Economy

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India’s Forex Reserves Reach Record High

Context: India’s foreign exchange (forex) reserves have surged by USD 4.496 billion, touching a new all-time high of USD 702.28 billion, according to the Reserve Bank of India (RBI). With this, India remains among the top five reserve-holding nations globally, after China, Japan, Switzerland, and Russia.

Latest Composition of India’s Forex Reserves

ComponentLatest ValueChange
Foreign Currency Assets (FCA)USD 570.41 bn▼ USD 1.692 bn
Gold ReservesUSD 108.55 bn▲ USD 6.181 bn
Special Drawing Rights (SDRs)USD 18.72 bn▲ USD 38 mn
IMF Reserve PositionUSD 4.60 bn▼ USD 30 mn

About Forex Reserves

Forex reserves are external financial assets held by the RBI in foreign currencies, gold, and IMF-related positions. They are maintained to:

  • Ensure exchange rate stability of the Rupee,
  • Provide liquidity for external trade and debt payments, and
  • Strengthen investor and global market confidence in India’s economic stability.

Components of Forex Reserves:

  1. Foreign Currency Assets (FCA): Securities and deposits in global currencies such as USD, Euro, Yen, etc.
  2. Gold Reserves: Physical gold and gold deposits valued at international prices.
  3. Special Drawing Rights (SDRs): Reserve assets allocated by the IMF to support global liquidity.
  4. Reserve Tranche Position: India’s withdrawable contribution with the IMF for balance-of-payments needs.

Significance for India

  • Exchange Rate Stability: Enables RBI to intervene in forex markets to curb sharp rupee fluctuations.
  • Import Cover: Current reserves can finance over 10 months of imports, enhancing economic security.
  • Crisis Buffer: Helps India withstand global economic shocks, trade imbalances, or capital outflows.
  • Investor Confidence: High reserves encourage greater foreign investment and reduce perceived economic risk.
  • Portfolio Diversification: Rising gold reserves act as a hedge against fluctuations in the US dollar.

Challenges

  • Heavy RBI intervention can sometimes reduce export competitiveness by influencing rupee value.
  • Large reserves need careful management to avoid low-return accumulation costs.

Conclusion

India’s record forex reserves reflect strong macroeconomic fundamentals, resilient external sector performance, and proactive monetary management by the RBI. Sustaining export growth, attracting stable capital inflows, and prudent reserve diversification remain key for long-term stability.

Kerala’s Extreme Poverty Eradication Programme: A Model of Inclusive Governance

Context: On November 1, 2025, Kerala will be officially declared free from extreme poverty, becoming the first Indian state to achieve this distinction.
The milestone marks the culmination of the Extreme Poverty Eradication Programme (2021–2025) — a four-year, data-driven initiative combining welfare convergence, local governance, and digital innovation.

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About Extreme Poverty

  • Definition: According to the World Bank, extreme poverty refers to living on less than $2.15 per day, representing a state where individuals cannot meet basic needs like food, shelter, and healthcare.
  • Updated Benchmark (2025): The World Bank has revised this threshold to $3 per day (PPP 2021) for low-income nations, accounting for inflation and changing consumption patterns.
  • Measurement: The poverty line is determined using Purchasing Power Parity (PPP) and Household Consumption Expenditure Survey (HCES) data, ensuring comparability across regions.

Extreme Poverty Eradication Programme (2021–2025)

Launched in 2021, the programme aimed to eradicate extreme poverty through a multidimensional approach focusing on nutrition, health, housing, education, and livelihoods.

  • Implementation Agency:
    Led by Kudumbashree – Kerala State Poverty Eradication Mission, in collaboration with local governments.
  • Beneficiary Identification:
    • 64,006 extremely poor families identified through door-to-door surveys.
    • 59,277 families uplifted by 2025.
  • Infrastructure Support:
    • 3,913 houses constructed.
    • 1,338 families provided land ownership.
    • 21,263 individuals received essential IDs (ration, Aadhaar, pension).
  • Technology Use:
    Every household was geo-tagged, and micro-plans were prepared to ensure sustainable rehabilitation.

How Kerala Achieved Poverty-Free Status

  1. Data-Driven Targeting:
    The Smart Panchayat Project and Kudumbashree database enabled accurate beneficiary identification using community validation and GIS mapping.
  2. Convergence of Schemes:
    Integrated State and Central welfare schemes under a unified action plan:
    • Life Mission: Housing for landless families.
    • Aardram Mission: Primary healthcare access.
    • Ashraya Project: Welfare for destitute and elderly.
  3. Decentralised Governance:
    Kerala’s People’s Plan Campaign (Janakeeya Aasuthranam) empowered local bodies with decision-making and fiscal autonomy under the Nava Kerala Mission.
  4. Digital Governance:
    The Kerala State IT Mission created GIS-based dashboards and the e-Sevanam portal for tracking benefits, asset mapping, and real-time monitoring.
  5. Political and Institutional Alignment:
    Cross-party support and Mission Mode Governance ensured coherence between state policies and local implementation, supported by KILA training for officials.

Significance

Kerala’s success underscores the potential of decentralisation, data integration, and community participation in addressing poverty.

It sets a replicable model for other Indian states to adopt evidence-based social welfare and multidimensional poverty reduction strategies.

Central Bank Digital Currencies (CBDCs): Global Push Over Stablecoins

Context: At the IMF–World Bank Annual Meeting (October 2025), RBI Governor Sanjay Malhotra emphasized the need for central banks to promote Central Bank Digital Currencies (CBDCs) over stablecoins for cross-border transactions.

What are CBDCs and Stablecoins?

A CBDC is a sovereign, digital form of fiat money issued and regulated by a central bank. It represents legal tender in electronic format.
In contrast, stablecoins are private cryptocurrencies pegged to fiat assets (like the US dollar) to maintain price stability but lack sovereign backing.

Significance of Promoting CBDCs Over Stablecoins

  1. Monetary Sovereignty:
    CBDCs preserve domestic monetary control. The RBI’s 2024 report warns that US-dollar stablecoins could trigger “rupee dollarisation” if left unchecked.
  2. Cross-Border Efficiency:
    According to BIS (2025), CBDC-based cross-border payments could cut remittance costs by nearly 50% compared to traditional SWIFT networks.
  3. Regulatory Transparency:
    CBDCs ensure KYC/AML compliance, backed by sovereign guarantees — unlike the $285 billion stablecoin market, which often operates in unregulated zones.
  4. Technological Edge:
    Tokenised CBDCs combine blockchain programmability with state-backed trust, offering instant, programmable, and traceable transactions.

Challenges in Replacing Stablecoins

  • Limited Global Adoption: Only 19 central banks have pilot-stage CBDCs (IMF Tracker 2025), lacking standardised interoperability.
  • Cybersecurity Risks: Over 60% of central banks cite cyberattacks and surveillance concerns as top risks (BIS 2025).
  • Dominant Stablecoin Market: Private coins like Tether (USDT) and USDC control 90% of global stablecoin circulation (IMF, 2025).

Way Forward for India

Global CBDC Corridors: India should join the BIS mBridge project (UAE–China–Thailand–Hong Kong) to enable real-time, low-cost, and secure CBDC settlements.

Tech–Policy Convergence: Adoption of the IMF’s XC platform will support interoperability across jurisdictions.

Cyber Resilience: Implement the FSB 2025 Cyber Resilience Framework and deploy AI-driven security tools to detect fraud.

Awareness & Trust: Expand the RBI Digital Rupee Mission, focusing on public literacy — only 26% of Indians currently understand CBDCs (FIS Survey 2024).

Conclusion

CBDCs represent the next frontier of monetary innovation — combining digital efficiency with sovereign trust. For India, leading in CBDC adoption aligns with its Digital Public Infrastructure (DPI) vision and enhances global financial stability.

Authorized Economic Operator (AEO) Programme: Boosting India’s Global Trade Confidence

Context: The World Trade Organization (WTO) recently commended India’s liberalised Authorized Economic Operator (AEO) programme for significantly enhancing the participation of micro, small, and medium enterprises (MSMEs) in international trade. This recognition highlights India’s growing emphasis on trade facilitation, supply chain security, and ease of doing business.

About the AEO Programme

The Authorized Economic Operator (AEO) programme operates under the World Customs Organization (WCO) SAFE Framework of Standards (FoS) — a global initiative adopted in June 2005 to secure and facilitate international trade.

India’s AEO scheme, implemented by the Central Board of Indirect Taxes and Customs (CBIC), is based on these global standards and aims to strengthen trust-based partnerships between Customs authorities and trade stakeholders.

Launched: As a pilot in 2011 and expanded in 2016, the AEO programme merges India’s earlier Accredited Client Programme (ACP) to create a unified framework.

Objectives of AEO

  • Enhance supply chain security and ensure faster movement of goods.
  • Promote compliance culture among traders and logistics operators.
  • Facilitate trade simplification while focusing enforcement on high-risk entities.
  • Improve international recognition of Indian exporters through Mutual Recognition Agreements (MRAs) with other countries.

Structure and Implementation

The programme is voluntary and open to entities engaged in international trade — including importers, exporters, customs brokers, logistics providers, custodians, and warehouse operators.

The Directorate of International Customs (CBIC) manages the programme and grants AEO certification after a detailed compliance audit.

Benefits of AEO Status

  • Faster customs clearance through priority processing and fewer inspections.
  • Deferred duty payments and simplified documentation.
  • Direct port delivery and reduced dwell time for exports/imports.
  • Mutual Recognition Agreements (MRAs): Indian AEOs gain reciprocal benefits in countries that recognise India’s AEO certification (e.g., Japan, South Korea).
  • Builds international credibility as a “trusted trader.”

This allows Customs to focus more on non-compliant or high-risk operators, improving resource efficiency and trade transparency.

Recent Developments and Impact

The liberalised AEO norms have made it easier for MSMEs to qualify by easing documentation and compliance requirements.
As per CBIC data, India has witnessed a 30% rise in AEO-certified MSMEs in the last two years.

The WTO’s recognition underscores India’s role in setting a global example of secure, efficient, and inclusive trade facilitation.

Way Forward

  • Expanding MRAs with major trade partners.
  • Digitalising AEO certification processes.
  • Integrating the AEO system with National Logistics Policy (NLP) and PM Gati Shakti for seamless supply chain coordination.

Conclusion

India’s AEO programme demonstrates a successful model of balancing trade facilitation with national security, reinforcing trust between businesses and Customs — a key driver of India’s ambition to become a global logistics hub.

FSSAI Bans Misuse of ‘ORS’ Label

Context: The Food Safety and Standards Authority of India (FSSAI) has issued a directive prohibiting the use of the term ‘Oral Rehydration Salts (ORS)’ on any food or beverage product that does not meet the World Health Organization (WHO)-approved formulation.

This move aims to curb misleading marketing practices where some beverage companies label sugary drinks as “ORS,” deceiving consumers and posing potential health risks.

About the Directive

  • Legal Basis: Issued under the Food Safety and Standards Act, 2006, which empowers FSSAI to regulate and enforce food labelling and safety standards.
  • Misbranding Clause: Products using the term “ORS” without approval will be treated as misbranded or misleading advertisements, punishable under the Act.
  • Objective: To ensure that only clinically validated and WHO-compliant formulations are sold as ORS in India.
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About FSSAI

  • Established: 2008, under the Food Safety and Standards Act, 2006.
  • Nodal Ministry: Ministry of Health and Family Welfare.
  • Mandate: To lay down science-based standards for food articles and regulate their manufacture, storage, distribution, and sale to ensure food safety.

About Oral Rehydration Salts (ORS)

  • Purpose: ORS is a scientifically formulated solution used to treat dehydration resulting from diarrhoea, vomiting, or heat stress.
  • WHO-Approved Composition:
    Sodium chloride, glucose, potassium chloride, and trisodium citrate — in precise proportions to optimize absorption.
  • Mechanism: The glucose–sodium co-transport mechanism in the intestines facilitates the absorption of electrolytes and water, restoring hydration efficiently.
  • Health Significance:
    • Recognized as one of the most important medical advances for preventing child mortality due to diarrhoea.
    • Must not be confused with general energy or electrolyte drinks, which often contain excessive sugar and inadequate electrolyte balance.

Significance of the Ban

  • Consumer Protection: Prevents the sale of unscientific and misleading products claiming medical properties.
  • Public Health Safety: Safeguards vulnerable populations, especially children, from consuming high-sugar products mislabelled as ORS.
  • Regulatory Strengthening: Reinforces India’s compliance with WHO and UNICEF standards for rehydration therapy.

Conclusion

The FSSAI’s regulation marks a vital step in ensuring evidence-based labelling and consumer protection. By limiting the ‘ORS’ tag to scientifically verified formulations, India upholds both medical integrity and public health priorities.

PM Dhan-Dhaanya Krishi Yojana (PMDDKY): Boosting Agricultural Self-Reliance

Context: The Government of India has announced 100 Aspirational Agriculture Districts under the PM Dhan-Dhaanya Krishi Yojana (PMDDKY), covering 29 States and Union Territories. The initiative aims to enhance farm productivity, sustainability, and rural prosperity, aligning with the government’s vision of “Viksit Bharat @2047”.

About the Scheme

The PMDDKY is an umbrella initiative of the Ministry of Agriculture and Farmers’ Welfare (MoAFW). It seeks to transform low-performing agricultural districts through integrated planning, data-driven governance, and convergence of schemes.

Objectives

  • Enhance productivity of major crops through modern, sustainable farming practices.
  • Promote self-reliance in agricultural resources and inputs.
  • Encourage diversification into high-value crops, allied sectors, and climate-resilient farming.
  • Ensure inclusive development by focusing on lagging districts with untapped potential.
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Selection Criteria

The 100 Aspirational Agriculture Districts were identified based on:

  1. Low crop productivity compared to the state average.
  2. Moderate or low crop intensity.
  3. Limited access to institutional credit and agri-infrastructure.
  4. Socio-economic vulnerabilities affecting farmer incomes.

This data-driven identification mirrors the approach of NITI Aayog’s Aspirational Districts Programme (ADP), focusing on measurable improvement through a real-time monitoring framework.

Scheme Integration and Implementation

  • Integration: The PMDDKY brings together 36 central schemes from 11 departments, enabling convergence of resources and simplified delivery. These include schemes from the Ministries of Rural Development, Food Processing, Water Resources, and Renewable Energy.
  • District Plans: Each selected district will prepare a District Agriculture Development Plan (DADP) outlining priorities such as irrigation, seed quality, soil health, and market linkages.
  • Monitoring: The progress will be tracked by 100 Central Nodal Officers using digital dashboards and key performance indicators (KPIs).
  • Local Committees: Headed by the District Collector, they will coordinate between panchayats, agri-universities, and farmers’ producer organizations (FPOs) to ensure ground-level execution.

Significance

  • Holistic Growth: Moves from fragmented schemes to an integrated mission-mode approach.
  • Sustainability: Encourages soil health management, efficient water use, and adoption of renewable energy in farming.
  • Farmer Empowerment: Bridges the rural credit and infrastructure gap, enhancing income stability.
  • Data-Driven Governance: Builds accountability through measurable, outcome-based indicators.

Way Forward

PMDDKY has the potential to become a model for regional agricultural transformation, much like the Aspirational Districts Programme for governance. If effectively implemented, it can significantly contribute to doubling farmers’ income and achieving sustainable agricultural growth across India.

Govt Raises MSP for Six Rabi Crops

Context: The Union Cabinet has approved significant hikes in the Minimum Support Prices (MSPs) for six rabi crops for the 2026–27 marketing season, aimed at ensuring remunerative prices to farmers and promoting crop diversification.

What is MSP?

  • MSP is the minimum guaranteed price at which the government procures crops from farmers, protecting them from distress sales.
  • It currently covers 23 crops: 7 cereals, 5 pulses, 7 oilseeds, and 4 commercial crops.
  • The policy serves as a tool for ensuring food security, farmer welfare, and market stability.

Key Highlights of the Hike

  • Crops Covered: Wheat, barley, jowar, gram, lentil, and safflower.
  • Wheat: MSP increased by ₹160 per quintal to ₹2,585/quintal (6.6% rise), offering the highest gain over cost of production (109%).
  • Safflower: Witnessed the highest absolute and percentage increase (₹600 per quintal), reflecting government emphasis on oilseed cultivation and crop diversification.
  • The hikes align with the government’s aim to double farmers’ income and reduce dependence on imported edible oils.
image 13

How MSP is Determined

  • Commission for Agricultural Costs and Prices (CACP):
    • A statutory body set up in 1965 under the Ministry of Agriculture.
    • Recommends MSPs twice a year (for kharif and rabi crops).
    • Recommendations are not binding; final approval rests with the Cabinet Committee on Economic Affairs (CCEA).
  • Factors Considered:
    • Cost of cultivation (A2, A2+FL, C2).
    • Demand-supply situation.
    • Price trends and inter-crop parity.
    • Terms of trade for farmers.
    • Global prices and food security concerns.
  • Cost Concepts:
    • A2: Actual paid-out costs (seeds, fertilizers, etc.).
    • A2+FL: A2 + imputed family labour.
    • C2: Comprehensive cost (A2+FL + rental value of land + interest on capital).
  • MSPs are generally fixed at A2+FL + 50% margin, ensuring fair returns.

Significance

  • Enhances farmers’ income security and incentivizes crop production.
  • Encourages oilseed production, reducing edible oil import bills.
  • Balances inflation control with farmer welfare.
  • Strengthens food security by ensuring procurement at fair prices.

Challenges Ahead

  • Procurement is still concentrated in wheat and rice, limiting benefits for other crops.
  • Rising MSPs can strain the fiscal burden.
  • Market reforms and diversification efforts need to complement MSP to achieve sustainable outcomes.

Conclusion

The recent MSP hike reflects the government’s continued focus on farmer welfare, crop diversification, and self-reliance in agriculture. However, structural reforms in procurement, storage, and marketing remain crucial to ensure that the benefits of MSP reach all farmers equitably.

RoDTEP Scheme Extended till March 2026

Context: The Government of India has extended the Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme until March 31, 2026, ensuring continued support to exporters amidst global trade challenges.

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About the RoDTEP Scheme

  • Launched: January 1, 2021 (through amendment in Foreign Trade Policy 2015–20).
  • Objective: To neutralize the impact of non-refundable taxes, duties, and levies embedded in exported goods.
  • Why Needed: Exporters incur costs such as state levies, power duties, mandi taxes, and embedded central taxes, which were not refunded earlier.
  • WTO-Compliant: Replaced the Merchandise Export Incentive Scheme (MEIS) after it was challenged by the US at WTO.
  • Administered By: Department of Revenue, Ministry of Finance.

Key Features

  1. Coverage:
    • All sectors eligible.
    • Priority given to labour-intensive sectors (textiles, agriculture, leather, etc.).
    • Applies to manufacturer exporters, merchant exporters (traders), SEZ units, EOUs, and e-commerce exports.
  2. Exclusions:
    • Re-exported products not eligible.
  3. Reimbursement Mechanism:
    • Provided as a percentage of FOB (Freight on Board) value of exports.
    • Issued in the form of transferable e-scrips (maintained in CBIC’s electronic credit ledger).
    • e-scrips can be used for paying basic customs duty or transferred to other importers.
  4. Digital Implementation:
    • Entirely IT-driven to ensure transparency, speedy clearance, and minimal human intervention.
    • Monitored via IT-based risk management system with audit provisions.

Significance

  • Reduces hidden tax burden on exporters.
  • Enhances global competitiveness of Indian goods.
  • Encourages manufacturing and promotes “Make in India” exports.
  • Helps India remain aligned with WTO norms while protecting domestic industry.

Way Forward

  • With the scheme extended till 2026, exporters now have policy certainty.
  • Government focus is likely to remain on simplification of refunds, expansion of product coverage, and ensuring quick digital disbursements to sustain India’s export momentum.

RBI’s Inflation Targeting Framework and the Debate on Continuity

Context: The existing flexible inflation targeting framework of Reserve Bank of India (RBI) is set to expire in March 2026. RBI had sought views from economists, market participants and other stakeholders on whether the current target, band, and measure should continue. Most respondents back the continuation of the existing structure. 

Relevance of the Topic: Prelims: Key Features of the 2015 Monetary Policy Framework. 

The monetary policy framework in India has evolved over the years. From relying on multiple indicators such as money supply and wholesale prices, the RBI shifted its focus to retail inflation in 2014. 

In February 2015, a new Monetary Policy Framework Agreement was signed between the Government of India and the RBI, which institutionalised inflation targeting in India.

Key Features of the 2015 Monetary Policy Framework

  • The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.
  • The framework is operated by the RBI, which uses instruments such as the repo rate to achieve the target.
  • The inflation target is fixed at 4% CPI inflation, with a tolerance band of +/-2 % (2-6%).
  • The inflation target is decided by the Government of India in consultation with the RBI, and is to be set once every five years. The current target has been notified till March 31, 2026.
  • The relevant measure of inflation is the Consumer Price Index (CPI-Combined) published by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation. 
  • The RBI is deemed to have failed in its mandate if inflation remains above 6% or below 2% for three consecutive quarters.
  • In case of such failure, the RBI must submit a written report to the Government explaining the reasons for the failure, remedial measures, and the time frame within which inflation will be brought back to the target.

Role of the Monetary Policy Committee (MPC)

  • The MPC was constituted in 2016 as a statutory body to set the policy repo rate required to achieve the inflation target.
  • It comprises six members: RBI Governor (Chairperson), the Deputy Governor in charge of monetary policy, one RBI officer nominated by the RBI Board, and three external members appointed by the Government.
  • Decisions are taken by majority vote, with the Governor having a casting vote in case of a tie.
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Performance of the Flexible Inflation Targeting (FIT) Regime (2016-2025)

  • Inflation has declined significantly since the adoption of FIT: from nearly 10% in 2012-13, CPI inflation is projected to average 3.1% in 2025-26, the lowest in the FIT era.
  • The framework has anchored inflation expectations of households and markets, thereby improving monetary policy credibility.
  • It has enhanced macroeconomic stability by reducing uncertainty for consumers and investors.
  • Low and stable inflation has supported sustainable growth, as extreme price fluctuations erode consumer purchasing power and discourage investment.
  • India’s adoption of FIT has brought it in line with global best practices, where most modern central banks follow inflation targeting frameworks.

Review of Flexible Inflation Targeting (FIT) Regime: 

The FIT regime requires a review every five years. The current review must be completed by March 2026. The RBI’s recent discussion paper has sought comments on key issues:

  • Whether monetary policy should target headline inflation or core inflation.
  • Whether the 4% inflation target remains optimal.
  • Whether the tolerance band (2-6%) should be revised.
  • Whether the target should be a point (4%) or a range only.

Former members of the Monetary Policy Committee (MPC) are largely in favour of retaining the targets as per the existing Flexible Inflation Target (FIT) regime and want to continue to focus on keeping headline Consumer Price Index (CPI) inflation at 4% in the medium term.

Also Read: Time to Review Inflation Targeting 

The problem with Low Inflation 

Context: Inflation in India has fallen sharply in recent months. CPI inflation was at just 2.07% in August 2025 and WPI inflation at 0.52%. While this trend is positive for consumers, it poses challenges for the Union Government’s fiscal arithmetic and Budget management.

Relevance of the Topic: Prelims: Concept of Inflation; Low Inflation: Issues and Implications.

Inflation refers to the sustained rise in the general price level of goods and services. While high inflation erodes purchasing power, moderate inflation is considered desirable as it supports growth and helps maintain fiscal balance. 

However, persistently low inflation, as seen in India in 2025 with CPI inflation at 2.07% and WPI inflation at 0.52%, poses distinct challenges for the economy and government finances.

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Issues with Low Inflation

  • Slower Nominal GDP Growth: The government’s fiscal calculations depend on nominal GDP, which includes both real growth and inflation. With prices barely rising (stagnant) due to lower inflation, nominal GDP growth has slowed falling below the 10.1% assumed in the Union Budget 2025-26.
  • Weaker Tax Revenues: Tax collections are directly linked to nominal GDP growth. Lower inflation means slower growth in the value of goods and services i.e., weak GST and excise revenues. In April-July 2025, gross tax revenue grew by only 1% year-on-year, while net tax revenue declined by 7.5%.
  • Fiscal Deficit Ratios Under Strain: The fiscal deficit and debt are measured as a share of nominal GDP. With a lower GDP base, deficit and debt ratios look worse even if the government’s borrowing remains constant. This risks India’s FRBM targets (3% fiscal deficit in the medium term, 60% debt-GDP ceiling).

Implications of Persistently Low Inflation: 

  • Budgetary Stress: Lower tax revenues make it harder for the government to meet Budget targets and maintain fiscal discipline. Budget credibility is undermined if revenue projections repeatedly fall short.
  • Borrowing vs. Spending Cuts: The government may struggle to meet its revenue targets, which could force either higher borrowing or cuts in planned spending.
  • Weak Demand and Employment: Persistently low inflation often reflects weak demand, which can delay job creation and wage growth.
  • Discouraged Private Investment: Weak demand discourages private investment despite high corporate profits.
  • Vicious Cycle Risk: In the long run, prolonged low inflation can create a vicious cycle of weak demand, lower revenues, and constrained fiscal space.
  • Monetary Policy Challenge: RBI has an inflation targeting mandate (4% ±2%). Too-low inflation limits its ability to cut rates (real interest rates rise when inflation falls).
  • Agricultural distress: India’s CPI is food-heavy (~45%). Weak food inflation reflects rural distress and falling farm incomes.

Is Low Inflation always Bad?

  • Low inflation is not always harmful. If it is driven by productivity gains, technological innovation or supply-side efficiencies, it benefits consumers by reducing costs without damaging fiscal health.
  • If caused by weak demand and poor investment sentiment or agricultural distress, it signals structural weakness, reduces revenues, squeezes fiscal space, and slows down both growth and revenues.

For sustainable growth, India requires moderate inflation driven by healthy demand and productivity improvements. 

Why does India not import corn from the US?

Context: The US Commerce Secretary has questioned India for not opening up its market to American Corn. Differences over agricultural trade is at the heart of the trade dispute between India and the US.

Relevance of the Topic: Prelims: India-US Trade dispute: Agriculture Sector 

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Why does India not import corn from the US? 

There are three reasons why India does not buy American Corn:

  • Self-sufficiency in Corn production: India produces around 34-36 million tonnes of corn annually, making it the world’s fifth-largest producer of corn. 
  • Concerns over GM Corn: The US grows more than 90% of its corn from GM seeds. However, India does not permit the cultivation or import of genetically modified food or feed (with the exception of GM cotton). 
  • Protect farmers’ interest:
    • India needs to protect its fragile agricultural sector that employs 500 million people against imports from countries that heavily subsidise their agriculture. Allowing cheaper GM imports would undercut Indian farmers. 
    • Smallholders (backbone of India’s agricultural economy) fear that allowing GM corn would open the gates to multinational corporations controlling seed markets. Dependence on patented seed technology could erode centuries-old practices like seed saving, while also raising questions of consumer safety and environmental impact. 

Reasons the US is exploring alternate markets:

  • China has been a major buyer of US corn, taking nearly a third of America’s exports. After the recent US-China trade war, China has begun to buy corn and soyabeans from Brazil, throwing the US agriculture sector into a crisis.
  • With India’s rising corn consumption (particularly for ethanol-blended petrol programme), the US sees an enormous opportunity to export corn to India. 

Increased demand for corn in India:

  • Traditionally, corn is consumed into poultry feed, starch, and processed foods. 
  • In recent years, a growing share has been diverted toward ethanol production. In the latest cycle, India used 3.5 million tonnes of corn to produce around 1.35 billion litres of ethanol. 
  • With the government pushing for 20% ethanol blending in petrol by 2025-26, annual corn demand for biofuel alone could rise to 6-7 million tonnes.
  • In 2024-25, India imported 0.97 million tonnes of corn (most of which came from Myanmar and Ukraine which export non-GM corn that meets Indian standards). The imports from the US were miniscule (just 1100 tonnes). Thus, there is some scope for corn imports from the US for use in producing ethanol. 

However, importing GM corn even for ethanol production has been firmly rejected, with sugar mills and farmer unions warning it could marginalise sugarcane and disrupt the ethanol-blended petrol programme. 

Also Read: US’s Tariffs: Nature, Impacts, and Lessons for India 

The dispute reflects not just trade imbalances but a deeper clash over farming practices, food security, and agricultural sovereignty.   

Delhi-Meerut Namo Bharat RRTS Corridor

Context: The Namo Bharat Regional Rapid Transit System (RRTS) corridor between Delhi and Meerut is nearing full operationalisation.

Relevance of the Topic : Prelims: Key Features of Delhi-Merrut Namo Bharat Regional Rapid Transit System (RRTS)

Delhi-Meerut Namo Bharat Regional Rapid Transit System

  • The Delhi-Meerut Namo Bharat RRTS is India’s first regional rapid rail project.
  • The Namo Bharat corridor is the first of several RRTS lines planned to connect parts of the National Capital Region.
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Key Features: 

  • The Delhi-Meerut corridor covers a total length of 82 kilometres.
  • The corridor will enable passengers to travel from Sarai Kale Khan in Delhi to Meerut in under one hour.
    • At present, a 55-kilometre stretch from New Ashok Nagar on the Delhi border to Meerut South is operational. The remaining stretch will be inaugurated soon.
  • The trains are capable of reaching a top operational speed of 160 kilometres per hour.
  • The project has been developed at a cost of over ₹30,000 crore.
  • The system has been implemented by the National Capital Region Transport Corporation (NCRTC).

Benefits and Significance: 

The corridor currently sees a daily ridership of 60,000 and once fully operational it is expected to take one lakh cars off the road.

  • Expected to reduce travel time and ease congestion between Delhi and nearby urban centres.
  • Reduce air pollution and cut carbon emissions, thus contributing to sustainable mobility.

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