Context: The Centre government has initiated the consultation process for leasing out (privatisation of) more than 10 airports under the public-private partnership (PPP) model.
Relevance of the Topic: Prelims: Key facts about National Monetisation Pipeline.
Airport Privatisation
The Cabinet will decide which airports will be leased out and if any new terms and conditions should be added in the concession agreement for the upcoming round.
The initiative falls under the National Monetisation Pipeline (NMP).
Under the NMP, 25 airports belonging to the Airports Authority of India (AAI) were earmarked for leasing out between 2022 and 2025.
These included airports in Bhubaneswar, Varanasi, Amritsar, Tiruchi, Indore, Raipur, Kozhikode, Coimbatore, Nagpur, Patna, Madurai, Surat, Ranchi, Jodhpur, Chennai, Vijayawada, Vadodara, Bhopal, Tirupati, Hubli, Imphal, Agartala, Udaipur, Dehradun and Rajahmundry.
The government is planning to lease out the airports to improve their management by utilising private sector efficiency and investment.
It is being planned to bundle profitable and non-profitable airports for the bidding process to attract a variety of bidders.
Note:
Since 2014, Airports Authority of India (AAI) has leased out six of its airports for better operations, management, and development under the PPP model.
These airports have been leased out for 50 years, with AAl remaining the owner of the airport land throughout the lease period. The land and other assets would revert to AAl on expiry of the lease period.
National Monetisation Pipeline (NMP)
Aim of NMP: Envisages an aggregate monetisation potential of Rs 6 lakh crore through the leasing of core assets of the Central government. NMP does not include monetisation of non-core assets (such as land, buildings etc).
Core Assets: Roads, railways, power, oil and gas pipelines, telecom, civil aviation, shipping ports and waterways, mining, warehouses, stadiums and sports complexes.
Sector accounting for highest share: Roads (27%), Railways (25%), Power, Oil & Gas Pipelines and Telecom. Roads and Railways together account for 52% of the share.
Duration: Four-year period (FY 2022 to FY 2025)
Imperatives for Core Asset Monetisation
Monetisation of 'Rights' not 'Ownership': Assets will be handed back to the government at the end of transaction life.
Selection of de-risked and brownfield assets with stable revenue streams.
Structured partnerships under defined contractual frameworks with strict key performance indicators (KPIs) & performance standards.
Context: The Insurance Regulatory and Development Authority of India (IRDAI) has formed a 7-member committee to scrutinise Insurance Act 1938 and suggest amendments. Also, the Government of India is gearing up to introduce the Insurance Amendment Bill in Parliament.
Relevance of the Topic: Prelims: Insurance Sector- FDI limit, GST provisions.
The Insurance Act, 1938
Background: Originally passed in BritishIndia to regulate the insurance sector.
What does it include:
Statutory framework: It provides the broad legal framework within which the insurance industry operates.
Institutional framework: It also led to establishment of the regulatory authority, Insurance Regulatory and Development Authority of India (IRDAI), which oversees the implementation of the Act.
Insurance Act, 1938 outlines the various types of insurance policies that can be offered in India, such as life insurance, general insurance and health insurance. It also allows insurers to appoint insurance agents for soliciting and procuring insurance business.
Proposed Reforms in Insurance Sector
100% FDI in Insurance:
Budget 2025 proposed to raise the FDI limit in the Indian insurance sector from 74% to 100%.
Previously the FDI cap had been raised from 26% to 49% in 2015, and from 49% to 74% in 2021.
Benefits:
Fully open the insurance market to global investors and attract significant capital inflows.
Improve competition.
Increase insurance penetration.
Roadmap for GST Relief:
A roadmap for reducing the GST rates on term and health insurance premiums (currently taxed at 18%) is likely to be introduced.
This move aims to reduce the financial burden on policyholders and make insurance more affordable across different income groups.
Composite Licenses:
Composite licenses for Insurance companies to allow insurers to offer both life and non-life insurances (health, motor insurance etc.) under a single license.
Presently, as per the provisions of the Insurance Act, 1938, life insurance companies can only offer life insurance products, while general insurance companies can offer non-life insurance products, such as health, motor insurance etc.
Benefits:
Enhance operational flexibility
Streamline regulatory processes
Foster innovation
Insurers will be better positioned to cater to diverse customer needs, improving their competitive edge in the market.
Capital Requirement:
The 1938 Act provides capital requirements for different classes of insurance business.
The amendment provides that IRDAI may specify the capital requirements for entities engaged in more than one class of insurance business. This should not be less than the sum of capital required for carrying out each class of business separately.
In addition, IRDAI can also reduce the minimum capital required to up to Rs 50 crore. This can be done for insurers serving underserved or special segments prescribed through regulations.
Value-Added Services to make insurance more personalised.
Examples:
Health-monitoring devices with health insurance policies.
Rewards programs for healthy behavior and timely premium payments.
Purpose: This will align with global trends to attract new policyholders and improve customer retention.
Challenges & Concerns
Exclusion of proposal to sell Financial products:
A proposal to allow insurance companies to sell other financial products (E.g., bank deposits and mutual funds) may not feature due to regulatory challenges and operational complexities.
Issue with composite license:
To enable PSU insurers for availing composite licenses, the government needs to amend the two existing Acts- The Life Insurance Corporation Act of 1956 and the General Insurance Business (Nationalisation) Act, 1972 (GIBNA). However, in the list of proposed amendments no such provisions have been proposed.
This implies that only the private sector companies can offer both Life Insurance and General Insurance. This would hinder public sector insurance companies from competing with the private sector Insurance companies.
Regulatory hurdles:
Proposed changes, particularly in FDI limits and product diversification, may face regulatory challenges that could delay their implementation.
Additionally, the GST reduction for insurance products might encounter political resistance due to the fiscal constraints and competing budget priorities.
Operational complexities:
The introduction of composite licenses and changes in capital requirements may introduce operational complexities for existing insurers.
The Insurance Amendment Bill is expected to introduce transformative reforms in India’s insurance sector. This aligns with the “Insurance for All by 2047” vision, which seeks to enhance financial inclusion and provide wider insurance coverage to citizens.
Context: As per the latest Periodic Labour Force Survey (PLFS) report released by the Ministry of Statistics and Programme Implementation (MoSPI), the urban unemployment rate stood at 6.4% in Q3 FY25.
Relevance of the Topic: Prelims: Key Idea about trends in Unemployment.
Key Findings of the Report
Overall Unemployment Rate (for individuals aged 15 and above) declined to 6.4% in the third quarter (Oct-Dec 2024) of the current financial year (FY25).
Compared to 6.5% during the same period in 2023.
Unchanged from 6.4% in July-Sept 2024 quarter of FY25.
Labour Force Participation Rate (LFPR):
Overall LFPR: 39.6% (up from 39.2% in Oct-Dec 2023)
Women’s LFPR: Increased marginally to 20% from 19.9% in 2023, but down from 20.3% in the previous quarter.
Lowest LFPR: Bihar
Gender-wise Unemployment Rate:
Men: 5.8%
Women: 8.1% (down from 8.6% in Oct-Dec 2023)
State-wise Unemployment:
Highest: Himachal Pradesh - 10.4%
Lowest: Gujarat - 3%
State-wise Female Unemployment:
Highest- Himachal Pradesh: 24%
Lowest- Delhi: 1.3%
Worker Population Ratio (WPR):
Overall WPR (15+ years): 47.2% (up from 46.6% in Oct-Dec 2023)
Male WPR: 70.9% (from 69.8% in the previous year)
Employment Composition- by Employment type:
Self-employed: 39.9%
Regular wage/salaried employees: 49.4%
Casual labourers: 10.7%
Employment Composition- by Sector:
Agriculture: 5.5%
Secondary sector (including mining): 31.8%
Tertiary sector (includes services sector): 62.7%
Related Key terms:
Labour Force Participation Rate (LFPR): It represents the percentage of the population aged 15 and above that is either employed or actively seeking employment.
Worker Population Ratio (WPR): WPR measures the percentage of employed individuals within the total population aged 15 years and above.
Unemployment Rate (UR): It indicates the percentage of unemployed persons among those in the labour force.
Regarding Activity Status:
Principal Activity Status (PS): The primary activity in which a person is engaged in for a substantial period (during 365 days preceding the survey).
Subsidiary Economic Activity Status (SS): Additional economic activities performed, apart from the usual primary activity, for at least 30 days in the 365-day period before the survey.
Current Weekly Status (CWS): This status reflects a person's activities during the immediate past 7 days before the survey date.
Context: India’s approach to import tariffs, especially in the agricultural sector, is characterised by a significant protectionist stance aimed at safeguarding its domestic producers.
Relevance of the Topic: Mains: Key trends related toAgricultural protectionism and Import Tariffs.
Overview of India’s Import Tariffs:
1. India’s Average Tariff (2023):
Average import tariff levied by India stood at 17% in 2023, which is five times higher compared to the U.S., where the average tariff is just 3.3%.
Despite the difference in the average tariffs levied by India and the U.S., the number of products subject to tariffs remains comparable in both countries.
2. Comparison with other Economies:
Other BRICS nations (Brazil, South Africa, China, and Russia) have relatively lower tariffs than India.
India: 17%
Brazil: 11%
South Africa & China: 7%+
Russia: 6.6%
European Union: 5%
3. Agricultural vs. Non-Agricultural tariffs:
India’s higher tariff rate is largely attributed to the protection of its agricultural sector.
Non-agricultural tariffs tend to remain under 15%.
This disparity reflects the government's focus on shielding domestic farmers from international competition.
Agricultural Protectionism:
India levies significantly higher tariffs on agricultural goods, which have consistently been more than twice the tariffs on non-agricultural products. The tariff on agricultural goods has always exceeded 38%, with some exceptions like in 2020.
Key products with high tariffs: Agricultural and dairy products, beverages, and tobacco items attract duties higher than 30%.
Rationale:
High agricultural tariffs are to protect India’s domestic agricultural sector, which faces inefficiencies due to low investment (6% of total national investment).
These tariffs serve as a buffer against subsidised agricultural products from countries like the U.S., where government subsidies make foreign agricultural products more competitive.
High agricultural tariffs reflect the Indian government’s preference for protecting food security and rural livelihoods.
Challenges in Reducing Tariffs
Global competition and subsidies:
A significant challenge in reducing agricultural tariffs lies in the heavy subsidies provided by countries like the U.S.
These subsidies make it difficult for Indian producers to compete with foreign agricultural products.
Inefficiencies in Indian Agriculture:
The agricultural sector remains inefficient by global standards, and without substantial investment, it would struggle to compete internationally.
The government is thus cautious about reducing tariffs, which could expose local farmers to global competition and harm livelihoods.
Impact on India-U.S. Trade Relations:
U.S. trade deficit with India:
As India continues to increase its exports to the U.S., it has caused concern within the U.S. over trade imbalances.
Goods exported from India to the U.S. surpassed $53 billion in FY25 (April-November).
Reciprocal Tariffs:
U.S. President Donald Trump proposed the imposition of “reciprocal tariffs” on countries that have “unfair” trade practices, which could include pressure on India to reduce its agricultural tariffs.
India-U.S. bilateral negotiations:
India has been adamant about excluding agricultural products, such as cereals, from tariff negotiations in Free Trade Agreements (FTAs).
However, with increasing pressure from the U.S. for reciprocal tariffs, there is growing concern that agricultural tariffs may be revisited as part of a broader trade agreement.
Future of Agricultural Tariffs in India
Policy Flexibility:
The Indian government is likely to continue its protectionist stance on agricultural tariffs to ensure food security and protect farmers.
However, international trade agreements and pressure from countries like the U.S. may compel India to make some compromises.
Long-Term Sustainability:
While tariffs provide short-term protection, they may not be sustainable in the long run.
India will need to balance agricultural protectionism with the need for agricultural reforms and investment to enhance the sector’s competitiveness.
Context: The government is considering increasing the insurance cover limit on bank deposits from the current Rs. 5 lakh per depositor.
Relevance of the Topic: Prelims: Deposit Insurance, DICGC
What is Deposit Insurance?
Deposit insurance is a financial safety net that protects depositors from bank failures by guaranteeing a certain amount of their money.
In India, deposit insurance is managed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India (RBI). This system helps maintain trust in the banking sector, prevent bank runs, and promote financial stability.
What is Credit Guarantee?
It is the guarantee that often provides for a specific remedy to the creditor if his debtor does not return his debt.
Deposit Insurance and Credit Guarantee Corporation (DICGC)
All deposits and interest income are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC). It is the second oldest insurer in the world.
It is a statutory body created by the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
It is a wholly owned subsidiary of RBI.
Insured banks by DICGC:
All Scheduled Commercial Banks
Foreign Banks
Small Finance Banks
Payment Banks
Regional Rural Banks
Local Area Banks
State Co-operative Banks
District Central Co-operative Banks
Urban Co-operative Banks.
Note: Primary Cooperative Societies are not covered by DICGC.
Deposit Insurance in India:
Evolution:
1993: The deposit insurance limit was fixed at ₹1 lakh.
2020: The government raised it to ₹5 lakh, following the Punjab and Maharashtra Cooperative Bank (PMC Bank) crisis.
2024: RBI’s Deputy Governor proposed a periodic increase in deposit insurance based on factors such as inflation, deposit growth, and rising income levels.
2025: Finance Ministry is actively considering increasing the deposit insurance limit further, following the New India Cooperative Bank crisis.
Insurance Cover amount:
Currently, the DICGC has set the insurance cover limit to 5 lakhs. This covers all the money (Principal + Interest) with the bank e.g., savings, term deposit, recurring deposits etc.
Deposits kept in different branches of a bank are aggregated for the purpose of insurance cover and maximum amount of up to rupees 5 lakhs is paid.
If funds are in different types of ownership or are deposited into separate banks they would then be separately insured.
Insurance Premium is provided by banks. This amount stands at Rs 12 paisa per Rs 100.
When is DICGC liable to pay: If a bank goes into liquidation, DICGC is liable to pay to the liquidator the claim amount of each depositor up to Rs. 5 lakhs within two months from the date of receipt of the claim list from the liquidator.
Importance of Deposit Insurance:
Ensures Financial Stability:
Prevents bank runs (mass withdrawal of deposits during financial crises).
Strengthens confidence in the banking system, especially for small depositors.
Protects Small Depositors:
A large percentage of depositors (97.8%) are fully covered, ensuring their money remains safe.
Encourages Savings and Banking Growth:
With insured deposits, people are more likely to trust banks and deposit their money, promoting financial inclusion.
Challenges in Deposit Insurance
Inadequate Coverage Limit: The current ₹5 lakh insurance cap may not be sufficient in the face of rising inflation and increasing deposits.
Delays in Payouts: When a bank collapses, depositors often face delays in receiving insured amounts.
Moral hazard: Since deposits are insured, banks might take excessive risks, knowing that the government will protect depositors.
Limited coverage of high-value deposits: While 97.8% of accounts are insured, only 43.1% of total deposit value is covered, leaving large depositors exposed.
Way Forward
Increase the Deposit Insurance limit periodically: The insurance cap should be linked to inflation and economic growth, ensuring depositors receive adequate protection.
Strengthen regulation of Cooperative banks: RBI must closely monitor urban cooperative banks and take pre-emptive action to prevent failures.
Faster claim settlement mechanism: DICGC must speed up payout processing to ensure depositors do not suffer delays.
Enhance public awareness: Many depositors are unaware of deposit insurance coverage, necessitating awareness campaigns.
Context: India’s horticulture sector including fruits and vegetables can try replicating the Amul model for harnessing the potential of farmer producer organisations.
Relevance of the topic:
Prelims: GovernmentSchemes
Mains: Horticulture Sector
About Horticulture Sector:
It is a vast and diverse field that encompasses the cultivation, production, processing, and marketing of fruits, vegetables, flowers, and ornamental plants.
Major types of horticulture:
Pomology: Fruit cultivation and includes Viticulture (grape cultivation)
Olericulture: cultivation of vegetables
Floriculture: cultivation of flowers and ornamental plant
Arboriculture: cultivation of trees and shrubs
Status of India's Horticulture Sector
India is the second-largest producer of fruits and vegetables globally, after China.
Contribution to Agriculture Gross Value Added (GVA): 33%
In 2023-24, horticulture production was estimated at 355 million tonnes, surpassing food grain production.
Horticulture sector growth rate: Around 4-5% annually, higher than cereals.
Exports: India is ranked 14th in vegetables and 23rd in fruits.
Post-harvest losses: About 8.1% for fruits and 7.3% for vegetables, accounting for 37% of the total post-harvest losses, valued at Rs 1.53 trillion annually (NABCONS, 2022).
Farmers' income: Farmers typically receive only 30% of the final consumer price due to unorganised value chains.
Significance of Horticulture Sector for India
Sunrise sector: Horticulture has the potential to:
Double farmers income
Generate employment
Enhance foreign currency earnings
Enable rural development
Food & Nutritional security:
Fruits & vegetables form major sources of vitamins/minerals in Indian diet
Potential in India:
Favourable agro-climatic conditions
Abundant labour force
Relatively low production costs
High productivity, compared to cereals
Challenges in India’s Horticulture Sector
Infrastructure Deficit:
Poor logistics and lack of equitable cold storage and warehousing facilities contribute to delays and wastages as Horticulture crops are highly perishable.
Cold storage distribution among the states is inequitable, with around 59% of the storage capacity present in 4 states- Uttar Pradesh, West Bengal, Gujarat, and Punjab.
Post-harvest losses:
Lack of cold storage, grading, and processing infrastructure leads to significant wastage.
Seasonal gluts result in price crashes, affecting farmers' incomes.
Small operational landholdings:
They limit the amount of land available for cultivation, for crop rotation and sustainable soil management resulting in reduced yields and decreased soil fertility.
Fragmented value chains:
Unlike the dairy sector, where cooperatives like AMUL ensure stable pricing, horticulture lacks a structured aggregation and distribution system.
Middlemen dominate the market, reducing farmers’ bargaining power.
Limited processing and value addition:
Only 10% of India’s fruits and vegetables are processed, compared to 60-70% in developed countries.
The absence of strong food processing industries leads to distress sales and lower farmer earnings.
Market linkages and Export challenges:
Limited direct market access for farmers results in price volatility.
Quality and traceability issues restrict India’s potential in global Fruits & Vegetables exports.
India’s export share in horticulture remains low, despite being a top producer. (mere 1%.)
Indian exports face food safety and standards related issues due to non-tariff trade barriers like Sanitary and phytosanitary measures.
E.g.:pesticide residue has led to rejection of exports in key markets like the EU.
Initiatives taken
Mission for Integrated Development of Horticulture (2014): Centrally Sponsored Scheme, for the holistic growth of the horticulture sector with 2 sub-schemes:
National Horticulture Mission: aims at holistic development of the horticulture sector by ensuring forward & backward linkage through a cluster approach under Horticulture Cluster Development Programme.
Horticulture Mission for North East and Himalayan States.
Operation Greens:
Launched during Budget 2018-19 to address price fluctuations in tomato, onion, and potato (TOP) and for the benefit of farmers and consumers.
It was later extended to all crops (from TOP to TOTAL).
Clean Plant Programme:
CPP aims to enhance the quality of fruit crops across the nation by providing disease free high-quality planting material to farmers regardless of their landholding size.
Formation of Farmer Producer Organisations (FPOs):
The government aims to establish 10,000 FPOs by 2027, with 8,875 already registered (as of August 2024).
FPOs help in collective bargaining, better price realization, and reducing dependency on middlemen.
Agriculture Infrastructure Fund (AIF):
Provides financial support for cold chains, warehouses, and processing units.
Aims to reduce post-harvest losses and improve price realization for farmers.
Coordinated programme on Horticulture Assessment and Management using geoinformatics (CHAMAN):
To develop and firm up scientific methodology for estimation of area and production under horticulture crops.
Capital Investment Subsidy Scheme:
for construction/ expansion/ modernization of Cold Storages/Storages of Horticulture Products.
Mega Food Parks:
Establishment of agriculture export zones and Mega food parks to increase processing facilities for horticulture crops.
HORTINET App:
Launched by APEDA (Agriculture and Processed Food Export Development Authority).
Provide online services such as farm registration, testing and certification, real time details of farmers, farm location, etc.
Case Study: Sahyadri Farmer Producer Company Ltd (SFPCL)
Located in Nashik, Maharashtra, Sahyadri FPO started in 2004 with 10 farmers and has expanded to 26,500 farmers across 252 villages and 31,000 acres.
Annual turnover: Grew from Rs 13 crore (2011-12) to Rs 1,549 crore (2023-24).
Processing & Export:
Largest grape exporter (90% exported to EU and UAE).
Strong processing infrastructure, turning tomatoes into ketchup, puree, and sauces.
Employs over 6,000 people, with 32% being women.
Impact: Farmers receive 55% of the final export price, compared to the usual 30% in traditional markets.
Provide institutional support for working capital, infrastructure, and digital integration.
Leverage platforms like Open Network for Digital Commerce (ONDC) to enhance market access.
Reviving and expanding Operation Greens:
Increase financial allocation to improve processing, storage, and logistics.
Commodity-specific value chain development:
Develop dedicated infrastructure for key horticultural crops, ensuring at least 10-20% of production is processed.
Promote PPPs:
Encourage public-private partnerships (PPP) in food processing industries.
Promote partnerships with retail chains like SAFAL to improve farm-to-market efficiency.
National Fruit and Vegetable Board:
Establish a board similar to National Dairy Development Board (NDDB) to streamline policies, market linkages, and farmer support.
Leveraging technology for Market transparency:
Implement blockchain for traceability and AI-driven price prediction models to prevent distress sales.
Expand e-NAM coverage for horticultural produce.
The horticulture sector has immense potential to boost farmer incomes, enhance food security, and strengthen India’s agri-export base. Scaling up successful models like Sahyadri FPO across India can replicate the AMUL success story in fruits and vegetables.
Context: Responding to a petition filed in the Supreme Court, the Reserve Bank of India (RBI) has defended the collection of financial data of banking users by credit rating companies to prepare credit scores.
It added that this was precisely the purpose behind Parliament enacting the Credit Information Companies (Regulation) Act, 2005 and companies do not need consent from the borrowers for this.
Relevance of the Topic: Prelims: Key facts aboutCredit Information Companies.
Supreme Court Case Overview
A Bengaluru-based entrepreneur and educational trainer, filed a plea questioning the legality of Credit Information Companies (CICs) operations.
Key Allegations:
CICs collect financial data without obtaining explicit borrower consent leading to privacy violation.
Mechanism of "forced consent" coerces users into allowing their financial data to be shared without an option to opt out.
CICs allegedly profit by selling credit data to banks and financial institutions without user permission.
CICs retain data beyond the seven-year limit established by the CIC Act.
The Supreme Court has appointed a Senior Advocate as amicus curiae to assist in the matter.
RBI’s Defence in Supreme Court:
RBI argues that the collection of financial data by CICs is legal under the CICR Act, 2005, and that obtaining individual consent is unnecessary for credit assessment.
RBI clarified that while seven years is the minimum retention period, there is no upper limit for data storage.
CICs serve a vital role in risk mitigation, helping lenders assess a borrower's ability to repay loans and reducing Non-Performing Assets (NPAs).
RBI assures that CICs follow strict security safeguards to prevent unauthorised data access or misuse, with penalties up to Rs. 1 crore for violations.
Legal and Ethical Implications:
The case raises questions about the intersection of data privacy and financial regulation.
It challenges the ethical implications of data collection practices by financial institutions.
The outcome could set precedents for how personal financial data is handled in India.
Image source: MoneyControl
About Credit Information Companies (CICs)
What do they do?
CICs collect public data, credit transactions and payment histories of individuals and companies regarding loans and credit cards, among others.
Their primary function is to gather data from various sources, such as banks, financial institutions, lenders, and other credit-granting entities, and then compile this data into credit reports.
Banks, non-banking financial institutions refer to the CIC's report and score to decide borrowers' creditworthiness before granting a loan or issuing a credit card.
Regulation:
CICs in India are licensed by the RBI and governed by Credit Information Companies Regulation Act, 2005 (CICRA) and various other rules and regulations issued by the RBI.
As per Section 15 of CICRA, every Credit Institution (like banks) should be a member of at least one CIC.
CICRA also stipulates that a CIC may seek and obtain information from its members only. Thus, if a bank seeks information from a CIC, it will get the information given by other institutions (to CIC) only.
At present, four credit information companies are given certificates of registration by the RBI. These companies are:
TransUnion Credit Information Bureau (India) Limited (CIBIL)
Equifax Credit Information Services Private Limited
Experian Credit Information Company of India Private Limited
CRIF High Mark Credit Information Services Private Limited.
CICs are responsible for safeguarding this sensitive information, ensuring data privacy and protection.
Importance of CICs
For Lending Institutions:
Credit Risk Assessment: CICs offer detailed insights into a borrower’s credit history, enabling lending institutions to evaluate potential risks accurately.
Streamlined Lending Decisions: By using credit scores and reports from CICs, lending institutions can make quicker and more reliable lending decisions.
Portfolio Diversification: CIC data allows lending institutions to identify creditworthy customers and explore new lending opportunities, leading to portfolio diversification.
For Borrowers:
Higher Loan Approvals: Good credit score increases the chances of loan approvals.
Lower Interest Rates: Lenders offer lower interest rates to borrowers with high credit scores, reducing the cost of borrowing.
Better Negotiation Power: Borrowers with positive credit reports are in a stronger position to negotiate the terms and conditions of loans.
CICs must employ robust encryption, firewalls, and other security measures to safeguard data against unauthorised access to databases and breaches. Also, CICs must comply with regulations like Information Technology Act, 2000, ensuring responsible data collection, storage, and usage.
Context: India and the US have agreed to negotiate the first tranche of a Bilateral Trade Agreement(BTA) in 2025 to reduce tariff and non-tariff barriers. However, the US policy on reciprocal tariffs, as proposed by President Donald Trump, could impact negotiations significantly.
Relevance of the Topic:Prelims: Key aspects of theUS-India Relations- Bilateral Trade Agreement
India-US Trade Relations: Current Scenario:
US was India’s second-largest trading partner during April-November 2024-25, with bilateral trade reaching $82.52 billion.
India’s goods trade surplus with the US doubled from $17.30 billion in 2019-20 to $35.33 billion in 2023-24.
India enjoys a merchandise trade surplus of $35 billion with the US.
Major Indian imports from the US: Mineral fuels, precious stones, nuclear reactors, electrical machinery, and aircraft parts.
Major Indian exports to the US: Engineering goods, electronic goods, gems and jewellery, pharmaceuticals, and petroleum products.
Both Nations aim to double their bilateral trade to $500 billion by 2030.
Reciprocal Tariffs: Implications for India:
Trump’s reciprocal tariff plan aims to match higher tariffs imposed by trade partners on US goods.
US claims India imposes high tariffs, particularly on agricultural goods (39%) and motorcycles (100%), compared to US tariffs of 5% and 2.4%, respectively.
The policy could push India to reduce its tariffs rather than the US offering reciprocal concessions.
The US withdrawal of India’s Generalised System of Preferences (GSP) status in 2019 has already affected India’s duty-free exports worth over $5 billion.
Bilateral Trade Agreement (BTA):
What is it: An integrated approach to strengthen and deepen bilateral trade across the goods and services sector.
Objectives:
Increasing market access
Reducing tariff and non-tariff barriers
Deepening supply chain integration.
Concerns in Bilateral Trade Agreement (BTA) Negotiations
Narrow scope: BTA is narrower in scope than a Free Trade Agreement (FTA), focusing only on specific sectors rather than overall trade liberalisation.
US demands: US may demand stricter standards and non-tariff measures to gain further concessions from India.
Potentially benefit US more: BTA likely means lower Indian tariffs on American goods, since average US tariffs are already among the lowest in the world.
Less favourable stand: India’s higher average tariff rates compared to competing nations reduce its ability to negotiate favorable trade terms.
Past experiences:Indo-Pacific Economic Framework for Prosperity (IPEF), which India is a part of, did not conclude its ‘trade pillar’ due to the lack of US tariff concessions.
Context: TheUS President Donald Trump announced plans for reciprocal tariffs on numerous trading partners, which could take effect from April 2025.
This move has significant implications for global trade and India's economic relations with the United States. India will be amongst the worst to hit with sectors like food products, vegetables, textiles and clothing set to be the most impacted.
The US wasIndia's second-largest trading partner during this period.
What are Reciprocal Tariffs?
Definition:
Tariffs are taxes imposed on imported goods. Reciprocal tariffs imply that the US will charge the same tariff rate on imports as the exporting country levies on the US goods.
Historical Context:
Post-World War II global trade shifted towards free trade under GATT and WTO, allowing developing countries special and differential treatment.
Developed countries (such as the US) were expected to maintain tariffs much lower than the tariff rates in developing countries (such as India).
This system allowed India to levy higher tariffs that ensured that cheap food grains produced by rich farmers in Europe and US did not flood into the Indian market and ruin the livelihood of millions of Indian farmers.
Trump’s Policy Shift: The new policy eliminates differential treatment, making all countries subject to equal tariff measures.
Rationale behind US’s Reciprocal Tariffs
Address Trade Deficits: The US has a significant trade deficit with multiple countries, including India.
The US has a trade deficit of $1 trillion with the rest of the world, while China enjoys a trade surplus of more than $1 trillion.
Protectionist Economic Policy: The US aims to boost domestic industries by making foreign imports costlier.
Political Strategy: Trump used the trade deficit as a campaign issue, claiming unfair treatment by trade partners.
Calculation of Reciprocal Tariffs
Comprehensive Review: The US Trade Department is formulating tariff structures considering direct duties and indirect subsidies.
Subsidy Adjustments: US calculations include export subsidies, such as India's Production Linked Incentive (PLI) scheme.
During 2022-24, $1 billion has been disbursed to companies in India under the PLI scheme to boost exports of handsets.
Impacts on India
Limited Adverse Effects: According to the Global Trade Research Initiative (GTRI), reciprocal tariffs by the US are not expected to hurt India significantly.
India's export profile differs significantly from the US.
For example, if the U.S. charges 50% reciprocal tariffs on Indian pistachios because India charges the same, its impact can be neglected as India does not export pistachios.
Additionally, for 75% value of the U.S. exports to India, the average tariff is less than 5%.
In contrast, India faces high U.S. tariffs on many labour-intensive goods like textiles, and footwear, of between 15-35% on several products.
Trade Deficit Adjustments: Increased Indian imports from the US may reduce India’s trade surplus with the US.
India is likely to buy more and more US goods- such as defence equipment and oil and gas- to balance the trade.
US goods might become cheaper and more affordable for Indians.
Depreciation of Rupee: Could lead to a depreciation of the Indian rupee due to higher demand for US dollars.
Hamper consumption-led GDP growth in India:
Budget 2025 provided a Rs. 1 lakh crore worth tax break to Indian income tax payers, to boost domestic consumption and thus fuel GDP growth.
However, since it is targeted at the richest Indians, they may spend this tax relief on US products, especially if US products become suddenly cheaper.
Thus, the anticipated consumption boost to India’s GDP may not happen to the same extent as imagined by the government.
Adverse effect on Aatmanirbhar Bharat:
Domestic manufacturing could face pressure if US goods flood the Indian market.
Could slow down India's progress towards self-reliance.
India-US Relations:
Increased defense and energy purchases may strengthen bilateral ties.
US actions against allies like Canada and the EU indicate unpredictability in trade policy.
Way Forward
Monitoring US Decisions: India should wait for the US to finalize the tariff policy before reacting.
Balancing Trade Relations: India might increase its purchases of US goods, such as oil, gas, and defense equipment, to maintain positive trade relations.
Negotiating Fair Trade Terms: Engaging diplomatically to ensure balanced trade agreements with the US.
Context: Income-tax Bill, 2025, recently introduced in Lok Sabha, intends to simplify India’s six-decade-old structure of direct taxation and replace the Income Tax Act, 1961. Once passed by Parliament, the new law will likely come into effect on April 1, 2026.
Relevance of the Topic:Prelims: Income Tax Bill - Important facts.
Need for new Income Tax Act
Complex legal framework:
The Income Tax Act of 1961 has undergone many changes since 1961, as certain changes are made to it every year through the Union Budget.
Over the past decades, many new concepts were introduced in the Act like Tax Deduction at Source (TDS), Minimum Alternate Tax (MAT), Transfer Pricing, Advance Pricing Agreements, and dispute resolution mechanisms.
Additionally numerous sector-specific, region-specific, and profit-based incentives were introduced.
This had led to a highly complex structure of the existing Act.
Difficult language:
The language of the existing Act is technical and difficult to understand. This leaves the scope for misinterpretation, leading to a surge in litigation between taxpayers and the tax authorities.
The primary objective of the new Income Tax Act is to reduce disputes and litigation involving the tax system and ease of compliance for taxpayers.
Income Tax Bill, 2025: Salient Features and Implications
1. Structural Simplification:
Shorter:
The new Bill is 622 pages long, about 24% shorter than the 823-page Income-tax Act, 1961 (updated until 2024).
There are 23 chapters, fewer than half the 47 chapters in the Income-tax Act, 1961. There are 16 schedules, two more than in the Act.
Reduction in legal complexity by halving the word count from 5.12 lakh to 2.60 lakh.
Simpler:
Focus on simpler language. Tax slabs,details regarding deductions, exemptions, and TDS/TCS rates are provided in tabular format. More than 57 tables, compared to 18 in the Income-tax Act, 1961.
Deductions from salary such as standard deduction, gratuity, and leave encashment have been detailed in tabular form.
2. Shift from Assessment Year (AY) to Tax Year:
The Bill introduces Tax Year: defined as a 12-month period beginning April 1.
In case of a business or a newly-set-up profession, the tax year will begin from the date it was set up, and will end with the said financial year.
Income tax will be levied on the basis of the economic activity and income earned in a tax year.
At present, income tax has the concept of assessment year (AY).
It assesses tax on income earned in the previous (financial) year.
For instance, income earned in the financial year (FY) 2024-25 (April 1, 2024 to March 31, 2025) is assessed in AY 2025-26 (beginning April 1, 2025).
Prior to 1989, the concepts of previous year and assessment year were there because taxpayers could have different 12-month previous years for each source of income.
From April 1, 1989, the previous year was aligned to the FY in all cases.
However, AY continued to be used for various proceedings under the Act.
Thus, a taxpayer had to track two different periods, the previous year and the AY.
This shift from AY to Tax Year eliminates the need to track two different time periods (previous year & AY). Aligns tax computation with financial year reporting.
3. Crypto as Property:
Virtual Digital Assets (VDA) such as cryptocurrencies have been included in the definition of property.
They are to be counted as a capital assetof the assessee along with existing categories of immovable property such as land and building, shares and securities, bullion, jewellery, archaeological collections, drawings, paintings, sculptures, and any work of art.
Strengthens tax administration on evolving financial assets.
4. Social Media Access in Tax Governance:
Recognises “Virtual digital space” including email servers, social media accounts, online investment, trading and banking accounts, remote or cloud servers, and digital application platforms under provisions for surveys, searches and seizures by Income Tax authorities.
Strengthens monitoring against tax evasion.
5. Dispute Resolution Mechanism:
Provides transparency in decision-making through the Dispute Resolution Panel (DRP).
Reduces litigation and ensures timely resolution.
6. Capital Gains Exemptions:
Section 54E of the Income Tax Act 1961, which details exemptions for capital gains on transfer of capital assets prior to April 1992 has been removed in the Bill.
Deductions have been streamlined, and outdated exemptions removed.
7. Dedicated chapter on non-profit organisations:
This represents a genuine attempt to simplify the often complex and litigious regime applicable to these institutions, providing much-needed clarity.
Attempt has also been made to clarify some of the litigious positions.
Benefits
Reduced Complexity:
The new income tax bill is expected to simplify the tax structure by minimising the number of deductions and exemptions available to taxpayers.
Enhances taxpayer convenience through structured presentation.
Increased Compliance:
It will streamline tax laws and reduce legal ambiguities.
Encourages voluntary compliance due to simplicity.
Liberal Tax Rates:
The Bill provides for a relieved tax structure which ensures more money saved in the hands of the taxpayer.
Minimised Legal Disputes:
Simpler language reduces interpretational disputes.
The simplification of tax laws is expected to reduce litigation burdens for individuals and businesses significantly.
Criticism
Absence of major reforms in penalty and compliance provisions.
Lacks significant incentives for investment and economic stimulus.
Way Forward
Stakeholder consultation during the Parliamentary review phase.
Integration of feedback for enhancing tax efficiency.
Possible future amendments to address compliance and enforcement issues.
The Income Tax Bill 2025 is an effort to bring a change in the direct taxation landscape of the country. It is a commitment of the government to reform, fairness, and justice.
Context: Funding for the various production linked incentive schemes (PLI) has more than doubled in the recent Union Budget 2025-26. Thisunderscores the importance for the manufacturing sector and the government’s push for making India self-reliant and a major global manufacturing hub.
Relevance of the topic:
Prelims: PLI Scheme
Mains: PLI Scheme: Objectives, Impacts, Challenges
Increase in PLI Budget (2025-26)
FY26 (BE): ₹19,482.58 crore
FY25 (RE): ₹9,360.36 crore
Growth: 108% increase
About Production Linked Incentive (PLI) Scheme
Aim: To scale up domestic manufacturing capability, accompanied by higher import substitution and employment generation.
Launched in March 2020, the scheme initially targeted three industries:
Mobile and allied Component Manufacturing
Electrical Component Manufacturing and
Medical Devices.
Later, it was extended to 14 sectors.
Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals
Manufacturing of Medical Devices: Department of Pharmaceuticals
Pharmaceuticals drugs: Department of Pharmaceuticals
Large Scale Electronics Manufacturing: Ministry of Electronics and Information Technology
Electronic/Technology Products: Ministry of Electronics and Information Technology
Telecom & Networking Products: Department of Telecommunications
Food Products: Ministry of Food Processing Industries
White Goods (ACs & LED): Department for Promotion of Industry and Internal Trade
High-Efficiency Solar PV Modules: Ministry of New and Renewable Energy
Automobiles & Auto Components: Department of Heavy Industry
Advance Chemistry Cell (ACC) Battery: Department of Heavy Industry
Textile Products: MMF segment and technical textiles: Ministry of Textiles
Specialty Steel: Ministry of Steel
Drones and Drone Components: Ministry of Civil Aviation
Key Features of the PLI Scheme:
Outcome-based Incentives: Incentives will be disbursed only after the production has taken place.
Incremental Production Focus:
The calculation of incentives is based on incremental production at a high rate of growth.
In some sectors such as advanced chemistry cell batteries, textile products and the drone industry, the incentive will be calculated on the basis of sales, performance and local value addition done over the period of five years.
Emphasis on Scale: The scheme focuses on size and scale by selecting producers who can deliver high volumes.
Strategic Sectors: Sectors chosen include, those with:
Cutting-edge technology
Potential for integration with global value chains
High job-creation capacity
Sectors closely linked to the rural economy.
WTO Compliance: The scheme is designed to align with World Trade Organisation (WTO) commitments, as the quantum of support is not directly linked to exports or value-addition.
India has become a key player in global smartphone exports.
Handsets are now the second highest exported product from India
Exports Value (April-November 2024): $13.1 billion
Target for 2025: More than $20 billion in smartphone exports.
Investment & Incentive Disbursal:
Total Investment Committed: ₹11,324 crore
Total Production Target: ₹10.7 lakh crore
Disbursed Incentives (2022-25): ₹8,700 crore to 19 eligible companies
Investment Made (as of June 2024): ₹8,282 crore
Employment Generation:
Direct employment created: 1,22,613 jobs in three years
Indirect employment: Increased opportunities in logistics, retail, and supply chain
Challenges Faced:
Failure of Some Domestic Players: Companies like Lava, Bhagwati, and Optiemus failed to meet PLI targets.
Investment-Subsidy Mismatch: Actual investment by companies (₹8,282 crore) is slightly lower than total disbursal (₹8,700 crore).
Over-Reliance on Global Giants: Over 75% of incentives went to Apple's contract manufacturers (Foxconn, Tata Electronics, Pegatron).
The PLI scheme, complemented by the National Manufacturing Mission, is pivotal in making India a global manufacturing hub.
By boosting investment, reducing import dependence, and enhancing domestic value addition, it strengthens Make in India and Atmanirbhar Bharat. Effective implementation and infrastructure development will be key to its long-term success.
Context: Indian farmers demand that India should exit the World Trade Organisation (WTO). They believe WTO rules hinder their ability to secure a legal guarantee for a minimum support price (MSP).
Relevance of the topic:
Prelims: WTO- Agreement on Agriculture, National Treatment, MFN
Mains: WTO- Issues, Importance.
About World Trade Organisation
Origin:
WTO came into being in 1995.
WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War.
Objective: To help trade flow smoothly, freely and predictably.
It has 164 members, accounting for 98% of world trade.
The WTO Secretariat is based in Geneva (Switzerland).
Non-discrimination principles: Most-Favoured Nation and National Treatment
What is WTO’s Agreement on Agriculture (AoA)?
Background:
The AoA is an international treaty of the World Trade Organisation (WTO), negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade.
It entered into force with the establishment of the WTO on 1 January 1995.
What does it include: It includes the classification of subsidies by "boxes" depending on consequences of production and trade:
Amber Box: most directly linked to production levels.
Blue Box: production-limiting programmes that still distort trade.
Green Box: minimal distortion.
While payments in the amber box had to be reduced, those in the green box were exempt from reduction commitments.
However, all must comply with the "fundamental requirement":
To cause not more than minimal distortion of trade or production
Must be provided through a government-funded programme that does not involve transfers from consumers or price support to producers.
Three Pillars of AoA
Domestic support:
It calls for reduction in domestic subsidies that distorts free trade and fair price.
Under this provision, the Aggregate Measurement of Support (AMS) is to be reduced by 20% over a period of 6 years by developed countries and 13% over a period of 10 years by developing countries.
Under this, Subsidies are categorised into:
Green Box
Amber Box
Blue Box
Subsidies that do not distort trade, or at most cause minimal distortion.
They are government-funded and must not involve price support. They also include environmental protection and regional development programmes.
“Green box” subsidies are therefore allowed without limits, provided they comply with the policy-specific criteria.
All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box as all domestic supports except those in the blue and green boxes.
These include measures to support prices, or subsidies directly related to production quantities.
This is the amber box with conditions. Such conditions are designed to reduce distortion.
Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production.
At present, there are no limits on spending on blue box subsidies.
Market access:
Market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members for the entry of specific goods into their markets.
Market access requires that tariffs fixed (like custom duties) by individual countries be cut progressively to allow free trade.
It also required countries to remove non-tariff barriers and convert them to Tariff duties.
Export subsidies:
Subsidy on inputs of agriculture, making export cheaper or other incentives for exports such as import duty remission etc. are included under export subsidies.
These can result in dumping of highly subsidized (and cheap) products in other countries and damage the domestic agriculture sector of other countries.
AoA and MSP Challenges
Under Agreement on Agriculture (AoA), Minimum Support Price (MSP) is categorised as a trade-distorting subsidy.
Rationale:
If countries are permitted to provide such subsidies to their farmers, it would give them an unfair advantage in the global market.
This would render agricultural products from other countries uncompetitive.
Therefore, trade-distorting subsidies like MSP are subject to specific limits.
However, AoA has significant imbalances: Issue of External reference price (ERP)
ERP is an average price established based on the base years of 1986-88 against which MSP is compared to determine trade-distorting subsidies. This ERP has not been revised in decades.
Consequently, the gap between the MSP and the fixed ERP has widened dramatically due to inflation.
India has been negotiating diligently at the WTO to rectify this issue but without success.
Existing Policy Flexibility within WTO Framework
Peace Clause Utilisation:
It allows India to exceed subsidy limits for rice and wheat without legal challenges.
Limitations: Applies only to food security programs, not all crops.
Alternative Support Mechanisms: Income Support Schemes
PM-Kisan Samman Nidhi: Provides ₹6,000/year to farmers; classified as non-trade-distorting.
However, the 2025 Budget has failed to enhance such schemes.
Consequences of Exiting the WTO:
Loss of Trade Benefits:
National Treatment: Indian exports could face discrimination in foreign markets.
Most-Favoured-Nation (MFN) Status: Loss would require renegotiating bilateral FTAs, which can be:
Complex and Costly: Higher bureaucratic and compliance burdens.
Unfavourable Terms: Developed countries often impose stricter conditions in FTAs.
Dispute Resolution Void:
WTO’s Dispute Settlement Mechanism provides a structured, rules-based system (e.g. India’s successful cases against the US/EU).
Current Crisis: Appellate Body non-operational but still more effective than FTA-based diplomacy.
WTO’s Broader Role and Global Context:
Beyond Agriculture:
Multilateral Trade Governance: Ensures non-discriminatory access to global markets for goods/services.
Strategic Importance for India: Critical for a developing economy reliant on exports (e.g. IT, pharmaceuticals).
Geopolitical Imperatives:
US-China Rivalry: A weakened WTO enables unilateralism (e.g. US tariffs on China).
India’s Stake: Strengthening multilateralism curbs protectionism and safeguards developing nations.
Way Forward
Policy Reforms within WTO:
Revise ERP: Lobby for inflation-adjusted reference prices.
Leverage Peace Clause: Expand coverage to more crops.
Domestic Measures:
Boost Income Support: Enhance schemes like PM-KISAN to reduce reliance on MSP.
Farmer Engagement: Educate stakeholders on WTO’s benefits and collaborative reform strategies.
Strategic WTO Engagement:
Strengthen Multilateralism: Advocate for appellate body revival and dispute resolution reforms.
Counter Protectionism: Collaborate with developing nations to uphold fair trade practices.
Trade multilateralism, the principle that the WTO represents, is the best bet for developing countries like India. It is essential to communicate clearly with farmers and involve them in this process, as they are key stakeholders.
