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Labour needs as much focus as the Capital

Context: India is facing a growing challenge in creating formal sector jobs despite a labour-abundant economy. 

Relevance of the Topic: Mains: Amid shift towards capital-intensive production - need to focus on labour skilling and reforms.

Employment Trends in India

  • Job Deficit: Since 2017-18, India's working-age population has increased by 9 crore, however,  formal sector jobs have risen by 6 crore, leaving a deficit of 50 lakh jobs annually. 
  • Rise in Informal and Self-Employment: Most employment growth is from self-employment in rural areas and informal services, affecting both quality and quantity of work.
  • Capital-intensive Production process: Production processes, including traditionally labour-intensive manufacturing and services industries, are becoming more capital-intensive (more investment in technology and equipment) and automated. The advent of Artificial Intelligence will further reduce the need for human labour. 

Why is the capital intensity of production rising in a labour-abundant economy?

1. Demand-Side Factors (Industry & Market-Driven): 

  • Need for Higher Productivity & Cost Efficiency: Businesses adopt capital-intensive technologies to improve productivity and reduce long-term costs. Machines provide greater efficiency, precision, and output per unit of input compared to human labour.
  • Global Competition & Quality Standards: Indian firms competing in global markets must meet high-quality standards, which often necessitate automation and capital-intensive methods.
  • Falling Cost of Capital: With advancements in technology, the cost of machinery and automation has decreased, making capital investment more attractive than hiring and training labour.
  • Economies of Scale: Large-scale production benefits from automation as it reduces per-unit costs, making capital-intensive production more viable. 

2. Supply-Side Factors (Labour Market Issues):

  • Low Availability of Skilled Labour: Less than 10% of India’s workforce has formal vocational training. Many educated individuals lack industry-relevant skills, making them less competitive against machines. 
  • Rigid & Costly Labour Regulations: Stringent labour laws, high compliance costs, and restrictions on hiring and firing discourage firms from hiring more workers, making automation a preferable alternative. 
  • High Labour Costs in the Formal Sector: Though India has an abundant workforce, formal sector wages, social security obligations, and compliance costs increase the effective cost of hiring labour.
  • Uncertainty & Labour Unrest: Frequent labour strikes, job security demands, and union pressures lead industries to prefer mechanisation, which ensures uninterrupted production

Some Government Efforts:  

1. Production linked Incentive Scheme: 

  • The government offers incentives of 4% to 6% on incremental/additional sales. For example, earlier a company was selling goods worth Rs. 1 lakh in a year and now its sales increased to Rs. 1.2 lakh. Then the company will get an incentive of 4% on Rs. 20,000= Rs. 800.
  • Challenges:  
    • The current structure of the PLI scheme is primarily focused on expanding production of high-value products with backward linkages, which require high-skilled, specialised labour, and is relatively less focused on low- and middle-skilled labour-intensive sectors.
    • Over 50% of the PLI budget is allocated for large-scale electronics, IT hardware and drone manufacturing. However, the highest number of jobs under the scheme has been created in the food processing and pharmaceutical industries. 

2. Education-Employment Linked Internship (ELI) scheme:

  • The central government incentivises the private sector to hire more labour while also skilling them, through the ELI and other internship programmes. 
  • Challenge: While this policy does reduce the cost of labour by shifting (the initial) burden on to the government, the period of the subsidy or transfers is short (about two to three years) The scheme does not sufficiently focus on upskilling workers, limiting future employability. 

Way Forward

  • Integrated Policy Framework: Establish coordination between ministries of production, labour, and skilling to align production-linked incentive (PLI) schemes with current and future labor market needs.
  • Graded Incentive Structures: Modify PLI incentives from flat to graded, rewarding firms for certifying and upgrading workers' skills through on-the-job training.
  • Strengthen Skill Ecosystem: Enhance training institutes like ITIs by linking their funding and rewards to employment and earnings outcomes based on projected industry demand.
  • Flexible Labour Regulations: Encourage state governments to adopt flexible labor policies to reduce costs and promote labor-intensive technologies

Hence, there is a need to focus on both the quantity and quality of the workforce by investing in skill development programs that cater to high-value manufacturing sectors. India needs to develop dynamic frameworks that adapt to evolving industrial and technological demands, ensuring alignment with the vision of "Viksit Bharat." 

Is Income Inequality widening in India?

Context: A number of recent consumption and asset surveys are showing a fall in inequality in India. 

Relevance of the Topic: Mains: Debate surrounding income inequality in India.

Economic Growth of India

Post-Independence Economic Issues:

  • India inherited a poor economy in 1947 with excessive poverty levels. The first 50 years of independence saw poverty persist due to a lack of substantial economic growth, in spite of the socialist policies for income redistribution.
  • The economy witnessed slow growth, excessive taxation, and policies that focused on wealth redistribution by way of public sector dominance and centralised control. 

Liberalisation in the 1990s: 

  • In the early 1990s, India shifted toward economic liberalisation, opening up its markets, reducing trade barriers, and embracing foreign investments. These reforms led to an annual growth rate of ~6% (1990-2020), lifting 400 million people out of poverty. 
  • By 2021, Indian poverty had declined to 13% of the population, from 40% in 2000, according to the World Bank's $2.15/day poverty line (2017 PPP). This reflects upwards economic mobility.
  • Based on household consumption expenditure surveys (2022-23), urban poverty was at 10%, while rural poverty was at 5%.
  • There has been a significant decline in multidimensional poverty, extending to access to sanitation, electricity, education, and healthcare.

World Inequality Lab (WIL) Estimates: 

  • Inequality Trends in India: According to WIL, the top 1% of earners in India take home 21% of disposable income, while the bottom 50% earn only 13%.

Limitations of WIL Data :

  • WIL's findings are based on income tax data, which represents a small proportion of the population. Surveys conducted by PRICE and NCAER, including both formal and informal sectors, reveal a far more equal distribution of income, with the richest 1% getting 8.8%, and the poorest 50% getting 22.8%.
  • Dependence on income tax data is a major drawback, as India has a relatively low proportion of taxpayers. This skews actual distribution of income and wealth. Other studies, including academic and market surveys, disagree with WIL's report, suggesting the data may not be credible.

Trends suggesting fall of Inequality in India

A number of recent consumption and asset surveys are showing a fall in inequality in India. 

  • More than 450 million individuals have moved past the $2/day income line from 2000 to 2012, with great economic mobility.
  • The proportion of individuals with incomes ranging from ₹5 lakh to ₹31 lakh annually grew from 14% between 2005 and 2021 to 31%, evidencing a large-based increase in income.
  • The ratio of workers in the population went up from 34.7% in FY18 to 43.7% in FY24, indicating better employment participation.
  • Average per capita income touched ₹2 lakh in FY24, which indicates rising economic growth.
  • Small FMCG players reaching price-sensitive consumers grew significantly more than big business, falsifying the premise that inequality is on the increase due to unbalanced consumption behavior.
  • Multidimensional poverty declined with noteworthy improvements in the availability of basic facilities like electricity, sanitation, and healthcare.
  • India has seen massive entry into wealth creation, particularly in the form of start-ups and MSMEs (Micro, Small, and Medium Enterprises). Credit to MSMEs has increased very fast, encouraging the establishment of new enterprises and facilitating wealth distribution among a wider segment of society. 
  • The number of Indian dollar millionaires doubled from 2012 to 2022, though their absolute numbers are few compared to world averages. India's percentage of world millionaires is merely 1.4%, whereas its percentage in world population is 17.2%. This shows that wealth creation is at a nascent stage in India.

Way Forward

  • Focusing on Upward Mobility: Policy and research must aim at enhancing upward mobility in the income distribution, instead of monitoring poverty and inequality alone. Policy must encourage economic engagement and offer opportunities for individuals to climb the income ladder. 
  • Avoiding Excessive Taxation of Wealth Creators: Excessive taxation of wealth creators, as proposed by certain inequality research, may hurt India's growth prospects by discouraging entrepreneurship and innovation. The government must aim at creating conditions where prosperity and upward mobility across income levels are promoted to ensure long-term economic growth.
  • Improving Governance and Infrastructure: To ensure continued growth, India needs to give high priority to governance reforms, particularly in non-metro areas, so that economic benefits are spread widely. Improving infrastructure, decentralisation, and local public service delivery will be key to inclusive and sustainable growth.

Indian growth is primarily based on a broad-based increase in consumption and economic mobility, as opposed to a concentration of wealth at the top. Policies aimed at economic mobility, employment generation, and narrowing inter-regional imbalances will be crucial to continuing this growth trend.  

India’s Coal Reliance has Risen to 79%: MOSPI

Context: India’s coal reliance has risen to 79% in FY2024, as per the MOSPI’s latest Energy Statistics in India. Renewable energy sources have not seen any meaningful rise in the share of the total energy produced in the past decade, despite the push for renewable energy. 

Relevance of the topic:

Prelims: Key highlights of the MoSPI’s Energy Statistics in India 2025.

Mains: Reasons behind high reliance on coal. 

Key Stats in the Energy Sector

  • The share of coal in India’s total energy generation increased to 79% to 16,906 petajoules (PJ) in 2023-24, about two percentage points more than previous year (MoSPI’s Energy Statistics in India 2025). 
  • Coal has consistently accounted for over 70% of India's energy output since 2014-15. Despite increased domestic production, coal import dependence remains high (26%), peaking at 31% in 2019-20.
  • Crude oil’s share has been at 6% in 2023-24. This share has reduced from 2014-15 when it was 11% in 2014-15.
  • Natural gas was 7% of the total energy produced in 2023-24, down from 9% in 2014-15.
  • Renewable energy sources (hydro, solar, nuclear) have not significantly increased their share, standing at 7% in 2023-24 compared to 6% in 2014-15. Their share in total energy production has always been under 10% in the past decade. 
  • Estimated potential for generation of energy from renewable resources has reached 2109 GW as of March 2024. The highest potential for generation of energy comes from wind at 1163 GW (55%), followed by solar energy 749 MW (35.5%) and large Hydro.
    • India’s total renewable energy-based electricity generation capacity: 203 GW (2024).
    • India’s ambitious renewable energy target: 500 GW from non-fossil sources by 2030.
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Major Initiatives related to Renewable Energy Transition: 

  • Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyan (PM-KUSUM): Focuses on solarisation of irrigation pumps. 
  • PLI Scheme for Solar PV Modules: Promotes domestic manufacturing of solar panels. 
  • Pradhan Mantri Suryodaya Yojana: Aims to provide rooftop solar to households. 
  • Solar Parks and Ultra Mega Solar Power: Encourages large-scale solar power projects. 
  • Green Energy Corridor Scheme: Facilitates transmission infrastructure for renewable energy. 
  • National Green Hydrogen Mission: Focuses on developing green hydrogen technology. 
  • National Bioenergy Programme: Promotes the use of biofuels. 
  • Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA): Aims to provide electricity to all households. 
  • Green Energy Corridor (GEC): Facilitates the transmission of renewable energy. 
  • National Smart Grid Mission (NSGM) and Smart Meter National Programme: Modernises the electricity grid. 
  • Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME): Promotes the adoption of electric vehicles. 

Reasons for High Reliance on Coal despite Renewable Energy Transition Efforts: 

  • Stable and Reliable Energy Source: Coal-based power plants provide consistent base load electricity, essential for meeting India’s growing energy demands. Unlike intermittent renewable sources (like solar and wind), coal ensures uninterrupted power supply.
  • Economic Viability: Coal is one of the cheapest energy sources in India due to vast domestic reserves. Setting up coal-based power plants has lower upfront costs compared to renewable infrastructure. RE technology requires large capital investment, and large contiguous land, which are in short supply. 
  • Employment and Socio-economic Factors: Coal mining and associated industries provide jobs to millions, especially in coal-rich states like Jharkhand and Chhattisgarh. Phasing out coal would impact livelihoods and local economies, making the transition politically sensitive. 
  • Infrastructure Constraints to scale RE Energy: India has a well-established network of coal-based thermal power plants, which would require significant investment to replace. There is inadequate infrastructure for transmission of RE generated in remote locations to load centres. 

Reforming India’s Textiles Industry

Context: India has set an ambitious target to elevate its textile and apparel (T&A) exports from $34.8 billion in 2023-24 to an eye-popping $100 billion by 2030. This requires game-changing reforms in the textile sector. 

Relevance of the Topic: Mains: Challenges in India’s Textile Sector and way forward

Key Stats in the Textile Sector

  • India has set an ambitious target to increase its textile and apparel (T&A) exports from $34.8 billion in 2023-24 to $100 billion by 2030. 
  • India’s Textile and Apparel exports have grown steadily from $11.5 billion in FY2001 to $34.8 billion in FY24, accounting for only a 4% share in global exports of $774.4 billion.
    • India's apparel export growth has remained stagnant at around 3% of global apparel exports from FY2001 to FY24, despite an increase in export value from $5.5 billion to $14.5 billion. 
    • In contrast, competitors like Bangladesh and Vietnam have significantly increased their global share during the same period. 
  • At this pace, achieving the $100 billion target by 2030 seems a tall order, unless dramatic, game-changing reforms are introduced. 
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Challenges in the Textile Sector

  • Stagnation in Cotton Production:
    • India’s cotton production surged after introducing Bt cotton hybrids (2002), but has declined since 2014. Production is projected to fall to 30 million bales (2024-25), the lowest in 15 years. 
    • India may become a net importer of cotton, with imports (2.6 million bales) surpassing exports (1.5 million bales).
    • Next-gen Ht Bt seeds not approved despite the clearance from Genetic Engineering Appraisal Committee (GEAC).    
  • 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.
  • Decentralised Production: 80% of India's garment factories are in the decentralised sector, leading to inefficiency and low export potential. 
  • Lack of Modernisation: Slow adoption of modern technology and weak value chain integration.
  • Trade Barriers: High tariff rates on apparel exports to key markets: EU (9.7%) and US (11.47%). In contrast, the EU offers zero-duty access to Bangladesh under the “GSP Everything but Arms” arrangement and imposes a 1.66% tariff on Vietnam’s apparel exports under the “EU-Vietnam FTA”  this creates a competitive disadvantage for Indian exports. 

Reforms needed in India’s Textile Sector

  • India’s garment sector needs to transition into a fashion-driven industry. To support this transformation, it is crucial to incentivise and invest in MMF-based apparel while removing non-tariff barriers, such as the quality control orders on MMF.
  • The PM-MITRA scheme must be fast-tracked to create integrated textile hubs, which will enhance scalability and efficiency in fabric and garment manufacturing.
  • India needs to negotiate Free Trade Agreements (FTAs) with the EU and the US — key markets that account for nearly 66% of India’s apparel exports.
  • India should explore emerging markets like Japan, Russia, Brazil, and South Korea, which offer significant opportunities for products like women’s western wear, intimate wear, swimwear, and outerwear.
  • Improving cotton productivity and fibre quality. Expanding irrigation, promoting high-density planting techniques, and investing in precision farming can help India bridge the productivity gap (435 kg/hectare) with global leaders like China (1,945 kg/hectare) and Brazil.
  • Streamlining the approval process for GM crops and establishing a single-window clearance system to speed up the adoption of high-yield, pest-resistant, next-generation cotton varieties. 

To achieve the ambitious target of $100 billion in textile and apparel exports by 2030, India must address the challenges hampering the sector. This requires modernising production, adopting MMF-based apparel, enhancing value chain integration, removing trade barriers through strategic FTAs and capitalising on emerging markets. 

Abolition of Equalisation Levy

Context: The Central Government has proposed to abolish the 6% equalisation levy (EL) on online advertisements from April 1, 2025. This move is expected to benefit major US technology firms and ease trade tensions between India and the United States.

Relevance of the Topic: Prelims: Key facts about Equalisation levy. 

Equalisation Levy and Rationale behind its Introduction

  • Equalisation Levy (digital tax) was introduced in the Union Budget 2016 with the intention of taxing the digital transactions. 
  • Need: 
    • Digital companies harness the user generated data, enabling them to earn huge revenues through digital advertisements. 
    • The companies earn revenue by harnessing the data generated in a particular country, but are not obliged to pay adequate taxes in the source country. 
  • Thus, Equalisation Levy was introduced to bring such Internet-based companies within the ambit of tax. It aimed to create a level-playing field between resident and non-resident e-commerce companies.
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Details about Equalisation Levy

  • The equalisation levy of 6% is applicable to the income accruing to a foreign E-commerce company which is not a resident of India. 
  • Any person or entity in India, which makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company (such as Google) for some B2B (Business to Business) transactions, needs to withhold 6% of the gross amount to be paid as equalisation levy.
  • Also known as the “Google Tax”, it affected offshore digital giants like Google, Meta, and Amazon.

Reasons for Abolishing Equalisation Levy: 

  • Trade Tensions with US: The US criticised the levy as “discriminatory and unreasonable”, arguing that it unfairly targeted American tech companies. A year-long investigation by the US deemed digital service taxes in multiple countries (including India) inconsistent with international taxation principles.
  • Alignment with Global Tax Reforms: India, the US, and other OECD/G20 members agreed in October 2021 on a two-pillar framework to reform digital economy taxation. India had already removed the 2% EL on e-commerce platforms in 2024, and the latest move aligns with ongoing global consensus efforts.
  • Encouraging Foreign Investment: By removing the EL, India signals a more accommodative stance to foreign businesses, possibly attracting greater tech sector investments. Experts believe this could prevent potential US tariff retaliation against Indian exports.

The abolition of the equalisation levy is a significant policy shift that aims to harmonise India’s digital taxation with global frameworks and boost foreign investment in the growing digital economy.

SEBI doubles FPI Investment threshold

Context: Securities and Exchange Board of India (SEBI) has approved increasing the threshold for disclosures by foreign portfolio investors (FPIs) to ₹50,000 crore from the current ₹25,000 crore.

Relevance of the Topic: Prelims: SEBI Regulations on FPI. 

Mandatory Comprehensive disclosures from FPIs (2023): 

  • SEBI mandated comprehensive disclosures from FPIs holding over ₹25,000 crore in Indian equity assets. This was done to:
    • Prevent stock manipulation and mitigate the risk of market disruption from large FPIs.
    • Ensure alignment with Press Note 3 stipulations.

Threshold for FPI disclosures raised to ₹50,000 Crore:

  • Cash equity markets' trading volumes have more than doubled between FY 2022-23 and the current FY 2024-25. Considering the significant growth in cash equity market volumes, SEBI has revised this threshold.
  • FPIs with equity AUM exceeding ₹50,000 crore will be required to disclose full ownership and control details, up to the level of the natural person. 
  • Aim: To maintain market integrity while reflecting the evolving scale of the Indian markets.
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Implications of the Revised Norms

  • Ease Compliance burden: The previous ₹25,000 crore threshold led to some FPIs reducing investments to avoid regulatory obligations.
  • Encourage Foreign Investments: Reduced compliance burden may attract more mid-sized and small FPIs.

SEBI’s decision balances investment promotion with regulatory oversight. The change enhances India’s market appeal while ensuring transparency in large FPI investments.

Report flags underutilisation of funds by District Mineral Foundation

Context: A recent report prepared by iForest, an independent research group, flags underutilisation of development and welfare funds collected by the District Mineral Foundations. 

Relevance of the Topic: Prelims: District Mineral Foundation; Pradhan Mantri Khanij Kshetra Kalyan Yojana

Performance of District Mineral Foundation

  • Underutilisation of funds: Despite collecting about ₹1 lakh crore in the past decade by the DMF, more than half the funds is unspent. 
  • Diversion of funds: The funds are often diverted to activities that are not directly linked to the welfare of mining districts — a contravention of the Centre’s guidelines.

Achievements of District Mineral Foundation:

  • Decentralised community-centric development works have been carried out in mining affected districts.
  • DMF has been instrumental in:
    • setting up of women led SHGs in different states for example Odisha.
    • skill development and livelihood generation in mining affected districts.
  •  DMFs have adopted measures, such as, establishing a dedicated engineering department and deputing personnel from the State Public Works Department to ensure the efficient implementation of projects.
  • Note: Odisha accounts for the highest share of DMF funds, about 29% (₹30,126 crore) of the country’s total, followed by Chhattisgarh and Jharkhand. 

District Mineral Foundation (DMF):

  • Non-profit trusts established under the Mines & Minerals (Development & Regulation) (MMDR) Amendment Act, 2015 in all the districts affected by mining.
  • Objective: To work for the interest and benefit of persons, and areas affected by mining related operations.
  • The composition and functions of the DMF shall be prescribed by the State Government.
  • DMFs ensure that a portion of the revenues generated from mining is spent on the development of the districts. DMFs have been set up in 645 districts in 23 States in the country which have framed DMF rules. 
  • The holder of a mining lease or a prospecting licence-cum-mining lease granted on or after the date of commencement of the MMDR Amendment Act, 2015, shall share some amount of royalty with DMF.  

Pradhan Mantri Khanij Kshetra Kalyan Yojana:

  • Launched in: 2015
  • Initiative of: Ministry of Mines
  • Implemented by: District Mineral Foundations of the respective districts. 
  • Aim: To provide for the welfare of areas and people affected by mining related operations, using the funds generated by DMF.
  • Objectives:
    • implement various developmental and welfare projects in mining affected areas.
    • to mitigate the adverse impacts (during and after mining) on the environment, health and socio-economics of people in mining districts.
    • ensure long-term sustainable livelihoods for the affected people in mining areas.
  • PMKKKY provides for utilisation of at least 70% of the funds for high priority areas like: (i) drinking water supply (ii) environment preservation and pollution control measures (iii) health care (iv) education (v) welfare of women and children (vi) welfare of aged and disabled people (vii) skill development (viii) sanitation ix) housing (x) agriculture and (xi) animal husbandry. 
  • While, up to 30% of the funds shall be utilised for other priority areas (i) physical infrastructure (ii) irrigation (iii) energy and watershed development and (iv) any other measures for enhancing environmental quality in mining districts.

The prime focus of DMF and PMKKKY is to alleviate poverty and deprivation, which requires a balanced investment in human resources and infrastructure. However, this balance has not been achieved in any district.

Government discontinues Gold Monetisation Scheme

Context: The Ministry of Finance has announced to discontinue Medium- and Long-term deposits under the Gold Monetisation Scheme from March 26, 2025. The banks may continue (at their discretion) Short-Term Gold Deposits (1-3 years) under the scheme.

Relevance of the Topic: Prelims: Key facts about Gold Monetisation Scheme. 

Gold Monetisation Scheme: 

  • Launched in: November 2015 
  • Initiative of: Ministry of Finance 
  • GMS facilitated the deposition of idle gold held by households, trusts and various institutions in India. 
  • Aim:
    • To make idle gold productive and let consumers to either sell their gold or store it with banks.
    • To reduce the country’s gold imports and thus, reduce the current account deficit. 

GMS consisted of three components: 

  1. Short-term bank deposit (1-3 years)
  2. Medium-term government deposit (5-7 years)
  3. Long-term government deposit (12-15 years)
  • The minimum deposit allowed was 10 gm of raw gold (bars, coins, jewellery excluding stones and other metals). There was no maximum limit for deposit under the scheme.

Gold Monetisation Interest Rate

  • For Short-term bank deposit: Interest rate payable is decided by the banks on the basis of the prevailing international lease rates, other costs, market conditions, etc., and is borne by the banks. 
  • For Medium- and Long-term deposits: Interest rate is decided by the government, in consultation with the RBI and borne by the Central government. Interest rate was fixed at 2.25% per annum for medium-term bonds and at 2.5% for the long-term bonds.

Present status of gold schemes in India:

  • Gold Monetisation Scheme is the second gold scheme to face closure by the government in recent months amid a sharp surge in gold prices. The Centre had earlier discontinued fresh issuance of sovereign gold bonds. 
  • Till November 2024, approximately 31,164 kg of gold had been mobilised under GMS, as per official data. 

Also Read: Sovereign Gold Bond Scheme 

India imposes Anti-dumping duty on Chinese goods

Context: India has imposed Anti-dumping duties on five Chinese goods to protect domestic industries from cheap imports. The trade action was announced based on recommendation from the commerce ministry's investigation arm DGTR (Directorate General of Trade Remedies). 

Relevance of the Topic:Prelims: Anti-dumping duties.

Anti-Dumping duty

  • Anti-dumping is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
  • Anti-dumping duties are imposed under WTO rules (World Trade Organisation) to ensure fair trading practices and a level-playing field for domestic producers vis-a-vis foreign producers and exporters.
  • Article 6 in the General Agreement on Tariffs and Trade (GATT) allows countries to take action against dumping.
  • In India, DGTR conducts probes periodically to check for the impact of cheap imports on domestic industries. A product is considered to be dumped when a producer exports his product at a price lower than its value in its domestic market.

Recent Anti-Dumping Measures on China

  • The government has imposed duties on the following five Chinese products:
    • Soft Ferrite Cores (essential for electric vehicles, chargers, and telecom devices).
    • aluminium foil (essential packaging material)
    • Vacuum insulated flask
    • Trichloro Isocyanuric Acid (widely used water treatment chemical)
    • Poly Vinyl Chloride Paste Resin
  • China is India's second largest trading partner. India had a widening trade deficit with China at $85 billion in FY2023-24.

Rationale behind Anti-Dumping duties

  • Protection of domestic Industries: Influx of low-cost Chinese imports pose significant challenges to Indian manufacturers, cutting their market share and affecting profitability. 
  • Fair Trade Practices: These duties discourage the dumping of goods. By implementing it, India ensures adherence to fair trade norms as mandated by WTO.
  • Reducing Import dependence: By discouraging cheap imports India aims to enhance domestic manufacturing capabilities.  

The imposition of these duties aligns with India's broader strategy of safeguarding its industrial base while ensuring a level playing field for domestic producers.

Specialised Investment Fund

Context: Securities and Exchange Board of India (SEBI) recently allowed mutual funds to introduce a new asset class- Specialised Investment Fund. The product is to be launched from April 1, 2025.

Relevance of the Topic: Prelims: Specialised Investment Fund

About Specialised Investment Fund

  • SIF is an investment option designed for people who understand the markets and are willing to take higher risks for potentially higher returns.  
  • Minimum investment at least ₹10 lakhs. 
  • Flexibility: Fund managers have more freedom to try new strategies compared to mutual funds. SIFs have a large investment range- stocks, bonds, real estate and private equity.
  • Eligibility criteria for launching SIF:
    • Only mutual funds operational for at least three years with ₹10,000 crore average AUM (Assets Under Management) in the preceding three years can launch SIF.
    • New entrants can launch SIF only if they:
      • Appoint a Chief Investment Officer (CIO) with 10 years of experience managing ₹5,000 crore assets.
      • Have a fund manager with at least three years of experience handling ₹500 crore AUM.

Guidelines for SIF Investments: 

  • Debt instruments: SIFs can invest up to 20% of their assets in debt issued by a single entity. This limit can increase to 25% with approval from trustees. Investments in government securities and treasury bills are exempt from these restrictions.
  • Equity investments: SIFs can hold up to 15% of a company’s paid-up capital with voting rights.  SIFs can invest up to 10% of their Net Asset Value (NAV) in any one company’s equity shares.
  • REITs and InvITs: SIFs can allocate 20% of their NAV to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). However, no more than 10% can be invested in a single issuer.
  • Derivatives: Total exposure through derivatives cannot exceed 100% of the fund’s net assets.

SIF vs. Mutual Funds vs. Portfolio Management Services vs. Alternative Investment Funds

AspectSIFMutual FundsPMSAIFs
Minimum Investment₹10 lakh₹500 or more₹50 lakh₹1 crore
Risk LevelHighVaries from low-moderate-highHigher risk due to concentrated portfolioHigh, depending upon the category 
FlexibilityMore freedom to fund managers in investment strategies Limited by predefined strategiesHigh; tailored investment to meet specific financial goalsHigh flexibility, including investments in unlisted securities 
Target InvestorsExperienced investorsRetail and small investorsHigh-net-worth individuals (HNIs)Institutional investors and HNIs

India’s Rising Crude Oil Import Dependency

Context: India’s reliance on imported crude oil has increased to over 88% in the first 11 months of the current financial year ending March (FY25). This is due to growing demand for fuel and other petroleum products amid stagnant domestic crude oil output.

Relevance of the Topic: Prelims: Crude oil imports- Trends. 

Major Highlights:

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  • Increasing reliance on imported crude oil: India’s crude oil import dependency has reached 88.2% in April-February FY25. This marks a steady increase over the years from 83.8% in FY19. Crude oil imports rose to 219.9 mt in the same period. 
  • Declining domestic oil production: 
    • Crude oil production declined from 26.9 million tonnes (mt) to 26.2 mt in April-February FY25. 
    • Self-sufficiency level stands at just 11.8%, as only 25.8 mt of the consumed petroleum products came from domestic crude oil.
  • Future projections: Petroleum product consumption is expected to rise to 252.93 mt, marking another record high.

Factors driving Higher Oil Imports

  • Growing energy demand due to population growth and economic expansion.
  • Increase in vehicle sales leading to higher fuel consumption.
  • Rising petrochemical consumption for industrial growth.
  • Expanding the aviation sector with greater jet fuel needs.

Economic and Strategic Implications

  • Vulnerability to global oil price fluctuations impacting fiscal stability.
  • Trade deficit pressure as oil imports form a major portion of total imports.
  • Foreign exchange reserve depletion affecting currency stability.
  • Inflationary pressures as fuel prices influence overall price levels.

Government Initiatives to Reduce Import Dependency

  • Policy reforms: Oilfield (Regulatory and Development) Amendment Bill to attract investment in the oil & gas sector and boost domestic exploration and production. 
  • Promotion of alternative fuels: Encouraging biofuels blending with conventional fuels. Incentives for electric mobility adoption to reduce petrol and diesel demand.
  • Refinery expansion plans: India’s current refining capacity is 257 mt per annum, expected to grow further.  

RBI’s Liquidity Moves and Forex Market Intervention

Context: The Reserve Bank of India has conducted several dollar-rupee buy/sell swap auctions and open market operations since January 2025 to manage volatility in the forex market, and infuse liquidity into the banking system. These measures supplement the interest rate cut announced by the RBI Governor in February 2025 to boost economic activity. 

Relevance of the topic:

Prelims: Exchange Rate system, Open market operations, Forex swap.

Mains: Indian Economy and Issues of Liquidity & Monetary Policy. 

Reasons behind RBI Intervention

  • The Indian rupee follows a managed floating exchange rate regime. This means that the central bank (RBI) intervenes in the foreign exchange market to buy or sell dollars in order to stabilise the value of the rupee. 
  • Due to several economic and geopolitical reasons, most emerging markets (including India), are experiencing a massive outflow of foreign portfolio capital.
    • E.g., Foreign investors have withdrawn approximately $29 billion from Indian equities in the period between October 2024 to March 2025, marking the largest outflow in any six-month period.
  • This has put pressure on the exchange rate, and the rupee sharply depreciated from 83.5/dollar on September 22, 2024, to cross 87.5/dollar on February 7, 2025. 
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Steps Taken by RBI:  

1. Interest Rate Cut:

  • In February 2025, RBI reduced the Repo rate by 25 basis points to 6.25% (first cut in nearly 5 years). 
  • An interest rate cut reduces the cost of borrowing and encourages domestic firms and households to spend more. 
  • However, if liquidity in the banking system is inadequate, a rate cut may not be effective as banks’ ability to lend money will be limited. In such a scenario RBI can conduct open market operations. 

2. Open Market Operations (OMOs):

  • In March 2025, RBI announced to conduct OMO purchases of government securities worth ₹1 lakh crore in two tranches of Rs 50,000 crore each.
  • The central bank’s buying (or selling) of government bonds to influence liquidity in the banking system is called an open market operation (OMO).
    • Bond Purchase → Increases liquidity (more money in the banking system). 
    • Bond Sale → Reduces liquidity (less money in circulation). 
  • Presently, RBI is buying government securities from the banks in exchange for domestic currency, thereby increasing liquidity in the banking system. 
  • Impact of OMOs:
    • Short-term bond yields have fallen, making borrowing cheaper. 
    • However, long-term bond yields remain high, meaning long-term investments are still costly. 
    • The RBI may need to target long-term bond yields through further measures. 
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3. Dollar-Rupee Buy/Sell Swap Auction:

  • RBI has announced to conduct a USD/INR Buy/Sell Swap auction for ₹10 billion with a tenor of 36 months in March 2025. Earlier, RBI conducted a $5.1-billion swap in January 2025 for a six-month tenure. 
  • A buy / sell forex swap by a central bank is an instrument where the central bank buys foreign currency from a commercial bank in exchange for domestic currencies, with a commitment to reverse the transaction at a predetermined future rate and date.
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  • Objectives of Forex Swaps:
    • Liquidity Infusion – When RBI buys dollars, it injects rupees into the banking system, helping banks lend more. 
    • Exchange Rate Stability – The dollar-rupee buy/sell swaps add dollars to the RBI’s forex reserve and improve the ability of the central bank to intervene in the forex market. 

OMO and the forex swap have tried to create a pro-growth policy environment by infusing durable liquidity in the banking system and reducing volatility in the forex market. These measures are aimed at reversing the recent slowdown in India’s real GDP growth. 

Way Forward

  • Continued Forex Market Intervention: The RBI should continue to use forex swaps tactically while keeping a watch on their effect on forward premia and exchange rate stability. E.g., Recent geopolitical events have resulted in a temporary softening of the US dollar against major currencies, bringing some relief to emerging markets such as India.
  • Focus on Long-Term Bond Yields: To make the environment more favourable for long-term investments, the RBI may consider calibrated steps like buying longer-term government papers via OMOs. E.g., Analogous interventions had worked well in earlier phases of economic slowdown (post-COVID recovery).
  • Monitoring Inflation Pressures: The RBI needs to tread carefully to contain inflation pressures while safeguarding growth, particularly when the government has re-oriented policy priorities by stimulating domestic consumption through tax cuts. 

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