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UDAN 5.5 Launched

Context: The Centre has launched the next phase of its flagship UDAN (Ude Desh ka Aam Naagrik) scheme. UDAN 5.5 intends to promote last-mile connectivity in remote regions, hilly areas, and island territories.

Relevance of the Topic:Prelims: Key facts about UDAN Scheme.

About UDAN (Ude Desh ka Aam Nagrik) Scheme: 

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  • Launched by the Ministry of Civil Aviation for regional airport development and regional connectivity enhancement. It is a part of the National Civil Aviation Policy 2016.
  • Objectives:
    • To improve the air connectivity to remote and regional areas of India.
    • To make flights accessible and affordable in tier-2 and tier-3 towns. 

Key Features of UDAN scheme: 

  • Under the scheme, airlines have to cap airfares for 50% of the total seats at Rs. 2,500per hour of flight. This would be achieved through:
    • A financial stimulus in the form of concessions from Central and State governments and airport operators.
    • Viability Gap Funding (VGF): A government grant provided to the airlines to bridge the gap between the cost of operations and expected revenue.
      • Regional Connectivity Fund (RCF): created to meet the viability gap funding requirements under the scheme.
    • The partner State Governments would contribute a 20% share to this fund.
      • UTs and NER states shall contribute only 10%.
  • UDAN created a framework based on the need and led to the formulation of:
    • Lifeline UDAN: for transportation of medical cargo during pandemic.
    • Krishi UDAN: value realization of agriculture products especially in Northeastern Region {NER} and tribal districts.
    • International UDAN routes for NER to explore International Connectivity from/to Guwahati and Imphal.

Previous Phases of the Scheme

  • Phase 1:
    • Launched in 2017
    • Objective: Connect underserved and unserved airports in the country.
  • Phase 2:
    • Launched in 2018
    • Aim: Expand air connectivity to more remote and inaccessible parts of the country.
  • Phase 3:
    • Launched in November 2018
    • Focus: Enhancing air connectivity to hilly and remote regions of the country.
  • Phase 4:
    • Launched in December 2019
    • Focus: Connecting islands and other remote areas of the country.
  • Phase 5:
    • Launched in 2023
    • Focus on Category-2 (20-80 seats) and Category-3 (>80 seats) aircrafts.
    • No restriction on the distance between the origin and the destination of the flight.
    • VGF to be provided will be capped at 600 km stage length for both Priority and Non-Priority area.
      • Earlier capped at 500 km.

The Latest phase: UDAN 5.5

  • UDAN 5.5 intends to promote last-mile connectivity in remote regions, hilly areas, and island territories.
  • Focus: Routes that will be serviced exclusively with sea-planes, choppers, and small aircraft with a seating capacity of less than 20 passengers.
  • Operators will get a chance to chart seaplane routes between 80 water bodies, which include waterdromes, ponds, and dams.
  • Around 400 helipads are also included in the scheme for operators to map out chopper routes.
  • Allows the participation of operators of aircraft in categories such as:
    • Category ‘1A’: seat less than nine passengers.
    • Category ‘1’: less than 20 passengers.

Achievements under UDAN Scheme: 

  • Expanded air connectivity:
    • UDAN has provided air connectivity to more than 29 States/ UTs across the country.
    • It has provided a fair amount of air connectivity to Tier-2 and Tier-3 cities at affordable airfares and has transformed the way travelling was done earlier.
    • Facilitated the travel of around 1.5 crore passengers across more than 2.8 lakh flights.
  • Increased routes:
    • Operationalised 619 routes, including helicopter routes.
  • Increasing airports:
    • The number of operational airports in the country has doubled from 74 in 2014 to more than 157 in 2024.
  • Reaching the last-mile:
    • 68 underserved/unserved destinations which include 58 Airports, 8 Heliports & 2 Water Aerodromes have been connected under UDAN scheme.
  • The new scheme has attracted players who want to start seaplane services across the Andaman and Nicobar island chain, among other potential routes.

Scope for further development under UDAN: 

  • Present Situation:
    • At present, there are no seaplane services in India.
    • The number of small aircraft in the A1 category number is less than 20.
  • Over the next five years, Industry estimates forecast:
    • Creation of over 50 seaplane routes 
    • Development of around 20-25 aerodromes 
    • Requirement of around 30 aircrafts.  

Commodity Boards in India

Context: Recently, the Finance Minister, in her Budget speech, spoke about establishing a Makhana Board in Bihar.

Relevance of the Topic:Prelims: Commodity Boards, Facts about Makhana.

Commodity Boards

  • The Commodity Boards are autonomous bodies under the Ministry of Commerce & Industry.
  • Functions of Commodity Boards:
    • Provide financial and technical assistance to growers.
    • Facilitating trade fairs, branding, and market linkages.
    • Promoting research and development for value addition.
    • Ensuring remunerative prices for farmers.
    • Encourage export and domestic trade.

Existing Commodity Boards

There are five statutory Commodity Boards under the Department of Commerce. 

  • Tea Board: 
    • Set up in 1954 under the Tea Act, 1953. 
    • Membership: headed by a Chairman and consists of 30 Members.
    • Head Office: Kolkata 
    • 2 Zonal offices: one each in the North Eastern Region at Jorhat in Assam and in the Southern Region at Coonoor in Tamil Nadu. 
    • 3 overseas offices: located at London, Moscow and Dubai.
  • Coffee Board:
    • Constituted under Coffee Act, 1942. 
    • Board comprises 33 Members including the Chairperson, who is the Chief Executive and functions from Bangalore.
  • Rubber Board:
    • Constituted under Rubber Act, 1947 
    • The board is headed by a Chairman and has 27 members.
    • Headquarters: Kottayam, Kerala.
  • Spices Board:
    • Constituted in 1987 under the Spices Board Act, 1986. 
    • The board is headed by a Chairman and consists of 32 members. 
    • Head Office: at Kochi, Kerala
    • Responsibility: Development of cardamom industry & export promotion of 52 spices listed in the Schedule of Spices Board Act, 1986.
  • Tobacco Board:
    • Constituted in 1976 under the Tobacco Board Act, 1975. 
    • Headquarters: at Guntur, Andhra Pradesh

Newly Established Boards

  • National Turmeric Board (2024): 
    • Headquarters: at Nizamabad, Telangana
    • Aims to enhance turmeric production in 20 states.
    • Note: Turmeric is also known as ‘Golden Spice’.
  • Proposed Makhana Board: 
    • To be established in Bihar. 
    • Union Budget 2025 emphasised institutional support for Makhana farmers in Bihar.

Important Facts about Makhana (Euryale ferox Salisb.)

  • Also known as gorgon nut.
  • Makhana is an aquatic crop cultivated in shallow wetlands.
  • Bihar produces 85% of India's total Makhana.
  • Its growth requires a conducive range of air temperature (20-35°C), high humidity (50-90%) and annual rainfall of 100-250 cm.
  • It is a water intensive crop, needing assured availability of irrigation.
  • Makhana is classified as a dry fruit although it is a product of an aquaphyte.
  • Makhana plant has a combination of dicot and monocot characteristics. 
  • Economic significance: Supports 80,000 fishermen families in Bihar.
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Bottlenecks in the functioning of Commodity Boards

  • Stakeholder Representation: Often dominated by public representatives instead of actual farmers.
  • Autonomy Concerns: Political interference may hinder the effectiveness of the Boards.
  • Implementation delays: For example, Turmeric Board is yet to be fully operational.

Way Forward

  • Ensure greater autonomy and farmer representation in decision-making.
  • Strengthen scientific research for better yield and quality standards.
  • Boost logistics and supply chain to foster trade into newer markets.
  • Promote technological advancements for modernizing farming practices.

Southern States trump rest of India in GDP growth

Context: The Chief Economic Adviser to the Government of India has emphasised the need for India’s Southern States to benchmark themselves against the world. As the region is leading in many of the parameters when compared with the rest of the country.

Relevance of the Topic:Mains: Southern States- Development trends, Concerns, Way Forward

Development Statistics of India’s Southern states:

  • Share in India’s GDP:
    • The Southern States- Tamil Nadu, Karnataka, Kerala, Andhra Pradesh and Telangana,  contribute to over 30% of India’s GDP.
    • Stand out performers: Tamil Nadu and Karnataka have high compounded annual growth rates in Gross State Domestic Product (GSDP). 
  • Growth Rate:
    • The southern region registers a 6.3% annual growth in real terms, compared to 5% annual growth for the rest of India.
    • Per capita GDP growth in Southern states is 5%, higher than the 4.2% recorded in other parts of the country.
  • Per capita income: 
    • Southern states have maintained per capita income over the national average per capita income, since 1991. 
  • Labour Force Participation:
    • Southern states  fare better in terms of Average Labour Force Participation Rate.
  • Gross Value Added (GVA): South contribute significantly to GVA across multiple sectors, including:
    • Real estate
    • Agriculture and allied services
    • Manufacturing
    • Services
  • Industrial and Investment strength: Southern region accounts for:
    • 37.4% of total factories in India
    • 37% of factories in operation
    • 25.6% of fixed capital investments.
GDP share southern states

Scope for Improvement

  • Productivity gap in Manufacturing sector:
    • 33% of India’s workforce in manufacturing is located in Southern states. However, the region’s output share is only 26%, indicating a productivity gap. 
    • This suggests a need for higher efficiency and technological advancement to boost the  output.
  • Skill Development Gap: 
    • Skill levels can classified as:
      • Skill Level 1: Basic skills
      • Skill Level 2: Intermediate skills (dominant in Southern states)
      • Skill Level 3: Associate and professional skills
      • Skill Level 4: Advanced skills (medicine, engineering, AI, etc.)
    • Tamil Nadu and other Southern States have high prevalence of Skill 2. However, there is a gap in higher skill levels 3 and 4, which are crucial for high-value manufacturing and AI-driven industries.
  • Less spending on R&D: The contribution of southern states to research and development is about 28%, and yet the states spend less than 0.8% of their state domestic product (GSDP) on R&D. 

Way Forward: Enhancing Global Competitiveness

  • Strengthening Productivity in Manufacturing:
    • Adoption of automation, AI, and Industry 4.0 technologies to bridge the output gap.
    • Encouragement of R&D and innovation in industrial production.
  • Upskilling Workforce for Future Industries:
    • Investment in higher-order skills training (Skill Levels 3 and 4).
    • Collaboration between industry and academia to align education with job market demands.
  • Attracting global investments:
    • Strengthening infrastructure, logistics, and trade facilitation.
    • Encouraging FDI and Public-Private Partnerships (PPP) for industrial growth.

India-EFTA Trade and Economic Partnership Agreement

Context: India is pushing for the trade deal with EFTA. Also, EFTA nations Switzerland and Liechtenstein are pushing for a Bilateral Trade Agreement with India.

Relevance of the Topic: Mains: Dynamics of India-EFTA trade. 

About India-EFTA TEPA

  • India signed a free trade agreement (FTA) with four European countries — Iceland, Liechtenstein, Norway, and Switzerland (European Free Trade Association countries) in March 2024. 
  • This positions EFTA as the first European bloc to formalise a trade pact with India. 
power of four

Key Highlights of the Agreement:

  • Investment commitments: EFTA nations have pledged to invest $100 billion in India over 15 years.
  • Tariff reduction: EFTA removes and reduces tariffs on several products like renewable energy and pharmaceutical goods.
  • Technology transfer: EFTA countries agree to share technology expertise in the field of precision engineering, pharmaceuticals, financial services and renewable energy.
  • Sustainable development progression: EFTA includes clauses to promote green technology, clean energy and responsible business practices. 

Present status of TEPA:

  • The agreement was signed in March 2024, but has a pending ratification by all the participating nations. TEPA is expected to come into force by the end of 2025. 
  • Inauguration of India-EFTA Desk: 
    • India-EFTA Desk will function as a single-window mechanism to provide support to EFTA businesses looking to invest, expand, or establish operations in India. 
    • It will serve as the primary channel for fostering continuous business-government dialogue.
  • Over 100 EFTA companies have visited India to explore business opportunities. E.g., Swiss pharmaceutical giants like Novartis and Roche are planning to expand manufacturing in India.

Scopes and benefits for India:

  • Export growth: It is expected to boost Indian exports in pharmaceuticals, textile, jewelry, IT services sector. India’s textile and garment industry is expected to gain a 10-15% increase in exports.
  • Boost FDI: Expected $100 billion investment over 15 years in India will foster foreign direct investment in India, enhancing the infrastructure and industrial capabilities. 
  • Job creation: TEPA is expected to create 1 million jobs by the investment by EFTA firms.
  • Strengthen Make-In-India: EFTA led investment will support Make in India initiative, by supporting domestic manufacturing and high-quality goods.
    • E.g., Norwegian firms partnering with India for solar energy expansion are promoting the Make in India Solar panels.
  • Buffer against US tariffs: India is likely to face tariffs from the US, TEPA will create a buffer for India against the possible US tariffs.
    • US has imposed a 25% tariff on steel to prevent dumping, TEPA will enhance the alternate destinations for the Indian steel.

Advantages to EFTA countries:

  • EFTA countries will benefit from elimination or reduction of import duties by India on a large number of industrial goods, which include pharmaceutical products, machinery, watches, fertilizers, medicines, chemical products, minerals and fish.
    • Exclusion list: However, sectors such as dairy and coal and sensitive agricultural products have been kept in the exclusion list, which means there would not be any tariff cuts by India on these.
  • Help EFTA countries diversify their supply chains and render them more resilient.

Constraints in the Agreement

  • IPR concerns: EFTA firms emphasise stringent Intellectual Property Rights (IPR) norms, which raises concerns for the Indian companies, particularly pharma sector.
    • E.g., Indian Pharma companies worry that strict patent laws will limit their ability to produce low-cost generic drugs.
  • Regulatory challenges: EFTA countries maintain high standards and strict food safety norms. Indian agriculture and dairy exporters may face challenges in meeting the strict criteria. 
  • Trade deficit concerns: India imports high-value goods like luxury watches, advanced machinery from EFTA countries, which can potentially widen India’s trade deficit.
  • Bilateral trade issues: There is a scope for bilateral trade disputes.
    • E.g., Switzerland withdrew the Most Favoured Nation (MFN) status of India by stating the Principle of Reciprocity, after the Supreme Court's decision in Nestle's Double Taxation Avoidance Agreement (DTAA) case. 

EFTA’s has strategic importance to India’s development goals with Norway’s expertise in green shipping, Switzerland’s advancements in rail networks, Iceland’s leadership in geothermal energy, and Liechtenstein’s high-value manufacturing. The research collaborations between IITs and the Arctic University of Norway, demonstrating TEPA’s broader scope beyond trade.

Tax Cuts in Union Budget

Context: The Union Budget 2025 announced the biggest tax cuts for India’s middle class. While these cuts are expected to provide relief to a small section of taxpayers, they also pose risks related to revenue loss and fiscal consolidation.

Relevance of the Topic:Prelims: Trends in Budget- Taxation

Tax Cuts announced in Budget 2025: 

  • Expansion of Zero-Tax Bracket: Individuals earning between ₹7-₹12 lakh annually now get a complete tax rebate, which was previously applicable only for those earning below ₹7 lakh.
  • Increased Exemption limit: For those earning more than ₹12 lakh, the exemption limit has increased from ₹3 to ₹4 lakh.
  • Marginal Tax Rate reduction: All tax slabs have been adjusted in a way that reduces overall tax liabilities for individuals earning above ₹7 lakh.
  • Revenue Implications: The Finance Minister estimated that these tax cuts will lead to a revenue loss of ₹1 lakh crore, which is 8% of the direct income tax collection of ₹12.57 lakh crore. 

Logic behind Tax rebates

  • Despite the fall of 8% in the effective tax rate as a result of tax cuts, the Budget has estimated direct tax collection to go up by 14%.
  • This would require a 24% growth in taxpayers' income, which may or may not happen, depending on economic conditions.
  1. Optimistic scenario: The reductions in personal income-tax rates are set to:
    • boost middle-class purchasing power and consumption, which will be credit positive for corporates and financial sectors. 
    • benefit domestic manufacturers (particularly in automotive two-wheelers, passenger vehicles, and white goods sectors)
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  1. Pessimistic Scenario:
  • Projected revenue loss of ₹1 lakh crore due to income-tax cut would slow fiscal consolidation. If it is not offset by increased economic activity or higher GST collections, this would widen the fiscal deficit. 
  • If income growth remains subdued, tax buoyancy may not improve. The revenue shortfall could lead to cuts in government spending on welfare and development programs.

Impact of Tax Rebates on Fiscal Policy & Economic Growth

  • Government Expenditure Constraints: Under Fiscal Responsibility and Budget Management (FRBM) Act, the government cannot spend beyond a set deficit limit. This means:
    • Any shortfall in tax revenue could force cuts in government expenditure.
    • Fiscal policy could become pro-cyclical instead of counter-cyclical, worsening economic slowdowns.
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  • Fiscal Deficit Management:
    • In 2024, the government lowered its fiscal deficit target from 5% to 4.8%, primarily by cutting expenditures.
    • In 2025, the target has been further reduced to 4.4%, signaling fiscal contraction rather than expansion.
    • Many flagship government schemes have seen budget cuts to achieve this goal.
image 71
  • Reliance on Private Sector Investment:
    • With government expenditure limited, the corporate sector is expected to drive economic growth.
    • However, despite previous tax cuts and capital expenditure boosts, private investment has remained weak.
    • Economic Survey 2025 indicates that global demand is uncertain, making exports an unreliable growth driver.

Is the Tax Cut Strategy Sustainable?

  • The government is betting on a trickle-down effect, assuming that increased disposable income will boost consumption, leading to higher corporate investment and job creation. However, if private investment does not pick up, the government could face a revenue crisis.
  • Cutting expenditures to maintain fiscal discipline could slow down economic growth, making recovery even harder.

Budget 2025: Railways Sector 

Context: The Union Budget allocated Rs 2.55 lakh crore for Indian Railways in the latest budget. Despite significant investments and announcements, execution challenges remain in the Railways sector.

Relevance of the Topic: Prelims: Railway Sector in India- Key Trends

Railways Budget

  • Till 2017, the Railway Budget was presented separately before the Union Budget. In 2017, it was merged with the general Budget. 
  • The Union Budget 2025 allocated Rs 2.55 lakh crore for Indian Railways in the latest budget, making a reduction from Rs 2.62 lakh crore allotment last year. 
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Positives in Railway Development

  • Infrastructure Development:
    • New railway lines, doubling, and gauge conversion to proceed at an accelerated pace.
    • Commissioning of 31,180 km tracks since 2014. The pace has increased from 4 kilometers per day in 2014-15 to 14.54 kilometers per day in 2023-24.
  • Electrification:
    • Electrification of 41,655 Route Kilometers since 2014. Indian Railways has electrified 294 Rkms/year (2014-25), a 16-fold increase from 18 Rkms/year (2009-14).
    • India is projected to have 100% electrified railways, making it the “greenest” in the world.
  • All-time high freight loading: 
    • Railways recorded an all-time high freight loading of 1,588 million tonnes (MT) in FY 2023-24, a substantial increase from 1,095 MT in 2014-15. 
    • Target: 3,000 MT by 2030.
  • Revenue:
    • Railways reported record total receipts of ₹2,56,093 crores in FY 2023-24, generating a net revenue of Rs 3,260 crore.
  • Safety-related initiatives:
    • Kavach, an Automatic Train Protection system to prevent collisions, has been deployed over 1,465 kms and integrated into 144 locomotives.
      • Kavach automatically applies brakes when a loco pilot fails to act.
      • Kavach 4.0 has been approved by the Research Designs and Standards Organisation (RDSO) in 2024.

Capital Expenditure and Financial Concerns: 

  • Railway surpluses are insufficient to pay for their planned capital expenditures (which include building lines and buying wagons). 
  • Capital expenditure is supported by the grant from the Central government and extra-budgetary resources, given that Railways earnings barely cover its operational costs.
  • Over the last decade, ₹13 lakh crore has been invested in modernising infrastructure, including:
    • 95% electrification of tracks
    • Expanding track length 
    • Record additions to rolling stock.
  • Despite this, financial performance remains weak:
    • Stagnant growth of freight traffic- at just over 2% growth.
    • Passenger revenue is rising, but patronage (passenger numbers) remain below pre-COVID levels.
    • Operating Ratio (OR) remains below 100.

Other Challenges in Railways: 

  • Safety:  Kavach safety system has not seen any expansion beyond 1,465 km.
  • Station Redevelopment Concerns:
    • Amrit Bharat station redevelopment projects show limited progress. 
    • Major projects like New Delhi station face delays due to repeated re-tendering.
    • Shift from Public-Private Partnership (PPP) to Engineering, Procurement, and Construction (EPC) mode raises concerns about maintenance funding.
  • Concerns in Electrification:
    • Approx 5,000 diesel locomotives, worth ₹30,000 crore remain idle or underutilised.
    • Environmental challenge: A significant portion of electricity still comes from fossil-fuel-based plants.
  • Concerns in Freights:
    • Declining freight share compared to other modes of transport. Freight expansion requires structural and policy interventions beyond budgetary allocations.
  • Lack of clear strategy:
    • Announcement of 200 new Vande Bharat trains without a specified timeline.
    • Vision of a 7,000-km high-speed rail network by 2047 lacks a concrete strategy.
  • Pending Projects: No update on pending projects like:
    • Western Dedicated Freight Corridor
    • Mumbai-Ahmedabad High-Speed Rail
    • Conversion of Integral Coach Factory (ICF) coaches to Vande Bharat standards.

South Coast Railway Zone

Context: Recently, the Union Cabinet approved the plan to create the new South Coast Railway Zone, the 18th railway zone of India. It also bifurcated the Waltair Railway Division into two parts.

Relevance of the Topic: Prelims: Railway Zones

List of Indian Railways Zones and their Headquarters

  • The Indian railways network is divided into 18 zones. 
  • Zones are divided into divisions. 
  • Each zone has their own headquarters.
Railway ZoneHeadquarters
Northern RailwayNew Delhi
North Central RailwayAllahabad
North Eastern RailwayGorakhpur
North Frontier RailwayGuwahati
North Western RailwayJaipur
Eastern RailwayKolkata
East Central RailwayHajipur
East Coast RailwayBhubaneshwar
West Central RailwayJabalpur
Western RailwayMumbai CST
Konkan RailwayNavi Mumbai
Central RailwayMumbai
South East Central RailwayBilaspur
South Eastern RailwayGarden Reach, Kolkata
South Coast RailwayVisakhapatnam
South Central RailwaySecunderabad
South Western RailwayHubli
Southern RailwayChennai

About South Coast Railway Zone

  • 18th Railway Zone of India. Approved by Union Cabinet on February 7, 2025
  • Legal Basis: Created under Andhra Pradesh Reorganisation Act, 2014
  • Carved out from: East Coast Railway (ECoR) and South Central Railway (SCR)
  • Headquarters: Visakhapatnam, Andhra Pradesh
  • Key Divisions:
    • Vijayawada Division (from SCR)
    • Guntur Division (from SCR)
    • Visakhapatnam Division (formerly part of Waltair Division)
  • Strategic Importance:
    • Enhances freight and passenger connectivity in Andhra Pradesh, Telangana, and Tamil Nadu
    • Supports industrial and agricultural growth
    • Boosts logistics for ports like Visakhapatnam and Krishnapatnam
    • Promotes tourism, including to Tirupati
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Bifurcation of Waltair Division

  • Recently, Waltair Railway Division (earlier under the East Coast Railway) was bifurcated into two parts.
    • 1st part: Visakhapatnam Railway Division, under the new South Coast Railway Zone.
    • 2nd part: A new division with headquarters at Rayagada, Odisha, under the East Coast Railway.
  • Significance of Waltair Railway Division:
    • It was among the largest revenue-generating areas of the Indian Railways.
    • Its freight traffic is linked to the mining and steel industries of Odisha and Chhattisgarh.
    • Contributed 74.66 million tonnes of freight loading in 2023-24.

Forward Trading in G-secs

Context: The Reserve Bank of India (RBI) has decided to allow forward contracts in government securities (G-secs) to enable market development and aid financial institutions to hedge against interest rate risks. 

Relevance of the Topic: Prelims: Forward Trading in G-Secs; Other terms related to Capital Market

What is a Forward Contract?

image 63
  • Meaning: It is a customised contract between two parties to buy or sell an asset at a specified price on a future date.
  • Use: A forward contract can be used for hedging (risk management) or speculation (profit from price changes).
    • Hedgers: People who want protection from price changes.
    • Speculators: People who want to profit from guessing future prices.

What are Government Securities?

  • G-Sec is a tradable debt instrument issued by Central government or State governments. It acknowledges the government's debt obligation.
  • Types of G-secs:
    • Short-Term Government Securities (maturity <1 year): Treasury Bills, Cash Management Bills.
    • Long-Term Government Securities (Maturity >1 year): Dated G-Secs.
  • G-Secs are issued through auctions conducted by Reserve Bank of India, through the electronic platform E-Kuber. 

Also Read: Government Securities: Explained 

Rationale for Introducing Forward Contracts in G-Secs: 

  • Enable long-term investors such as insurance funds to manage their interest rate risk across interest rate cycles. 
  • Enable efficient pricing of bond-based derivatives (derivatives that use bonds as underlying instruments).
  • Allows market participants to hedge against interest rate fluctuations or to speculate on future price movements of G-secs.

RBI’s Recent Reforms in Financial Markets: 

  • Expansion of Interest Rate Derivative Products: RBI has added multiple financial instruments to manage interest rate risks:
    • Interest Rate Swaps: A forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount.
    • Interest Rate Options: Financial derivatives that allow investors to hedge or speculate on the directional moves in interest rates.
      • A call option allows investors to profit when rates rise. 
      • A put option allows investors to profit when rates fall.
    • Interest Rate Futures: A financial derivative that allows exposure to changes in interest rates. Interest rate futures prices move inversely to interest rates.
    • Swaptions: A derivative that provides the right, but not the obligation, to enter into an interest rate swap agreement by a specified future date.
    • Forward Rate Agreements (FRA): An over-the-counter contract between parties that determines the rate of interest to be paid on an agreed-upon date in the future.
  • Electronic Trading & Non-Bank Broker Participation:
    • RBI has allowed non-bank SEBI-registered brokers to access NDS-OM for government securities trading.
      • Negotiated Dealing System – Order Matching (NDS-OM): An electronic trading platform for secondary market transactions in G-secs.
    • Impacts: More transparency, efficiency, and participation in the bond market.

Restructuring Skill India Programme

Context: The Union Cabinet has restructured the Central Sector Scheme ‘Skill India Programme’ till 2026 with an overlay outlay of Rs.8,800 crore from the period 2022-23 to 2025-26. This initiative aims to develop a future-ready workforce by integrating demand-driven, technology-enabled, and industry-aligned training across India.

Relevance of the Topic:Prelims: Key facts about the Restructured Skill India Programme. 

Restructured Skill India Programme

  • Nodal Ministry: Ministry of Skill Development and Entrepreneurship
  • The programme consolidates three flagship schemes:
    • Pradhan Mantri Kaushal Vikas Yojana 4.0 (PMKVY 4.0)
    • Pradhan Mantri National Apprenticeship Promotion Scheme (PM-NAPS)
    • Jan Shikshan Sansthan (JSS) Scheme
  • Under the three flagships schemes, there are more than 2.27 crore beneficiaries till date.
  • Aim:
    • To build a skilled future-ready workforce
    • To integrate demand-driven, technology-enabled, and industry-aligned training 
    • To provide structured skill development, on-the-job training, and community-based learning.
    • To ensure that both urban and rural populations, including marginalized communities, have access to high-quality vocational education.

1. Pradhan Mantri Kaushal Vikas Yojana 4.0 (PMKVY 4.0)

  • Provides NSQF-aligned skill training through:
    • Short-Term Training (STT)
    • Special Projects (SP)
    • Recognition of Prior Learning (RPL)
  • Target beneficiary: Age group of 15-59 years.
  • Key Features:
    • Integration of On-the-Job Training (OJT) within skilling programs.
    • Introduction of 400+ new courses in AI, 5G, Cybersecurity, Green Hydrogen, and Drone Technology.
    • Establishment of Skill Hubs in premier institutions like IITs, NITs, JNVs, and Kendriya Vidyalayas. International mobility focus through Mobility Partnership Agreements (MMPAs).
    • Blended learning approach incorporating digital training. Training material translated into eight regional languages.
    • Inter-ministerial convergence with PM Vishwakarma, PM Surya Ghar, and the National Green Hydrogen Mission.
    • Ease of Doing Business approach to streamline participation.

2. PM National Apprenticeship Promotion Scheme (PM-NAPS)

  • Objective: Encourage industry-led skill development through apprenticeships.
  • Target Group: 14-35 years.
  • Key Features:
    • Focus on the earn-while-you-learn model.
    • Align skilling initiatives with futuristic job markets and industry trends.
    • 25% stipend support (up to Rs. 1,500 per month per apprentice) via Direct Benefit Transfer, provided by the Central Government.
    • Coverage: AI, robotics, blockchain, green energy, and Industry 4.0.
    • Special focus on MSMEs and underserved areas such as Aspirational districts and North-East Region.

3. Jan Shikshan Sansthan (JSS) scheme

  • Objective: Community-based skilling for disadvantaged groups.
  • Target Group: 15-45 years, especially women, rural youth, and economically weaker sections.
  • Key Features:
    • Low-cost, doorstep training for self-employment and wage-based livelihoods.
    • Creating awareness on health, hygiene, gender equality, and education within communities to promote inclusive skilling.
    • Linked with PM JANMAN, ULLAS, and financial literacy programs.
    • Certification integrated with National Skills Qualification Framework (NSQF), DigiLocker, and National Credit Framework (NCrF).
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Significance of Skill India Programme: 

  • Enhancing Employability: Aligning training with national and global industry standards.
  • Economic Growth: Strengthening workforce development to boost productivity.
  • Technology Integration: Preparing the youth for futuristic technologies.
  • Global Competitiveness: Promoting international mobility and globally recognised certifications.
  • Entrepreneurship and Self-Reliance: Encouraging skill-based startups and self-employment opportunities.
  • Social Inclusion: Ensuring access to skill development for rural and marginalized communities.

The continuation of the Skill India Programme reinforces the importance of continuous upskilling and reskilling. The initiative will directly contribute to Periodic Labour Force Survey (PLFS) data, ensuring that workforce development policies remain aligned with economic and industrial trends.

Revamping Model Bilateral Investment Treaty 2016

Context: India is revisiting its 2016 Model Bilateral Investment Treaty (BIT) amid trade and investments shifting away from China, following the US-China trade war. The move comes as India negotiates BITs with countries like the UK, UAE and the EU, balancing investor protection with national interests.

Relevance of the Topic:Prelims: Model Bilateral Investment Treaty 2016; Challenges 

What are Bilateral Investment Treaties (BITs)?

  • Bilateral investment Treaties (BITs) are agreements between two countries for the reciprocal promotion and protection of investments in each other's territories by individuals and companies situated in either State. 
  • BITs encourage foreign investors to invest in a State and there by contributing towards overall developments and advancements of the economy. 

Key provisions of  Model Bilateral Investment Treaty, 2016

  • National Treatment: Foreign investors should be treated at par with the domestic investors.
  • Expropriation (taking over property): Prohibits the state from expropriating the foreign investments, except under exceptional circumstances, in a non-discriminatory manner. 
  • Enterprise-based definition of investment: 
    • Asset-based definition of the investment under the earlier BITs has been replaced by Enterprise based definition under the model BIT. 
    • Asset-based definition considers every kind of asset – both movable and immovable including the IPRs as investment and gives protection under treaties. 
    • Moving away from an asset-based approach to an enterprise-based approach aims at narrowing the scope of investments to be protected and thus seeks to reduce the number of BIT claims that can be brought against India.
  • Exclusion of MFN treatment:
    • In recent years, some foreign investors have sued India arguing that they have to get the same beneficial treatment given to companies from other countries. 
    • Accordingly, India has dropped Most Favoured Nation (MFN) Clause from the Model BIT.
  • Conditions for initiating arbitrations at international arbitrations:
    • Model BIT stipulates that the aggrieved investor should use all local remedies as well as negotiations and consultations before initiating arbitrations against the host State.
    • Investors can use outside remedies only five years after resorting to all domestic arrangements.
  • Corporate Social Responsibility: Model BIT mandates foreign investors to voluntarily adopt internationally recognized standards of corporate social responsibility. 

Need for Revamping 2016 Model BIT

  • Narrow definition of Investment:
    • India proposes a narrow ‘enterprise-based’ definition for investment, whereby only direct investments are protected under the treaty.
    • Definition of investment in Model BIT also contains a negative list, which precludes portfolio investments, interest in debt- securities, intangible rights, etc. from the definition of investment.
      • Thus, the new definition does not take into account the increased scope of foreign investments in the modern era.
  • Exhaustion of Domestic Remedy Clause:
    • 2016 model BIT provided that an investor must exhaust local remedies before taking recourse to international arbitration. This surely does little to increase confidence in foreign investors.
  • Changing Global Scenario:
    • The latest US-China trade war has prompted trade and investments to shift away from China. India is aiming to attract these investments.
  • Concerns raised by Western trade partners:
    • Multiple Western trade partners cited burdensome norms during ongoing treaty negotiations. 
    • India has been involved in trade negotiations with the UK for over two years and is yet to reach even close to signing a deal with the EU.
    • The West may not even be willing to accept the three-year clause and would prefer easier norms.
  • Prospects of new Investment treaties:
    • India is currently in talks with the UK and the European Union for an investment treaty.
    • India is also expected to negotiate a BIT with the European Free Trade Association (EFTA) region.
      • EFTA has committed to invest $100 billion in India over a 15-year period.
  • Competition from other countries:
    • E.g., The EU has signed a deal with India’s competitors such as Vietnam giving it an advantage over India.
  • Previous cases of regulatory risks:
    • Higher Taxes on Dividends: For instance, Nestle case.
      • Switzerland suspended the Most-Favoured-Nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) originally signed between India and Switzerland in 1994. 
      • This decision followed a ruling by the Supreme Court last year, which determined that DTAA cannot be enforced unless it is notified under Income Tax Act. 
      • As a result, Swiss companies such as Nestlé face higher taxes on dividends.
    • Retrospective Taxation: E.g., Vodafone case.
    • License cancellations without due process: E.g., Devas case.
    • Lengthy judicial proceedings on arbitration awards.

Reforms Suggested

  • New approach of UAE BIT:
    • UAE BIT introduces asset-based protection, moving beyond the earlier entity-based definition of investment. In entity-based protection, an entity has to be registered in India.
    • Foreign Portfolio Investors (FPIs) now qualify for BIT protection, indicating a pro-investor shift in policy.
  • Flexible dispute resolution: Introducing a fork-in-the-road clause instead of rigid waiting periods.
    • If an investor has a dispute with the state, they choose whether to submit the dispute to domestic courts or pursue international arbitration.
      • Once that choice is made, it is final and irrevocable.
    • With this approach, India is neither stopping investors nor forcing them to go through domestic courts.
      • Some investors may still opt for domestic courts because they do not want to antagonise the state by pursuing international arbitration.

India’s BIT revamp signals a shift towards pro-investor policies while maintaining strategic state control. By adopting a balanced approach, India can attract FDI while ensuring its economic sovereignty and policy flexibility.

Budget Analysis 2025: Highs and Lows

Context: The Union Budget 2025 certainly included many positive aspects like Tax cuts meant for the middle class, growth and expenditure estimates rooted in reality, etc. However, deviating from laying out a clear plan for meeting fiscal deficit targets raises concerns on the government's approach for fiscal consolidation.

Relevance of the Topic:Prelims: Key trends in Budget- Positives and Concerns. 

Positive Aspects of Budget 2025-26

  • Reasonable Growth projection: Budget has projected a nominal GDP growth at 10.1% for 2025-26.
    • Economic Survey 2024-25 had indicated a real GDP growth in the range of 6.3%-6.8% for 2025-26. This provides some buffer if growth picks up more.
  • Concession for Middle class: Budget 2025 raised the basic exemption limit to Rs. 4 lakh and extended full tax rebate for income up to Rs. 12 lakh.
  • Realistic assumptions for Tax Revenue growth:
    • Gross tax revenue growth is projected at a lower level of 10.8%.
    • There has been a fall in growth of Personal Income tax, from 25.4% in 2023-24 to 20.3% in 2024-25 (RE) and 14.4% in 2025-26 (BE).
      • This fall in growth in 2025-26 (BE) is partly due to the announced income-tax concessions. 
    • In the case of corporate income-tax, the growth in 2024-25 (RE) is quite low at 7.6%. This growth has been raised to 10.4% in 2025-26 (BE).
  • Non-Tax Revenues:
    • Non-tax revenues have been raised from ₹5.3 lakh crore (RE) to ₹5.8 lakh crore in 2025-26 (BE).
  • Addressing long-pending issues:
    • Budget 2025 proposed to introduce a new Bill to repeal and replace the Income Tax Act, 1961.  
    • This is intended to make it simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.
Positive Aspects of Budget 2025-26

Receipts in Budget 2025

  • Total receipt:
    • The total receipts other than borrowings are estimated at ₹34.96 lakh crore. 
    • The net tax receipts are estimated at ₹28.37 lakh crore. 
    • The fiscal deficit is estimated to be 4.4 per cent of GDP. 
  • Gross tax Revenues:
    • Growth in Government’s gross tax revenues (GTR) have trended downwards in recent years.
    • The buoyancy of GTR has fallen for three successive years from 1.4 in 2023-24 to 1.15 in 2024-25 (RE) and then to 1.07 in 2025-26 (BE).
    • As a result, growth in the Government of India’s GTR has kept falling from 13.5% in 2023-24 to 11.2% in 2024-25 (RE), and to 10.8% in 2025-26 (BE). 
  • Falling growth rate of GST:
    • Within the government’s tax revenues, the growth rate of Goods and Services Tax (GST) has also fallen from 12.7% in 2023-24 to 10.9% in 2025-26 (BE).
  • Shift of focus from Indirect to Direct taxes:
    • The structure of the government’s taxation has moved away from indirect to direct taxes. 
    • The share of direct taxes in the government’s GTR has increased from 52% in 2021-22 to 59% in 2025-26 (BE).
  • Better performance of Personal Income Tax:
    • Within direct taxes, it is personal income-tax which has performed better than corporate income-tax in terms of growth and buoyancy.
  • Non-Tax Revenues:
    • The main contribution has been in the form of dividends from the Reserve Bank of India and public sector companies, which together accounted for about ₹3.25 lakh crore in 2025-26. This is an increase of ₹35,715 crore over the revised estimates.

Expenditure in Budget 2025

  • The total expenditure is estimated at ₹50.65 lakh crore. 
  • Reduction in Expenditure-GDP:
    • Given the commitment to fiscal consolidation, the size of government expenditure as a percentage of GDP had to be reduced from 14.6% in 2024-25 (RE) to 14.2% in 2025-26 (BE). 
    • Growth in total expenditure, at 7.6% in 2025-26 (BE), is lower than the budgeted nominal GDP growth at 10.1%.
  • Improvement in the quality of government expenditure:
    • There has been a steady improvement in the quality of government expenditure as the share of capital expenditure in total expenditure has been improving.
    • This share has improved by 10% points over the period from 2020-21 to 2025-26 (BE).

Concerns on Budget 2025

  • Uncertainty over demand picking up: Impact of concessions given to middle class on demand depends on the marginal propensity to consume of the households.
  • Case for AI infrastructure:
    • Given the contemporary context, the Government has to build up large-scale Artificial Intelligence (AI) infrastructure in order to facilitate the adoption of emerging technologies. 
    • Global Comparison:
      • In this context, China has taken a clear lead. 
      • The United States has recently announced an investment of $500 billion for AI infrastructure. 
      • In the field of AI, India’s technology companies have failed to anticipate developments. 
    • India should push these companies for research and development, by offering some tax concessions, if necessary.
  • Less transparent fiscal health indicator:
    • Budget 2025 moved away from fiscal deficit as an indicator of fiscal prudence.
    • The practice of giving a glide path in terms of fiscal deficit is being discontinued.
      • Budget 2025 stated that from now on, the focus will be on reducing the debt-GDP ratio annually.
    • The glide paths are indicated in terms of alternative growth assumptions and alternative assumptions regarding mild, moderate, and high degrees of fiscal consolidation. 
      • This makes the whole exercise vague and non-transparent.
  • Challenge of large-scale government borrowing: A larger claim on the available investible resources by the government will make it difficult for private investment to pick up.

Case of RBI’s Repo Rate cut

  • The equity market has been on a downward trend for over four months, with major indices falling 10-13%, causing losses for retail investors, especially new entrants. 
  • The RBI in the latest Monetary Policy Committee (MPC) meetings has announced a 25 basis point rate cut in Repo rate, from 6.50% earlier to 6.25% now, to boost the market. Lowering interest rates would ease EMIs on home and consumer loans, providing relief.

Discontinuation of Sovereign Gold Bonds

  • The government has decided to discontinue Sovereign Gold Bonds (SGBs), which began in 2015.
    • The last issuance was in February 2023, with an outstanding amount of ₹4.5 lakh crore as of March 31, 2023. 
    • These bonds, with an 8-year tenor and interest of 2.75% (later reduced to 2.50%), provided returns indexed to 24-carat gold prices.
  • Rise in Gold Prices: Due to the sharp rise in gold prices (3.25 times since 2015), the actual cost of issuing SGBs turned out to be 12-13%.
    • This was much higher than the 6-8% cost of an 8-year government security (G-Sec). 
  • Unsustainability: In 2024-25, the government spent ₹18,500 crore on SGB redemptions, making the scheme financially unsustainable. 
  • Failure in reducing gold imports: SGBs failed to reduce the country’s reliance on physical gold imports, contrary to the government's expectations.

Government’s dependence on RBI Surplus

  • The government continues to rely on surplus transfers from RBI, government-owned banks, and financial institutions.
    • In 2025-26, the budgeted transfer is ₹2.56 trillion, up from ₹2.34 trillion in 2024-25.
    • The share of these transfers in net tax receipts has doubled from 4.5% in 2023-24 to over 9% in 2024-25.
  • This increase was driven by a sharp rise in the RBI’s surplus, largely due to exchange rate gains.
  • While RBI normally transfers its earnings to the government, its recent high earnings stem from frequent interventions in the forex market.
  • Such dependence on RBI's profits raises concerns about the central bank’s independence compared to global standards.

RBI could cut Repo rate for the first time in 5 years

Context: RBI’s Monetary Policy Committee (MPC) is expected to cut the repo rate by 25 basis points (bps) in its upcoming meeting (February 2025), from 6.5 per cent to 6.25 per cent. 

If implemented, this would be the first rate cut in nearly five years. This decision is influenced by easing inflation, government stimulus measures, and the need to boost economic growth.

Relevance of the Topic:Prelims: Repo Rate, External benchmark lending rate, Marginal cost of fund-based lending rate; RBI’s Inflation targeting framework

Repo Rate: 

  • Repo rate is the interest rate at which the commercial banks borrow money from the Reserve Bank of India (RBI) during a short-term liquidity crunch. 
  • Repo stands for ‘Repurchasing Option’ or ‘Repurchase Agreement’.
    • In the agreement, banks provide eligible securities such as Treasury Bills to the RBI, while availing overnight loans. They agree to repurchase securities at a predetermined price later from RBI. 
    • Thus, the bank gets the cash and the central bank the security.

How does Repo Rate affect the Economy?

  • Rise in inflation: 
    • During high levels of inflation, RBI increases the repo rate to bring down the flow of money in the economy. 
    • This curbs excessive spending, makes borrowing costly for businesses and industries, slows down investment and money supply in the market, and eases inflation.
  • Increasing Liquidity in the Market:
    • When the RBI needs to pump funds into the economy, it lowers the repo rate.  Consequently, businesses and industries find it cheaper to borrow money for different investment purposes. 
    • It also increases the overall supply of money in the economy. This ultimately boosts the growth rate of the economy.

Related Monetary Policy Tools:  

1. Reverse Repo Rate: 

  • Reverse Repo Rate is when the RBI borrows money from banks when there is excess liquidity in the market. 
    • The banks benefit out of it by receiving interest for their holdings with the central bank.
  • Reverse Repo Rate is a mechanism to absorb the liquidity in the market, thus restricting the borrowing power of investors.
  • During high levels of inflation in the economy, the RBI increases the reverse repo. 
    • It encourages the banks to park more funds with RBI to earn higher returns on excess funds. 
    • Banks are left with lesser funds to extend loans and borrowings to consumers.

2. Marginal Cost of Lending Rate (MCLR): 

  • MCLR is the minimum interest rate at which commercial banks can lend.
  • This rate is based on four components:
    • Marginal cost of funds
    • Negative carry on account of cash reserve ratio
    • Operating costs 
    • Tenor premium
  • MCLR is linked to the actual deposit rates. Hence, when deposit rates rise, it indicates the banks are likely to hike MCLR and lending rates are set to go up.

3. External Benchmarks Lending Rate: 

  • To ensure complete transparency and standardisation, RBI mandated the banks to adopt a uniform external benchmark within a loan category, effective from 1st October, 2019.
  • Unlike MCLR which was internal system for each bank, RBI has offered banks the options to choose from 4 external benchmarking mechanisms:
    • RBI repo rate
    • 91-day T-bill yield
    • 182-day T-bill yield
    • Any other benchmark developed by Financial Benchmarks India Pvt. Ltd.
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Factors influencing Repo Rate Cut Decision: 

  • Easing Inflation:
    • Retail inflation fell to 5.22% in December 2024, the lowest in four months. Lower inflation allows for monetary easing without major inflationary risks.
  • Union Budget 2025-26 stimulus:
    • Tax cuts and revised TDS limits aim to boost disposable income and consumption.
    • Increased consumer demand may require monetary support for sustained economic growth.
  • Liquidity Measures by RBI: Recent liquidity enhancement steps of RBI ensure banking system liquidity before a rate cut. RBI announced liquidity enhancement measures such as:
    • $5 billion forex swap.
    • ₹60,000 crore open market operations.
    • ₹50,000 crore variable repo rate operations.
  • Global Economic Uncertainty:
    • Trade tensions: US imposing tariffs on China, Canada, and Mexico, is creating instability in global trade. 
    • Impact on currency markets, with rupee hitting an all-time low of ₹87.29 per USD.
    • The RBI must balance rupee stability and domestic liquidity management.

Impact of Repo Rate Cut on Economy

  • Reduce Borrowing costs:
    • Repo-linked lending rates (EBLR): A cut in repo rate will reduce borrowing costs, making home, vehicle, and business loans cheaper.
    • MCLR-linked loans: Banks may also reduce rates for loans linked to the marginal cost of funds-based lending rate (MCLR). This will lead to lower lending rates for borrowers. 
    • The expected 25 bps rate cut will lower EMIs for borrowers.
  • Boost Economic Growth: A rate cut could stimulate investment and consumption, boosting GDP. 

The anticipated repo rate cut signals a pro-growth strategy while ensuring inflation remains in check. 

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