the rest is either released into the atmosphere as nitrous oxides or leaches into groundwater, contaminating it with nitrates and making it unsafe for consumption.

Impacts of Agriculture in Nutrient-deficient Soils

Crops grown on nutrient-deficient soils often mirror those deficiencies, leading to a silent but pervasive form of malnutrition in humans. E.g., Deficiency of zinc in soils results in low zinc content in cereals like wheat and rice, which in turn is linked to childhood stunting.
Imbalanced use of fertilisers leads to soil degradation and suboptimal agricultural productivity.

The Indian Council for Research on International Economic Relations (ICRIER) and OCP Nutricrops (Moroccan state-owned fertiliser production company) have committed to collaborating to improve soil health in India. The collaboration aims to develop, implement, and scale region-specific, data-driven soil nutrition solutions that enhance crop productivity while improving their nutritional profile.

Way Forward

To restore soil health and improve both crop and human nutrition, India needs a paradigm shift-

Shift from indiscriminate fertiliser use to science-based soil nutrition management.
Promote rigorous soil testing to guide fertiliser application.

Implement customised fertilisation strategies aligned with specific soil and crop needs.
Link to Sustainable Development Goals (SDGs) - Improving soil nutrition advances SDG-2 (Zero Hunger) and SDG-13 (Climate Action).

DAP Fertiliser Crisis Made in China

Context: China’s informal ban on DAP exports to India during the crucial sowing season has disrupted supply chains, and has exposed India’s strategic dependence on the geopolitical rival.

Relevance of the topic:

Prelims: Major fertilisers used in India, India’s top fertiliser import sources.

Mains: Fertiliser supply chain disruptions and their impact on farmers and way Forward.

DAP Fertiliser in Indian Agriculture

India is the largest importer of Di-Ammonium Phosphate (DAP) in the world, the second-most used fertiliser in the country after Urea.
DAP contains - 46% Phosphorus (P) and 18% nitrogen (N), and is critical during sowing for root and shoot development.
China has historically been the top exporter of DAP to India. 80% of India’s speciality fertilisers- crucial for high-value horticultural crops like fruits and vegetables, come from China.

China’s Informal Weaponisation of Trade:

Informal Export Ban on DAP:

China has stopped exporting DAP to India without an official notification.
Until 2023-24, China was a prominent supplier of DAP to India.
In 2024-25, imports from China fell from 22.9 lakh tonnes (LT) in FY24 to 8.4 LT in FY25.
Since January 2025, not a single tonne from China has been imported.

Impacts on India

Shortage of Di-Ammonium Phosphate (DAP) the second most-used fertiliser in India during the peak kharif sowing season.

Rise in DAP Prices:
- DAP import prices rose from ~$515/tonne (mid-2024) to $810+/tonne (mid-2025).
- DAP prices in local markets spiked from the official MRP of ₹1,350 to ₹1,700+ per 50-kg bag due to shortages and hoarding.
Distress among farmers due to erratic supply and growing black market.
Shortage-driven crop damage may raise prices of vegetables, pulses, and oilseeds, fuelling food inflation.
Fertiliser units may struggle to meet demand, leading to underproduction and reliance on second-tier alternatives like Single Superphosphate (SSP) and Ammonium Phosphate Sulphate (APS). China's indirect control over upstream phosphate resources affects India’s ability to domestically manufacture DAP.
Indian importers have to source more phosphates from Saudi Arabia, Morocco, Russia and Jordan, however, none of these countries have been able to fill the void left by China.

Way Forward

Supply diversification: Establish new supply lines from Morocco, Saudi Arabia, Russia, etc.
Boost Domestic Production: Invest in reviving and upgrading public and cooperative sector fertiliser units.
Subsidise innovation in green and nano-fertilisers to reduce import dependence.
Like the proposed India Rare Earth Mission, create a National Fertiliser Mission with production-linked incentives, research, and domestic backward linkages.
Leverage multilateral forums (e.g., WTO) to raise the issue of informal trade blockades.
Explore bilateral pressure through BRICS or SCO diplomatic backchannels.
Improve real-time logistics and digital tracking of fertiliser distribution and direct benefit transfers for fertiliser subsidies to bypass black-market exploitation.

India's fertiliser crisis is a strategic wake-up call. It offers an opportunity for India to reset its fertiliser ecosystem toward efficiency, resilience, and autonomy.

Key Facts:

DAP contains 46% Phosphorus (P) and 18% Nitrogen (N). Experts recommend that Indian farmers should be discouraged from applying fertilisers with very high individual nutrient content- be it DAP (46% P); Urea (46% N) and Muriate of Potash (60% potassium or K).
Ammonium phosphate sulphate (APS), a NPKS complex (20: 20: 0: 13), has emerged as India’s third most consumed fertiliser after urea and DAP. APS is more balanced i.e., has nutrients in the right quantities and proportions for effective absorption by the plant roots and leaves.

Other Examples of China's Strategic Trade Weaponisation:

In 2010, China halted rare earth exports to Japan amid the Senkaku Islands dispute.
In 2024-25, China restricted rare earth magnet exports to India, affecting defence and EV sectors.
In 2025, Chinese firms refused to supply parts for tunnel boring machines used in Indian infrastructure.

Also Read: Bio & Organic Fertilisers

Offshore Area Atomic Minerals Concession Rules 2025

Context: The Ministry of Mines, in coordination with the Department of Atomic Energy (DAE), have notified the Offshore Area Atomic Minerals Concession Rules, 2025. The new rules seek to regulate offshore atomic mineral mining for energy security and strategic control.

Relevance of the Topic: Prelims: About Offshore Area Atomic Minerals Concession Rules, 2025.

Offshore Area Atomic Minerals Concession Rules 2025

Purpose: To regulate the award of exploration licences and production leases for atomic minerals such as Uranium, Thorium, and other radioactive elements in the country’s offshore areas, including its territorial waters and exclusive economic zones (EEZs)
Nodal Authority: The DAE and the Atomic Energy Regulatory Board will serve as the nodal oversight agencies, ensuring compliance with radiological safety and strategic protocols.

Key Highlights: Offshore Area Atomic Minerals Concession Rules 2025

Only Central Government Agencies, State-owned enterprises, or government-nominated companies can be awarded composite licences or mining leases.
Foreign firms barred from exploration activities unless subcontracted under highly-restrictive guidelines, and only with prior security clearance from Ministries, including Defence, Home and Environment.
Exploration will be allowed without a licence, but only for notified government agencies.
Any later discovery of Atomic Minerals above threshold grades, as defined in alignment with the Atomic Mineral Concession Rules, 2016, must be reported to the Directorate of Atomic Minerals Exploration and Research. Upon reporting a significant discovery, the government may immediately reserve the block for National use.
The government reserves the right to revoke or deny licences if discoveries are deemed strategically sensitive or exceed the threshold grade. The Central Government can directly acquire such sites if needed for strategic reasons.
Explorers may be compensated only for actual expenses incurred, discouraging speculative private activity.

AI is Reshaping Indian Manufacturing

Context: Artificial Intelligence (AI) is transforming manufacturing worldwide and in India by enabling smarter production with higher efficiency and innovation.

Relevance of the topic:

Prelims: Emerging Technologies (AI, Digital Twins, Cobots), Government Schemes (India AI Mission)

Mains: AI in Manufacturing: Applications, significance, challenges.

The global AI-in-manufacturing market is projected to grow from $4.1 billion in 2024 to over $25 billion by 2029.

AI Adoption in Indian Manufacturing

AI adoption in manufacturing jumped from 8% in FY23 to 22% in FY24 reflecting a sharp rise in sector-wide integration.
AI is rapidly transforming Indian manufacturing, from legacy units to new plants, by enhancing productivity, reducing waste, and enabling smarter design.

AI Applications across the Factory Floor:

AI is powering improvements across every layer of the factory.

On the shop floor, predictive maintenance uses sensor data to anticipate equipment failures, reducing downtime by up to 30%.
AI vision systems identify micro-level defects in real time, improving quality assurance.
Cobots (collaborative robots guided by AI) support workers in physically demanding or repetitive tasks. These machines respond to human cues, enabling safer, more efficient man-machine collaboration.
AI powered CCTVs are helping ensure SOP compliance.
Machine learning supports predictive maintenance and smart procurement.
Digital twins simulate layouts, energy use and asset health, helping engineers optimise operations virtually.
In planning and logistics, AI enhances forecasting and enables more agile scheduling. IBM estimates that AI-led planning improves responsiveness by over 20%.

Digital Ecosystem Driving AI:

IoT Sensors: Capture real-time data from machines, materials, and the environment.
Edge Computing: Allows instant responses for tasks like robotic actuation and safety control.
Cloud Platforms: Provide the scale to train models, run digital twins, and coordinate cross-site operations.
Autonomous Control Systems & Agentic AI: Enable systems to learn, plan, and optimize with minimal human intervention. Increase adaptability and efficiency in manufacturing workflows.
Integration through APIs & Hubs: Connect AI systems with ERP, supply chain, and production platforms and ensure seamless data flow and organisational decision-making. This ensures insights are shared across the organisation to enable better decision-making.

Advantages of AI in Manufacturing

Operational Efficiency:
- Predictive maintenance, automated inspections, and real-time stock tracking lower costs and improve compliance.
- Improve yields and reduce energy use.
- Unlock smarter, safer, and more efficient operations.
- Real-time data is being leveraged to drive smarter decisions, higher throughput and more sustainable, customer-centric outcomes.
Innovation:
- Generative tools speed up design.
- AI-driven customisation enables personalisation at scale.
- Companies that embed AI across their value chain, from R&D to delivery, are more agile, responsive, and future-ready.

Challenges in AI adoption

High integration cost.
Talent shortage - lack of AI Skilled professionals in manufacturing.
Data governance and model transparency concerns.
A 2024 survey found that 44% of manufacturing leaders remain cautious about scaling generative AI due to concerns around hallucinations and explainability.

Global Capability Centers in India

Context: The Confederation of Indian Industry (CII) organised the Inaugural Edition of the Global Capability Centers (GCCs) Summit in New Delhi recently.

Relevance of the Topic: Mains: Global Capability Centers: Status, Issues and Way Forward.

What are Global Capability Centers?

Global Capability Centres (GCCs) or Captive Centres are offshore offices or subsidiaries set up by multinational corporations (MNCs) to handle various business processes and services.
These centres are responsible for tasks including IT support, data analytics, finance, human resources, BPO etc.
Over time, GCCs have evolved from being simple support centres to becoming strategic hubs that drive innovation. GCCs now provide a scale and range of services including- product development, operations, R&D, engineering, software, data scientists etc.

Status of Global Capability Centers in India:

India has emerged as one of the world’s largest GCC destinations. Key GCC hubs are located in Bengaluru, Hyderabad, Pune, Chennai, Mumbai, and the National Capital Region (NCR).

The GCC sector contributes $68 billion as direct gross value addition (GVA) which is 1.6% of India’s GDP. Estimates suggest GVA from GCCs could rise to $200 billion by 2030.
GCCs in India currently employ nearly 2.16 million people. Estimates suggest it is expected to grow to 2.8 million by 2030.
Over 1800 GCCs are currently operational in India at present which are projected to increase to 5000 by 2030.
Setup rate of engineering R&D GCCs has grown 1.3 times faster than the overall GCC setup over the last 5 years, indicating a clear shift towards high-value-added work in India.

The Indian government is working on a comprehensive National Framework for GCCs to further accelerate their growth.

Factors conducive to the growth of GCCs:

Govt. initiatives: Strong physical and digital infrastructure supported by strategic initiatives like Digital India and Ease of Doing Business Reforms have created a conducive environment.
Specific policies by states like Karnataka, Tamil Nadu, and Telangana in physical and digital infrastructure development have enabled GCC clustering in these regions.
India’s talent pool remains a critical competitive advantage with approximately 2.1 million STEM graduates entering the workforce annually. There is approximately 35% female participation in the GCC workforce.
Cost-effectiveness: Engaging Indian talent is more cost-effective as compared to other countries. It is estimated that GCC operations cost 30-50% in India less than the US, the UK and Australia.

Challenges Associated with GCCs

Clustered development in few states: About 95% of GCCs in India are concentrated at six major locations, and the challenge is to expand this base to Tier-2 cities. Lack of digital infrastructure, power outages, unreliable internet connectivity, and traffic congestion can impact their expansion in Tier-2 cities.
Regulatory Issues: Due to a lack of National level GCC policy, different states of India have varied GCC policies. There are also concerns related to dispute resolution mechanisms, and the lengthy appellate process.
Transfer Pricing: Safe Harbour Regime was introduced to provide certainty in transfer pricing for MNCs. Industry experts have recommended safe harbour margin rates of 14-15% aligning with global trends, as the current transfer pricing margin rates of 17-24% is detrimental for MNCs’ revenues and operations, and discourages GCC expansion.
Operational Challenges: Conflicts between cross-border data transfers laws and regional laws create significant operational challenges for GCCs. E.g., Balancing EU-US Data Privacy Framework and India’s data mandates under the DPDP Act 2023.
IP issue: Despite hiring Indian engineers, GCCs retain innovation and intellectual property (IP) abroad. There is also a risk of IP theft or disputes. The multi-jurisdictional nature of GCC operations further complicates IP ownership and enforcement, with differing legal frameworks and limited cross-border IP protection.

Way Forward

Enhanced outreach strategies to attract global players and facilitate GCC expansion beyond the US companies to other countries.
Comprehensive framework involving dialogue between the Centre and state governments and Industry bodies to promote the geographic spread of GCCs to Tier-2 cities.
Identifying best practices from existing GCC hubs in India to provide direction for emerging locations to attract GCCs.
For regulatory simplification, GCCs need a national-level single-window clearance and rationalisation of the safe harbour margins in transfer pricing.
Concessional tax rates to GCCs for engaging in R&D and IP creation.
Creation of digital economic zones housing GPU-based data centres, academia, startups and co-located workspaces. This will facilitate the shift beyond traditional business functions to engineering R&D, AI, and emerging technologies with specialised skills development.

India has evolved from a cost-arbitrage destination to an innovation-driven economy powered by emerging technologies. GCCs have played a vital role in India’s economic landscape by creating high-value jobs, fostering skill development & employment, and facilitating knowledge transfer.

Also Read: IT Sector in India

The Machilipatnam Port: History, Culture, and Economy

Context: Machilipatnam- an ancient port is set for a major revival. Around 48% of the construction of a new greenfield port at Manginapudi in Machilipatnam, Andhra Pradesh has been completed. The operations of the new greenfield port are expected to commence by the end of 2026.

The ancient port city is located at the mouth of the Krishna river on the Bay of Bengal. It thrived in the 1st century AD as Masula and then came into prominence again in the 16th to 18th centuries.

Machilipatnam Port is located in the state of Andhra Pradesh, India. It's on the southeastern coast, along the Bay of Bengal. The port is near the town of Machilipatnam, which is also known as Masulipatnam or Masula or Bandar. It's a historic port with roots going back several centuries.

Relevance of the Topic: Prelims: Key facts about the Machilipatnam Port.

History

The port city of Machilipatnam, also known by other names such as Masulipatnam and Bandar, has a history that extends back to ancient times.

Traders from various parts of the world—ranging from the Middle East to Southeast Asia—were enticed by the charm and opportunity that Machilipatnam offered. This port became a focal point during the 17th century when European powers were drawn to the subcontinent.

The Dutch East India Company established a trading post here, followed by the British and the French, all of whom recognized the strategic and economic importance of this coastal hub.

Cultural Imprint

Beyond being a commercial center, Machilipatnam has been a cultural melting pot. The city is known for Kalamkari, an intricate form of hand-painted or block-printed cotton textile.

This art form is said to have flourished primarily because of the patronage of traders passing through the port, thus adding another layer of richness to the city’s cultural heritage.

Economic Importance

In modern times, the Machilipatnam Port has evolved into a hub of economic activity. With its strategic location along the Bay of Bengal, it serves as a conduit for exports and imports, especially for the agricultural and manufacturing sectors.

The port is vital to the state's economy, facilitating the movement of goods such as rice, textiles, and pharmaceuticals. It is especially essential for the connectivity of the landlocked areas of Andhra Pradesh to the rest of the world.

Infrastructure and Modernization

The Machilipatnam Port has seen various phases of modernization to keep pace with growing demands. There have been plans to develop it into a deep-sea port to accommodate larger vessels.

The government has also been investing in improving the port’s cargo-handling capabilities, making it more competitive in the international arena. This makes the port not just an economic asset but also a symbol of progress and growth.

Ecological Considerations

While the port represents economic dynamism, there are also ecological considerations to keep in mind. Coastal ecosystems are fragile, and the expansion of port activities must be balanced against the imperative of environmental sustainability.

Ensuring responsible growth that mitigates ecological impact is an ongoing challenge for the management.

Social Significance

Machilipatnam Port is more than an economic asset; it is a lifeblood for many communities. Employment opportunities abound, from dockworkers to logistics coordinators.

The port also acts as a catalyst for other sectors, like tourism and services, that thrive due to the influx of business activity.

Conclusion

Conclusion: Coal, pharma and cement, fertilizers and container traffic will be the major exports from the port. The port holds the promise of driving economic growth not just for Andhra Pradesh but for India as a whole.

What is the Machilipatnam Port?

Machilipatnam Port is a deep-water port located in the Krishna district of Andhra Pradesh, India.

When was the Machilipatnam Port inaugurated?

The Machilipatnam Port was inaugurated on January 12, 2021, by the Chief Minister of Andhra Pradesh, Y.S. Jagan Mohan Reddy.

Why is Corporate Investment lagging behind?

Context: According to data released by the Ministry of Statistics and Programme Implementation (MoSPI), India’s Index of Industrial Production (IIP) growth fell to 1.2% in May 2025, the lowest in nine months.

Despite various government steps like tax cuts, infrastructure spending (capex), and low interest rates, private sector investment is not picking up and lagging behind.

Relevance of the Topic: Prelims: Trends & factors associated with Low corporate investment.

State of Corporate Investment in India

The 2024-25 Economic Survey expressed concern, noting that:

The corporate sector is enjoying record-high financial performance. However, there has been negligible growth in hiring and employee compensation.
Private-sector Gross Fixed Capital Formation (GFCF) in machinery, equipment, and intellectual property has grown only 35% cumulatively over four years- indicating weak investment momentum.

Why is Corporate Investment Lagging Behind ?

Low Consumer Demand: After COVID-19, overall demand in the economy is weak. When people are not buying enough, companies see no reason to invest in expanding production.
Underutilisation of Existing Capacity: Firms are hesitant to invest when their existing facilities are not being used to full capacity, fearing low returns from added production.
Slow Export Demand: The global economic slowdown, combined with rising trade protectionism and tariff regimes (such as the reciprocal tariff measures by the US), has weakened external demand for Indian goods. This uncertain global environment discourages firms from undertaking export-oriented investments.
Delay in Impact of Government Capex Projects: Projects like ports and highways have long gestation periods, the time lag between investment and tangible economic returns delays their crowd-in effect on private investment. So, their benefits do not immediately encourage private investment.
High Import Content in Capex: A part of the government's capital expenditure goes into imported machinery and technology. This does not help Indian industries and reduces the positive impact on local demand.
Low Labour Intensity of Projects: Many infrastructure projects use heavy machines instead of workers. This means fewer jobs are created, so income and consumption do not rise much.
Low interest rates are not enough: Even if loans are cheap, companies would not borrow unless they believe they can sell their products and make profits.
Weak Link profits and investment: The assumption that higher profits will automatically lead to greater private investment is flawed. As per renowned economist Kalecki, firms can choose to invest but cannot ensure profits. In a weak demand environment, profitability alone does not incentivise capacity expansion.

Thus, tax cuts or higher earnings do not translate into investment unless backed by strong demand prospects.

Way Forward

Increase government expenditure to act as an external stimulus for reviving investment.
Focus on reviving demand, as investment will follow recovery, not lead it.
Prioritise high-multiplier and short-gestation projects to generate quicker economic impact.
Minimise import content in capex to ensure maximum domestic demand generation.
Promote labour-intensive investments to boost employment and consumption.
Recognise that low interest rates alone cannot drive investment without demand.
Restore both credit flow and business confidence, as both are necessary for recovery.

The slowdown in corporate investment in India is mainly due to weak demand and delays in the impact of government spending, not because companies lack profits or funds.

INS Nistar: India’s first Indigenous Diving Support Ship

Context: INS Nistar, India’s first indigenously designed and built Diving Support Vessel (DSV), was delivered by Hindustan Shipyard Limited to the Indian Navy.

Relevance of the Topic: Prelims: Key facts about INS Nistar.

INS Nistar

INS Nistar is a highly specialised Diving Support Vessel that can undertake Deep Sea Diving and Rescue Operations- a capability with select Navies across the globe.
It measures 118 m with a tonnage of nearly 10,000 tonnes.
It is equipped with state-of-the-art Diving Equipment and can undertake Deep Sea Saturation Diving up to a depth of 300 metres.
The ship will also serve as the ‘Mother Ship’ for the Deep Submergence Rescue Vessel (DSRV), to rescue and evacuate personnel, in case of an emergency in a submarine underwater.

The induction of INS Nistar with nearly 75% indigenous content is another milestone in the Indian Navy’s quest for indigenous construction.

How can Cat Bonds plan for a natural disaster?

Context: India’s rising exposure to extreme weather events like cyclones, floods, forest fires and earthquakes calls for robust financial preparedness. One viable option for India is to sponsor cat bonds, through an intermediary like World Bank, to secure pre-arranged funding for post-disaster reconstruction.

Relevance of the Topic: Prelims: Key features of Cat bonds; Advantages and disadvantages of Cat bonds.

What are Cat Bonds ?

Catastrophe Bonds or Cat Bonds are special bonds that raise money for disaster. Cat bonds emerged after major U.S. hurricanes in the 1990s, as a way to shift catastrophe risk from insurers and re-insurers to global financial markets (bond investors).
The investors buy the bonds and receive higher-than average returns compared to traditional bonds.
- If a major disaster occurs (defined in the bond terms), the principal amount of the bond acts as the insured money to be used. The investor loses the principal amount.
- If no disaster happens during the bond’s defined term, the investors get their principal back. Along with it, the investors receive periodic interest payments (called coupons) during the bond term, as long as no disaster occurs.

Key Features of Cat Bonds

Hybrid insurance-cum-debt financial product that transforms insurance cover into a tradable security.
Disaster-linked instrument: Cat Bonds are tied to specific natural disasters like earthquakes, cyclones, or floods.
Risk transfer mechanism: Shift the financial burden of disasters from governments or insurers to investors.
Trigger-based payout: If a predefined disaster occurs (E.g., an earthquake of certain magnitude), investors may lose principal which is then used for relief and reconstruction. In case of a disaster, funds are released quickly, helping in immediate relief and reconstruction.
Higher coupon rates: Due to the high risk of losing capital, investors demand higher returns. There is much variation in coupon rates (interest) for a cat bond depending on the risks. E.g., In the US, earthquakes have lower premiums (1-2%), compared to hurricanes or cyclones.
Involvement of Intermediaries: Institutions like the World Bank, Asian Development Bank, or reinsurance companies act as intermediaries to structure and issue the bonds. This ensures transparency and reduces counter-party risk.
Attractive to global investors like pension funds and hedge funds as disaster risks are not linked to stock market movements, thus offering portfolio diversification.

Since the onset of cat bonds, there have been $180 billion worth of new issuances of cat bonds globally with about $50 billion currently outstanding.

Does India need a Cat Bond?

Unpredictability and increase in frequency of extreme weather events like cyclones, floods, devastating earthquakes etc. in South Asia have increased India’s exposure to disaster-risk. Cat bonds can help India ring-fence public finances and ensure timely funds for relief and reconstruction, reducing sudden budget strain.
Low Insurance Penetration: Less than 10% of India's disaster-affected population has insurance cover for housing or livelihoods.
India’s strong sovereign credit rating and large scale of its hazard risk exposure can help in securing lower coupon rates for cat bonds, making them cost-effective.
Given India’s size and financial stability, India could be lead-sponsor for a South Asian cat bond, given that most such regional risks remain unhedged.

Disadvantages of Cat Bonds

A defectively designed cat bond could lead to no payout despite a significant disaster. For example, an earthquake cat bond designed for a magnitude threshold of 6.6M for a certain grid may fail, if a 6.5M event occurs and causes extensive damage.
Despite a contract if a disaster does not occur, it could lead to questions on the desirability of such expense.