Inclusive Growth & Financial Inclusion

PM Jan Vikas Karyakram (PMJVK): Strengthening Inclusive Area Development

Context: The Ministry of Minority Affairs recently conducted a nationwide review of the PM Jan Vikas Karyakram (PMJVK) to enhance last-mile delivery and accelerate development outcomes in Minority Concentration Areas (MCAs) across India. The review aims to improve fund utilisation, quality of assets, and convergence with other social sector schemes.

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About PM Jan Vikas Karyakram

PMJVK is a Centrally Sponsored Scheme designed to bridge development deficits in areas with significant minority populations.
Key features:

  • Targets 700+ Minority Concentration Areas where the minority population exceeds 25%, and socio-economic indicators fall below national averages.
  • Covers both urban and rural clusters identified through backwardness criteria.
  • Funding pattern:
    • 90:10 for North Eastern and Hill states
    • 60:40 for other states
    • 100% funding for Union Territories

The scheme focuses on area development rather than individual beneficiary support.

Objectives of PMJVK

  • Reduce regional development imbalances in education, health, skill development, and civic infrastructure.
  • Ensure equitable access to public services for minority communities.
  • Promote women-focused facilities, youth skill centres, and community empowerment.
  • Strengthen social inclusion through modern, accessible public amenities.

Key Achievements (as reported in the review)

1. Social Infrastructure Creation

  • 12,000+ infrastructure projects sanctioned since inception.
  • Development of education facilities including 800+ smart classrooms and modern schools.

2. Health Infrastructure Expansion

  • 500+ Primary Health Centres (PHCs) and maternal healthcare facilities upgraded or established.

3. Gender-Focused Development

  • Women’s hostels, training centres, and safety infrastructure form 15–20% of total projects.

4. Community & Civic Infrastructure

  • 2,000+ community assets developed, such as Sadbhav Mandaps, skill centres, and multipurpose halls.

5. Digital Governance Strengthening

  • 100% fund flow through the PMJVK Portal and SNA–SPARSH platform since 2025.
  • Enhanced transparency through digital geo-tagging and online monitoring.

Issues and Implementation Challenges

  • Low Fund Utilisation: Only 62–65% of annual allocations utilised in time.
  • Capacity Deficit: About 40% of MCAs lack adequate project planning capacity.
  • Land & Clearance Delays: 25–30% of projects stalled due to land availability or permission hurdles.
  • State-Level Variations: Some states achieve over 90% utilisation, while others remain below 50%, slowing national progress.

Way Forward

1. Digital Strengthening

Upgrade the PMJVK Portal with automated alerts, public dashboards, and real-time tracking similar to Geo-MGNREGA.

2. Community Ownership & Social Audits

Integrate social audits, community consultations, and grievance mechanisms, adopting models from the Aspirational Districts Programme.

3. Quality Assurance Measures

Mandate third-party audits, digital photo evidence, and QR-tagging of all created assets—similar to practices in the National Health Mission (NHM).

4. Scheme Convergence

Link PMJVK projects with PM-SHRI schools, PM-KVK skill hubs, NHM facilities, and Smart Cities infrastructure to maximise developmental impact.

Conclusion

PMJVK plays a crucial role in advancing inclusive area development, reducing regional disparities, and improving access to essential public services for minority communities.

Strengthening digital systems, community participation, and inter-scheme convergence will be key to achieving long-term socio-economic transformation in MCAs.

India’s Demographic Dividend as a Time Bomb

Context: India’s vast youth population promises a demographic dividend. However, without education and skills aligned to the AI-driven future, it risks becoming a demographic time bomb.

Relevance of the Topic: Mains: Issues in India’s education system & challenges of AI-driven transformations in the job market. 

Rabindranath Tagore once remarked, “Don’t limit a child to your own learning, for she was born in another time.” India’s education system is preparing students for the jobs of yesterday while the future of work is being rapidly shaped by Artificial Intelligence (AI) and other disruptive technologies. 

With 800 million people below the age of 35, India’s youth population is considered its biggest asset. However, without appropriate reforms in education and skill development, this demographic dividend risks turning into a demographic liability.

Core Issues

  • The Indian education system remains outdated and examination-centric, with limited focus on employability and career readiness.
  • Curriculum update cycles run on three-year timelines, while technology and industry demands change at a much faster pace.
  • Increasing disconnect between degrees and job skills is leading to high underemployment and unemployability among graduates.
  • Despite multiple government skill-development initiatives, outcomes remain fragmented and insufficient. 

Causes of the Crisis: 

  • Curriculum Lag: Educational curricula do not adapt quickly enough to changing industry needs.
  • Narrow Career Awareness: Surveys show that 93% of high school students are aware of only seven career options, while the economy offers more than 20,000.
  • Examination-Centric Pedagogy: Schools prioritise rote learning and marks over creativity, problem-solving, and practical skills.
  • Ineffective Skill Missions: Programs like Skill India Mission, Pradhan Mantri Kaushal Vikas Yojana, Pradhan Mantri Kaushal Kendra, Pradhan Mantri Yuva Yojana and SANKALP (Skill Acquisition and Knowledge Awareness for Livelihood Promotion) etc. function in silos with weak industry integration.
  • Digital Tools but Analog Mindsets : Despite smartphones and EdTech platforms, most tools are used for test preparation, not job-ready skill development.

Consequences of Inaction: 

  • Rising Unemployment and Underemployment: Only 43% of Indian graduates are considered job-ready (Graduate Skills Index 2025). Even engineering graduates face high unemployment, with 40-50% not securing placements.
  • Youth Disillusionment and Social Instability: The mismatch between expectations and opportunities risks creating frustration and unrest. Historical episodes like the 1990 Mandal protests show how youth frustration can spill into violence and instability.
  • Global Competitiveness at Risk: Without reskilling, India’s workforce may fall behind as AI and automation reshape global labour markets.
  • Demographic Time Bomb: Education without employability can worsen inequality and destabilise society.

Way Forward

  • Curriculum Reform: Shift from rote-based teaching to competency-driven learning that fosters creativity, adaptability, and problem-solving.
  • Early Career Guidance: Institutionalise career counselling in schools to widen awareness of diverse opportunities.
  • Industry-Education Linkages: Establish national skill councils to ensure curricula are updated in real-time with industry demands.
  • Focus on Reskilling and Upskilling: Encourage lifelong learning through flexible programs in emerging fields like AI, robotics, renewable energy, and healthcare.
  • Unified Skilling Mission: Consolidate fragmented schemes under a single, outcome-driven national framework.
  • Public-Private Partnerships: Foster collaboration between government, private sector, and universities to create a robust skill development ecosystem.

India stands at a decisive juncture: its demographic dividend could either power economic growth or explode as a demographic time bomb. Hence, we must not confine students to outdated learning models; instead, we must equip them for a rapidly transforming future.

Pradhan Mantri Jan Dhan Yojana (PMJDY)

Context: According to the data presented by the Finance Ministry, over 13 crore Jan Dhan Accounts, i.e., 23% of the total 56 crore opened till July 31, 2025 are inoperative. The amount parked in these accounts stands at over ₹2.64 lakh crore.
Under Reserve Bank of India norms, a savings account is classified as inoperative/dormant if no transactions are recorded for over two years.

Relevance of the topic:

Prelims: Key facts about Pradhan Mantri Jan Dhan Yojana.

Mains: Govt. initiatives towards financial inclusion.

What is financial inclusion?

Financial Inclusion refers to universal access to a wide range of financial services at an affordable cost. These include not only banking products (basic savings, deposit accounts, remittance and credit) but also other financial services such as insurance, pension and equity products.

What are the benefits of financial inclusion?

  • Efficient Mobilization of Resources: When more people come under the banking sector, it leads to increased deposits, allowing for easier mobilization of resources for investment and productive purposes.
  • Poverty Alleviation: Access to formal credit and financial services enables poor households to access cheaper credit, which can help in their economic empowerment. It also prevents them from falling into debt traps, which are often associated with informal or exploitative lending practices.
  • Formalization of the Economy: Financial inclusion helps bring more individuals and businesses into the formal financial sector. This can lead to better regulation and tax compliance.

As per census 2011, only 58% of households are availing banking services in the country.

PM Jan-Dhan Yojana

PM Jan-Dhan Yojana

Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched to improve financial inclusion. Under the scheme, a basic savings bank deposit account can be opened in any bank branch or Business Correspondent (Bank Mitra) outlet, by persons not having any other account.

Benefits under PMJDY

  • One basic savings bank account is opened for unbanked person.
  • There is no requirement to maintain any minimum balance in PMJDY accounts.
  • Interest is earned on the deposit in PMJDY accounts.
  • Rupay Debit card is provided to PMJDY account holder.
  • Accident Insurance Cover of Rs.2 lakh is available.
  • An overdraft (OD) facility up to Rs. 10,000 to eligible account holders is available.
  • PMJDY accounts are eligible for all the Direct Benefit Transfer (DBT) schemes MUDRA scheme.

Impact of PMJDY

The Pradhan Mantri Jan Dhan Yojana (PMJDY) has been widely regarded as a successful and transformative financial inclusion program in India. Here's an assessment of the key achievements and impact of the PMJDY:

  • Expansion of Banking Access: The scheme significantly increased the number of bank account holders, especially in the unbanked and underbanked segments of the population. As on July 31, 2024, there are 52.99 crore total beneficiaries (account-holders) with total account balance of more than ₹2 lakh crore.
  • Direct Benefit Transfers: The PMJDY has enabled the direct transfer of government benefits, subsidies, and welfare payments directly into the beneficiaries' bank accounts. This has improved the targeting and delivery of government schemes, reducing leakages and improving transparency.
  • Women's Financial Inclusion: The PMJDY has a specific focus on promoting women's financial inclusion, with over 55% of the Jan Dhan accounts being held by women.
  • Financial Literacy and Awareness: The PMJDY has incorporated financial literacy and awareness campaigns to educate the beneficiaries on the use of their bank accounts and various financial services.

Inequality in India: Beyond the Gini Index

Context: The Gini Index ranked India among the world’s most equal societies by giving the score of 25.5. The claim is widely criticised for ignoring the country’s stark and multidimensional inequalities.

Relevance of the Topic: Prelims: Concept of inequality and Gini Index. Mains: Forms of inequality in India.

Gini Index

  • The Gini Index (or Gini Coefficient) measures income inequality within a population on a scale from 0 (perfect equality) to 100 (perfect inequality).
  • India's score of 25.5 suggests relatively equitable income distribution. However, this assessment is based on limited income tax data, which covers only about 10% of the adult population, due to the predominance of informal work and non-taxable incomes.
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Forms of Inequality in India

Wealth Inequality: 

  • According to a study titled ‘Income and Wealth Inequality in India 1922-2023: The Rise of the Billionaire Raj’, in FY 2022-23, 22.6% of the national income went to just the top 1% of the population.
  • Large scale informal employment - low income and lower bargaining power. 
  • Large portion of the population remains outside the income tax net, making accurate representation difficult. This itself is a reflection of structural inequality in the economy.

Gender Inequality:  

  • Women constitute only 35.9% of the workforce. Gender roles and familial expectations continue to limit female participation in economic, educational, and digital spheres.
  • In leadership positions, their representation drops further- just 12.7% in senior or middle management.
  • Despite India having the third-largest startup ecosystem, only 7.5% of active startups are led by women.
  • Digital gender divide: Only 25% of rural women have internet access compared to 49% of rural men.

Digital Inequality: 

Though internet penetration has improved, a severe digital divide remains.

  • Only 41.8% of households across rural and urban India have broadband. 
  • Digital inequality reinforces educational and economic disparities, and restricts access to employment opportunities. This technological gap ensures that only certain socio-economic classes stay competitive in the job market, pushing others into low-skill roles.

Educational Inequality: 

Educational inequality is deepened by unequal digital access.

  • Only 52.7% of schools have functional computers, and 53.9% have internet access.
  • Students from low-income or rural backgrounds lack access to digital skills, which are crucial for higher education and employment. E.g., In cities like Delhi, where schools close during winter pollution, only children with internet access can continue learning.

Bridging these divides requires inclusive policies, better data collection, and focus on structural reforms that ensure opportunity reaches every corner of India. Only then can we truly call ourselves an equal society. 

RBI's Financial Inclusion Index hits 67 in FY25

Context: The Reserve Bank of India’s Financial Inclusion Index (FI Index) improved to 67 in March 2025 from 64.2 in March 2024.

Relevance of the Topic: Prelims: Key facts about Financial Inclusion Index. 

Financial Inclusion Index

  • Financial Inclusion Index (FI Index) captures the extent of financial inclusion across the country. The comprehensive index includes data from various sectors such as banking, investments, insurance, postal services, and pensions, making it a comprehensive measure of financial inclusion in the country.
  • The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.
  • The FI Index comprises of three broad parameters:
    • Access (having a weight of 35% in the index)
    • Usage (weight 45%)
    • Quality ( weight 20%). Quality parameter captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services.
  • The weight of each parameter comprises various dimensions, which are calculated based on a number of indicators.
  • The Index has been constructed without any base year and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion. 
  • RBI published the first FI index in 2021 for FY21 (FI Index 53.9). 
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Decoding the rise in FI Index

  • As per RBI, the improvement in FI Index in FY25 is largely due to usage and quality dimensions, reflecting deepening of financial inclusion, and sustained financial literacy initiatives. 
  • India has made significant strides in expanding financial inclusion through initiatives like:
    • Pradhan Mantri Jan Dhan Yojana: Under the scheme, over 558 million accounts have been opened in rural and semi-urban areas. Notably, 311 million of these accounts have been opened in the name of female beneficiaries. 
    • JAM Trinity: The pillar of financial inclusion is JAM (Jan Dhan, Aadhaar, Mobile) trinity which has expanded the coverage of direct benefit transfers. 
    • Unified Payments Interface (UPI) and Aadhaar-enabled Payment System (AePS)
    • Payments Banks; Business Correspondent Model
    • Pradhan Mantri Mudra Yojana 
    • Pradhan Mantri Jeevan Jyoti Bima Yojana 
    • Pradhan Mantri Suraksha Bima Yojana 
    • Atal Pension Yojana
    • Sukanya Samriddhi Yojana
    • Stand Up India Scheme 
    • Financial Literacy Programmes like Pradhan Mantri Gramin Digital Saksharta Abhiyan. 

Also Read: Financial Inclusion 

India's Goldilocks Moment 

Context: The Finance Ministry’s Monthly Economic Review (MER) recently described the Indian economy as being in a “Goldilocks Moment”.

Relevance of the topic:

Prelims: Concept of Goldilocks Moment in economics.

Mains: Goldilocks Moment - causes, significance, challenges in sustaining balanced growth.

What is Goldilocks Moment in Economy?

  • Goldilocks moment describes a ‘perfect’ market where interest rates are low, economic growth remains stable and inflation appears moderate.
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Factors responsible for Goldilocks Moment:  

  • The Monetary Policy Committee (MPC) reduced the policy repo rate by 100 basis points over the last three meetings. Lower interest rates encourage borrowing, investment, and consumption.
  • Retail inflation based on the Consumer Price Index (CPI) has dipped to a 75-month low of 2.82%. Inflation control boosts consumer purchasing power and reduces input cost pressures on industry.
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  • Strong growth forecast - the economy is expected to grow at 6.3-6.8% this fiscal (FY26).
  • The report highlighted that the growth momentum from the fourth quarter of the last fiscal (FY25) continues. 
  • Various high frequency economic indicators, such as e-way bill generation, fuel consumption and PMI, are showing continued resilience. 
  • Significantly, rural demand has strengthened further while urban consumption is picking up as reflected by the rise in air passenger traffic and hotel occupancy. 

Challenges:  

  • Signs of slowdown in areas like construction inputs and vehicle sales. 
  • Brief Israel-Iran tensions led to a spike in crude oil prices, posing risks to India’s current account and fiscal deficit. Though prices have eased after a ceasefire, shipping insurance and supply route risks remain high.
  • Global growth continues to face headwinds, with persistent trade frictions, heightened policy uncertainty and geopolitical conflicts. 

These external challenges could potentially impact India’s growth trajectory and warrant close and continuous monitoring. India can leverage geopolitical shifts to attract investment and manufacturing.

The government aims to boost the economy through Agriculture reforms, Manufacturing and tech missions and Deregulation to increase productivity. 

India’s First Household Income Survey in 2026: MoSPI

Context: The Ministry of Statistics and Programme Implementation (MoSPI) has announced that it will conduct India’s first-ever dedicated Household Income Survey in 2026.

Relevance of the Topic: Prelims : About India’s first-ever dedicated Household Income Survey in 2026.

India has never conducted a national-level household income survey. Past attempts like the Consumer Expenditure Surveys (1950s) and the Integrated Household Survey (1960s) failed to produce reliable income data, as income estimates were found to be lower than combined consumption and savings.

Objectives of Household Income Survey

  • To measure household incomes to understand the income distribution.
  • To understand the structural economic changes that occurred in the Indian economy over the past 75 years. 
  • To assess the impact of adoption of technology on wages.

Members:  

  • To guide the survey’s methodology, MoSPI has set up a Technical Expert Group (TEG) led by Dr. Surjit Bhalla, former IMF Executive Director and part time member of PM Economic Advisory Council. 
  • The Expert Group will guide key aspects such as definitions, survey methodology, sampling design, estimation techniques, and also ensure global best practices are followed.

Household Income Survey is an important initiative to generate vital information for deriving income distribution and welfare thereof. However, the challenges exist such as underreportion of incomes by the households, difficulty in accurately estimating incomes of households with seasonal employment etc. 

Other Key Surveys & Indexes by MoSPI: 

  • Index of Industrial Production (IIP)
  • Consumer Price Index (CPI)
  • Periodic Labour Force Survey (PLFS)
  • Household Consumer Expenditure Surveys (HCES)
  • Social Consumption Surveys (NSS Rounds)
  • Survey on Unincorporated Enterprises
  • Private Sector Capex Survey
  • Domestic Tourism & Travel Survey

India’s Journey to Growth and Economic Leadership 

Context: At a GDP of $4.2 trillion, India has become the 4th largest economy in the world, in nominal GDP terms overtaking Japan. With the significant progress of the past decade, India’s imprint on the global economy is set to expand. 

Relevance of the Topic: Mains: Key Trends supporting India’s growth story: Can be directly used as data points in Mains answers. 

India’s growth and transformation across various sectors

India has witnessed significant transformation across various dimensions in the past decade, which can be reflected in: 

Macroeconomic Growth and Stability:  

  • Average growth since 2014 has been 6.4%.  
  • Inflation has come down from 9.4% in FY14 to 4.6% in FY26 providing much-needed stability for households and businesses.
  • Capital expenditure has grown significantly, reaching Rs 11.2 lakh crore in 2025-26.

Infrastructure Development

India’s infrastructure development has been one of the most visible symbols of the country’s economic transformation and inclusion. 

  • Roadways and Highways:
    • National highways expanded from 91,287 km in 2014 to 1,46,204 km in 2024. The speed of construction has increased from 12 km/day to 34 km/day. 
    • The emphasis on last-mile connectivity has resulted in nearly four lakh km of rural roads being built, bringing 99% of rural India into the national network.
  • Railways:
    • A total of 25,871 route kilometres (RKM) of new tracks were laid, significantly higher than the 14,985 RKM added in the previous decade. 
    • India leads the world in locomotive manufacturing, producing 1681 locomotives in 2024-25. This is more than the combined output of the US, Europe, and Japan. 
    • Freight movement has surged with Indian Railways becoming the world’s second largest cargo transporter, handling 1617 million tonnes annually.
  • Civil Aviation:
    • The number of operational airports has grown from 74 to 160 between 2014 and 2025, with the UDAN scheme bringing air connectivity to remote towns.
    • The government’s vision of expanding to 300 airports by 2047 underlines its continued focus on logistics and accessibility.
  • Urban Transformation: 
    • Urban Transformation has continued through Smart Cities Mission, with over 8000 projects and investments worth Rs 1.64 lakh crore.
  • Digital Public Infrastructure:
    • Led by platforms like UPI and Aadhaar, this public-first approach has enabled real-time payments, direct transfers, and expanded rural banking through Jan Dhan and digital access points. 
    • DPI is projected to reach about 3-4% by 2030. India’s DPI has now been adopted in over 12 countries. Over 141 crore Aadhaar registrations and 60 crore UPI transactions every day signify their reach and acceptance. 

Social Infrastructure and Poverty Reduction: 

  • Healthcare: The number of medical colleges has grown from 387 to 780, and AIIMS institutions from seven to 23. MBBS and PG seats have also more than doubled. Health insurance under Ayushman Bharat covers 350 million people. 
  • 17.1 crore people have been lifted out of poverty. The poverty rate has fallen from 29.17% in 2013-14 to 11.28% in 2022-23. 
  • Over 530 million Jan Dhan accounts have been opened. Forty million homes have been built, 120 million toilets constructed, and 100 million families cook with clean LPG. 
  • Tap water connections have also reached 140 million households under “Har Ghar Jal” Yojana. 
  • 110 million farmers now receive direct income support through PM-KISAN.

Clean Energy: 

  • Solar capacity has grown from 2.82 GW in 2014 to over 105 GW, with total clean energy capacity now at 228 GW. 
  • India is the third-largest solar and fourth-largest wind energy producer globally.

Industrial Technological Advancement

  • Electronics Manufacturing has increased six times to cross Rs 12 lakh crore. Electronics exports have crossed Rs 3 lakh crore. India is now the second largest mobile phone producer. Production of electronic components is gaining pace under the new Electronic Components Manufacturing Scheme.
  • Semiconductor Mission: First commercial lab is under construction; five OSAT units are underway; over 20 chipsets with indigenous IP have been designed by students and engineers in India.
  • IndiaAI Mission: Over 34,000 high-speed computer chips, known as GPUs, are now available to all at just one-third the global cost to support AI development. AI-Kosha platform offers over 370 datasets and 200 ready-to-use AI models for learning and innovation.

Introduction of GST, New laws like Telecom Act and DPDP Act, over 1,500 old laws were repealed and 40,000-plus compliances removed. These policy reforms have encouraged investment, innovation, and formalisation, creating a virtuous growth cycle.

However, more needs to be done to improve ease of doing business, reduce compliance burdens, enhance competitiveness, and integrate more deeply into global supply chains. 

India becomes the World’s Fourth Largest Economy 

Context: NITI Aayog CEO B.V.R. Subrahmanyam recently claimed that India has overtaken Japan to become the world’s fourth-largest economy, sparking debate as others questioned the accuracy of this data.

Relevance of the topic:

Prelims: Key facts about GDP Calculation methodologies.

Mains: Limitations of using nominal GDP as a measure of economic development.

India’s rise in the nominal GDP- IMF data: 

As per the new estimates of the Gross Domestic Product (GDP) of various countries for 2024 by the International Monetary Fund (IMF): 

  • India’s GDP in 2025 is likely to be $4,187 billion ($4.18 trillion), marginally higher than the GDP of Japan at $4,186 billion. 
  • This makes India the fourth largest economy of the world in 2025 after the U.S., China and Germany. It is estimated that India could grow to be the third largest economy of the world in 2028.

India’s actual position in the global economic order can be understood by distinguishing between nominal GDP and Purchasing Power Parity (PPP). 

Nominal GDP

  • Nominal GDP is the total value of goods and services produced in a country, measured at current market prices in US dollars. It does not adjust for inflation or differences in cost of living in different countries. 

Nominal GDP is not always the right metric because of: 

  • Exchange Rate Distortions: Recent claims that India has overtaken Japan are based on nominal GDP data, which is vulnerable to short-term currency movements. Changes in exchange rates can artificially inflate or deflate a country’s GDP without any real change in economic output. E.g., a weaker rupee can make India’s GDP appear smaller in dollar terms even if domestic production increases. This makes it an unreliable metric for comparing economies across countries.
  • Ignores differences in Cost of Living: Nominal GDP does not reflect how much people can actually buy with their incomes. E.g., $1 buys a lot more in India than in the U.S. or Japan due to lower costs of goods and services.
  • Overlooks Per capita disparities: A higher nominal GDP does not mean higher income per person. E.g., In 2025, India ranks 4th and the UK ranks 6th in nominal GDP. Yet, India's per capita income is just $2,879, while the UK's is $54,949.
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Nominal GDP comparisons are not as meaningful because they miss out on the purchasing power aspect. It is for this reason that the IMF also calculates GDP based on Purchasing Power Parity.

Purchasing Power Parity (PPP)

  • GDP at PPP compares the relative value of currencies by measuring what the same amount of money can buy in different countries. E.g., A person working in Delhi may earn less than a friend working in Paris, but the Delhi resident can afford many services- like cooking, cleaning, or dental care- at much cheaper rates.

PPP offers more accurate picture of economy as: 

  • Unlike nominal GDP, PPP is not affected by changes in exchange rates, giving a more stable and fair comparison over time.
  • PPP adjusts for differences in cost of living and inflation between countries, providing a more accurate picture of real purchasing power.
  • PPP better reflects the true economic well-being of people, as it compares income based on local prices, not just dollar values.

IMF data shows that India became the third-largest economy by PPP as early as 2009, overtaking Japan.

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Challenges: 

  • In GDP in PPP terms, even though India has improved over the years, its rank or relative position has not changed.
  • In terms of per capita GDP based on PPP, India languishes far below the world average. In terms of market exchange rates, India’s rank in per capita GDP in 2024 was 144th among 196 countries. Even in terms of PPP international dollars, India’s rank in per capita GDP in 2024 was 127th among 196 countries.

A much better way to assess India’s relative development may be to compare the set of indicators beyond GDP (like HDI Index, State of Multidimensional Poverty, Hunger Index, Gender Inequality Index etc.) to get a meaningful measure of economic performance and social progress.

India’s global economic standing is undoubtedly rising, but rankings based on nominal GDP alone provide an incomplete picture. True development lies in raising per capita incomes, reducing inequality, and enhancing human development indicators.

Govt. meets 4.8% Fiscal Deficit target for 2024-25

Context: The central government managed to meet the fiscal deficit target of 4.8% of the GDP for 2024-25, according to the provisional data released by the Controller General of Accounts.

Relevance of the Topic: Prelims: Fiscal Deficit- Concept and Key Trends. 

What is Fiscal Deficit?

  • Fiscal deficit is the difference between the government's total expenditure and its total receipts excluding borrowing. 
  • Fiscal deficit arises due to either increase in expenditure or shortfall in revenues. 
  • Fiscal deficit can be financed through:
    • issuing new currency or printing money
    • borrowing from the central bank (RBI) 
    • borrowing from domestic markets (via instruments like treasury bills and bonds). 
    • borrowing from foreign sources. 

Govt meets 4.8% Fiscal Deficit target for 2024-25

  • Fiscal Deficit target (FY 2024-25): Budget 2024-25 had a fiscal deficit target at 4.4% of GDP. The revised estimates (RE) had a fiscal deficit target at 4.8% of GDP.
  • The central government managed to meet the fiscal deficit target of 4.8% of the GDP. The fiscal deficit stood at Rs 15.77 lakh crore, or 100.5% of the revised annual target. The target was met due to:
    • High dividend from RBI (Rs 2.11 lakh crore in FY24)
    • Robust direct tax collection (witnessed a robust growth of ~15.6% )
    • Controlled revenue deficit 
    • Expenditure management in subsidies and capital expenditure. 

Also Read: Fiscal Deficit

India’s GDP growth slows to 6.5% in 2024-25

Context: The Ministry of Statistics and Programme Implementation (MoSPI) has released the provisional estimates of economic growth for FY25. India’s GDP growth rate in FY25 hit a four-year low of 6.5%, slowing down sharply from the 9.2% growth recorded in FY24.

Relevance of the Topic: Prelims: GDP Growth- Trends, Components, Factors affecting GDP Growth rate. 

How is Economic growth measured?

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Economic growth is measured using two metrics.

  • Gross Domestic Product (GDP) is calculated by adding up all the expenditures made in the economy, including expenditures by Indians in their individual capacity, expenditures by governments, expenditures by private businesses, etc. This provides a picture of the demand side of the economy.
  • Gross Value Added (GVA) looks at the supply side. It effectively measures the contribution of each sector of the economy by calculating and summing the value added (or income) at each stage of production.

Both GDP and GVA are linked: they measure the same economic performance but through different routes. Their relationship can be spelled out using the following equation:

GDP = (GVA) + (taxes earned by government) - (subsidies provided by government)

  • MoSPI provides GDP and GVA data both in nominal terms (in present day prices) and real terms (after taking away the effect of inflation). Both nominal and real data have their own analytical significance.
  • For any financial year, GDP estimates go through several revisions. The provisional estimates will be revised over the next few years. 

Understanding Gross Domestic Product (GDP): 

  • Definition: GDP is the total market value of all goods and services produced within India's geographical boundaries in a specified period.
  • Real vs. Nominal GDP: 
    • Nominal GDP: value of all the final goods and services at current market prices, without adjusting for inflation.  
    • Real GDP: adjusts nominal GDP for inflation. It reflects the economy’s true growth by accounting for changes in price levels.

How is GDP Calculated in India?

  • GDP is calculated by adding up all the money spent in the economy. There are 4 engines of GDP Growth:
    • Private Final Consumption Expenditure: Total spending by individuals.
    • Government Final Consumption Expenditure: Spending by governments to meet daily expenditures such as salaries, etc.
    • Gross Fixed Capital Formation: Spending towards boosting the productive capacity of the economy. Includes investments by the government to build roads, companies building factories or buying office equipment, etc.
    • Net Exports: Resultant of Indians spending on imports and foreigners spending on Indian exports. 
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Key takeaways from the recently released data: 

  • Nominal GDP & its growth: India’s nominal GDP grew to Rs 330.7 trillion (lakh crore) by the end of March 2025. When converted into US dollar terms, the size of India’s economy was $3.87 trillion.
  • Real GDP & its growth: India’s real GDP grew by 6.5% in FY25 to reach a level of Rs 188 trillion. 
  • GVA & sectoral health of economy: For FY25, the real GVA grew by 6.4%.
    • The GVA data best captures the true momentum of the Indian economy as it provides insight into the health of the sectors of the Indian economy. It also excludes the effects of taxes and subsidies, which can distort GDP figures. 
    • Three main sectors of the Indian economy: (a) Agriculture and allied activities (such as forestry, etc.) (b) Industry (including sub-sectors such as manufacturing, construction) (c) Services (including fields like financial services, trade and hotels)
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Despite external challenges (like supply chain disruptions and energy market volatility), the Indian economy remains relatively healthy due to its limited reliance on global goods trade, recent tax cuts, controlled inflation and potentially softer interest rate environment. 

India continues to benefit from strong service sector performance, a stable banking system, and improving manufacturing output under schemes like PLI.

Modified Interest Subvention Scheme

Context: The Cabinet Committee on Economic Affairs (CCEA) approved continuation of the Modified Interest Subvention Scheme (MISS) for 2025-26. The government will allow 7.7 crore farmers to get short-term credit at a subsidised rate of interest through the Kisan Credit Card.

Relevance of the Topic: Prelims: Modified Interest Subvention Scheme; Kisan Credit Card.

Modified Interest Subvention Scheme

  • MISS is a Central sector scheme, under which farmers get short-term loans of up to ₹3 lakh through Kisan Credit Card at a subsidised interest rate of 7%, as the government covers 1.5% interest subvention to eligible lending institutions.
  • Additionally, farmers repaying loans in time are eligible for an additional 3% interest subsidy as prompt repayment incentive (PRI), effectively reducing their interest rate on KCC loans to 4%. 
  • It also includes post-harvest loans against Negotiable Warehouse Receipts (NWRs) for small farmers with KCCs.
  • In the Budget 2025-26, the government announced to increase the loan limit under the MISS from Rs 3 lakh to Rs 5 lakh.
  • Implementation and Monitoring by the Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD). 

The continuation of the support is critical in sustaining the flow of institutional credit to agriculture, which is vital for enhancing productivity and ensuring financial inclusion of small and marginal farmers. 

Also Read: Kisan Credit Card bad loans rise by 42% in four years: RBI 

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