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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.
image 45

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. 

Balancing Monetary and Fiscal Policy

Context: The Union Budget 2025-26 has set the fiscal deficit target for 2025-26 at 4.4%. This will enable the Reserve Bank of India (RBI) to consider reducing interest rates to stimulate economic growth. 

Relevance of the Topic:Prelims: Monetary Policy Committee, Inflation targeting

Monetary Policy Committee (MPC)

  • The Monetary Policy Committee is a statutory body established under Reserve Bank of India Act, 1934 (as amended by the Finance Act, 2016). 
  • MPC is responsible for setting benchmark policy rate (repo rate) required to contain inflation, within the specified target level. 
  • Composition: The Central government is empowered to constitute a six-member MPC.
    • RBI Governor (ex officio chairperson)
    • Deputy Governor in charge of monetary policy
    • An RBI officer nominated by the Central Board
    • Three members to be appointed by the central government.
  • Decision-Making:
    • Quorum: At least four Members (at least one of whom shall be RBI Governor and, in his absence the Deputy Governor).
    • Decisions are based on a majority vote. 
    • In case of a tie, the RBI governor has the casting vote.
    • MPC decisions are binding on the Bank.

What is Inflation Targeting?

  • It is a monetary policy framework where the Central Bank aims to maintain the rate of Inflation within a targeted (pre-defined) range. 
  • India has adopted inflation targeting through the Monetary Policy Framework Agreement (MPFA) signed between the Government of India and the Reserve Bank of India in 2015.
  • India’s Inflation Targeting Framework:
    • India adopted Flexible Inflation Targeting (FIT) in 2016, with an inflation target of 4% (with a deviation of +/- 2%). 
    • The Consumer Price Index (CPI) serves as the key indicator.
    • The inflation target is set by the government in consultation with RBI every five years, under the amended RBI Act, 1934. 

Current Inflation Trends: 

  • Retail inflation declined to 4.5%-4.7% in January 2025 (down from 5.2% in December 2024).
  • Essential commodities prices fell by 2.4% in January, indicating a cooling trend.

Fiscal Policy: Maintaining fiscal discipline & controlling inflation

  • The Budget 2025 has maintained a fiscal deficit target at 4.4% of GDP to avoid excessive borrowing. Non-inflationary budget to ensure long-term economic stability.
  • Rationale:
    • Excessive spending can lead to high inflation and economic instability.
    • Fiscal prudence supports monetary policy efforts, ensuring economic predictability.

Coordination between Fiscal and Monetary Policy

  • Fiscal policy (government spending & taxation) and Monetary policy (RBI’s control over interest rates and money supply) need to work together to maintain economic stability.
  • The government’s disciplined spending approach allows the RBI to lower interest rates, when inflation is under control. Lower interest rates can boost borrowing, investment, and economic growth.
  • Government’s subtle Message to the RBI:
    • The government is signaling RBI that since inflation is under control, it may be a good time to start cutting interest rates.
    • RBI’s Monetary Policy Committee (MPC) will decide whether to cut repo rates in its upcoming meeting.
    • Lower interest rates make loans cheaper, helping businesses and individuals invest more.

A well coordinated approach between Fiscal and Monetary Policy is crucial for achieving economic growth and long-term economic stability.  

Foreigners Tribunals in Assam

Context: Recently, the Supreme Court has ordered the Assam Government to deport the foreigners lodged in detention centres. Some of them have been in detention for 10 years after being declared as foreigners by the Foreigners Tribunal.

Relevance of the Topic:Prelims: Key facts about Foreigners Tribunals in Assam.

About Foreigners Tribunals in Assam

  • Foreigners Tribunals (FTs) are quasi-judicial bodies established in Assam to adjudicate cases concerning individuals suspected of being illegal immigrants.
  • They were created under the Foreigners (Tribunals) Order, 1964, which derives its authority from the Foreigners Act of 1946. 
  • The tribunals primarily handle cases related to individuals left out of the National Register of Citizens (NRC), with a significant number of cases involving approximately 19.06 lakh people.

Structure of Foreigners Tribunals

  • Number of Tribunals: Currently, there are around 100 Foreigners Tribunals operating in Assam.
  • Composition: Each tribunal is headed by a member with legal or judicial experience, including judges and advocates. The members are appointed under the guidelines provided by the government.
  • Referral Process: Cases can be referred to FTs by District Magistrates or through notices served to individuals marked as "doubtful voters" on electoral rolls. The tribunals also handle references made by border police regarding suspected illegal immigrants.

Functioning of Foreigners Tribunals

  • According to the 1964 order, an FT has the powers of a Civil Court in matters such as summoning and enforcing the attendance and examining on oath and requiring the production of any document. 
  • A tribunal is required to serve a notice in English or the official language of the State to a person alleged to be a foreigner within 10 days of receiving the reference from the authority concerned. 
  • Such a person has 10 days to reply to the notice and another 10 days to produce evidence in support of his or her case. An FT has to dispose of a case within 60 days of reference. 
  • If the person fails to provide any proof of citizenship, the FT can send him or her to a detention centre (now called transit camp) for deportation later. 
    • The burden of proof under the Foreigners Act is on the person accused as a foreigner.
    • Failure on his part to appear before the Tribunal, will result in him being declared a foreigner without the state having to prove its case.

Appeal against the order of a FT

  • Individuals declared as foreigners by the FT can challenge the decision of the tribunal by filing a writ petition in the High Court of Assam, under Article 226 of Indian Constitution. 
  • If unsatisfied by the decision of the High Court, they can appeal to the Supreme Court of India under Article 136 (Special Leave Petition).  

Background: The legal foundation for the FTs was laid down in 1964, but significant amendments have been made in 2019, which refined the procedures for handling appeals related to NRC claims and objections. Notably, this amendment allows individuals to approach the tribunals directly, shifting some responsibility from state authorities to the tribunals themselves.

New Tax Regime in Budget 2025

Context: The Government in the Union Budget 2025-26 has announced no personal income tax on income up to 12 lakhs per annum. Apart from it several other key tax reforms are announced expected to have a big impact on individuals across all income categories.

Relevance of the Topic: Prelims: Basic idea of New Tax Regime; tax dynamics of India.

Major Highlights:

1. Basic Exemption Limit Raised to Rs 4 Lakh: 

  • The government has proposed increasing the basic exemption limit under the new tax regime from Rs 3 lakh to Rs 4 lakh. 
  • As a result, individuals with an annual taxable income of up to Rs 4 lakh will have zero tax liability. 
  • Taxpayers opting for the new tax regime will not be required to file an income tax return, if they do not meet other mandatory filing criteria.

2. Full Tax Rebate for Income up to Rs 12 Lakh: 

  • The income threshold for availing a full tax rebate has been raised from Rs 7 lakh to Rs 12 lakh under the new tax regime. 
  • This means that taxpayers earning up to Rs 12 lakh annually will pay no income tax. 
  • A standard deduction of 75000 rupees for salaried employees is announced, making a cumulative tax benefit of 12.75 lakh rupees.
  • However, incomes subject to special tax rates, such as capital gains, are excluded from this rebate calculation.

3. Revised Income Tax Slabs: 

  • The new tax regime will feature an additional 25% tax bracket, expanding the total number of slabs to seven. The updated structure is as follows:
New Tax Regime

4. Updated Return Filing Window Extended: 

  • Taxpayers will now have five years, instead of the current three, to file updated tax returns.
  • However, additional tax penalties will apply—60% for returns filed in the fourth year and 70% in the fifth year.

5. Higher Limit for Foreign Remittance under LRS: 

  • The threshold for a 20% Tax Collected at Source (TCS) on foreign remittances under the Liberalised Remittance Scheme (LRS) has been raised from Rs 7 lakh to Rs 10 lakh per annum.
  • Additionally, TCS will no longer be levied on remittances for educational purposes funded through loans from specified institutions.

Rationale behind Tax Benefits

  • Slumping demand: There has been a slump in demand for goods in the market, especially the automobile and real estate sector, due to low disposable income with the salaried employees.
  • Stagnant salaries: Economic Survey 2024-25 has observed that the employees in the companies are working on low salaries, leading to net reduction in the salaries (i.e., inflation rate is more than the salary increment). 
  • Inflation: The tax burden combined with rising inflation and stagnant salaries leaves less scope for the individual to participate in the economic growth of the nation.

Potential Impact of Benefits

The slabs and rates have been changed to benefit all taxpayers to reduce the tax burden of the middle class and leave more money in their hands, boosting household consumption, savings, and investment.

  • Reducing triple burden: It will help in reducing the triple burden of tax-inflation and low salaries on the middle class.
  • Rise in Demand: The tax benefits will increase the disposable income and will increase consumption expenditure. This, in turn, will fuel the sluggish GDP growth rate.
  • Increase in the savings: Indian savings has reduced in the past 10 years by 5%, reduction in the tax will help the middle class to invest the money in the saving instruments.

Major Constraints in Indian Direct Tax

  • Narrow tax-base: India have a low tax base where only 2% people pay income tax due to;
    • Large number of deductions in the income tax. 
    • Vast presence of informal labour force lead to reduction in tax paying citizens
    • Exemption on agricultural income leads to tax evasion.
  • High Litigation and Dispute Resolution Issues: A large number of tax cases are pending in courts, leading to delays and inefficiencies in tax collection.
  • Lack of Awareness and Compliance: Many individuals and businesses lack knowledge of tax laws, leading to unintentional non-compliance.
  • Tax Administration Inefficiencies: Limited manpower, outdated technology, and bureaucratic hurdles hinder effective tax collection.
  • Political and Social Factors: Pressure from interest groups, political interference, and populist measures such as tax exemptions reduce overall tax collection.
  • Black Money and Corruption: The presence of black money in the economy and corruption within tax administration weaken efforts to collect direct taxes effectively.
  • Low Penalties and Weak Enforcement: Weak enforcement mechanisms and relatively low penalties for tax evasion do not act as strong deterrents.

However, in recent times the net direct tax collection has increased. E.g., Net direct tax collections in India from April 1, 2024, to January 12, 2025, reached Rs 16.90 lakh crore, reflecting a 16% growth year-on-year. 

Probable reasons for rise in Net Direct Tax Collections:

  • Ease of Compliance:
    • Simplified tax filing mechanism (like pre-filed Income Tax Returns, user-friendly online tax portal)
    • Integration of PAN with Aadhar has streamlined the verification process. 
  • Use ofTechnology:
    • Digital payment systems to file tax with simplified transactions.
    • e-verification and e-assesment processes. 
    • Faceless Assessment Scheme for greater transparency and efficiency in income tax assessments.
  • Rise in Incomes has also facilitated higher tax payments by individuals.
  • Simplification of Tax Rules:
    • Rationalisation of tax slabs, incentives for filing returns have led to voluntary compliance. E.g. ‘Honoring the Honest’ campaign. 
  • Decrease in cost of collection is attributed to:
    • Adoption of centralised processing centres (E.g., CPC Bengaluru) 
    • Automation of processes like return filing, scrutiny and refund issuance. 
    • Increase in the efficiency of tax administration. 
    • Formalisation of the economy. 

To improve direct tax collection in India further, reforms should focus on simplifying tax laws, expanding tax base, enhancing digital compliance, strengthening enforcement, and curbing tax evasion.

Gender Budgeting

Context: Delhi has witnessed a remarkable increase in the gender budget from ₹10 billion in 2011-12 to ₹71 billion in 2024-25. While providing financial assistance to women and child development is essential to reduce the gender gap, it is equally important to invest in other components like education and health. 

Relevance of the Topic:Mains: Gender Budgeting: Concept & significance. 

What is Gender Budgeting?

  • Gender Budgeting or Gender Responsive Budgeting, is an approach that uses fiscal policy to promote gender equality by assessing the impact of government budgets on gender equity.
  • In 2005-06, India introduced a gender budget. The Government of India publishes a Gender Budget Statement (GBS) annually along with the Union Budget.
    • The Union Ministry of Women and Child Development leads the implementation of gender budgeting at the national level.
    • The Departments of Women and Child Development, Social Welfare, and Finance act as nodal agencies in the States and Union Territories. 

Rationale behind Gender Budgeting:

  • The needs and requirements of genders differ. Gender-neutral budgets ignore the gender-specific impacts of Budgets. 
  • Thus, gender budgeting aims to:
    • Promote Gender Equality through positive discrimination in favour of women.
    • Promote higher efficiency through adequate provisions for women.

Significance:

  • It ensures public financial resources are allocated to address disparities between genders across various sectors.
  • Gender budgeting does not entail creating a separate budget for men and women; rather, it integrates gender considerations into the existing budget framework.
  • It dissects budgets to identify gender-differential impacts and translates gender commitments into actionable fiscal policies.
  • It addresses gender concerns within general schemes and programs, ensuring that even gender-neutral policies benefit women.

Examples of Gender Budgeting in Action

  • MGNREGA:
    • Mandates at least one-third participation of women.
    • Introduces gender-sensitive provisions like safe drinking water, first aid, and childcare facilities at worksites.
  • Financial Inclusion:
    • Pradhan Mantri Jan Dhan Yojana (PMJDY) disproportionately benefits women, promoting financial inclusion.
    • Establishment of Bharatiya Mahila Bank to enhance women's financial participation.
  • Rural Development: Prioritizes safe drinking water, reducing time poverty for women and enabling greater economic participation.
  • Housing (PMAY-U): Allocates housing under Pradhan Mantri Awas Yojana (Urban) to female household members, increasing women's asset ownership.
  • Energy Sector: Promotes clean cooking fuel initiatives, recognising their impact on women's health and labor.
  • Engendering Gender-Neutral Ministries: Ministries like Urban Development, Power, and Corporate Affairs incorporate gender concerns into their schemes for better planning and resource prioritization.

The Ministry of Women and Child Development have facilitated the gender neutral Ministries like the Ministry of Urban Development, Ministry of Information Technology, Ministry of Power, Ministry of Corporate Affairs, Ministry of Statistics and Programme Implementation for engendering their schemes and programmes for better planning and resource prioritisation.

Delhi’s Case:

  • In the last few years, Delhi has witnessed a significant drop in the share of education in the Gender Budget. 
  • In 2017-18, education accounted for 54% of the gender budget, but this share has dropped to 27% in 2024-25.
image 41

Way Forward: Prioritise Education over Freebies

  • Targeted Investment in Education:
    • While cash transfers provide temporary relief, long-term empowerment requires targeted investment in women’s education and technical training.
    • Education and technical training are major pillars for sustainable long-term growth.
  • Increasing budget allocation to Education:
    • Increasing the education budget would lead to a more skilled female workforce, reduced gender gaps in employment, and better representation in high-paying jobs.

Govt working to share Gati Shakti data with Private Sector

Context: The Department of Promotion of Industry and Internal Trade (DPIIT) is working to issue detailed guidelines on how the data and mapping facilities provided under PM Gati Shakti portal can be utilised by private sector players, to make efficient decisions in infrastructure and other projects.

Relevance of the topic:

Prelims: Questions based on Gati Shakti Scheme.

Mains: Detailed question about Gati Shakti; Challenges in the infrastructure sector in India. 

About Gati Shakti- National Master Plan

  • The PM Gati Shakti- National Master Plan for Multi-modal Connectivity is a digital platform to bring Ministries together, including Railways and Roadways, for integrated planning and coordinated implementation of infrastructure connectivity projects. 
  • Launched: October 2021 

Key Objectives:

  • Integrated planning by bringing Ministries together on the GIS platform for better coordination.
  • Promoting multi-modal connectivity by developing a seamless pattern of rail, road, ports, airports etc.
  • Reduction in logistics cost to 8% as in most developed nations.
  • Promoting ‘Make in India’ by strengthening India’s position as manufacturing and trade hub.
PM Gatishakti

Key Features:

  • PM Gati Shakti will incorporate infrastructure schemes of various Ministries and State Governments like Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN etc.
  • It will cover Economic Zones like textile clusters, pharmaceutical clusters, defence corridors, electronic parks, industrial corridors, fishing clusters, and agri zones to improve connectivity & make Indian businesses more competitive.
  • It will leverage technology extensively including spatial planning tools with ISRO (Indian Space Research Organisation) imagery developed by BiSAG-N (Bhaskaracharya National Institute for Space Applications and Geoinformatics).
PM Gatishakti

Achievements of Gati Shakti

  • Government Integration: Gati Shakti has integrated 44 Ministries and 36 states and UTs under a single platform.
  • Network planning group (NPG) has evaluated more than 200 major infrastructure projects.
  • State Master Plans: All 36 states/UTs have developed state master plans aligning with the National Master Plan. (Over 533 projects have been mapped on PM Gati Shakti postal for better coordination)
  • EXIM and Trade facilitation: Scheme supports National Logistics Policy. (India’s ranking in World Banks Logistics Performance Index improved from 44 in 2018 to 38 in 2023)
  • Training and Capacity building: Over 20,000 officials have been trained through the iGoT platform with more than 150 interactive sessions.
  • Expanding to districts: PM Gati Shakti District Master Plan is being developed to enable district level infrastructure planning supported by BISAG-N (Bhaskaracharya National Institute for Space applications and Geoinformatics).
  • Taking Gati Shakti to International Stage: Diplomatic engagements with countries like Nepal, Bangladesh, Sri Lanka, Madagascar, Senegal, and Gambia promoting geospatial technology for integrated infrastructure planning worldwide.

Challenges in Indian Logistics sector solved by Gati Shakti

ChallengesSolutions provided by Gati Shakti
High Logistical Cost: India logistics cost hovers about 14% unlike 8% in the USA. Streamlining Multi-Modal connectivity with rail, road, air and waterways by bringing a single GIS-based digital platform for all ministries.
Fragmented Supply ChainsGati Shakti eliminated the redundant projects and ensures synchronized execution to streamline supply chain
Slow execution of projectsGati Shakti uses a one-stop system for approval of the project to gain clearances. Also, GIS based decision making to avoid bureaucratic delays.
Over dependence on road (Over 40% traffic burden is on the National Highways)Expanding dedicated freight corridors and developing logistics parks and air cargo to depend on the road infrastructure.
Lack of digitisation of logistic sectorsGati Shakti integrated IoT and AI for real-time monitoring and operations of the logistics sector in India.
Inadequate storage and warehousing infrastructureGati Shakti develops a multi-modal logistics park, cold chain by enhancing private participation.
Environmental concerns and sustainability issuesGati Shakti provides green logistic opportunities like electric vehicles, renewable energy and low carbon logistics solutions to align with sustainable development goals of India.
image 40

What more can be done?

PM Gati Shakti has revolutionised logistics, but further steps are needed like strengthening AI-driven digital infrastructure, expanding rail and waterways, and boosting public-private partnerships, among others. 

Maritime Development Fund & Indian Shipping Industry

Context: The Union Budget 2025 has announced Rs. 25,000 crore Maritime Development Fund for the shipping industry, among other incentives.

Relevance of the Topic:Mains: Budget- Maritime Sector; Indian Shipping Industry

Present status of Indian Shipping Industry

  • Cargo handling:
    • The cargo handled at major ports has only marginally increased from 1,071.76 million tons in 2016-17 to 1,249.99 million tons in 2020-21. (Ministry of Ports, Shipping and Waterways) This is a cumulative growth of 14.26% or an annual increase of just 2.85%.
  • Vessels handled: 
    • The number of vessels handled at these ports declined by 5.93%, from 21,655 vessels in 2016-17 to 20,371 in 2020-21.
  • Indian-registered fleet:
    • The number of Indian-registered ships has increased from 1,313 in 2016-17 to 1,526 in September 2024 — a cumulative rise of 16.77% and an average annual growth of 2.4%.
  • Gross tonnage:
    • It has grown from 11,547,576 GT in 2016-17 to 13,744,897 GT — a cumulative increase of 17.44% and an annual average growth of 2.5%.
  • Aging Indian fleet:
    • Average vessel age rose to 26 years in 2022-23. However, this has now improved to 21 years, with the addition of 34 relatively younger vessels (average age of 14 years) in 2024.
  • Declining Market share:
    • Indian shipping companies continue to lose market share to foreign-flag vessels in EXIM trade and to rail and road transport for domestic cargo movement.
  • Global ranking:
    • India’s global ranking in ship ownership declined from 17 to 19. This decline indicates that investments in port infrastructure alone have not translated into a stronger domestic shipping sector.

Progress under Sagarmala Initiative

  • As of September 2024, 839 projects requiring an investment of ₹5.8 lakh crore have been outlined, with 241 projects (₹1.22 lakh crore) completed, 234 projects (₹1.8 lakh crore) under implementation, and 364 projects (₹2.78 lakh crore) in various stages of development.
  • Focus areas:
    • Port modernisation (₹2.91 lakh crore)
    • Port connectivity (₹2.06 lakh crore)
    • Port-led industrialisation (₹55.8 thousand crore)
    • Coastal community development.
  • Impact of initiatives: GDP increased from ₹153 trillion in 2016-17 to ₹272 trillion in 2022-23, despite setbacks due to the COVID-19 pandemic.
  • EXIM growth: India’s EXIM trade grew from $66 billion in 2016-17 to $116 billion in 2022, reflecting a 77% cumulative increase.
  • Targeting Export-led growth: The government has set ambitious targets, aiming to achieve a $7 trillion economy by 2030, with exports projected to reach $2 trillion by 2030.

Sagarmala Programme: 

  • Sagarmala is a flagship initiative to transform India’s maritime sector. 
  • Aim: With India's extensive coastline, navigable waterways, and strategic maritime traderoutes, Sagarmala aims to:
    • Unlock the untapped potential of these resources for port-led development and coastal community upliftment.
    • Enhance the performance of the logistics sector by reducing logistics costs for both domestic and international trade.
    • Minimize the need for extensive infrastructure investments by leveraging coastal and waterway transportation, thus making logistics more efficient and improving the competitiveness of Indian exports.
  • Nodal Ministry: Ministry of Ports, Shipping and Waterways.
  • It has four main aspects associated with it, as given below:
image 36
  • Overall set of projects are divided into 5 pillars and 24 categories as below:
image 37

Challenges faced by the Shipping Industry

  • Capital Constraints and High Borrowing Costs:
    • Indian shipping companies face high borrowing costs, short loan tenures, and strict collateral requirements.
    • Unlike foreign counterparts, Indian ship-owners cannot use ships as collateral, making financing difficult.
    • Lenders do not fully understand the cyclical nature of the industry, leading to rigid loan restructuring policies.
  • Unfavourable Tax Policies:
    • Indian-flagged ships are subject to 5% IGST on purchase price, a tax not imposed on foreign vessels operating in Indian waters.
    • Indian ship-owners must deduct TDS on seafarers' salaries, whereas foreign vessels employing Indian seafarers do not have to.
    • These disparities make Indian vessels significantly less competitive.
  • Ship-building Challenges:
    • India spends close to $75 billion annually on leasing ships from outside.
      • Also, India owns just about 2% of the world’s total tonnage and has some 1,500 ships. 
      • With regard to shipbuilding, India currently has less than 1% share of the global market, which is dominated by China, South Korea and Japan.
    • India’s shipbuilding industry suffers from inadequate infrastructure, high input costs (especially steel), dependence on imports for spare parts, and delays in vessel deliveries. 
    • Customs duties on imported machinery increase production costs. Lack of skilled workforce reduces efficiency. These issues discourage ship-owners from investing in Indian shipyards.
  • Competition from Foreign-flagged Vessels:
    • Foreign-flagged vessels, often registered in tax havens, enjoy easier access to capital, lower borrowing costs, and lenient regulations.
    • Their ownership structures allow them to operate with minimal regulatory oversight, making them far more competitive than Indian-flagged ships.

Steps Taken by the Government

  • Maritime Development Fund (MDF):
    • A ₹25,000 crore fund aimed at improving access to capital for ship-owners. The government will contribute up to 49% to the fund and mobilise the rest from the private sector.
    • The fund will provide long-term and low-cost financial support for Indigenous shipbuilding and other blue water infrastructure projects. 
    • The fund aims to provide various forms of financial support, including debt, equity, viability gap funding (VGF), and buyer credit.
  • Ship-building clusters:
    • Facilitating ship-building clusters help to increase the range, categories and capacity of ships.
    • This will include additional infrastructural facilities, skilling and technology to develop the entire ecosystem.
    • This will not only improve overall infrastructural and logistical support for the export sector, but also help to save a huge amount of forex remitted in dollars to foreign shipping lines.
  • Infrastructure Status for Large Vessels: This status allows shipping companies to access benefits similar to those in other infrastructure sectors.
  • Customs Duty Exemption on Shipbuilding Spares: The government has extended this exemption for another 10 years.
  • Revamped Financial Assistance Policy: This includes credit incentives for shipbreaking and an extension of the tonnage tax scheme to inland vessels.

While these initiatives are steps in the right direction, they may not be sufficient given the capital-intensive nature of the shipping and shipbuilding sectors. Additionally, clarity is needed on how the ₹25,000 crore MDF will be mobilised and distributed over the coming years.

Way Forward

  • Long-Term Financing at Competitive Interest Rates: Indian Shipping industry requires loan tenures of 7-10 years with lower interest rates to facilitate ship acquisition and modernization.
  • Expansion of Shipbuilding Infrastructure: India must invest in new shipyards and modernise existing ones to build large vessels and reduce dependence on imports.
  • Tax Reforms to Level the Playing Field: Removing IGST on ship purchases and exempting Indian seafarers from TDS requirements will improve competitiveness.
  • Encouraging External Commercial Borrowings (ECBs): If strategically utilised, ECBs could help bridge the funding gap in the maritime sector.
  • Investment in Green Technology: To meet global emissions reduction targets, India must promote eco-friendly shipbuilding and retrofitting of existing vessels.

Nuclear Energy Sector in Union Budget 2025-26

Context: The Union Budget 2025-26 announced Rs 20,000 crore allocation for the Nuclear Energy Mission which aims to develop indigenous Small Modular Reactors (SMR).

Relevance of the topic:

Prelims: Key facts about Nuclear Energy Mission; India’s Nuclear Energy Sector. 

Mains: Small Modular Reactors- Need, Advantages & Challenges. 

Major Initiatives in Budget for Nuclear Energy Sector:

1. Nuclear Energy Mission:

  • About: Nuclear Energy Mission is focused on research and development (R&D) of Small Modular Reactors (SMRs). 
  • Budget: ₹20,000 crore
  • Aim: To develop at least five indigenously designed and operational SMRs by 2033.
  • The government will enter into partnerships with private sector to:
    • Set up Bharat Small Reactors
    • R&D of Bharat Small Modular Reactors
    • R&D of newer technologies for Nuclear Energy. Introduce new nuclear reactors including-
      • high-temperature gas-cooled reactors for hydrogen co-generation. 
      • molten salt reactors aimed at utilising India's abundant Thorium resources.
  • The private entities would provide land, cooling water, and capital. While the Nuclear Power Corporation of India Limited (NPCIL) will handle design, quality assurance, and operation and maintenance, within the existing legal framework. 

2. Energy-sector Reforms: 

  • Amendments to the Atomic Energy Act, 1962 and Civil Liability for Nuclear Damage Act, 2010 will be done. 
  • This is aimed to facilitate implementation of the Nuclear Energy Mission and to encourage private-sector investments in the nuclear power projects.

Significance of the Initiatives: 

  • As of January 30, 2025, India’s nuclear capacity is 8180 MW.
  • The initiatives align with India's commitment to achieving:
    • 100 GW of Nuclear energy capacity by 2047.
    • 500 GW of non-fossil fuel-based energy generation by 2030, meeting 50% of its energy requirements from renewable energy by 2030, as pledged at COP26 Summit in Glasgow in 2021.

What are Bharat Small Reactors?

  • Bharat Small Reactors (BSRs) are 220 MW Pressurised Heavy Water Reactors (PHWRs) with a proven safety and performance record. 
  • These reactors are being upgraded to reduce land requirements, making them suitable for deployment near industries such as steel, aluminium, and metals, serving as captive power plants to aid in decarbonisation efforts.

Pressurized Heavy Water Reactor (PHWR):

  • Fuel: Natural uranium (unenriched) 
  • Moderator and Coolant: Heavy water 
  • Cooling System: Combination of heavy water and light water to cool the reactor. Heat is transferred to a secondary loop, which then generates the steam to drive turbines.
  • Control Rods: Boron or cadmium control rods.
  • Fuel requirement: Annual requirement of fuel (UO2) of a 700 MW PHWR (at 85% Capacity Factor) is about 125 tons. 
  • Advantages: Use natural uranium fuel, produce less high-level radioactive waste, operate at lower pressures compared to other reactor types.
image 34

What are Bharat Small Modular Reactors?

  • Small Modular Reactors (SMRs) are advanced nuclear reactors with a power generation capacity ranging from less than 30 MWe to 300+ MWe.
  • They provide a flexible, scalable, and cost-effective alternative to conventional large nuclear reactors.
    • Small – a fraction of the size of a conventional nuclear power reactor.
    • Modular – possible for systems and components to be factory-assembled and transported as a unit to a location for installation.
    • Reactors – harnessing nuclear fission to generate heat to produce energy.
  • Applications: Electricity generation in remote locations, energy requirements for industrial processes, water desalination, nuclear submarines etc.
  • Advantages: 
    • Adaptable: can be scaled up or down to supply more or less power.
    • Only need to refuel every 3-7 years, as opposed to every 1-2 years for conventional nuclear plants. 
    • Extensive use of passive safety features to shut down and cool reactors under abnormal circumstances, reducing the risk of catastrophic failures. 
    • Have relatively lower-capital requirements, can make nuclear power more accessible.
    • Can complement renewable energy sources and stabilise the grid. 
  • Challenges: 
    • Higher cost per unit of electricity production in SMRs due to supply-chain issues and the absence of economies of scale. 
    • SMRs are inferior to conventional reactors with respect to radioactive waste generation and require spent fuel storage & disposal facilities.
image 35

Recent developments in Nuclear Energy in India:  

  • The government has initiated steps to increase nuclear power capacity from the current 8,180 MW to 22,480 MW by 2031-32.
    • This expansion includes the construction and commissioning of ten reactors, totalling 8,000 MW, across Gujarat, Rajasthan, Tamil Nadu, Haryana, Karnataka, and Madhya Pradesh. 
    • In-principle approval to set up a 6 x 1208 MW nuclear power plant in cooperation with the USA at Kovvada, Srikakulam district, Andhra Pradesh.
  • First two units of the indigenous 700 MWe PHWR at Kakrapar, Gujarat (KAPS - 3 & 4) have started commercial operation in FY 2023-24.
  • In 2024, Rajasthan Atomic Power Project's Unit-7 (RAPP-7), the third indigenous nuclear reactor, reached criticality (marking the beginning of controlled fission chain reaction).
  • Core loading commenced at the country's first Prototype Fast Breeder Reactor (PFBR 500 Mwe) in 2024. This marks the second stage of India's three-stage nuclear power program.
  • NPCIL and National Thermal Power Corporation (NTPC) have signed a supplementary Joint Venture agreement to develop nuclear power facilities in the country.
    • The Joint Venture named ASHVINI will function within the existing legal framework of the Atomic Energy Act 1962 (amended in 2015).
    • It will build, own, and operate nuclear power plants, including the upcoming 4x700 MWe PHWR Mahi-Banswara Rajasthan Atomic Power Project.
  • A significant discovery of a new deposit in India's oldest Uranium Mine (Jaduguda Mines, Jharkhand) around the existing mine lease area. 

IndiaAI Mission gets Rs 2,000 Crore: Budget 2025-26

Context: The Union Budget 2025-26 has sanctioned Rs 2,000 crore for the IndiaAI Mission for 2025-26, which is nearly a fifth of the scheme’s total outlay of Rs 10,370 crore. 

Relevance of the topic:

Prelims: IndiaAI Mission

Mains: Status of AI in India, challenges and suggestive measures

Major Highlights:

  • The government has shortlisted 10 companies that will provide nearly 19,000 graphics processing units (GPUs)- high end chips needed to develop machine learning tools -  for setting up artificial intelligence (AI) data centres. 
    • The initial aim of the IndiaAI Mission was to procure 10,000 GPUs.
  • The government also aims to build a domestic large language model (LLM) of its own, as part of the IndiaAI Mission.
  • The government will set up a new centre of excellence for AI for education with an outlay of Rs 500 crore. 

About IndiaAI Mission

  • IndiaAI Mission is an initiative of the Ministry of Electronics and Information Technology (MeitY). Total outlay: Rs 10,370 crores. 
  • It aims to build a comprehensive AI ecosystem that fosters innovation by democratising computing access, enhancing data quality and developing indigenous AI capabilities.
  • The mission aims to develop:
    • IndiaAI Compute Capacity: establish a computing capacity of more than 10,000 GPUs, via public-private partnerships, offering AI services and resources.
    • IndiaAI Innovation Centre: develop and deploy indigenous Large Multimodal Models and domain-specific foundational models, with a capacity of >100 billion parameters, for priority sectors like healthcare, agriculture, and governance.
    • IndiaAI Datasets Platform: streamline the access to high-quality non-personal datasets for AI innovation. 
    • Responsible AI development.  
  • A major portion of the total scheme outlay has been earmarked for building computing infrastructure.
  • The idea is that if such an infrastructure exists in the country, start-ups could plug into it for developing AI systems. 
image 33

Challenges in AI development in India

  • Talent shortage: Indian professionals lack skills requisite for the AI development in India. As 20% of companies reported that 50 to 100 AI projects are stalled at the planning stage due to shortage of skilled talent pool.
  • Data privacy and security concerns: AI development in India poses challenges to privacy, as India lacks the stringent and comprehensive implementation of data privacy rules.
  • Intellectual property violation: AI models threaten copyrighted work and sanctity of intellectual property rights.
  • Infrastructure deficit: Despite initiatives like AIRAWAT, India's AI-first compute infrastructure, the country still faces challenges in providing adequate computational resources necessary for advanced AI research and applications
  • Data deficit: There is a deficit of digitised data in India leading to limited creating a barrier in the development of AI based decision making. Eg; 26% of AI decision makers cited insufficient access to trusted data.
image

Suggestive Measures for AI Development: 

  • Government initiatives: 
    • National AI Mission: The Indian government has launched the IndiaAI Mission with a budget of Rs. 10,307 Cr. to foster AI development across various sectors, including healthcare, agriculture, and education
    • National Strategy for Artificial Intelligence: NITI aayog has released this strategy to focus on leveraging AI for inclusive growth and positions India as a global leader in AI.
  • Digital Public Infrastructure (DPI): Collaborations between the government and private sector have led to the development of DPI, facilitating scalable AI solutions and fostering innovation
  • Enhancing computing capacity: Government should provide subsidised GPU to AI based startups in challenging circumstances when the US has changed India’s position to ‘watchful’ in US AI rules.
  • Strengthening data governance: Implementing comprehensive data protection rules and digitisation of data can balance privacy and efficacy of data required for AI development.
  • Fostering collaboration: Efforts to encourage partnership between academia, industry and government. Eg; Apprenticeship of AI students with Industry and government. 

About Large Language Models (LLM)

  • LLMs are a subset of AI models designed to understand and generate human-like text by learning patterns from vast datasets. Examples: Open AI, chatGPT, Gemini. 
  • Other Notable AI Models:
    • Convolutional Neural Networks (CNNs): Primarily used in image recognition tasks, such as facial recognition and medical image analysis. Eg; DeepMInd’s AlphaFold
    • Recurrent Neural Networks (RNNs): Suited for sequential data processing, like time-series analysis and language modeling. Eg; Google Translate
    • Generative Adversarial Networks (GANs): Generate new data samples similar to the training data, used in image and video generation. Eg; DALL-E

IndiaAI Mission seeks to position India at the forefront of the global AI landscape, leveraging technology to address societal challenges and enhance the nation's economic development.

Key Takeaways from Budget 2025-26

Union Budget highlighted that Agriculture, MSME, Investment, and Exports are engines in the journey to Viksit Bharat. 

1. Agriculture: 

  • ‘Prime Minister Dhan-Dhaanya Krishi Yojana’ in partnership with states covering 100 districts to increase productivity, adopt crop diversification, augment post-harvest storage, improve irrigation facilities, and facilitate availability of long-term and short-term credit.
  • Mission for Aatmanirbharta (self-reliance) in Pulses: 
    • A 6-year “Mission for Aatmanirbharta in Pulses” with special focus on Tur, Urad and Masoor. 
    • Central agencies (NAFED and NCCF) will be ready to procure these 3 pulses, as much as offered during the next 4 years from farmers.
    • The budget has allocated Rs 1,000 crore towards this scheme, which aims to provide Minimum Support Price (MSP) based procurement and post-harvest warehousing solutions in respect of the three pulses crops. 
  • National Cotton Technology Mission: 
    • To address the challenges of stagnant cotton productivity, the budget has announced a five year Cotton Mission to increase cotton productivity especially extra-long staple varieties. The budget has allocated Rs 500 crore towards this scheme. 
    • Science & Technology support will be provided to farmers under this Mission.
    • The scheme will ensure steady supply of quality cotton to the Indian textile sector and is aligned with the government’s integrated 5F vision for the textile sector: Farm to fibre; fibre to factory; factory to fashion; fashion to foreign.
  • National Mission on High Yielding Seeds: 
    • The National Mission on High Yielding Seeds will be launched.
    • Aim: To improve research, seed quality, ensure high yields, pest resistance, and climate resilience, and make more than 100 seed varieties (23 varieties of cereals, 11 pulses, seven oilseeds, among others) commercially available. 
  • Fox seed (Makhana) Development:
    • A makhana board will be established in Bihar to improve the production, processing, value addition and marketing of makhana (foxnut). 
    • With an allocation of Rs 100 crore for FY 2025-26, the board will provide training and support to makhana farmers, who will be organised into farmer producer organisations (FPO).
  • Enhancing Loan limits for Farmers:  The loan limit under the Modified Interest Subvention Scheme (MISS) will be enhanced from ₹3 lakh to ₹5 lakh, for loans taken through Kisan Credit Cards that facilitate short-term loans for 7.7 crore farmers, fishermen, and dairy farmers.

2. Industries:

  • Revised definition of MSMEs to enable more firms to achieve higher efficiencies of scale, technological upgradation and better access to capital.
image 29
  • National Manufacturing Mission:
    • Covering small, medium and large industries for furthering “Make in India”.
    • The Mission will lay emphasis on five focal areas i.e. ease and cost of doing business; future ready workforce for in-demand jobs; a vibrant and dynamic MSME sector; availability of technology; and quality products.
    • The Mission will also support Clean Tech manufacturing and aims to improve domestic value addition and build the ecosystem for solar PV cells, EV batteries, motors and controllers, electrolyzers, wind turbines, very high voltage transmission equipment and grid scale batteries.
  • Focus Product Scheme for footwear and leather sectors to enhance productivity, quality and competitiveness of these sectors.
    • The scheme will support design capacity, component manufacturing, and machinery requirement for production of non-leather footwear and leather footwear and other products. 
    • It is expected to generate a turnover of ₹4 lakh crore and export of more than ₹1.1 lakh core, generating employment for 22 lakh people.
  • Scheme to make India a global hub of toys: The scheme will focus on development of clusters, skills, and a manufacturing ecosystem that will create high-quality and sustainable toys that will represent the 'Made in India' brand.

3. Investment: 

The budget prioritised investment in people, economy and innovation. 

  • Investment in people:
    • 50,000 Atal Tinkering Labs will be set up in Government schools in next 5 years.
    • Broadband connectivity will be provided to all Government secondary schools and primary health centres in rural areas under the Bharatnet project.
    • A Centre of Excellence in Artificial Intelligence for education will be set up with a total outlay of 500 crore.
    • Identity cards will be issued to Gig workers and their registration on the e-Shram portal and healthcare under PM Jan Arogya Yojana will be facilitated. 
    • PM SVANidhi scheme will be revamped with enhanced loans from banks, UPI linked credit cards with ₹30,000 limit, and capacity building support.
  • Investment in Economy: 
    • An outlay of Rs 1.5 lakh crore was proposed for the 50-year interest free loans to states for capital expenditure and incentives for reforms.
    • Second Asset Monetisation Plan 2025-30 was announced to mobilize capital of Rs 10 lakh crore in new projects.
    • Jal Jeevan Mission was extended till 2028 with focus on the quality of infrastructure and Operation & Maintenance of rural piped water supply schemes through “Jan Bhagidhari”.
    • Urban Challenge Fund:
      • To ramp up urban infrastructure, the government would set up an Urban Challenge Fund of ₹1 lakh crore to finance up to 25 per cent of bankable projects in urban infrastructure.
      • The condition to avail this support is that at least 50% of the cost is funded through bonds, bank loans and PPPs.
      • An allocation of ₹10,000 crore is proposed in 2025-2026 for this. 
  • Investment in Innovation:
    • An allocation of ₹20,000 crore is announced to implement a private sector driven Research, Development and Innovation initiative.
    • National Geospatial Mission (NGM): 
      • An initiative to strengthen the country’s geospatial infrastructure, ensuring the availability of accurate and real-time geospatial data for various sectors.
      • This mission aims to boost economic growth, support governance, and enhance national security by leveraging geospatial technologies.
  • Gyan Bharatam Mission:
    • A mission for undertaking the “survey, documentation and conservation” of India’s manuscript heritage lying with academic institutions, museums, libraries, and private collectors.
    • To accommodate this new initiative, the budget allocation for the National Manuscripts Mission (NMM) has been hiked from ₹3.5 crore to ₹60 crore.
Purvodaya Plan: ‘Purvodaya’, for the all-round development of five states in the eastern region, including Bihar, Odisha, Jharkhand, West Bengal and Andhra Pradesh.The plan will cover human resource development, infrastructure, and generation of economic opportunities in the eastern region of the country. 

4. Exports:

  • Exports Promotion Mission: 
    • Government to set up an Export Promotion Mission with an outlay of ₹2,250 crore. 
    • It will facilitate easy access to export credit, cross-border factoring support, and help MSMEs tackle non-tariff measures in overseas markets. 
    • This mission will be driven jointly by the Ministries of Commerce, MSMEs, and Finance.

5. Fiscal Consolidation:

  • The Central Government debt remains on a declining path as a percentage of the GDP. The Revised Estimate 2024-25 of the fiscal deficit is 4.8 per cent of GDP, while the Budget Estimates 2025-26 is estimated to be 4.4 per cent of GDP.
image 30
image 31

6. Contribution of Major tax components to the total gross tax revenues of the Union Govt: 

Tax Revised Estimates (2024-25)Budget Estimates (2025-26)
Corporation Tax25.45%25.37%
Income Tax32.64%33.73%
Customs6.09%5.63%
Union Excise Duties8.05%7.55%
Goods and Services Tax (GST)27.55%27.59%

Indirect Taxes

  • Rationalising Customs Tariffs: 
    • Reduced the total number of customs tariffs to only eight tariff rates including ‘zero’ rate for industrial goods. 
    • Apply appropriate cess to ensure that the overall tax burden (effective duty incidence) on industrial goods remains broadly unchanged.
    • Proposed to not levy not more than one cess or surcharge on industrial goods. Hence, social welfare surcharge has been exempted on 82 tariff lines that are subject to cess. 
  • Sector Specific Proposals: 
SectorProposal
Drugs/MedicinesExempted Basic Customs Duty (BCD) on 36 lifesaving drugs. 
Critical MineralsExempted Basic Customs Duty on critical minerals like cobalt powder and waste, the scrap of lithium-ion battery, Lead, Zinc etc. This is in addition to the 25 critical minerals fully exempted from BCD in the July 2024 Budget.
TextilesTo boost domestic production of technical textiles like agro-textiles, medical textiles, and geo-textiles, the Budget Customs Duty (BCD) on two types of shuttle less looms for the textile industry has been reduced to nil from 7.5%. This move will lower the cost of high-quality imported looms, enabling modernisation and capacity expansion in the weaving sector, and strengthening the Make in India initiative in the technical textiles industry.
Electronic goodsRectified inverted duty structure on a few electronic goods by increasing the BCD on Interactive Flat Panel Display (IFPD) from 10% to 20% and reducing the BCD to 5% on Open Cell and other components.

Direct Taxes

Personal Income Tax Reforms:

  • Under the new tax regime, no income tax payable up to income of ₹12 lakh. 
  • Slabs and rates have been changed across the board to benefit all taxpayers to reduce the tax burden of the middle class and leave more money in their hands, boosting household consumption, savings, and investment.
  • Tax slabs and the respective rates under new tax regime: 
image 32

Ease of Doing Business: 

  • To simplify transfer pricing and reduce annual scrutiny, the budget introduced a scheme to determine the arm's length price of international transactions for a three-year block period, aligning with global best practices.
  • With a view to reduce litigation and provide certainty in international taxation, the scope of safe harbour rules is being expanded.

New Definition of MSMEs: Budget 2025-26

Context: The Union Budget 2025-26 has introduced a series of measures to strengthen the Micro, Small, and Medium Enterprises (MSME) sector. 

Relevance of the Topic:Prelims: Definition of micro, small, and medium enterprises (MSMEs); New initiatives for MSMEs. 

Current Landscape of MSMEs in India:

  • The share of MSMEs in India’s Gross Value Added (GVA) is 30.1% in 2022-23.
  • In 2023-24, MSME-related products accounted for 45.73% of India’s total exports.
  • Currently, over 5.93 crore registered MSMEs employ more than 25 crore people in India. 

Major Initiatives in Budget for MSME sector:

1. New Definition of MSMEs:

  • The investment and turnover limits for MSME classification will be increased to 2.5 times and 2 times, respectively. 
  • This will help MSMEs to scale operations and to access better resources. It is expected to improve efficiency, technological adoption, and employment generation.
MSMEs Revised Definition
Investment (not exceeding)(in Rupees crores)Turnover (not exceeding)(in Rupees crores)
Current Revised Current Revised 
Micro Enterprises12.5510
Small Enterprises102550100
Medium Enterprises50125250500

2. Enhanced Credit Availability: 

  • Credit guarantee cover for micro and small enterprises is increased from ₹5 crore to ₹10 crore.
  • Credit guarantee cover of startups will double from ₹10 crore to ₹20 crore, with a reduced fee of 1% for loans in 27 priority sectors.
  • Exporter MSMEs will benefit from term loans up to ₹20 crore with enhanced guarantee cover.

3. Credit Cards for Micro Enterprises: 

  • New customised Credit Card scheme for micro enterprises registered on Udyam portal.
  • It will provide ₹5 lakh in credit, with 10 lakh cards set to be issued in the first year.

4. Support for Startups and First-Time Entrepreneurs:

  • New Fund of Funds with ₹10,000 crore corpus to be established to support startups. 
  • A scheme to provide term loans up to ₹2 crore, over five years, to 5 lakh first-time entrepreneurs (women, Scheduled Caste, and Scheduled Tribe).

5. Focus on Labour-Intensive Sectors: 

  • Product Scheme for footwear and leather sector to support design, component manufacturing, and non-leather footwear production. It is expected to create 22 lakh jobs and generate a turnover of ₹4 lakh crore.
  • New scheme for the toy sector to promote cluster development, skill-building and to position India as a global toy manufacturing hub.
  • National Institute of Food Technology, Entrepreneurship and Management to be established in Bihar, to boost food processing industries in the eastern region.

6. Manufacturing and Clean Tech Initiatives: 

  • The National Manufacturing Mission to provide policy support and roadmaps for small, medium, and large industries, under Make in India initiative.
  • Special emphasis will be given to clean tech manufacturing, fostering domestic production of solar PV cells, EV batteries, wind turbines, and high-voltage transmission equipment.

Modified UDAN Scheme

Context: The Union Budget 2025-26 has announced a ‘modified UDAN scheme’ to further improve regional connectivity. 

Relevance of the topic:

Prelims: Scheme-specific questions on UDAN scheme.

Mains: Detailed question on aviation sector and UDAN scheme. 

About Modified UDAN Scheme

  • The modified UDAN scheme plans to connect 120 additional destinations across the country, thereby broadening the reach of affordable air travel.
  • It aims to facilitate air travel for an additional 4 crore passengers to benefit individuals from regional connectivity. 
  • The government will support the establishment of new greenfield airports, particularly in states like Bihar.
  • The regional connectivity scheme will also support helipads and smaller airports in hilly, aspirational, and North-eastern districts. 

About UDAN Scheme- Ude Desh ka Aam Nagrik

  • The UDAN scheme (Regional Connectivity Scheme) was launched in 2017.
  • Initiative of: Ministry of Civil Aviation
  • Aim: 
    • To enhance the aviation infrastructure and connectivity in India.
    • To make flights accessible and affordable in tier-2 and tier-3 towns. 
  • Key features of the scheme: 
    • Affordable Airfare: Capped airfare at ₹2,500 per hour of flight on select regional routes to make air travel accessible.
    • Regional Connectivity: Focuses on connecting underserved and unserved airports in Tier 2 and Tier 3 cities.
    • Viability Gap Funding: Financial support from the government to airlines for operating regional routes, ensuring affordability.
    • Public-Private Partnership: Encourages private airlines to participate in regional aviation through incentives.
    • Boost to Tourism & Economy: Enhances accessibility to remote regions, fostering tourism and economic development.
    • No Airport Charges: Airports under UDAN are exempted from landing, parking, and other charges to reduce operational costs.
    • Intermodal Connectivity: Integrates regional air travel with rail, road, and waterways for seamless transport.
    • Phased Expansion: Implemented in multiple phases, with each phase covering new routes and destinations.

Possible Impacts of Scheme

  • Enhanced regional connectivity with the development of greenfield airports in the remorse regions Eg; Pakyong Airport (Sikkim) became operational under UDAN, providing direct air connectivity to the state.
  • Enhancing passenger traffic in the flights by making them affordable, with capped pricing. 
  • Job creation: Development of airports and construction of greenfield airports will lead to the job creation and development of ancillary industries in the region.
  • Boost tourism: E.g., Kishangarh Airport (Rajasthan) near Ajmer has boosted religious tourism at Ajmer Sharif Dargah and Pushkar.
  • Development of remote regions: UDAN has brought air connectivity to difficult terrains like the Northeast and the Andaman & Nicobar Islands. Eg; Tezu Airport (Arunachal Pradesh) now provides better access to the region.
  • Support to the aviation sector: Small airlines benefit from Viability Gap Funding (VGF), making regional routes profitable. Eg; Alliance Air & Flybig Airlines have expanded their operations due to government support.
  • Reducing travel time by promoting small flights with quick operations. Eg; Dibrugarh to Pasighat (Arunachal Pradesh) now takes less than an hour by air, compared to a 10-hour road journey.
  • Strengthening national security by development of the new airports at the border and remote regions. Eg; Kargil Airport (Ladakh) is being developed under UDAN to strengthen air access in sensitive regions.
image 28

Challenges to Regional Connectivity in India

  • Financial Viability: Many airlines struggle due to low profitability (E.g., Air Odisha, Air Deccan shut down).
  • High Operating Costs: Rising fuel prices make regional flights expensive (E.g., SpiceJet withdrew from UDAN routes).
  • Airline Fleet Shortage: Not enough small aircraft (E.g., Flybig Airlines delayed expansion). 
  • Infrastructure Gaps: Many airports lack night landing, ATC, or maintenance.
  • Low Passenger Demand: Some routes have poor occupancy (E.g., Jamshedpur-Kolkata flights discontinued). 
  • Weather & Geography: Remote areas face frequent disruptions. 

Also Read: Falling of Airline sector in India 

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