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Flipkart secures NBFC licence from RBI

Context: Walmart’s Flipkart has secured an Non-Banking Financial Company (NBFC) licence from the Reserve Bank of India allowing it to directly disburse loans for EMIs and BNPL (Buy Now, Pay Later) schemes. This is the first time the RBI has granted a large e-commerce player in India a NBFC licence.

Relevance of the Topic:Prelims: Key facts about Non-Banking Financial Company (NBFC); NBFCs vs Banks.

NBFC licence to Flipkart

The NBFC licence will allow Flipkart to lend directly to customers on its platform and through its fintech App- ‘super.money’.
Flipkart can offer loans independently rather than through partners, potentially boosting profitability.
It may also offer financing to sellers on the platform.

What is a Non-Banking Financial Company?

NBFC is the Non-banking financial institution registered under the Companies Act, 1956, that provides diverse financial facilities like lending, pension and insurance.
NBFCs do not have a full banking license and cannot accept deposits from the public. They cannot issue cheque books or open savings accounts.
NBFCs have played a pivotal role in making formal credit accessible to MSMEs, retail sectors and underserved populations.
- The sector contributes 12.5% to the country's GDP.
- The sector's credit share has grown from 15% in 2014 to 22.5% of total Scheduled Commercial Bank credit in 2024.
- The growth of NBFCs has been supported by diverse funding streams like bank loans, commercial papers and other debt instruments- where term loans and debentures consist of 75% of borrowings.
Regulation: The working and operations of NBFCs are regulated by RBI within the framework of the Reserve Bank of India Act, 1934.

Types of NBFCs:

Based on Asset-Liability Structures: Deposit-taking NBFCs (NBFCs-D) and non-deposit-taking NBFCs (NBFCs-ND).
Based on Systemic Importance: Among non-deposit taking NBFCs, those with asset size of Rs 500 crore or more are classified as non-deposit taking systemically important NBFCs (NBFCs-ND-SI).

NBFCs vs. Banks:

The NBFC sector plays an important role in supplementing credit creation along with the Banks.

Difference between Banks and NBFCs
Characteristics	Banks	NBFCs
Deposits	Accepts all types of deposits	Cannot accept demand deposits (some NBFCs can accept fixed deposits after RBI’s approval)
Deposit insurance of DICGC	Applicable (up to Rs.5 lakh per depositor)	Non-Applicable
Payment and Settlement system of the RBI	Supports RTGS, NEFT, IMPS etc.,	Not supported. Cannot issue their own cheque books.
Foreign investment	Up to 74%	Up to 100%
Cash Reserve Requirement	Applicable	Not Applicable
Capital Adequacy Norms	Applicable	Applicable only to Deposit-taking NBFCs and Systematically Important NBFCs (CRAR - 15%)
SLR	Applicable	Applicable only to Deposit-taking NBFCs (SLR - 15%)
Incorporated under	Banking Regulation Act, 1949	Incorporated under Companies Act 2013; and regulated under RBI and various bodies depending on category.

Role of NBFCs in Economy:

Credit access to the underserved sectors like small businesses, rural areas, and the informal sector & MSMEs.
Promoting financial inclusion by institutionalisation of the lending market in India, eliminating the unregulated lenders.
Driving infrastructural growth by funding the long-term and risky infrastructure projects, as banks lack the capacity to fund large projects due to their asset-liability mismatch.
Strengthening the financial market through the activities like leasing, hire-purchase and securitisation, improving the overall efficiency of the financial system.
Contributing capital formation as the NBFCs mobilises the resources, savings and investments to foster economic growth.

India’s Garment Sector need Reforms

Context: India’s stagnant garment export performance emphasises the urgent need for policy reforms to scale up the sector and enhance global competitiveness.

Relevance of the Topic: Mains: Garment Sector- significance, challenges, reforms.

State of India's Garment Sector

India’s textiles and apparel (T&A) sector employs a workforce of 45 million and contributes 2.3% to the overall GDP of India.
T&A sector has grown steadily from $11.5 billion in FY2001 to $37 billion in FY25. However, its share in global trade remains low (4.2%).
The apparel segment alone (under HS codes 61 and 62) has an even lower share of 3% ($15.7 billion). Additionally, this share has remained stagnant for the past two decades. In the last few years, apparel exports have declined at an AAGR of -2%.

India has set an ambitious target to increase its T&A exports from $37 billion in FY25 to $100 billion by 2030.

Key Challenges in India’s Garment Sector:

Lack of scale: Over 80% of India’s apparel units are Micro, Small and Medium Enterprises (MSMEs) which are too small and dispersed. Unlike China and Vietnam, India lacks large, integrated factories that benefit from economies of scale, reducing unit costs, speeding up delivery, and attracting bulk global orders.
High Interest Rate: Interest rates in India average around 9%, much higher than China (3%) or Vietnam (4.5%). For an industry operating on low margins (~4-5%), this makes investment and expansion economically difficult.
Outdated Fibre Mix: India’s cotton-to-Man Made Fibre ratio (60:40) contrasts with the global average (30:70), indicating an outdated fibre mix, and the global shift towards man-made fibres.
Raw Material Cost: MMF (Man-Made Fibres) such as polyester and viscose are 20% costlier in India compared to competitors (Bangladesh, China, Vietnam). Non-tariff barriers like quality control orders hinder MMF-based apparel growth.
Rigid and Complex Labour Laws: India’s 52 central labour laws have created rigidities, discouraging formal hiring and scale. Overtime wages are legally mandated at 2x hourly pay, compared to 1.25x internationally, raising production costs significantly.
Low Labour Productivity and Skilling Gaps: A large portion of the workforce is semi-skilled or unskilled, with poor access to modern training. Lack of effective, demand-linked skilling programs reduces efficiency and competitiveness.

Case Study: Shahi Exports

Founded in 1974 by Sarla Ahuja, Shahi Exports started with just 15 women and has grown into India’s largest apparel exporter.
It operates 50+ factories, 3 mills, across 8 states, with over 1 lakh workers, 70% women.
Built scale through vertical integration (80% fabric made in-house), professionalism, and sustainable practices.
Success of Shahi Exports demonstrates that Indian firms can scale with the right investment, vision, and long-term policy support.

Way Forward

Capital must be made accessible and affordable for scale-focused investments. A structured capital subsidy of 25-30% linked to the size of the unit can provide the initial push. Five to seven-year tax holiday for units would allow investments to mature and become globally competitive.
India’s garment sector needs to transition into a fashion-driven industry. To support this, it is crucial to incentivise and invest in MMF-based apparel while removing non-tariff barriers, such as the quality control orders on MMF.
Simplify labour laws and align overtime wages with global standards to reduce cost burdens. Link MGNREGA funds (say 25-30%) to subsidise labour costs in garment units
Schemes like SAMARTH should be significantly scaled up to provide short-cycle demand-linked skilling, especially for women.
Shift from production-based to export-linked incentives to reward global market success.
At least two of the PM MITRA parks should be developed as garment-focused hubs in labour-abundant states like Uttar Pradesh and Madhya Pradesh. This would help reduce worker migration to southern states, lower production costs, support local employment, and foster balanced, inclusive industrial growth across regions.
Encourage Vertical Integration: support units to produce in-house fabric and processing, improving efficiency and delivery timelines.

India’s garment sector holds immense potential to generate jobs and boost exports, but without bold policy reforms, this opportunity will slip away. Learning from success stories like Shahi Exports and focusing on scale, skilling, and export competitiveness can transform this sector into a global leader.

Also Read: Crisis in Cotton Production in India

Addressing Policy Gaps in India’s EV Journey

Context: India has recently launched the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI) to boost EV adoption and manufacturing. India began its EV journey in 2015 about five years later than most large economies, and has made significant progress. However, few gaps exist in India’s EV Policy framework.

Relevance of the topic:

Prelims: Key facts about the schemes- FAME I, FAME II, PM E-DRIVE, SPMEPCI.

Mains: EV Policy in India: Progress & Gaps

EV Policy in India: Progress & Gaps

FAME Scheme:

India began its EV journey in 2015 with the launch of Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) scheme.
It aims to promote the adoption of EVs and their components, reduce vehicular emissions, and foster domestic manufacturing capabilities.
It has been implemented in two phases, FAME-I (2015-2019) and FAME-II (2019-2024).

FAME-I (2015-2019):

Focus: Provide demand-side incentives for EVs, such as upfront reduction in purchase price, supporting technology development, pilot projects, and charging infrastructure.
Success: Provided first impetus to EVs in India and supported about 278,000 EVs.
Criticism: Subsidised environmentally- taxing technologies, such as lead-acid batteries and mild-hybrid vehicles. Slow and limited progress of implementation.

FAME-II (2019-2024):

Launched in 2019 with an outlay of ₹10,000 crore for 5 years.
Success: Expanded the scope of incentives to electric buses, two-wheelers, and three-wheelers, enhanced minimum safety and technical standards, and introduced localisation norms for EV components.
Criticism: Localisation implementation issues, inadequate incentives for charging infrastructure, and insufficient focus on R&D.

PM E-DRIVE (Electric Drive Revolution in Innovative Vehicle Enhancement)

Launched in 2024 to accelerate EV adoption, establish charging infrastructure and foster development of the EV manufacturing ecosystem.
This scheme has a budget of ₹10,900 crore for a two-year period. Of the total allocated budget, ₹2000 crore has been kept for the installation of Electric Vehicle Public Charging Stations.

SPMEPCI (Scheme to Promote Manufacturing of Electric Passenger Cars in India):

Launched in 2025 to boost EV adoption and manufacturing.
Focus: offers concessional import duty of 15% on completely built-up units (CBUs). Available to EV manufacturers investing a minimum of ₹4,150 crore over three years to localise manufacturing in India, with a base domestic value addition (DVA) of 25% in three years, going up to 50% in another two years.

Key gaps in India’s EV Policy:

Late payment of subsidies to OEMs: In FAME-II, demand incentives were offered to customers as a price reduction upon the purchase of a new EV, based on the size of the battery. These incentives are reimbursed to original equipment manufacturers (OEMs) at a later date, when OEMs submit their reimbursement claims. This leads to late payment of subsidies and resultant shortage of working capital for OEMs.
Continuous reliance on demand incentives might create dependency among consumers. E.g., When subsidies on two-wheeler EVs were reduced, the consumer demand waned by 25% in the month following the subsidy reduction.
Lack of clear guidelines for DVA: FAME-II scheme did not prescribe the domestic value addition (DVA) metric to analyse whether a part is indigenous or imported (except for chargers). In the absence, it was unclear when components would qualify as indigenous, especially when sub-components or sub-parts of a component may be imported.
Limited funds for charging infrastructure: Only 10% of the total incentive outlay under FAME-II was reserved for charging infrastructure. In 2024, India had only one public charger per 135 EVs, far below the global average of one public charger per 6-20 EVs.
Limited R&D and technology transfer: India lags behind in technological, scientific, and industrial innovation, and continues to rely on imports for its EV component needs.

Way Forward

DBT to consumers: Government should consider devising a direct benefit transfer mechanism to consumers to alleviate concerns of late payment of subsidies to OEMs.
Incentivise local manufacturing: Emphasise on building robust supply chains and incentivising local manufacturing that can compete with traditional internal combustion engine-based vehicles. This can be done through inclusion of supply incentives including incentives on parts procurement costs.
Introduce clear minimum DVA (domestic value addition) thresholds as prerequisite to avail incentives, as well as harmonisation of PLI and FAME schemes with respect to DVA calculation.
Expand incentives to other commercial vehicles like trucks, tractors and industrial vehicles, thereby promoting a significant reduction in particulate matter emissions.
Expand charging infrastructure to meet India’s goal of 3.9 million charging stations by 2030. This is needed to accommodate increasing influx of EVs and alleviate concerns about range anxiety. Additionally, residential charging solutions are required.
Dedicated incentives for R&D to refine existing technologies and develop local component manufacturing.

India needs to learn from the challenges faced in FAME-I and FAME-II, and to adopt a cohesive and comprehensive strategy, along with technology transfer to accelerate EV adoption in India.

India's Energy Sector: Rise and Reforms

Context: Recently, India overtook Japan to become the world’s fourth largest economy with a GDP of over $4.18 trillion. A key pillar behind this growth story is the transformation of India’s energy sector over the past decade.

Relevance of the Topic: Prelims and Mains: State of India's Energy sectors and key reforms.

Key Stats in the Energy Sector in India

India is the third largest energy and oil consumer. India is the fourth-largest refiner, and fourth-largest LNG importer globally.
Coal has consistently accounted for over 70% of India's total energy generation. Despite increased domestic production, coal import dependence remains high (26%).
Crude oil’s share is ~6% in FY24. Natural gas was 7% of the total energy produced in FY24.
Renewable energy sources (hydro, solar, nuclear) stand at 7% in FY24. The highest potential for energy generation from renewable resources comes from wind (55%), followed by solar energy, and large hydro. India’s total renewable energy-based electricity generation capacity: 203 GW (2024). India’s target: 500 GW from non-fossil sources by 2030.

With energy demand expected to grow two and a half times by 2047 and 25% of incremental global demand is set to come from India, energy security is now viewed as development security.

Indian government’s energy strategy

Indian government’s energy strategy addresses the energy trilemma of- availability, affordability, and sustainability through a four-pronged approach:

Diversification of energy security sources and suppliers
Expansion of domestic production of oil and gas
Transition to renewables like Biofuels, green hydrogen etc
Affordability (affordable energy access for all sections of society)

Reforms in the Energy Sector:

1. Upstream Oil & Gas Reforms:

In the upstream oil and gas sector, India’s exploration acreage has doubled from 8% in 2021 to 16% in 2025.
With a goal of covering one million square kilometres by 2030, the government aims to unlock 42 billion tonnes of oil and oil-equivalent gas.

2. Policy Reforms:

This expansion has been enabled by landmark reforms such as the reduction of ‘No-Go’ areas by 99%, streamlined licensing through Open Acreage Licensing Policy (OALP) rounds, and attractive pricing incentives for new gas wells.
The revised gas pricing mechanism, linking prices to 10% of the Indian crude basket and offering a 20% premium for new wells, has enhanced gas availability for city gas networks and industrial usage.
To reduce costs and accelerate monetisation, new revenue-sharing contracts allow shared infrastructure among Exploration and Production (E&P) players.

3. Technological and geophysical efforts have complemented policy reforms:

National Seismic Programme, Mission Anveshan, airborne gravity gradiometry (AGG) surveys, and continental shelf mapping have expanded data and exploration confidence, especially in frontier basins such as the Andamans, the Mahanadi, and the Cauvery.
ONGC and Oil India have together made over 25 hydrocarbon discoveries across the Mumbai Offshore, Cambay, Mahanadi, and Assam basins in the last four years. Noteworthy among these are- Suryamani and Vajramani wells on the west coast offshore and the Utkal and Konark fields on the east coast deep waters.
These discoveries add over 75 MMtoe (million metric tonnes of oil equivalent) and 2,700 MMSCM (million metric standard cubic metres) of gas to India’s reserves.

4. Downstream infrastructure has seen parallel expansion:

India now operates 24,000 kilometres of product pipelines, nearly 96,000 retail outlets, and has significantly strengthened its strategic reserves and LPG storage.
Over 67 million people visit petrol pumps daily, which is testimony to the scale and efficiency of India’s fuel supply ecosystem.
India’s city gas network has grown from 55 geographic areas in 2014 to 307 in 2025, with piped natural gas (PNG) connections up from 25 lakh to 1.5 crore and over 7,500 compressed natural gas (CNG) stations in operation.
Unified pipeline tariffs and city gas expansions have ensured affordable access even in distant States.

Transition to Renewables

1. Biofuels and Ethanol:

Biofuels have emerged as a cornerstone of India’s green strategy.
Ethanol blending in petrol has surged from 1.5% in 2013 to 19.7% in 2025. Blending quantities have expanded from 38 crore litres to 484 crore litres.

This has saved 1.26 lakh crore in foreign exchange, reduced emissions by 643 lakh MT, and paid ₹1.79 lakh crore to distillers and over ₹1 lakh crore to farmers. Feedstock diversification ranging from molasses to maize has created a robust ethanol ecosystem.

2. Compressed Biogas:

Sustainable Alternative Towards Affordable Transportation (SATAT) initiative commissioned over 100 compressed biogas (CBG) plants and aims for a 5% CBG blending mandate by 2028.
Central support for biomass procurement and CBG-pipeline connectivity is accelerating circular energy adoption.

3. Green Hydrogen:

Green hydrogen has been given a massive thrust with 8.62 lakh tonnes of production and 3,000 MW of electrolyser tenders awarded.
Oil public sector undertakings are leading from the front- Indian Oil Corporation Ltd. recently awarded a landmark 10 kilo-tonnes per annum (KTPA) green hydrogen tender to L&T. Numaligarh Refinery Limited (NRL)’s green hydrogen unit in Assam is poised to become a first in the northeast.

4. Natural Gas:

India’s natural gas pipeline network now spans over 25,000 km; it targets 33,000 km by 2030.
Strategic pricing reforms and inclusion of gas in the ‘No Cut’ category for transport and domestic segments are ensuring supply stability.
Gas production has increased steadily from 28.7 billion cubic metre (BCM) in 2020-21 to 36.4 BCM in 2023-24, with further growth projected.
Oilfields (Regulation and Development) Amendment Act 2024 has enabled hybrid leases, allowing renewables alongside hydrocarbons.
Discovered small fields (DSF) fields now operate under simplified contracts with minimal compliance burdens, unlocking marginal fields across basins. These sweeping policy reforms show that we are ready to tweak and do more to make India’s upstream sector as competitive as any in the world.
Through the PM Gati Shakti, the Ministry of Petroleum and Natural Gas has digitally mapped over one lakh assets and pipelines. Integration with the National Master Plan ensures real-time project visibility and synergy across ministries. Key projects such as the Indo-Nepal pipeline and Samruddhi Utility Corridor have benefited from route optimisation and cost savings of over ₹169 crore.

Affordability Reforms:

Despite global LPG prices rising by 58%, Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries pay ₹553 per cylinder, supported by targeted subsidies and compensation to oil companies.
Fuel prices in India have been kept stable through excise cuts, insulating citizens from volatility seen in neighbouring countries.

What are Building-Integrated Photovoltaics?

Context: Building-Integrated Photovoltaics (BIPV) is an emerging alternative to conventional rooftop solar power installations.

Relevance of the Topic : Prelims: Key facts about BIPVs- benefits, challenges.

With over 17 GW of installed rooftop solar (RTS) capacity as of April 2025, India has made commendable progress in its renewable energy mission.
In space-starved urban areas, RTS systems face limitations due to insufficient shadow-free rooftop space. Nearby buildings, trees, water tanks etc. obstruct the direct sunlight. This structural challenge necessitates a shift from conventional rooftop installations to Building-Integrated Photovoltaics (BIPV).

Building-Integrated Photovoltaics (BIPV)

BIPV are solar panels integrated into the structure of buildings, such as facades, roofs, windows, and balconies, replacing conventional construction materials while simultaneously generating electricity.

Benefits of BIPV:

Dual Use: Generating electricity and also working as a structural part of a building. BIPV can turn entire buildings into power generators by integrating solar elements directly into architectural elements. This needs replacing conventional construction materials such as glass, tiles, and cladding with solar alternatives.
Efficient Space utilisation: In space-constrained high-rises, BIPV can generate 3-4 times more power by utilising facades and other building surfaces, compared to limited rooftop solar capacity.
Inclusive Solar access: BIPV enables solar adoption beyond rooftops, ideal for independent homes and apartments with no roof access. Balcony-integrated systems, already popular in Germany, can help households save up to 30% on electricity bills.

What is the status of BIPVs in India?

India has some BIPV installations. E.g., Datacenters building in Navi Mumbai, Renewable Energy Museum in Kolkata, Jindal Steel & Power Ltd. facility in Angul, Odisha (hosts one of the largest BIPV installations in India), and is also incorporated into some railway stations.
However, BIPVs adoption in India has been limited by high initial costs, policy gaps, inadequate technical capacity, and reliance on imports. Low awareness, lack of dedicated incentives, and absence of clear standards also pushed BIPV out of early building-design considerations.

How can BIPV uptake be scaled up?

Expand Financial Incentives: Increase subsidies for BIPV under schemes like the PM Surya Ghar Muft Bijli Yojana (currently ₹78,000 for a 3-kW system). Introduce dedicated incentive schemes for commercial and industrial BIPV adoption, similar to Seoul’s model with up to 80% subsidy.
Policy Integration: Integrate BIPV in the National Building Code, Energy Conservation Building Code, and Eco Niwas Samhita.
Pilot Projects: Demonstrating BIPV through pilot projects in public infrastructure (via public-private partnerships) can improve visibility and catalyse wider acceptance.
Boost Local Manufacturing: Extend PLI schemes and invest in R&D for customised, India-specific BIPV products.
Awareness & Capacity Building: Train architects, planners, and builders; run public campaigns to mainstream BIPV.
Innovative Financing Models: Financial arrangements such as Renewable Energy Service Company model, and long-term power purchase agreements can help enhance project reliability and enable large-scale BIPV deployment.
Adapt successful global models such as- Europe’s Energy Performance of Buildings Directive mandating solar use in new buildings. South Korea’s urban solar subsidies, making BIPV cost-competitive in cityscapes.

To achieve its 300 GW solar target by 2030, India must look beyond rooftops and embrace land-neutral solutions like BIPV, which has an estimated 309 GW potential in existing buildings alone.

India needs indigenous Marine Engines

Context: India must develop indigenous marine engines to achieve true self-reliance in shipbuilding and reduce foreign dependency.

Relevance of the Topic: Mains: Lack of indigenous Marine Engine Manufacturing - Issues, Way Forward

India is making strong strides in shipbuilding supported by the Rs 25,000-crore Maritime Development Fund, mega clusters, customs exemptions, and infrastructure status for large vessels. Partnerships with global firms and private investments aim to make India a top-five shipbuilder by 2047.

However, the lack of indigenous marine engine manufacturing remains a critical gap. Presently, over 90% of engines rated above 6 MW installed on Indian commercial and naval vessels are sourced from a concentrated group of five global manufacturers- MAN Energy Solutions (Germany), Wärtsilä (Finland), Rolls-Royce (UK), Caterpillar-MaK (US/Germany) and Mitsubishi Heavy Industries (Japan).

Key Concerns associated with importing Marine Engines

Perpetual state of technological dependence: These engines are embedded with proprietary ECUs, closed-source control software, and IP-restricted components. The imports make India dependent on foreign firms not just for procurement but also for diagnostics, software updates, and even spare parts.
Vulnerability to supply-chain disruptions: Dependence on a concentrated group of five global manufacturers may create a technological chokepoint. Any disruption in diplomatic or trade relations, export control regime, or intellectual property licensing can effectively immobilise India’s shipbuilding programme.
Denial on National security grounds: Key supplier countries have tightened regulations under frameworks like the EU Dual-Use Regulation, US EAR, and Japan’s METI controls. The export of marine engines, their components, software updates, diagnostics, and spare parts can be denied on national security grounds at any time under these export control regulations.

Challenges in making Indigenous Marine Engines:

Lack of access to Modern engine design: India lacks indigenous design capabilities. This leads to dependence on foreign OEMs (original equipment manufacturers). This dependency restricts the ability to modify engines for military profiles, optimisation for local climatic and operational conditions, or transition to fuel-flexible, autonomous maritime systems.
Metallurgical Limitations: India has limited domestic capability in producing advanced materials like high-chromium steels and nickel-based superalloys used in marine engines to withstand extreme thermal and mechanical stress.
Tribology and Precision Manufacturing: Advanced wear-resistant coatings and ultra-precise machining of heavy engine components require sophisticated technology and industrial integration, which India lacks currently.
Outdated Training and Skill Gaps: Engineering institutes use obsolete engine models for training. Modern decommissioned engines (E.g., from Alang ship-breaking yard) should be used to upgrade practical skills and knowledge.

Way Forward

India must shift its strategy from relying solely on large public- and private-sector firms, which have struggled to deliver full-stack indigenous marine engines, and instead invest in a new generation of tech start-ups. Start-ups must be supported not only with capital, but also through access to testbeds, IP support, and public procurement guarantees.
The government should facilitate targeted innovation missions, design-linked incentives, and dedicated funding for marine propulsion R&D, backed by defence and shipping sector demand. Institutions like IIT Madras can serve as anchor nodes, supporting venture creation with lab-to-market pipelines.

India’s dream of becoming a global shipbuilding leader by 2047 cannot be fulfilled without self-reliance in marine engine technology. Indigenous development is not just an industrial need but a strategic necessity to safeguard national security and reduce dependence on foreign suppliers.

India becomes the World’s Fourth Largest Economy

Context: NITI Aayog CEO B.V.R. Subrahmanyam recently claimed that India has overtaken Japan to become the world’s fourth-largest economy, sparking debate as others questioned the accuracy of this data.

Relevance of the topic:

Prelims: Key facts about GDP Calculation methodologies.

Mains: Limitations of using nominal GDP as a measure of economic development.

India’s rise in the nominal GDP- IMF data:

As per the new estimates of the Gross Domestic Product (GDP) of various countries for 2024 by the International Monetary Fund (IMF):

India’s GDP in 2025 is likely to be $4,187 billion ($4.18 trillion), marginally higher than the GDP of Japan at $4,186 billion.
This makes India the fourth largest economy of the world in 2025 after the U.S., China and Germany. It is estimated that India could grow to be the third largest economy of the world in 2028.

India’s actual position in the global economic order can be understood by distinguishing between nominal GDP and Purchasing Power Parity (PPP).

Nominal GDP

Nominal GDP is the total value of goods and services produced in a country, measured at current market prices in US dollars. It does not adjust for inflation or differences in cost of living in different countries.

Nominal GDP is not always the right metric because of:

Exchange Rate Distortions: Recent claims that India has overtaken Japan are based on nominal GDP data, which is vulnerable to short-term currency movements. Changes in exchange rates can artificially inflate or deflate a country’s GDP without any real change in economic output. E.g., a weaker rupee can make India’s GDP appear smaller in dollar terms even if domestic production increases. This makes it an unreliable metric for comparing economies across countries.
Ignores differences in Cost of Living: Nominal GDP does not reflect how much people can actually buy with their incomes. E.g., $1 buys a lot more in India than in the U.S. or Japan due to lower costs of goods and services.
Overlooks Per capita disparities: A higher nominal GDP does not mean higher income per person. E.g., In 2025, India ranks 4th and the UK ranks 6th in nominal GDP. Yet, India's per capita income is just $2,879, while the UK's is $54,949.

Nominal GDP comparisons are not as meaningful because they miss out on the purchasing power aspect. It is for this reason that the IMF also calculates GDP based on Purchasing Power Parity.

Purchasing Power Parity (PPP)

GDP at PPP compares the relative value of currencies by measuring what the same amount of money can buy in different countries. E.g., A person working in Delhi may earn less than a friend working in Paris, but the Delhi resident can afford many services- like cooking, cleaning, or dental care- at much cheaper rates.

PPP offers more accurate picture of economy as:

Unlike nominal GDP, PPP is not affected by changes in exchange rates, giving a more stable and fair comparison over time.
PPP adjusts for differences in cost of living and inflation between countries, providing a more accurate picture of real purchasing power.
PPP better reflects the true economic well-being of people, as it compares income based on local prices, not just dollar values.

IMF data shows that India became the third-largest economy by PPP as early as 2009, overtaking Japan.

Challenges:

In GDP in PPP terms, even though India has improved over the years, its rank or relative position has not changed.
In terms of per capita GDP based on PPP, India languishes far below the world average. In terms of market exchange rates, India’s rank in per capita GDP in 2024 was 144th among 196 countries. Even in terms of PPP international dollars, India’s rank in per capita GDP in 2024 was 127th among 196 countries.

A much better way to assess India’s relative development may be to compare the set of indicators beyond GDP (like HDI Index, State of Multidimensional Poverty, Hunger Index, Gender Inequality Index etc.) to get a meaningful measure of economic performance and social progress.

India’s global economic standing is undoubtedly rising, but rankings based on nominal GDP alone provide an incomplete picture. True development lies in raising per capita incomes, reducing inequality, and enhancing human development indicators.

Govt. meets 4.8% Fiscal Deficit target for 2024-25

Context: The central government managed to meet the fiscal deficit target of 4.8% of the GDP for 2024-25, according to the provisional data released by the Controller General of Accounts.

Relevance of the Topic: Prelims: Fiscal Deficit- Concept and Key Trends.

What is Fiscal Deficit?

Fiscal deficit is the difference between the government's total expenditure and its total receipts excluding borrowing.
Fiscal deficit arises due to either increase in expenditure or shortfall in revenues.
Fiscal deficit can be financed through:
- issuing new currency or printing money
- borrowing from the central bank (RBI)
- borrowing from domestic markets (via instruments like treasury bills and bonds).
- borrowing from foreign sources.

Govt meets 4.8% Fiscal Deficit target for 2024-25

Fiscal Deficit target (FY 2024-25): Budget 2024-25 had a fiscal deficit target at 4.4% of GDP. The revised estimates (RE) had a fiscal deficit target at 4.8% of GDP.
The central government managed to meet the fiscal deficit target of 4.8% of the GDP. The fiscal deficit stood at Rs 15.77 lakh crore, or 100.5% of the revised annual target. The target was met due to:
- High dividend from RBI (Rs 2.11 lakh crore in FY24)
- Robust direct tax collection (witnessed a robust growth of ~15.6% )
- Controlled revenue deficit
- Expenditure management in subsidies and capital expenditure.

Also Read: Fiscal Deficit

India’s GDP growth slows to 6.5% in 2024-25

Context: The Ministry of Statistics and Programme Implementation (MoSPI) has released the provisional estimates of economic growth for FY25. India’s GDP growth rate in FY25 hit a four-year low of 6.5%, slowing down sharply from the 9.2% growth recorded in FY24.

Relevance of the Topic: Prelims: GDP Growth- Trends, Components, Factors affecting GDP Growth rate.

How is Economic growth measured?

Economic growth is measured using two metrics.

Gross Domestic Product (GDP) is calculated by adding up all the expenditures made in the economy, including expenditures by Indians in their individual capacity, expenditures by governments, expenditures by private businesses, etc. This provides a picture of the demand side of the economy.
Gross Value Added (GVA) looks at the supply side. It effectively measures the contribution of each sector of the economy by calculating and summing the value added (or income) at each stage of production.

Both GDP and GVA are linked: they measure the same economic performance but through different routes. Their relationship can be spelled out using the following equation:

GDP = (GVA) + (taxes earned by government) - (subsidies provided by government)

MoSPI provides GDP and GVA data both in nominal terms (in present day prices) and real terms (after taking away the effect of inflation). Both nominal and real data have their own analytical significance.
For any financial year, GDP estimates go through several revisions. The provisional estimates will be revised over the next few years.

Understanding Gross Domestic Product (GDP):

Definition: GDP is the total market value of all goods and services produced within India's geographical boundaries in a specified period.
Real vs. Nominal GDP:
- Nominal GDP: value of all the final goods and services at current market prices, without adjusting for inflation.
- Real GDP: adjusts nominal GDP for inflation. It reflects the economy’s true growth by accounting for changes in price levels.

How is GDP Calculated in India?

GDP is calculated by adding up all the money spent in the economy. There are 4 engines of GDP Growth:
- Private Final Consumption Expenditure: Total spending by individuals.
- Government Final Consumption Expenditure: Spending by governments to meet daily expenditures such as salaries, etc.
- Gross Fixed Capital Formation: Spending towards boosting the productive capacity of the economy. Includes investments by the government to build roads, companies building factories or buying office equipment, etc.
- Net Exports: Resultant of Indians spending on imports and foreigners spending on Indian exports.

Key takeaways from the recently released data:

Nominal GDP & its growth: India’s nominal GDP grew to Rs 330.7 trillion (lakh crore) by the end of March 2025. When converted into US dollar terms, the size of India’s economy was $3.87 trillion.
Real GDP & its growth: India’s real GDP grew by 6.5% in FY25 to reach a level of Rs 188 trillion.
GVA & sectoral health of economy: For FY25, the real GVA grew by 6.4%.
- The GVA data best captures the true momentum of the Indian economy as it provides insight into the health of the sectors of the Indian economy. It also excludes the effects of taxes and subsidies, which can distort GDP figures.
- Three main sectors of the Indian economy: (a) Agriculture and allied activities (such as forestry, etc.) (b) Industry (including sub-sectors such as manufacturing, construction) (c) Services (including fields like financial services, trade and hotels)

Despite external challenges (like supply chain disruptions and energy market volatility), the Indian economy remains relatively healthy due to its limited reliance on global goods trade, recent tax cuts, controlled inflation and potentially softer interest rate environment.

India continues to benefit from strong service sector performance, a stable banking system, and improving manufacturing output under schemes like PLI.

Modified Interest Subvention Scheme

Context: The Cabinet Committee on Economic Affairs (CCEA) approved continuation of the Modified Interest Subvention Scheme (MISS) for 2025-26. The government will allow 7.7 crore farmers to get short-term credit at a subsidised rate of interest through the Kisan Credit Card.

Relevance of the Topic: Prelims: Modified Interest Subvention Scheme; Kisan Credit Card.

Modified Interest Subvention Scheme

MISS is a Central sector scheme, under which farmers get short-term loans of up to ₹3 lakh through Kisan Credit Card at a subsidised interest rate of 7%, as the government covers 1.5% interest subvention to eligible lending institutions.
Additionally, farmers repaying loans in time are eligible for an additional 3% interest subsidy as prompt repayment incentive (PRI), effectively reducing their interest rate on KCC loans to 4%.
It also includes post-harvest loans against Negotiable Warehouse Receipts (NWRs) for small farmers with KCCs.
In the Budget 2025-26, the government announced to increase the loan limit under the MISS from Rs 3 lakh to Rs 5 lakh.
Implementation and Monitoring by the Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD).

The continuation of the support is critical in sustaining the flow of institutional credit to agriculture, which is vital for enhancing productivity and ensuring financial inclusion of small and marginal farmers.

Also Read: Kisan Credit Card bad loans rise by 42% in four years: RBI

RoDTEP Scheme for DTAs set to extend

Context: The government has restored the RoDTEP scheme for exporters done by Advance Authorisation (AA) holders, Export-Oriented Units (EOUs), and units in Special Economic Zones (SEZs). The scheme had expired in February 2025. The decision aims to enhance competitiveness in overseas trade and support small and medium enterprises facing thin margins.

The government is considering extending the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme for the Domestic Tariff Units (DTAs) beyond September 30, 2025.

Relevance of the Topic: Prelims: RoDTEP scheme- Prelims related facts.

What is the RoDTEP Scheme?

The RoDTEP scheme was introduced in January 2021, replacing the existing MEIS (Merchandise Exports from India Scheme).
Purpose:
- To ensure that the exporters receive the refunds on the embedded taxes and duties previously non-recoverable.
- To boost exports which were relatively poor in volume previously.
Need:
- The US had challenged India’s key export subsidy schemes in the WTO.
- The WTO dispute panel ruled against India, stating that India’s export subsidy programmes violated WTO’s trade norms.
- The RoDTEP Scheme ensures Indian exporters are supported, while staying WTO-compliant.
Eligibility criteria:
- All sectors, including the textiles sector, can avail benefits of RoDTEP Scheme.
- Manufacturer exporters and merchant exporters (traders).
- Special Economic Zone Units and Export Oriented Units.
- Goods exported via courier through e-commerce platforms.
- There is no particular turnover threshold to claim RoDTEP.
- Re-exported products are not eligible.
- Exported products need to have the country of origin as India.

Features of RoDTEP Scheme

Refund of the previously Non-refundable duties and taxes: The scheme provides refund of duties and taxes which are levied at central, state and local level and are not refunded under any other mechanism. They include:
- Central and State Excise Duty on fuel for transportation of export goods (petrol, diesel, CNG, PNG, etc.)
- Coal cess or duty levied by States on electricity consumed for manufacturing of export goods
- Mandi tax levied by APMCs
- Toll tax and stamp duties on import-export documentation
- Value added tax (VAT) wherever applicable.
Automated system of Credit:
- Refunds under the scheme are issued in the form of transferrable electronic scrips, which could be used for paying Basic Customs Duty on import of goods.
- The e-scrips (duty scrips) can be transferred electronically to another party.
- The benefit will not be in the form of direct credit to the bank account.
- These duty credits are maintained and tracked through an electronic ledger.
Quick verification through Digitisation:
- Through the digital platform, clearance happens at a much faster rate.
Multi-sector Scheme:
- RoDTEP covers all sectors, including the textiles sector.

Rising Rice Cultivation and its Ecological Cost

Context: India must balance food security with ecological sustainability by adopting climate-smart rice practices, and promoting pulses and oilseeds cultivation.

Relevance of the Topic: Mains: Rice Production in India and its ecological costs.

Rice Production in India

India is emerging as the top rice producer in the world with over 140 million tonnes of annual production.
With a buffer stock of 55-65 million tonnes and food security schemes reaching over 80 crore people, rice cultivation has played a vital role in alleviating extreme poverty (now estimated at 2.3% as per World Bank estimates based on HCES data).

Ecological Costs of cultivating Rice

However, this comes with a price: the ecological costs of cultivating paddy.

Excessive Water Use: Rice is a water intensive crop. Producing 1 kg of rice requires over 3,500 litres of water. It depletes groundwater reserves, especially in Punjab, Karnataka, and Andhra Pradesh.
Virtual Water Export: India exported nearly 20 million tonnes of rice in FY25 (14 million non-basmati). This amounted to an export of large quantities of water (virtual water export) worsening India’s water stress.
Energy-Water Paradox: Use of rice for making ethanol amounts to the ironical use of energy (pumping water out of the ground) and water to produce energy.

Sustainable Alternatives:

Gene-edited Rice varieties: Gene-edited rice varieties are expected to produce 10 million tonnes more paddy on 5 million less hectares than at present. They use less water, mature early, and are drought-resistant. However, these seed varieties should be priced at affordable rates to small farmers.
Indigenous Rice varieties: Indigenous varieties must be revived for their resilience to weather extremes as well as their nutritional value.
Methods like Direct Seeded Rice (DSR) and System of Rice Intensification (SRI):
- Direct Seeded Rice eliminates the practice of transplanting seedlings from nurseries to fields. Instead, the seeds are sown directly in the field using drills or machines. They save up to 25% water, fewer greenhouse gas emissions and reduce dependency on labour.
- System of Rice Intensification is a method of rice cultivation for increasing rice yield with reduced seed and water demand. SRI involves cultivating rice with as much organic manure as possible, starting with young seedlings planted singly at wider spacing in a square pattern; and with intermittent irrigation that keeps the soil moist but not inundated, and frequent inter-cultivation with a weeder that actively aerates the soil.
Promote Crop Diversification: Entrenched status quo of systemic support for rice and wheat, at the expense of other crops must be disrupted. Increases in minimum support prices have proved ineffective to this end, in the absence of timely procurement of other crops. Oilseeds and pulses must be given top priority.
ICAR must shift its focus from traditional Green Revolution methods to actively promoting climate-resilient, water-efficient rice varieties. Although some such strains have been developed, old varieties like Sona Masuri still dominate, highlighting the need for stronger institutional push.

Rice production in India needs an ecological and policy reset. With mounting environmental costs, India must embrace technological innovations, crop diversification, and institutional reforms to ensure climate-smart sustainable agriculture.