Contents

Issues Relating To Planning, Mobilization of

Resources, Growth, Development, Employment 3

Inclusive growth & Issues Therein 33

Government Budgeting 42

Banking Sector in India 64

Money and Capital Market 95

Infrastructure 100

India’s Industrial Policy 132

Global Economic Institutions 152

Major Crops And Cropping Patterns 161

Irrigation In India 179

Land Reforms 196

Agriculture Technology And Marketing 211

Food Processing Industries 226

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Issues Relating To Planning,
Mobilization of Resources, Growth,
Development, Employment
Previous Year Questions (PYQs)
[UPSC Mains 2023] Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Com-
ment on the present policies of the Government in this regard.

[UPSC Mains 2023] What is the status of digitalization in the Indian economy? Examine the problems faced in this regard and suggest
improvements.

[UPSC Mains 2023] Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemploy-
ment in the country and suggest improvements.

[UPSC Mains 2023] Distinguish between ‘care economy’ and ‘monetized economy’. How can care economy be brought into monetized
economy through women empowerment?

[UPSC Mains 2022] Economic growth in the recent past has been led by increase in labour activity.” Explain this statement. Suggest the
growth pattern that will lead to creation of more jobs without compromising labour productivity

[UPSC Mains 2021] Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year
2015 and after the year 2015.

[UPSC Mains 2021] Do you agree that the Indian economy has recently experienced V- shapes recovery? Give reasons in support of your answer.

[UPSC Mains 2020] Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing
its potential GDP?

[UPSC Mains 2018] How are the principles followed by NITI Aayog different from those followed by the erstwhile planning commission in India?

[UPSC Mains 2018] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic
stability of India?

[UPSC Mains 2017] Among several factors for India’s potential growth, savings rate is the most effective one. Do you agree? What are the
other factors available for growth potential?

[UPSC Mains 2016] How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased
informalization detrimental to the development of the country?

[UPSC Mains 2015] The nature of economic growth in India in recent times is often described as a jobless growth. Do you agree with this
view? Give arguments in favour of your answer.

[UPSC Mains 2014] “While we flaunt India’s demographic dividend, we ignore the dropping rates of employability.” What are we missing
while doing so? Where will the jobs that India desperately needs come from? Explain.

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“The concept of national income is an indispensable prepara-
tion for tackling the great issues of unemployment, inflation and
growth”.: Samuelson

National Income Accounting or NIA refers to methods or techniques used tomeasure the economic activity in a national economy as a whole.

Significance of National Income Accounting

1. Measurement of Economic Performance: helps in calculating key economic indicators such as GDP, GNP, and NNI to evaluate
economic growth and stability.
2. Policy Formulation: Governments rely on NIA to design fiscal and monetary policies based on national income data, ensuring
effective taxation, public spending, and inflation control.
3. Sectoral Analysis: It provides insights into the contribution of agriculture, industry, and services to the economy, and helps in
resource allocation and sectoral development.
4. Standard of Living Assessment: Per capita income, derived from national income, is a key indicator of living standards, income
distribution, and economic well-being of citizens.
5. Comparison of Economies: NIA allows for cross-country comparisons by analyzing national income statistics, helping in global
economic rankings and trade policy decisions.
6. Investment Decisions: Investors and businesses use national income data to assess market potential, economic stability, and
business opportunities, guiding strategic investments.
7. Employment and Inflation Analysis: National income statistics help track employment levels, wage growth, and inflation trends,
assisting in labor policies and price stabilization measures.
8. Public Welfare and Social Planning: Governments use NIA to plan welfare programs, subsidies, and poverty alleviation mea-
sures by understanding income distribution patterns.
9. Assessment of Economic Cycles: It helps in identifying phases of economic expansion, recession, or stagnation, allowing timely
interventions for economic stability.

Major Challenges
1. Data Accuracy: Reliable and accurate data collection is challenging, especially in the informal or unorganized sector.
2. Double Counting: Difficulty distinguishing between final and intermediate products, e.g., flour used by a bakery (intermediate) vs. by
a household (final).
3. Non-monetized Sector: Rural subsistence farming results in bartering, which is excluded from national income.
4. Informal Sector: A large part of the economy, particularly in developing countries, operates in the informal sector, making it hard to
capture in national income statistics.
5. Non-Market Activities: Activities like household labor, volunteer work, and environmental services are not included, leading to an
underestimation of economic output.
6. Valuation of Output: Valuing goods and services, especially intangible ones like software or intellectual property, can be difficult and subjective.
7. Estimating Depreciation: Accurate estimation of capital depreciation (loss of value of physical assets) is complex but essential for
correct GDP calculation.
8. Defining Boundaries: Issues arise in defining national boundaries, especially for cross-border production, labor migration, and foreign earnings.
9. Quality of Growth: National income accounting often focuses on quantity over the quality of economic growth, overlooking import-
ant factors like sustainability and human development.
10. Regional Disparities: Accurately capturing regional variations in income, especially in large, diverse countries, is a challenge for
national accounting.
11. Revised Methodology: Frequent changes in the methodology or base year for national income estimation can cause inconsisten-
cies in data over time, affecting long-term comparisons.

Methodology Of Calculating National Income

1. Income Method (Factor Income Method) = Measures the total income earned by factors of production
• National Income = Rent + Wages + Interest + Profit +Mixed Income + Net income from abroad
2. Expenditure Method (Final Expenditure Method): Focuses on the total expenditure made on final goods and services produced in
the economy.
• National Income = Consumption + Investment + Government Spending + (Exports−Imports)
3. Production Approach (Output Method): National Income is calculated by summing up the value added at each stage of production
in various sectors (agriculture, industry, and services).
• National Income=Value of Output−Value of Intermediate Consumption

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Gross Domestic Product (GDP)
GDP or Gross domestic product refers to the total market value of all
the final goods and services produced within a geographic bound-
ary, regardless of the nationality of the individual or firm, in a given
period of time.
The Central Statistical Office(CSO), in 2015, changed its meth-
odology to calculate GDP as recommended by the United Nations
System of National Accounts.

Changes in GDP Calculation in India:

1. Sector-wise estimates of Gross Value Added were taken into account.
2. Factor Cost to Market Prices: The calculation method changed to market prices, which includes taxes and subsidies, aligning with
international standards.
3. Base year was changed from 2004-05 to 2011-12.
4. New Data Sources: Data from the Ministry of Corporate Affairs (MCA21) and National Sample Surveys were incorporated to improve reliability.

Various advantages of adopting new computation methodology:

1. Change of the base year provides comprehensive covering of financial institutions and regulatory bodies like SEBI, PFRDA, IRDA
along with representation of local organisations and institutions.
2. Data for corporate income is taken which allows collection of granular information even from the level of small firms.
3. GVA provides a better picture of GDP as it provides sector-wise breakdown which helps policymakers to formulate sector specific
policies.
4. Widened the scope by calculating the value addition in the agricultural and manufacturing sector by using GVA.
5. The new method is more robust as it estimates more indicators such as consumption, employment, and the performance of enterprise.
6. Global Standardization: Aligning with international standards (SNA 2008) makes India’s GDP more comparable globally.
7. Economic Reflection: Captures structural changes like digital economy growth and emerging sectors.
8. Policy Relevance: Provides more accurate data, aiding informed decisions on economic reforms and fiscal policy.

Issues pertaining to new methodology:

1. Unreliable MCA-21 data, as the NSSO report highlights that 36% of active companies in the MCA database were untraceable and
added needless growth.
2. Base Year Discrepancies: The 2011-12 base year might not capture rapid economic changes, especially post-pandemic, requiring
frequent updates.
3. Inclusion of Informal Sector: The shift to market prices still struggles to accurately measure the large informal sector, which isn’t
fully captured by formal data sources.
4. Complexity in Interpretation: The updated methodology can be harder for the public to understand, reducing its accessibility for
non-experts.
Benefits of GDP Issues in GDP
Economic Performance Indicator: Reflects Doesn’t Measure Inequality: GDP does not account for income
overall economic health. distribution.
Policy Formulation: Aids in setting fiscal Excludes Non-Market Activities: Doesn’t include unpaid work like
and monetary policies. household labor.
Global Comparisons: Enables comparison Environmental Impact: Doesn’t factor in environmental degrada-
between economies. tion or sustainability.
Investment Decisions: Helps investors Quality of Life: Does not measure the well-being or happiness of
assess economic stability. citizens.
Standard of Living: Growth in GDP often Underground Economy: Ignores informal or black market activities.
correlates with improved living standards.
Economic Planning: Supports budgeting Short-Term Focus: GDP growth may overlook long-term economic
and resource allocation. challenges.
Assessing Economic Sectors: Provides Overemphasis on Growth: Focus on growth can overshadow cru-
sector-specific insights. cial issues like health and education.
International Aid and Loans: Used to as- Inflation Adjustments: GDP growth can be distorted if inflation is
sess economic stability. not properly adjusted.

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Other Macroeconomic Indicators
Gross Domestic All production done by the national residents or the non-residents in a
Product at Market country gets included, regardless of whether that production is owned by a local company or
Prices (GDPMP) a foreign entity.
Everything is valued at market prices.

GDPMP= C+ I +G +X -M
GDP at Factor The term factor cost refers to the prices of products as received by the producers. Thus,
Cost factor cost is equal to market prices, minus net indirect taxes. GDP at factor cost measures
(GDPFC) the money value of output produced by the firms within the domestic boundaries of a country
in a year.

GDPFC= GDPMP- NIT

Net Domestic NDP= GDP: Depreciation
Product
Gross National GNP refers to all the economic output produced by a nation’s normal residents,whether they
Product (GNP) are located within the national boundary or abroad.
GNP = GDP + NFIA
NNP at Factor NNP at factor cost is the sum of income earned by all factors in the production in the form of
Cost wages, profits, rent and interest, etc., belonging to a country during the year.
(NNPFC)
Or
National Income
(NI)

Alternatives to GDP:
Measures a country’s average achievements in health, education, and in-
1. Human Development Index (HDI):
come. Provides a broader view of human well-being beyond just economic output.
2. Genuine Progress Indicator (GPI): Takes into account factors like income inequality, environmental degradation, and social
costs. Focuses on the sustainability of economic progress.
3. Gross National Happiness (GNH): Used by Bhutan, this index focuses on well-being, cultural preservation, environmental sus-
tainability, and psychological well-being.
4. Social Progress Index (SPI): Measures basic human needs, foundations of well-being, and opportunity. Emphasizes quality of
life, education, and health outcomes over just economic output.
5. Green GDP: Adjusts GDP by subtracting the environmental costs associated with economic activities. Focuses on sustainable eco-
nomic growth by accounting for natural resource depletion and pollution.
6. Inclusive Wealth Index (IWI): Measures the wealth of a country based on its natural, human, and produced capital. Focuses on
long-term sustainability rather than short-term economic growth.
7. Net National Happiness (NNH): Similar to GNH, but it explicitly includes aspects of economic, cultural, social, and environmental
development.
8. National Well-Being Index: Assesses multiple dimensions like health, education, security, and environment rather than just eco-
nomic output.

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Potential GDP:
According to Brookings.edu, Potential GDP is a theoretical construct, an estimate of the value of the output that the economy would
have produced if labor and capital had been employed at their maximum sustainable rates—that is, rates that are consistent with steady
growth and stable inflation.

Determinants of Potential GDP:

1. Labour Force: A dynamic, well-educated, and highly skilled workforce fuels economic growth and boosts productivity.
2. Capital Stock: Robust investment in infrastructure, machinery, and technology strengthens productivity and output, while insuffi-
cient capital formation slows economic expansion and competitiveness.
3. Technological Progress: Breakthrough innovations drive efficiency, enhance product quality, and lower production costs, unlocking
new avenues for sustained economic growth and global competitiveness.
4. Natural Resources: The strategic availability and efficient utilization of land, minerals, and energy resources can accelerate econom-
ic development, while resource scarcity or mismanagement can become a major constraint.
5. Policy Environment: Forward-thinking government policies that incentivize investment, foster innovation, and create a busi-
ness-friendly ecosystem unlock economic potential, whereas restrictive or inconsistent policies can stifle growth and discourage
investments.

Key Challenges to India’s Potential GDP Growth:

1. Employment and Job Creation
a. Despite robust GDP growth, jobless growth remains a major concern, with employment generation lagging behind economic expansion.
b. The unemployment rate stood at 8.1% in April 2024 (CMIE), reflecting persistent labor market challenges.
2. Export Competitiveness and Trade Deficit
a. India’s exports contracted by 3% in FY24, despite policy incentives, highlighting weak global demand and domestic competitive-
ness issues.
b. Merchandise trade deficit widened to $19.1 billion in April 2024, up from $14.44 billion in April 2023, adding pressure on
external accounts.
3. Fiscal Slippage Risks and Debt Concerns
a. While fiscal consolidation is underway, the general government fiscal deficit is projected at 6.8% of GDP by FY28 (S&P Global).
b. Any deviation from the fiscal roadmap could increase borrowing costs and impact India’s credit ratings, affecting investor confidence.
c. India’s central government debt-to-GDP ratio was 56.1 per cent in 2023-24 and estimated at 57.1 per cent in 2024-25.
4. Skill Mismatch and Workforce Quality
a. A significant skills gap limits India’s ability to capitalize on its demographic dividend.
b. A study found that only 45% of Indian graduates are employable, as their skills do not align with industry demands.
5. Rising Income Inequality
a. India’s Gini coefficient stood at 0.4197 in 2022-23, indicating high income disparity.
b. The top 1% of India’s population controls 40.1% of the country’s wealth, the highest inequality level in six decades, limiting
broad-based consumption and growth.
6. Informal Sector Dominance
a. The unorganized sector employs 83% of India’s workforce, offering low wages and minimal social security (IMF).
b. High informality limits tax revenue, reduces productivity, and slows economic formalization.
7. Infrastructure Bottlenecks
a. Deficiencies in power, transport, and logistics continue to hamper economic efficiency.
b. NITI Aayog estimates that India needs $4.5 trillion in infrastructure investment by 2040 to sustain long-term growth momentum.

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Savings and investment rate
Investment and savings are integral components of economic growth and stability. In India, the rates of investment and savings are key
indicators reflecting the overall health of the economy and its potential for sustained development.

Domestic Sources of Savings:

1. Household Savings: Include deliberate choices made to save a portion of income, to protect their money from inflation, or as a result
of government incentive or policies such as tax concessions etc.
2. Corporate Savings: Corporations save from their profits, setting aside a portion for future investments, expansions, or to meet
unforeseen challenges.
3. Government Savings: government investments in long-term projects, sovereign wealth funds, or other forms of saving for future obligations.

Data
1. Overall savings (households, corporates and government) having risen in FY24 to 31.8% of GDP in FY24 from 30.2% in FY23. House-
hold savings account for more than 60% of overall savings.
2. As per the National Account Statistics 2024 data, India’s household savings rate has fallen from 22.7% of GDP in FY21 to 18.4% in FY23
3. The share of savings in shares and debentures increased to around 1% of GDP in FY24.

Reasons for Decline in Savings

1. Rising Household Liabilities- Annual household borrowings now account for 5.8% of GDP, marking the highest levels since the 1970s.
2. Shifting investment trends: Eg- Between FY21 and FY23, household investments in equities and mutual funds nearly doubled—
from INR 1.02 trillion to INR 2.02 trillion.
3. Easier Credit Access: NBFCs and fintechs expanded credit availability. Lower home loan rates, rising real estate values, and
stamp duty cuts encouraged property investments.
4. Households prioritized physical assets, which accounted for 70.2% of total savings in FY23, up from 60.1% in FY21-FY23.
5. Higher Inflation (CPI): Consumer Price Index (CPI) averaged 6.7% in 2022-23, compared to a 10-year average of 5.4%, reducing
disposable savings.
6. Low-Interest Rate Environment: RBI kept interest rates low to stimulate demand, discouraging traditional savings.
7. Post-Pandemic Spending Surge: Increased real estate and vehicle purchases due to pent-up demand and easy financing.

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Impact of decline in savings:
Falling household savings is detrimental to the larger economy. The government depends on these savings—bank deposits, cash in
banks and equity investments—to finance its capital investments on physical assets such as infrastructure.
1. Decline in savings will create challenges for the government to finance its fiscal deficit.
2. Falling income levels and rising borrowings affect households’ loan repayment ability and increase lenders’ default risk.
3. Lower household savings will keep interest rates elevated. Higher interest rates negatively impact corporate investments.
4. Increased External Borrowing: A decline in savings may lead to more reliance on foreign loans, increasing debt and current Account Deficit
5. Decreased Consumption: Lower savings often mean reduced future consumption, slowing economic growth.
6. Inflationary Pressures: Reduced savings and increased borrowing can lead to inflation if demand exceeds supply.
7. Higher Interest Rates: Strain on households with growing financial commitments and Potential reduction in household incomes
without sustained growth.
8. India’s government depends on this savings to finance its capital investments on physical assets such as infrastructure, machinery
and equipment. Hence lower savings will have a negative impact on long term infrastructure development and capital formation.
9. The rise in financial liabilities with falling assets levels could be a sign of rising inequality.

Way Forward to Boost Savings

1. Strengthening Financial Inclusion and Social Welfare
a. Expand Jan Dhan Yojana (PMJDY): Extend banking, insurance, and pension benefits to more citizens.
b. Microfinance & SHGs: Support Self-Help Groups (SHGs) and microfinance institutions for rural savings.
2. Tailored micro-savings products: Eg- digital micro-saving apps linked to everyday expenses for Urban consumers, and might simpli-
fied savings accounts with flexible deposit options for rural households.
3. Incentives for Savings: Offering tax benefits, higher interest rates, and government-backed guarantees can make savings schemes
more attractive.
4. Strengthening Public Savings Platforms: Revamping schemes like Kisan Vikas Patra (KVP) and Public Provident Fund (PPF) with
better returns and easier access can encourage traditional saving methods.
5. Integration with Social Welfare Programs: Automatically diverting a portion of DBT payments to savings accounts, with matching
contributions from the government or financial institutions, could boost savings.
6. Leveraging the BC Network: Optimizing the business correspondent (BC) model can connect underserved regions with formal bank-
ing, promoting micro-savings.

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A market economy is an economic system where economic decisions and prices of goods and services are guided by the actions
of individuals and businesses, with minimal government intervention.

Different Types of Market Structures

Feature Perfect Competition Imperfect Competition Monopoly Oligopoly
Number of Many Many (but with product One Few (2-10 dominant
Sellers differentiation) firms)
Product Type Homogeneous (iden- Differentiated Unique (no substi- Can be homoge-
tical) tutes) neous (steel, ce-
ment) or differenti-
ated (cars, airlines)
Market Power No market power Some market power due Complete control Significant market
(price takers) to differentiation over price power (firms influ-
ence prices)
Entry & Exit Free entry and exit Relatively free but has High barriers (legal, High barriers (due to
some barriers economic, or tech- economies of scale,
nological) patents, brand
loyalty)
Price Control No control, determined Some control due to Full control (monop- Interdependent
by supply and demand product differentiation olist sets the price) pricing—firms may
collude or compete
Examples Agricultural markets Clothing brands, restau- Indian Railways , Automobile industry,
(wheat, rice) rants, toothpaste Electricity boards Telecom industry,
Airlines

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Advantages & Disadvantages of a Market Economy:
Advantages of a Market Economy Disadvantages of a Market Economy
Efficient Allocation of Resources based on sup- Income Inequality with the rich benefiting more than the
ply and demand. Eg- Indian IT industry poor. Eg- Top 1% own 40% of wealth; bottom 50% own <3%.
(Oxfam Report)
Innovation and Competition driving technolog- Monopoly Formation due to unregulated competition reduc-
ical advancements and improved products and es consumer choice and increasing prices. Eg- JIO
services.
Higher Consumer Choice as market economy Short-Term Focus: Profit-driven motives may prioritize short-
offers a wide variety of goods and services term gains over long-term sustainability and social welfare.
Incentive to Work and Save: Profit motives en- Market Failures: Issues like externalities (e.g., pollution) and
courage individuals and businesses to work hard, public goods (e.g., national defense) may not be adequately
save, and invest. addressed.
Flexibility and Adaptability: Quick response to Instability: Market economies can be prone to cycles of
market changes and crises. Eg- E-commerce grew boom and bust, leading to economic instability and reces-
by 30% in 2022 during COVID-19. sions.

Way Forward
Disadvantage Way Forward
Income Inequality Implement progressive taxation to reduce wealth disparities.
Promote inclusive growth through targeted welfare programs like direct cash transfers
(DBT).
Monopoly Forma- Strengthen antitrust laws on lines of EU and encourage regulatory bodies to monitor mar-
tion ket concentration.
Support small and medium-sized enterprises (SMEs) with favorable policies and access to
credit.
Market Failures Introduce carbon taxes and other market-based mechanisms to address externalities like
pollution.
Provide government funding for public goods like education, healthcare, and infrastructure.
Instability Strengthen financial regulations and introduce policies to mitigate economic cycles (e.g.,
counter-cyclical fiscal policies).
Improve social safety nets (e.g., unemployment benefits) to reduce vulnerability during
recessions.
India can adopt Germany’s “social market economy” model

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With 26% of India’s population in the 10-24 age group, the nation stands on the brink of a demographic dividend that can drive long-
term growth. However, to capitalize on this opportunity, the Economic Survey 2023-24 states that the economy must generate 78.5
lakh non-farm jobs annually to absorb the growing working population.

State of Employment (Economic Survey 2024-25):

1. Stagnant unemployment: as per PLFS, the unemployment rate for 2023-24
Chart I.52: Improvement in employment indicators
remained unchanged at 3.2%, the same as in 2022-23. However, as per Centre
for Monitoring Indian Economy (CMIE), the unemployment rate in India stood at 70
LFPR WPR UR (RHS)

7
7.8% in September 2024. 60 6

2. As per PLFS, unemployment rate in rural areas decreased from 5.3 percent in 50 5

2017-18 to 2.5 percent in 2023-24, while for urban areas, it decreased from

Per cent

Per cent
40 4
30 3
7.7 percent to 5.1 percent. 20 2

3. As per PLFS, the unemployment rate for youth of India aged 15–29 years de- 10 1

creased from 17.8% in 2017-18 to 10.2% in 2023-24. 0

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
0

4. According to the employment-unemployment survey and PLFS, between Source: Annual PLFS report 2023-24, MoSPI

2011–12 and 2023–24, the workforce grew at 2.2 per cent while the labour Note: i) LFPR - labour force participation rate, WPR - worker-to-population ratio, UR- unemployment rate
ii)Statistics presented are by Usual status for persons aged 15 years and above
force grew by about 2.3 per cent.
5. About 78% of workers do not have a written job contract, about 76% are not
eligible for any social security benefits, and about 72% do not have paid leave.
6. Contractualisation of jobs: workers employed on contract in formal man-
ufacturing increased from 38 per cent to 41 per cent during 2018–19 to
2022–23 (Annual survey of industries).
7. Rise in entrepreneurial activity:
a. The proportion of self-employed workers has increased from 52.2% in
2017-18 to 58.4% in 2023-24, reflecting a rise in entrepreneurial activity
and demand for flexible work.
b. Women, especially in rural areas, have moved away from salaried jobs and
are increasingly involved in self-employment or household enterprises.
c. In rural India, women’s participation in regular wage jobs fell from 10.5%
in 2017-18 to 7.8% in 2023-24, while in urban areas, it dropped from
52.1% to 49.4%, with a big decline in 2020-21.

Sectoral distribution of the workforce

1. Agriculture Sector dominance: The agriculture sector remains the largest employment sector, with its share increasing from 44.1%
in 2017-18 to 46.1% in 2023-24.
a. Female participation in agriculture increased from 57.0% in 2017-18 to 64.4% in 2023-24, while male participation decreased
from 40.2% to 36.3%.
2. Decline in Industry and Services Sectors: Employment in the industry and services sectors has declined. Manufacturing’s share fell
from 12.1% to 11.4%, and services decreased from 31.1% to 29.7% during the same period.

Method of calculation
The authentic data source of employment/unemployment indicators in India at present is the Periodic Labour Force Survey (PLFS) con-
ducted by the NSSO, Ministry of Statistics and Programme Implementation since 2017-18.
1. Usual Status(Principle status + Subsidiary status):
a. A person is said to be principal status employed if he is actively seeking work for more than 182 days and is able to find work for
the majority of that time.
b. Subsidiary status: If a person is principally unemployed but is able to find work for more than 30 days.
2. Weekly Status Approach: If a person who is in the labour force for the last one week and is able to get work for at least one hour in
the last one week. It provides insights into the seasonality of unemployment.
PLFS uses both Usual status and Current weekly status approach.
3. Current Daily Status Approach: A person having no gainful work even for 1 hour in a day is described as unemployed for that
day. It is considered to be a comprehensive measure of unemployment.
The findings of current daily status are used by CMIE.

Types of unemployment:
1. Frictional Unemployment: Temporary unemployment as individuals transition between jobs or enter the workforce for the first time.
Eg- A graduate looking for their first job.
2. Structural Unemployment: Unemployment due to a mismatch between workers’ skills and the demand for those skills in the job
market. Eg- A worker in a traditional manufacturing job being unemployed due to automation and technological advancements.

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3. Cyclical Unemployment: Unemployment resulting from economic downturns or recessions when demand for goods and services
decreases.
4. Seasonal Unemployment: Unemployment that occurs at certain times of the year when demand for labor in specific industries is
low. Eg-Agricultural workers being unemployed after the harvest season.
5. Classical Unemployment: Occurs when wages are set above the equilibrium level, leading to excess supply of labor and a shortage
of demand. Eg- High minimum wage laws leading to fewer workers being hired.
6. Long-Term Unemployment: Unemployment lasting for an extended period, often due to economic, personal, or structural reasons.

Causes of Unemployment in India:

1. Jobless Growth: Economic growth has not matched the pace needed to absorb the growing labor force, leading to widespread
unemployment.
2. Population Growth: A high population increase due to a declining death rate and steady birth rate has led to a surplus labor force,
exacerbating unemployment.
3. Capital intensive growth: Despite the availability of manpower, there’s a trend towards capital-intensive production, displacing labor
and causing unemployment.
4. Technological Unemployment theory (John Maynard Keynes): The automation of manufacturing processes, such as in the textile
and automobile industries, has reduced the need for manual labor, leading to job losses.
5. Labor Market Rigidity: India’s rigid labor laws, such as the Industrial Disputes Act, make it difficult for companies to hire and fire
workers flexibly. This discourages companies from hiring in the first place, resulting in frictional unemployment.
6. Shift from Agriculture to Services: The rapid growth of the IT sector (54% of GDP) has not created enough jobs for the millions
entering the workforce annually.
7. Limited Growth in Manufacturing: India’s manufacturing sector contributes only 16-18% to GDP, lower than countries like China (26%).
8. Informal Employment: Over 90% of India’s workforce is employed informally, as per the NSSO (2011-12) report, contributing to the
lack of meaningful job creation.
9. Low Capital Investment in Labor-Intensive Sectors: Investment is channeled into capital-intensive industries like IT and infrastruc-
ture, rather than labor-intensive sectors that generate more jobs. (Economic Survey 2019)
10. Lack of Skill Development: According to the India Skill Report (2020), 80% of Indian graduates are not employable due to a lack of
skill sets required by industries.
11. Seasonal Agriculture: Dependence on monsoon and inadequate agricultural infrastructure limit employment to just a few months a
year.
12. Rural-Urban Migration: Continuous migration from rural to urban areas in search of better job opportunities has compounded
urban unemployment
13. Economic Inequality as highlighted by Piketty’s Capital in the Twenty-First Century, has led to unequal access to jobs, especial-
ly among marginalized communities like Dalits, Tribals, and women.

Impact
According to the World Bank’s latest report “Jobs for Resilience” on South Asia, the job scarcity in the region is driving people to
other countries. This report says South Asia has the highest outflow of migrants to other countries.

Impact Explanation
Economic Loss High unemployment leads to a decrease in national output, reducing GDP growth.
Unutilized labor is a loss of potential productivity.
The Okun’s Law suggests that for every 1% increase in the unemployment rate, a
country’s GDP will be roughly an additional 2% lower.
Increased Poverty Unemployment is a major driver of poverty, as individuals without jobs have limited
income, affecting their standard of living.
Social Instability Prolonged unemployment can lead to social unrest, increased crime rates, and dissat-
isfaction with government policies. Eg- Arab Spring
Mental Health Issues Unemployment is linked to higher rates of mental health problems, including anxiety,
depression, and stress.
Reduced Consumer Unemployed individuals have less disposable income, leading to decreased demand
Spending for goods and services, further slowing economic growth.
Skill Erosion A study by McKinsey found that workers who remained unemployed for over six
months experienced skill erosion, leading to difficulty in re-entering the job market.
Increased Government Governments may need to spend more on welfare programs, unemployment benefits,
Expenditure and social support, increasing fiscal deficits.
Demographic Impact Youth unemployment, in particular, may lead to a ‘lost generation’ with fewer career
opportunities, affecting future workforce productivity.

13
Jobless Growth in India?
“Jobless growth” in India, a concept that suggests GDP growth occurs without corresponding increases in employment.

Arguments in Favour
1. Slow Employment Growth: Employment increased by only 1.9%
per year from 2011-12 to 2022-23, despite consistent GDP
growth above 6%.
2. Unemployment Surge: Unemployment rose from nearly 10
million in 2011-12 to over 19 million in 2022-23, with the unem-
ployment rate growing at more than 6% annually.
3. Labour Supply vs. Employment: Employment grew from 466
million to 577 million, while labor supply expanded from 477
million to 595 million during the same period.
4. Productivity vs. Employment: Despite steady GDP growth, em-
ployment did not increase proportionally, primarily due to rising
productivity per worker.
5. Broad Employment Definition: Official employment data is
broad, classifying anyone who worked at least one hour in the
past 30 days as employed.

Arguments Against
1. Employment Growth: India added 170 million jobs (36% increase) between 2016-17 and 2022-23, alongside 6.5% GDP growth, de-
bunking claims of “jobless growth.”
2. Worker Population Ratio (WPR): Increased by 9 percentage points (26%) from 2017 to 2023, contradicting joblessness claims.
3. Consumption-Driven Growth: Rising consumption indicates strong employment generation, as demand would decline if jobs were
mostly unpaid or low-wage.
4. Employment Elasticity: A 1.11% rise in jobs for every 1% increase in value added, proving employment generation aligns with economic growth.
5. Sectoral Trends: The labour-capital ratio in the services sector (1.17) is higher than the overall economy (1.11), countering claims that
services fail to create jobs.

Government Initiatives to Boost Employment

1. Employment Guarantee & Wage-Based Program:
a. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) (2009): Provides 100 days of guaranteed rural
employment per year. The total person days between FY 2014-15 to FY 2024-25 has been 2923 crore.
2. Self-Employment & Entrepreneurship Programs
a. Start-Up India Initiative (2016): Encouraged innovation and entrepreneurship among youth. With 1.59 lakh startups, India is now
the world’s 3rd largest startup ecosystem.
b. Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM) (2011): Mobilized rural poor into SHGs to pro-
mote self-sustained livelihoods. As of 30th June 2024, the Mission has achieved implementation in 7135 blocks in 742 districts
across 28 States and 6 UTs, mobilizing 10.05 crore women into more than 90.86 lakh SHGs.
3. Skill Development & Employment Mapping
a. National Policy for Skill Development and Entrepreneurship (2015): Focused on skilling and entrepreneurship through private
sector collaboration.
b. Pradhan Mantri Kaushal Vikas Yojana (PMKVY) (2016-20): Provided monetary incentives for skill training completion. Under PMKVY
3.0, 7.37 lakh candidates were trained including 1.20 lakh candidates under CCCP-CW and 1.8 lakh under Skill Hub Initiative.
4. Post-Pandemic Employment & Wage Support: Atma Nirbhar Bharat Rojgar Yojana (ABRY): Govt. credited EPF
contributions (12% employee + 12% employer) for two years to boost post-COVID employment. As of March 31, 2024, a total of Rs.
10,188.50 crore has been disbursed to 60.49 Lakh beneficiaries through 1.52 Lakh establishments.
5. Digital & Inclusive Employment Platforms : e-SHRAM Portal: Created a National Database of Unorganized Workers
(UWs) for better social security coverage. As of 27 January 2025, over 30.58 crore unorganised workers have already registered on
the eShram portal

14
Way Forward for Employment Generation in India
1. National Employment Policy: to integrate existing employment schemes from various ministries and states, and to stream-
line efforts and centralise data through a single employment portal, the National Career Service (NCS).
2. Universal Labour Information Management System (ULIMS): Developing ULIMS under NCS would provide insights into job oppor-
tunities, skills demand, and training programs, aligning them with market needs.
3. Amending the Income Tax Act Sec 80JJAA: To encourage businesses to hire. Employers could avail deductions for new employees,
capped at Rs 1 lakh per month for the first three years, fostering job creation.
4. Boosting Labour Intensive sector: Focused support for employment-heavy sectors like construction, textiles, and tourism is crucial.
Synchronising tariff structures, Free Trade Agreements (FTAs), and employment-linked schemes can enhance exports and job oppor-
tunities.
5. Empowering Rural Youth: A rural internship program for college graduates could strengthen government initiatives in rural areas,
utilising young talent to address workforce gaps.
6. Increasing Female Workforce Participation: via creation of dormitories funded by CSR, crèches in industrial clusters, and formal-
isation of the care economy. These initiatives, coupled with gender-sensitive employment policies, aim to economically empower
women.
7. Tapping Global Job Markets: An International Mobility Authority under the Ministry of External Affairs to facilitate overseas job
opportunities for Indian youth. Programs focusing on global skillsets, cultural training, and foreign languages would enhance employ-
ability abroad.

Female labour force participation rate

Female Labour Force Participation Rate is a ratio of the number of women who are part of the labour force to the number of women in
the working age (greater than 15 years of age).

Key Facts
1. As per PLFS, the proportion of women engaged in the Indian labour force increased from 23.3% in 2017-2018 to 37% in 2022-23 to
41.7% in 2023-24. The rise has been more prominent in rural areas, with the proportion almost doubling from 24.6% to 47.6%.
2. In rural India, self-employment has increased from 57.7% in 2017-18 to 73.5% in 2023-24.
3. Even though 43% of India’s Science, Technology, engineering and Math (STEM) graduates were women, only 14% of the STEM
workforce is female (AISHE Report)

15
Factors influencing rise in FLFPR:
1. Recognition of unpaid work: The PLFS survey has enhanced its ability to identify female workers involved in unpaid work.
2. Skilling and credit access: Skilling programs and improved credit access for women’s collectives under the Deendayal Antyodaya
Yojana: National Rural Livelihood Mission (DAY-NRLM) have contributed to a rise in rural FLFPR.
3. Encouragement of entrepreneurship: The government’s increased focus on promoting entrepreneurship has driven higher participation
of women in the workforce. Eg- 73,151 start-ups with at least one woman director were recognised under the Startup India Initiative.
4. Feminisation of self-employment: As per PLFS, more than two out of every three working women (67.4%) fall under the
“self-employed” category.

Significance of Female Labour Force Participation

1. Boost to economic growth
a. A 10% permanent increase in female labour force partic-
ipation would lead to an increase in growth rates by 0.3
per cent (UNESCAP 2007).
b. A recent Bloomberg Economics analysis estimated
that though Indian women represent 48% of India’s
population, they contribute only around 17% of GDP,
compared to 40% in China. An Asian Development Bank
study said that if the participation of women were to equal
that of men, India’s GDP could be 60% higher in 2025.
2. Reduction in Gender Inequality by providing women with
financial independence and access to better opportunities.
3. Inclusive Development: It increases household incomes,
which helps families escape poverty and increase their con-
sumption of goods and services.
4. Improved Education and Health Outcomes: Women who
work are more likely to invest in their children’s education and
healthcare. According to the World Bank (2020), each addi-
tional year of maternal education is linked to a 10% decrease
in infant mortality
5. Increased Diversification of the Workforce fosters inno-
vation, and brings different perspectives, which enhances
creativity and decision-making in organizations.
6. Demographic Dividend: The benefits of the demographic
dividend are likely to be deterred if women stay out of work.

16
Major Constraints:

Supply-Side Constraints
1. Rising Household Incomes (Income Effect):
a. Higher household income leads women to withdraw from the workforce due to patriarchal attitudes and perceived higher status
of domestic work.
b. Shift away from low-productivity, subsistence jobs.
2. Higher Education:
a. More women pursuing higher education, delaying entry into the workforce.
b. Increased school attendance among girls leads to mothers leaving work to care for younger siblings.
c. Future Impact: Better job prospects and stronger labor market attachment.
3. Female Employment Measurement Issues: Women’s work is often undocumented or misclassified as domestic duties. Eg- Care
economy is not reflected in official labor statistics.
4. Maternity Leave & Workplace Reluctance: The 2017 amendment to the Maternity Benefit Act increased paid leave from 12 to 26
weeks, discouraging firms from hiring women.
5. Socio-Cultural Norms: women are often expected to focus on household responsibilities and caregiving
a. Women spend 352 minutes/day on unpaid work vs. 52 minutes for men (OECD, 2019).
b. 60% of women (15-59 years) engaged in full-time housework vs. 1% of men (Economic Survey, 2020).
c. Limited institutional childcare support and shrinking family sizes restrict women’s workforce entry.
6. Safety Issues: Unsafe working environments, harassment, and the lack of workplace facilities such as child care or flexible working
hours.
7. Unequal Access to Finance: The Global Gender Gap Report (2020) highlights that women in India have significantly lower access
to financial services compared to men, especially in rural areas where only 28% of women have access to formal financial services.

Demand-Side Constraints
1. Lack of Suitable Jobs:
a. Mechanization of agriculture has reduced demand for female farm laborers.
b. Jobs that are safe, flexible, and closer to home are scarce.
c. 90% of working women are in the informal sector, facing gender discrimination in wages & job security.
Bender Wage Gap:
a. Oxfam India’s Discrimination Report (2022): Gender pay disparities persist across casual work, regular jobs, and urban self-em-
ployment.
b. WEF Gender Gap Report (2022): India ranks 135th out of 146 countries in gender parity.
3. COVID-19 Impact: The pandemic led to a “she-cession” where women lost jobs at higher rates than men. While 9.4% of men lost
their regular salaried jobs, the reduction for women was 28.2%.
4. Automation Risk: McKinsey Global Institute report: Women are more vulnerable to job displacement due to automation.

17
Initiatives to Improve Female Labour Force Participation Rate
Box XII.2: Government initiatives to boost female entrepreneurship

To give a fillip to women's entrepreneurship, various ministries/ departments of the

government of India have launched several initiatives, some of which are presented below. SANKALP36

Ministry of Micro, Small and Medium Enterprises30 32,262 women (67 per cent of beneficiaries) trained in entrepreneurship between 2021 to 2024.

Department for Promotion of Industry and Internal Trade

Formalisation of Marketing Procurement

PM Employment Start-up Support37
Enterprises31 Support32 3 per cent of Women Entrepreneurship Platform38
Guarantee 10 per cent of the Fund of Funds for Start-
63 per cent of Women’s trade Programme33 procurement by Launched in 2018 to aggregate and
ups is reserved for women.
the 2.41 crore fair participation CPSEs is reserved showcase policies, with NSA awards
41 per cent of loans in recognizing women-led start-ups.
enterprises is fully subsidised. for women-owned
FY24 were sanctioned
formalised since enterprises. Ministry of Food Processing Ministry of Tribal Affairs
to women, with higher
January 2023 are subsidies (25–35 per cent) Industries
women-owned. and lower contributions
(5 per cent).
Adivasi Mahila Sashaktikaran
PM Micro Food Processing Scheme39 Yojana 40

SHG members receive ₹40,000 seed Loans up to ₹2 lakh at 4 per cent interest
ZED Access to Credit 35
capital and 50 per cent branding/marketing for ST women.
Skill Women entrepreneurs receive 90 per cent grants.
Certification34
Development guarantees (vs. 75 per cent for others) and
100 per cent Ministry of Cooperation41
Over 21,600 women reduced fees under the Credit Guarantee
subsidy on
trained in coir Scheme.
certification for
manufacturing Of 97.68 lakh guarantees approved, 22 per cent
women MSMEs.
in 5 years; free are for women. NCDC Support42 Nandini Sahakar
entrepreneurial Swayam Shakti
₹6,426 crore disbursed for Scheme
training is offered. Sahakar Yojna
women cooperatives; 25,385 2 per cent interest Working capital loan to
registered cooperatives. subvention for innovative support women SHGs.
Ministry of Skill Development and Entrepreneurship cooperative projects.

1. Promoting Female Entrepreneurship through Stand Up India, MUDRA, Mahila e-Haat. Under Pradhan Mantri MUDRA Yojana, which
extends micro-credit for entrepreneurship, nearly 70 % of beneficiaries are female and 84 % of loans sanctioned under Start-Up India
have also gone to female beneficiaries.
2. The Equal Remuneration Act, 1976 provides for payment of equal remuneration to men and women workers for same work or work
of similar nature without any discrimination.
3. Labour Law Reforms
a. Code on Social Security, 2020 : Paid maternity leave from 12 weeks to 26 weeks, mandatory crèche in establishments with 50
or more employees, permitting women workers in the night shifts with adequate safety.
b. Code on Wages 2019: Prohibiting gender wage disparity by employer in respect of the same work or work of similar nature
done by any employee.
4. The Maternity Benefit (Amendment) Act, 2017, extended paid maternity leave from 12 weeks to 26 weeks to support women in
balancing work and family responsibilities, encouraging them to stay in the workforce after childbirth.
5. Self Help Groups (SHGs) and Microfinance: The NRLM supports Self Help Groups (SHGs) for women, enabling them to access mi-
croloans and support in small-scale businesses. Over 8 crore women in rural India are part of SHGs, and are engaged in income-gen-
erating activities like handicrafts, farming, and dairy production.
6. Aatmanirbhar Bharat Rojgar Yojana (ABRY): to incentivize employers for creation of new employment and restoration of loss of
employment during Covid-19 pandemic.
7. The Production Linked Incentive (PLI)schemes is being implemented by the Government with an outlay of Rs. 1.97 lakh crore, for a
period of 5 years starting from 2021-22 which have potential for creating 60 lakh new jobs.

Way forward
1. Access to credit: Streamlining support through credit linkages, sensitising bankers, and efficient delivery mechanisms is essential.
2. Increasing investment in Human Capital: investment in human capital is abysmally poor, with 3.1% of GDP spent on education
(2021-22), around 1% on health.
3. Focus on Skill Development
A. Only 4.7% of India’s total workforce have undergone any formal skills training (3.8% of adult women and 9.3% of adult men, by
NSSO’s 68th round)
B. Gender bias in skill programs need to be addressed
4. Ensuring equal pay for work of equal value through legal protection, wage transparency, and gender neutral job evaluation.
5. Creating a Safe and Supportive Work Environment
• Strengthen the implementation of the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act.
• Promote flexible working hours and work-from-home opportunities, especially for women in sectors such as IT, education, and media.
6. Increasing Women’s Financial Inclusion, particularly in rural areas, to encourage entrepreneurship and independence.
7. Encouraging Women’s Entrepreneurship
• Scale up initiatives like the Women Entrepreneurship Platform (WEP) by NITI Aayog, offering mentoring, funding, and business
networking for women entrepreneurs.
• Reduce bureaucratic hurdles and ensure better access to capital for women-owned businesses, especially small and medium
enterprises (SMEs).
• Promote digital literacy and train women in e-commerce, enabling them to set up businesses online.
8. Reforming Labor Laws to Encourage Hiring of Women: Eg- address the maternity benefit challenges faced by small businesses by
providing them with tax breaks or subsidies for hiring women and offering maternity leave benefits.

18
The NITI Report 2022 classifies gig workers as individuals engaged in work
outside the traditional employer-employee setup, with two distinct subsets
– platform workers and non-platform workers.
Platform workers utilize online algorithmic matching platforms like
Amazon or Uber to connect with customers, while non-platform workers
encompass those in sectors such as construction, day jobs, and other
technology-independent temporary work.

Data
1. Nasscom Report , the Indian gig workforce is expected to expand
from 7.7 Mn in FY21 to 23.5 Mn workers by FY30 (4.1% of the total
workforce by FY30)
2. Projections indicate that the gig economy can contribute 1.25% to
India’s GDP and create 90 million non-farm jobs in the long run.
3. According to Forum for Progressive Gig Workers, the gig economy in
India is projected to grow at a CAGR of 17%, reaching USD 455 billion
by 2024

Factors responsible for growth of gig economy:

1. Digital Revolution: India’s rapid digitalization, affordable internet, and rising smartphone penetration have fueled the gig economy.
Platforms like Zomato, Uber, Swiggy, and Ola provide new earning opportunities.
2. Impact of COVID-19: Lockdowns disrupted traditional jobs, pushing workers toward alternative employment. As companies em-
braced remote work, gig workers played crucial roles in food delivery, healthcare support, and logistics.
3. Changing Workforce Preferences: Millennials and Gen Z prioritize flexibility, autonomy, and work-life balance over traditional
jobs.E.g. A graphic designer in Delhi can freelance on Upwork while pursuing photography, an option not feasible in a 9-to-5 job.
4. Additional Income Needs: Rising costs of living and inflation are driving many, especially lower-income workers, to gig work as a
secondary income source.
5. Business Demand for Cost-Effective Solutions: Startups and small businesses prefer hiring gig workers for specific projects to
reduce fixed costs instead of maintaining full-time employees.
6. Rise of Startup Culture: With over 16,000 new tech startups added in 2020, India’s startup ecosystem increasingly relies on gig
workers for non-core activities like content creation, web development, and marketing.
7. MNCs Embracing Flexible Hiring: Post-pandemic, multinational corporations are hiring gig workers for specialized projects to cut
operational expenses, further boosting the gig economy.
8. E-commerce & Consumer Demand: The demand for quick, convenient services in urban areas has increased gig roles in delivery,
logistics, and mobility.
9. Business Model Variations: The gig economy operates on multiple compensation models, including fixed-fee, time-based, work
output-based, and quality-driven structures, catering to different business needs.
10. Abundant Low-Cost Labor: Around 47% of gig jobs are medium-skilled, and 31% are low-skilled. Many semi-skilled and unskilled
workers, facing a lack of formal job opportunities, turn to gig work, often under poor wage conditions.

Challenges Faced by Gig Workers in India

1. Job & Income Insecurity: Over 20% of gig workers cite job instability as a major issue, with unskilled workers most affected. Earnings
fluctuate, making financial planning difficult. The Fairwork India Ratings 2024 highlights platforms’ lack of commitment to ensuring
fair wages and collective rights.
2. Algorithmic management: Workers face stress due to pressures resulting from algorithmic management practices and performance
evaluation on the basis of ratings.
3. Lack of Rights & Social Security: Classified as contractors, gig workers lack benefits like minimum wages, paid leave, healthcare,
and pensions. E.g. Zomato & Swiggy delivery partners get no hazard pay.
4. Regulatory Gaps & Exploitation: No legal framework protects gig workers, leading to unfair treatment, excessive demands, and
workplace restrictions.
5. Health & Safety Risks: Physically demanding jobs expose workers to hazards, with no insurance or support. E.g. The 10-minute
delivery policy endangers riders.
6. Lack of Bargaining Power: Isolated workers struggle to unionize or negotiate better terms.
7. Limited Skill Development: Few upskilling opportunities restrict long-term career growth.

19
 Rajasthan Platform-based Gig Workers (Registration and Welfare) Act, 2023:

Key Features
1. Welfare Schemes including financial assistance for accidents and medical emergencies, health insurance, gratuity, scholarships,
and pensions.
2. Funding: Rs 200 crore allocated to the Rajasthan Platform-Based Gig Workers Social Security and Welfare Fund; a 1% welfare
cess on services to support gig workers’ rights.
3. Welfare Board to register gig workers and aggregators, issue unique IDs valid for three years, maintain a database, and help
workers access government welfare schemes.

Karnataka Platform-based Gig Workers (Social Security and Welfare) Bill-2024:

1. Provides for the establishment of Welfare Board and Welfare Fund at the state level.
2. It seeks to protect the rights of gig workers and places obligations on aggregators in relation to social security, occupational
health and safety of workers.
3. Provides safeguards against unfair dismissals, two-level grievance redressal mechanism, and more transparency with regards to
automated monitoring and decision-making systems deployed by platforms.

Global Best Practices:

1. Employment Classification & Worker Protections:
a. United States: The Dynamex ruling (2018) introduced the “control test”, requiring companies like Uber and Lyft to
classify workers as employees rather than independent contractors.
b. United Kingdom: The UK Supreme Court ruled that Uber drivers are ‘workers’, granting them rights like minimum
wage and pensions.
2. Minimum Pay & Negotiation Rights:
a. Australia: The “Closing Loopholes Bill” (2024) allows gig workers to negotiate minimum pay and conditions, classify-
ing them as ‘employee-like workers’.
b. European Union: A new directive seeks to clarify employment status and regulate algorithm-driven decision-making
in gig work.

Key initiatives by gig economy platforms

1. Zomato: Introduced shelter rest points for delivery personnel. Aims to reduce worker fatigue and prioritize health and well-being.
2. Swiggy: Rolled out skilling programs to enhance professional skills of gig workers. Focuses on career growth and improving service standards.
3. DriveU: Implemented insurance coverage for drivers. Addresses job-related risks and provides a safety net during emergencies.
4. Urban Company: Launched an Employee Stock Ownership Plan (ESOP) for partners. Aligns worker interests with the company’s
success, offering a financial stake.

20
Way Forward for Gig Workers in India
1. Legal & Regulatory Reforms: Define gig workers’ employment status through labor law amendments, ensuring minimum wages,
fair conditions, and social security. States can follow Rajasthan’s Platform-Based Gig Workers Act, 2023 for worker welfare.
2. Portable Benefits System: Implement a system where gig workers retain health insurance, pensions, and unemployment
benefits, regardless of the platform they work for.
3. Tripartite Governance Structure: Establish collaboration between the government, gig platforms, and worker represen-
tatives to ensure fair working conditions, grievance redressal, and industry-wide standards.
4. Skill Development & Upskilling: Partner with vocational institutes and government programs to equip gig workers with
skills for higher-paying roles or entrepreneurship.
5. Social Security Inclusion: Enforce provisions of the Code on Social Security, 2020 to provide accident insurance, health
coverage, and pension plans through contributions from platforms, the government, and workers.
6. Fair Pay & Algorithmic Transparency: Platforms should ensure transparent pay structures and allow workers to chal-
lenge unfair algorithm-driven decisions.
7. Gig Worker Data Portability: Enable workers to transfer their ratings, work history, and certifications across platforms
to enhance job mobility and reduce dependence on a single company.
8. Worker Welfare & Heat Protection Policies: Require platforms to provide cooling gear, mandatory breaks, and compen-
satory pay during extreme heat. Example: Zomato advised customers to avoid peak-hour food orders during heat waves.
9. Technology-Driven Solutions: Develop feedback systems for workers to report exploitation or discrimination, ensuring
a fairer gig economy.
10. Improved Working Conditions: Companies like Amazon, Flipkart, Zomato, and Swiggy are enhancing worker conditions
with safety gear, rest areas, and water access. Continued welfare focus is essential for sustainability

NITI Aayog’s Recommendations for Gig Worker Welfare

• Financial Inclusion – Develop financial products tailored for gig workers to improve access to institutional
credit, enabling them to set up their own platforms.
• Skill Development – Promote platform-led skilling models to enhance job opportunities and ensure both hori-
zontal and vertical career mobility.
• Enhancing Social Inclusion – Conduct gender sensitization and accessibility programs for workers and their
families. Platforms should collaborate with Civil Society Organizations (CSOs) to support women and Persons
with Disabilities (PwDs) in the gig economy.

21
Labour force: Status
1. Labour Force Participation Rate (LFPR) is the percentage of the working age population (15-64 years) who are employed or actively
seeking employment.
2. Periodic Labour Force Survey (PLFS) by NSSO, India’s LFPR is 47.9% in September, 2022.
3. 90% of India’s workforce is employed in the informal sector ( no job contract, paid leave) and 10% is in the formal sector ( appoint-
ment letter, job contract, paid leave and other benefits.

Necessity of Labour Reforms

1. Simplification of Laws: India’s labour regulations are complex, with significant inter-state variations, making compliance diffi-
cult.
2. Employment Flexibility: Current laws mandate government approval for hiring/firing in firms with 100+ workers, restricting busi-
ness growth.
3. Protecting Informal Workers: 90% of India’s workforce is in the unorganized sector, lacking legal protection under labour laws.
4. Gender Parity: Despite laws like the Minimum Wages Act, unequal pay for women persists due to poor enforcement. Eg- as per
WEF, in 2024, India’s gender pay gap was 39.8%.
5. Clarity for Trade Unions: The Industrial Disputes Act lacks clear directives on trade union rights, further politicizing labour
movements.
6. Formal Job Creation: The shift to contract-based employment has led to job insecurity and lack of social security. Eg- gamifica-
tion of workforce
7. High Unemployment Rate: As per Centre for Monitoring Indian Economy (CMIE), India’s unemployment rate in June 2024 was 9.2%.

Key Government Initiatives for Labour Reform

1. E-dispute Resolution SAMADHAN Portal: An online platform for workers and employers to file and resolve industrial disputes
efficiently.
2. Social Security Measures
a. Pradhan Mantri Shram Yogi Maan-Dhan Yojana: Provides a monthly pension of Rs 3000 to unorganized workers after reaching
60 years of age. As of 2023, over 45 million workers have enrolled in the scheme.
b. Atal Beemit Vyakti Kalyan Yojana: Offers compensation to insured workers during periods of unemployment.
3. Legislative Measures
a. Maternity Benefit (Amendment) Act, 2017: Increases paid maternity leave from 12 weeks to 26 weeks, benefiting approxi-
mately 1.8 million women annually.
b. Child Labour (Prohibition and Regulation) Amendment Act, 2016: Completely prohibits the employment of children under 14
years, except in family businesses and entertainment industry (with restrictions).
4. Worker Welfare Programs like Pandit Deendayal Upadhyay Shramev Jayate Karyakram:
a. Shram Suvidha Portal: Facilitates easy filing of returns by industry members.
b. Apprentice Protsahan Yojana: Encourages the hiring of apprentices by providing financial support to employers.
c. Universal Account Number (UAN): Ensures that workers can securely withdraw their provident fund from any location.
Simplification and Rationalisation of Labour Laws The government has simplified, amalgamated, and rationalized 29 central labour
laws into four comprehensive codes:
Code on 1. Floor wage to be fixed by the centre.
Wages 2019 2. Minimum Wage by Centre/state to be greater than or equal to Floor Wage. The Code provides for univer-
sal minimum wage across employments in organized and unorganized sectors. Also, periodic revision of
minimum wage by centre/state every 5 years
3. Provision for fixed working hours and overtime wages which is at least twice the normal rate of wages
4. The Code prohibits gender discrimination in matters related to wages and recruitment of employees for
the same work or work of similar nature done by an employee.
Code on 1. to extend social security to all workers both in the organized and unorganized sectors (unorganized work-
Social ers, gig workers and platform workers)
Security 2. Social Security fund for unorganized workers, gig workers and platform workers will be setup by central
2020 government (and separately by state govt)
3. National Social Security Board – for welfare of unorganized workers, gig workers and platform workers
4. Schemes for gig workers and platform workers may be funded through a combination of contributions
from central govt, state govt and aggregators.

22
 Code on Coverage
occupational a) Factories –
safety, health i) 20 Workers + Manufacturing process using power
& Working ii) 40 Workers + Manufacturing process without using power
Conditions iii) All establishment engaged in Hazardous activities
2020 iv) Establishment or contractors employing 50 or more workers including contract labour
b) Prohibits use of contract labour in core activities and defines a list of non: core activities where the
prohibition would not apply
c) Provides for daily work hour limit at eight hours per day
d) Defines inter state migrant workers; Provides for benefits of inter state migrant workers; Database
of inter state migrant workers to be maintained by centre / states
e) Mandatory annual health checkup to be provided by the employer
Code on 1. Threshold limit for government approval needed for layoff/retrenchment increased from 100 to 300
Industrial Re- 2. Registration of Trade Unions
lations 2020 3. Sole negotiating Trade Union (with more than 51% of the workers as members)
4. Fixed term Employment

Benefits of Labour Codes

1. Simplification and rationalization of plethora of laws will lead to better compliance
2. Fixed term employment: they will get all statutory entitlements, similar to regular workers
3. Provides for night shifts to women for various works (may increase FLFPR)
4. Social security for: gig workers: platform workers + self employed
5. National Social Security Board: to recommend and monitor schemes for gig workers, platform workers, unorganized workers
6. Co-operative Federalism: states given power to decide their own minimum wage above floor wage

Labour Reforms: Path Forward

1. Labour Market Optimization: Labour Market Information System (LMIS) to track skill shortages and job vacancies, en-
suring better job matching.
2. Strengthening Government Schemes:
a. Ensure effective execution of schemes like PM Shramyogi Maan Dhan Yojana, Atal Pension Yojana, and Shram Su-
vidha Portal.
b. Implement a transparent labour inspection system to enhance compliance and reduce bureaucratic red tape.
3. Apprenticeships & Reducing Bureaucracy:
a. Expand high-quality apprenticeships via Apprentice Protsahan Yojana.
b. Facilitate self-certification of documents to reduce administrative hurdles for businesses and workers.
4. Skill Development & Industry Alignment: Align skill development programs with Make in India and Shramev Jayate ini-
tiatives to enhance workforce productivity.
5. Boosting Female Workforce Participation: Introduce gender-sensitive training programs and apprenticeships to ad-
dress barriers women face in employment.
6. Comprehensive Economic Reform: Link labour reforms with economic stability, including infrastructure upgrades, ex-
port-import policy consistency, and enhanced investment climate to stimulate job creation.

Global Best Practices

1. Sweden: gender-neutral parental leave and subsidized childcare
2. Germany: Occupational Health and Safety (OHS) system, with the German Social Accident Insurance
(DGUV) overseeing workplace safety and support for injured workers.
3. United Kingdom: Gender Pay Gap Reporting requirement for large companies
4. Australia: Fair Work Commission (FWC): sets the minimum wage, enforces workplace standards, and re-
solves disputes between employers and employees.

23
“Skill development of the new generation is a national need and is
the foundation of Aatmnirbhar Bharat ‘’: PM Modi
With one of the youngest populations, a median age of 28 and 65% of under 35 population, India can harness its demographic dividend
by nurturing a workforce that is equipped with employable skills and prepared for the needs of the industry.

Data Bank
• As per PLFS data, the percentage of formally vocationally trained individuals rose from 2% (9.14 million) in 2017-18 to 3.7%
(21.05 million) in 2022-23. However, it is very less compared to 52% in the United States, 80% in Japan, and 96% in South
Korea.
• The India Skill Report 2023 indicates a significant improvement in employability, rising from 46.2% to 50.3% among young
individuals.
• The PLFS report 2023-24 shows that 4.9% of youth aged 15-29 have received formal vocational/ technical training,
while 21.2% received informal training.

Skill Development: Importance

1. According to the World Economic Forum’s Future of Employment Report 2020, a change in the pattern of labour between hu-
mans and robots might result in the loss of 85 million jobs by 2025.
2. 97 million new patterns of employment might be created in industries including healthcare, renewable energy, and information
technology etc. People must possess the required skills and competences to perform these new roles.

24
Challenges in Skill Development in India
1. Mismatch Between Industry Needs and Training: lack of
alignment between the skills taught through training programs
and the skills required by industries.
2. Limited Access to Quality Training: According to the India
Skill Report 2023, 45% of India’s rural population lacks
access to vocational training centers, leading to skill disparities
between urban and rural youth.
3. Lack of Recognition of Skills and Certifications: The absence
of industry-recognized certifications leads to lower confidence
among employers regarding the employability of skilled workers.
4. Fragmented Governance: Skill development is spread across
20+ ministries, leading to inefficiency.
5. Cultural Attitudes: Skilling is viewed as a last resort for those
who don’t succeed academically.
6. Trainer Shortage: According to the MSDE, India faces a short-
age of about 70,000 trainers. Initiatives like the Trainer Develop-
ment Programme aim to address this gap, but progress is slow.
7. Technological Advancements and Skill Obsolescence:
The World Economic Forum’s Future of Jobs Report 2020
highlights that automation and AI are transforming industries,
requiring workers to adopt new skills that many current training programs do not address.
8. Low Apprenticeship Coverage: 0.1% of the workforce participates in formal apprenticeships. Slow uptake despite the Apprentice-
ship Act 1961 amendments and NAPS.
9. Obsolete Curricula: Many skill programs are outdated and don’t meet modern industry needs. Sector Skill Councils (SSCs) are
updating curricula but adoption is slow.
10. According to WEF, poor Public-private collaboration, lack of international mobility, and women’s low labor force participation are
critical challenges.

Advancing India’s skill development(Economic Survey 2024-25):

1. To help IT professionals adapt to emerging technologies, the IT-ITeS Sector Skill Council, in collaboration with MeitY, has launched
the FutureSkills Prime platform, designed to re-skill and upskill IT professionals in 10 new and emerging technologies, including AI.
2. The Union Budget 2024-25 unveiled five major schemes designed to benefit 4.1 crore youth over the next five years.
a. Scheme A: It offers a one-month salary of up to Rs. 15,000 in three installments to first-time employees registered with EPFO.
b. Scheme B: It provides incentives for job creation in the manufacturing sector, offering rewards for EPFO contributions during the
first four years of employment.
c. Scheme C: It reimburses employers up to Rs. 3,000 per month for two years towards EPFO contributions for each additional
employee, benefiting 30 lakh youth.
d. Centrally sponsored skilling scheme: It aims to skill 20 lakh youth and upgrade 1,000 ITIs over five years to boost skilled labor
for quality jobs.
e. Prime Minister’s Internship Scheme: It offers internships in 500 top companies to 1 crore youth, providing Rs. 5,000 per month
and a one-time Rs. 6,000 allowance.

Steps in Skill Development in India

1. Skill India Digital Hub platform: This initiative integrates a comprehensive array of skilling schemes along with 690 online courses
and 1650 QP-based e-books, enhancing accessibility to educational resources essential for vocational training. Since its inception,
the Skill India Digital Hub has garnered significant engagement, with over 60 lakh learners registered and 8.4 lakh app downloads.
2. National Apprenticeship Promotion Scheme (NAPS): Aimed at fostering apprenticeship training across India. Since its inception, a
total of 32.38 lakh apprentices have been engaged in various sectors.
3. Jan Shikshan Sansthan (JSS): Impart skills to non/neo literates and individuals with a rudimentary level of education. From FY19 to
FY24, JSS has successfully trained 26.36 lakh individuals, with 24.94 been certified.
4. Craftsmen Training Scheme (CTS): Providing vocational training across India, facilitated through a vast network of 14,955 Industrial
Training Institutes (ITIs).
5. Pradhan Mantri Kaushal Vikas Yojana: To date, the scheme has successfully trained 1.42 crore individuals, with 1.13 crore received
certification across its Short-Term Training (STT), Special Projects (SP), and Recognition of Prior Learning (RPL) components.
6. National Action Plan (NAP) for Skill and Training:
a. Increasing employability among differently-abled persons.
b. Establishing a network of skill training providers and vocational rehabilitation centres.
c. Targeting to skill 5 lakh differently-abled persons by 2017-18 and 5 lakh annually through an online platform.

25
7. National Policy on Skill Development and Entrepreneurship 2015:
a. Ensuring large-scale, high-standard skilling.
b. Promoting innovation-based entrepreneurship for sustainable livelihoods.
c. Establishing a Policy Implementation Unit (PIU) to coordinate stakeholders and actionable points.
8. Skill Impact Bond (2021): Targets 50,000 youth (60% female); so far, 29,365 enrolled, 23,464 certified, 19,209 placed, 13,853
retained (74% women enrolled).
9. Skill Loan Scheme: MSDE Minister Shri Jayant Chaudhary launched the revised Model Skill Loan Scheme on 25th July 2024, in-
creasing the loan limit from ₹1.5 lakh to ₹7.5 lakh for advanced skill courses.

International Cooperation in Skill Development:

1. Bilateral Partnerships: India has agreements like Migration and Mobility Partnership Agreements (MMPAs) and Labour Mobility
Agreements (LMAs) with countries such as Australia, Israel, and Germany, focusing on vocational training, skill alignment, worker
rights, and safe international employment.
2. Curriculum development under the National Skills Qualification Framework (NSQF) ensures alignment with international stan-
dards and mutual recognition of qualifications.
3. Skill India International Centres to reduce the time and cost of international mobility and create a trusted workforce supply chain.
4. e-Migrate Platform: This platform, run by the MEA, facilitates emigration by connecting stakeholders and offering services like regis-
tration, PDOT, and grievance redressal.

Way Forward for Skill Development in India

1. Shift to Demand-Driven Ecosystem: Move from a supply-driven to a demand-driven approach by assessing skill demands from local
(village) to national levels.
2. Encourage Industry-Academia partnerships for real-time feedback on skills required and to offer internships, apprenticeships,
and on-the-job training.
3. Expand Access to Skill Training in Rural and Underserved Areas: Implement mobile-based training centers and online learning
platforms to reach remote areas.
4. Incentivize Reskilling and Upskilling Programs
• Provide subsidies for reskilling programs in manufacturing, agriculture, and traditional craftsmanship to help workers transi-
tion into higher-paying and skill-demanding industries.
• Encourage lifelong learning by offering training credits and career guidance, allowing workers to access continuous upskilling
opportunities.
5. Improve Recognition of Skills and Certifications: Standardize and recognize skills and certifications across industries to ensure
better employability for trainees.
6. Expand Hub and Spoke Model: Under Samagra Shiksha, expand the model to support schools lacking infrastructure. Schools with
the necessary facilities (hubs) should provide skill education to nearby schools (spokes), including transportation and funding sup-
port.
7. Industry Consultation for Updated Curriculum: Regular consultations with industry experts to update curricula and include emerg-
ing skills like Machine Learning, Data Science, and Cloud Computing.
8. Digital Skilling: Make digital skilling a core element of skill development, focusing on AI-powered training systems for personalized,
scalable learning experiences.
9. Integrating Vocational & Academic Education
• Implement a unified credit accumulation and transfer system.
• Transition to activity-based, engaging learning methods in schools and colleges to make vocational education more appealing.
10. NEP 2020 Alignment: Introduce models of vocational education aligned with NEP 2020 to provide locally relevant skills training
effectively.
11. Capacity Building for State-Level Institutions: Strengthen bodies like SCVET and SCERT that are critical to vocational education.
12. Promote Dignity of Labor: Teachers should conduct counseling sessions with parents to promote vocational education as a viable
and dignified career option.
As India is on the mission of skill, reskill and upskill to keep up with the future of work, there are pending reforms that need to be fast
tracked so that India can reap it’s demographic dividend.

26
As per the paper titled “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj”, between 2014-15 and 2022-
23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration.
As per Thomas Piketty, the ‘Billionaire Raj’ headed by India’s modern bourgeoisie is now more unequal than the British Raj headed by the
colonialist forces

Inequality Trends in India

1. Wealth Inequality
a. Top 10% own 77% of total national wealth.
b. Richest 1% hold 53%, while the bottom 50% share only 4.1%.
2. Income InequalityWorld Inequality Report 2022:
a. Top 10% earn 57% of national income.
b. Top 1% earn 22%, while the bottom 50% earn only 13%.
3. Tax Burden on the Poor
a. 64% of GST is paid by the bottom 50%, while the top 10% con-
tribute only 4%.
4. Healthcare Accessibility
a. 63 million people are pushed into poverty annually due to
healthcare expenses.
5. Food Security & Nutrition
a. 74% of Indians cannot afford a healthy diet; 39% lack nutri-
ent-adequate nutrition.
b. Global Hunger Index (2023): Score of 28.7, signaling a serious
hunger issue.
c. Child-wasting rate: 18.7% (highest recorded globally).
6. Gender Inequality
a. Ranked 127th out of 146 in the Global Gender Gap Report 2023.
b. Persistent issue of “missing women” from the workforce.

27
Causes of Increasing Inequality Despite High Economic Growth in India
1. Uneven Economic Growth: Economic growth benefits have been uneven, with states like Maharashtra and Karnataka,
and sectors like services (which contribute 60% of GDP), disproportionately benefiting.
2. Inadequate Land Reforms: According to the latest Agriculture Census in India (2015-16), around 86.1% of Indian farm-
ers are classified as “small and marginal farmers”, meaning they hold landholdings smaller than 2 hectares
3. COVID-19 Impact: The pandemic worsened wealth inequality, with the wealth of the bottom 50% diminishing, while In-
dia’s billionaires grew from 102 in 2020 to 166 in 2022, and hunger increased from 19 crores to 35 crores.
4. Tax System Disparity: The government reduced corporate tax from 30% to 22%, but increased excise duties and GST,
with 64% of GST revenue coming from the bottom 50% of the population, while only 4% came from the top 10%.
5. Quality Education and Healthcare Deficit: Lack of access to quality education and healthcare perpetuates intergenerational pover-
ty and limits economic mobility
6. Uneven Distribution of Economic Growth: The benefits of economic growth have been unevenly distributed across different regions
and sectors. Eg- service sector contributes 54% of GDP but is less labour intensive and is concentrated in few states.
7. Globalization and Market-Oriented Reforms: Economic liberalization and market-oriented reforms have benefitted large corpora-
tions and high-skilled workers, leaving low-skilled workers, particularly in rural areas, behind.
8. Rising Urban-Rural Divide: The average monthly per capita consumption expenditure is Rs. 3,773 in rural India and Rs. 6,459 in
urban India (Household Consumption Expenditure Survey 2022-23).
9. As per World Economic Forum’s (WEF) Global Gender Gap Index 2024, India’s gender pay gap was 39.8%, meaning that women
earned about 40 rupees for every 100 rupees earned by men.
10. Capital Intensity and Automation leading to ‘Jobless Growth’: Economic growth in sectors such as manufacturing and technol-
ogy has been driven by capital-intensive methods and automation, reducing the demand for low-skilled labor.
11. Exclusion of Marginalized Groups: Discrimination based on caste, gender, and region has led to the exclusion of certain groups
from the benefits of economic growth.

Implications of Rising Inequality in India

1. Increased Vulnerability: Poorer populations lack savings, making them more susceptible to crises like pandemics and natural disas-
ters.
2. Erodes Dignity: Resource scarcity forces the underprivileged into exhaustive labor, undermining their right to a dignified life under
Article 21.
3. Social Fragmentation due to rising inequality can fuel dissatisfaction, resentment, and even unrest, threatening social stability and
cohesion. Eg- farmers’ protests in 2020-2021
4. Reduced Economic Mobility: Inequality limits opportunities for upward mobility, particularly for marginalized communities and per-
petuates a cycle of poverty. Eg- intergenerational poverty among SC, STs
5. Impediment to Inclusive Growth as a large portion of the population remains excluded from the benefits of economic development.
This results in underutilization of human capital, reducing overall productivity and slowing down sustainable economic progress.
6. Health and Education Disparities: The wealth gap exacerbates disparities in access to quality healthcare and education, with the
rich having better access to resources.
7. Political Instability: Widening economic inequality can lead to a lack of trust in democratic institutions, as people feel left out of the
benefits of development.
8. Undermining Consumer Demand: Inequality reduces the purchasing power of the majority of the population, as income is concen-
trated among the wealthy.
9. Higher Crime Rates: Economic disparities can contribute to social exclusion and frustration, which may manifest as increased crimi-
nal activity.

28
Government Interventions:
Economic Empower- MGNREGA: Provides guaranteed 100 days of wage employment to rural households, reducing income
ment & Employment inequality and ensuring a social safety net.
PMEGP: Encourages self-employment by providing financial assistance for micro-enterprises, especial-
ly for marginalized communities.
DAY-NULM: Focuses on urban poverty alleviation by enhancing skills, self-employment, and access to
affordable credit.
Education & Skill Samagra Shiksha Scheme 2.0: Ensures equitable access to quality education from pre-primary to
Development senior secondary level, with special focus on marginalized communities.
Lakhpati Didi Initiative: Empowers rural women by enhancing their skills and providing financial sup-
port to help them earn at least ₹1 lakh annually.

Healthcare & Social National Health Mission: Strengthens public health infrastructure and services, particularly in rural
Security and underserved areas.
Mission Ayushman (Ayushman Bharat): Provides free health insurance coverage to economically
weaker sections, reducing healthcare-induced poverty.
Mission Indradhanush: Ensures full immunization of children and pregnant women, reducing health
disparities.
Financial Inclusion Pradhan Mantri Jan Dhan Yojana: Promotes financial inclusion by ensuring every household has a
& Entrepreneurship bank account, enabling direct benefit transfers and savings.
Pradhan Mantri Mudra Yojana: Facilitates access to credit for micro and small enterprises, particularly
for women and marginalized groups.

Infrastructure & PM Gram Sadak Yojana: Enhances rural connectivity, linking villages to markets, schools, and health-
Connectivity care centers, fostering economic and social integration.

Way Forward
1. Progressive Taxation: Higher earners should pay more taxes to reduce income inequality.
2. Wealth Tax: As per Thomas Piketty, 2% wealth tax, and a 33% inheritance tax can provide around 11 lakh crore per an-
num, to support social sector investments.
3. Improving social sector indicators: . Increasing public expenditure on health from 1 % to 3% of GDP; and on educa-
tion from 3% of GDP to 6%.
4. Creating Jobs in the Formal Sector
• Promote industrialization in backward regions by incentivizing businesses to set up manufacturing units in underdeveloped
areas.
• Support small and medium enterprises (SMEs) through financial access, credit facilities, and market linkages, improving em-
ployment opportunities in local economies.
5. Social Protection and Safety Nets
• Expand the coverage of programs like PM-KISAN, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGN-
REGS), and public distribution systems (PDS) to ensure basic needs like food, income, and housing are met.
• Introduce comprehensive universal basic income (UBI) proposals, particularly for the poorest sections, to address deep poverty
and inequality.
6. Reduce the regional disparities in economic development by focusing on inclusive growth that benefits underde-
veloped states and rural areas.
7. Promoting Digital Inclusion: Ensure digital access and literacy for all, especially the poor and marginalized, to enable
them to participate in the growing digital economy.

29
According to the ILO, the informal economy refers to all economic activities by workers and economic units that are – in law or in practice
– not covered or insufficiently covered by formal arrangements.
According to the International Labour Organization, about 2 billion workers, or 60 percent of the world’s employed population ages 15
and older, spend at least part of their time in the informal sector.
Formalization is when jobs move from the informal sector (small, unregistered businesses and daily wage workers) into the formal sec-
tor (where employees have contracts, job security, and access to benefits).

There is an increasing trend of informalization of industrial labour in India. It has taken two forms:
a. Rising share of the unorganized sector in manufacturing employment and
b. Informalization of the organized manufacturing sector itself through subcontracting and use of temporary and contract workers.

Key Facts on Informal Workforce in India

1. Workforce in the Unorganized Sector: 85% (40Cr)
2. As per National Accounts Statistics, the informal sector
contributed about 45% to the total GDP of the economy in FY
2022-23.
3. Social & Economic Analysis
a. 94% of 27.69 crore informal sector workers on the
e-Shram portal earn ₹10,000 or less per month.
b. 74% belong to SC, ST, and OBC categories.
4. Age-Wise Distribution
a. 61.72% are aged 18–40 years and 22.12% are aged 40–50
years.
5. Gender-Wise Distribution
a. 52.81% are female, and 47.19% are male.
6. Occupation-Wise Distribution
a. Agriculture: 52.11%
b. Domestic & Household Workers: 9.93%
c. Construction Workers: 9.13%

Data for Formalisation of labourforce in India:

1. The share of the formal sector in the Indian economy has risen
to 56% in 2022
2. As per SBI Report, India has formalised Rs 26 trillion of its
economy between FY16 and FY23, as the share of the infor-
mal economy fell to 23.7% from 25.9%.
3. According to the data provided by EPFO: Since September
2017 to July 2024, over 6.91 crore members have joined
EPFO. This means that nearly 7 crore people have transitioned
to more secure, formal jobs.

Reasons for Rising Informalization

of Workforce in India:
1. Complex and Rigid Labour Laws: Leads to small-scale units
(2–9 workers) and self-employment to avoid compliance.
2. Missing Middle & Dwarfism: Small firms (less than 100 workers) dominate, staying small for tax benefits, limiting job creation and
productivity (Economic Survey).
3. Unintended Policy Impact: Focus on capital-intensive industries over labor-intensive sectors reduces formal job opportunities.
4. Skill Deficit: Organized sectors demand skilled labor, but most workers are absorbed in low-skill jobs (agriculture, construction, infor-
mal manufacturing).
5. Lopsided Structural Change: India skipped from agriculture to services, while a stagnating manufacturing sector fails to provide
formal, well-paying jobs.
6. Rising Competition: Low wages in the informal sector help cut costs and improve competitiveness, especially in global markets.
7. Capital-Intensive Shift: Formal sector prefers automation over labor, influenced by globalization and financial institutions like the
IMF, which cite excessive regulation and taxation as drivers of informality.
8. Contract-Based Employment:
a. Contract workers earn less and offer flexibility in hiring and layoffs.
b. Project-based sectors (automobile, construction, mining) rely on temporary labor.
c. Employers shift compliance burdens to third-party hiring agencies, reducing costs and liabilities.

30
Advantages of Formalization:
1. As per Citi Research Report, Formal sector wages are 2.5 times higher than informal wages.
2. Increased Tax Revenues: Expands the tax base, raising the tax-to-GDP ratio and ensuring a fairer distribution of the tax burden.
3. Enhanced Scale & Productivity: Enables firms to expand, access credit, comply with regulations, and boost efficiency.
4. Higher Social Spending: More government revenue allows greater investment in education, health, and skill development.
5. Curbing Black Money: Increases transparency, reducing money laundering and illegal activities.
6. Labour Welfare: Ensures legal protections, fair wages, and access to formal training for workers.
7. Economic Growth & Development: Improves the business environment, attracting investment and fostering national progress.
8. Attrition reduction – Offering health benefits, on-the-job training, financial security and several other perks stated in an employment
contract can instil a sense of loyalty in employees.

Challenges of the Informal Sector in India:

1. Gender Disparity: Women dominate the informal sector but face low wages, income volatility, and lack of social security. Female
labor force participation fell to 21.2% in March 2021 from 21.9% in 2020 (PLFS data).
2. Economic Exploitation: Informal workers lack contracts, paid leave, and minimum wages. The Code on Wages 2019 remains inef-
fective for many, as state governments can exclude certain jobs from minimum wage laws.
3. Lack of Taxation: Informal businesses evade taxes, reducing government revenues and keeping a large part of the economy outside
the tax net.
4. Data Deficiency: The absence of separate official statistics makes policymaking difficult for both the informal sector and the broader
economy.
5. Unregulated Working Hours: Many informal workers exceed labor standards, especially in agriculture, where no specific laws define
working conditions.
6. Poverty Trap: Unorganized workers face high poverty rates, poor nutrition, and health risks due to low wages and economic instabili-
ty.
7. Disaster Vulnerability: Informal workers, lacking social security, were the worst hit during COVID-19, leading to mass displacement
and job losses.
8. Credit Access Issues: MSMEs struggle to secure bank credit due to lack of official documentation, making the shift to formality
challenging.

Issues Related to Formalization in India:

1. Job Losses: The informal sector, a key employment provider, may shrink with formalization, worsening unemployment.
2. Skill Gaps: Many MSMEs and workers lack the skills to comply with formal regulations; for instance, GST complexities have led to
financial losses for small industries.
3. Red-Tapism: With 44 central statutes and over 150 state laws, bureaucratic hurdles make formalization costly and time-consum-
ing.
4. High Compliance Costs: Increased tax and labor regulations raise input costs, making small informal units unviable.
5. Business Constraints: Small entrepreneurs rely on peer networks for growth but struggle to afford time off for training under formal
requirements.

Steps Taken
1. The introduction of GST (2017) unified India’s indirect tax system, promoting formalization by simplifying tax compliance and mak-
ing businesses more transparent.
2. The demonetization initiative aimed at reducing cash transactions and encouraging digital payments, which pushed several busi-
nesses to formalize their operations to access banking channels.
3. EPFO and E-SHRAM: According to the Labour Ministry’s data, more than 4 crores (40 million-plus) workers have registered at the
e-Shram portal.
4. The Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) incentivizes employers to create new jobs and integrate informal workers
into the formal workforce. Under the scheme, the Government of India pays the employer’s full contribution (12%) towards Employ-
ees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS) for three years for new employees through EPFO.
5. Aatmanirbhar Bharat Rozgar Yojana (ABRY): to incentivize employers for creation of new employment along with social security
benefits and restoration of loss of employment during COVID-19 pandemic.
6. Digital India Initiative: Focused on increasing digital literacy, expanding internet access, and encouraging the use of digital pay-
ments, which facilitates formalization in sectors like retail and services.
7. Jan Dhan Yojana: The Pradhan Mantri Jan Dhan Yojana (PMJDY) expanded access to banking services for the unbanked, bringing
more people into the formal financial system.
8. Ease of Doing Business Reforms: Reforms like simplifying business registration, online filing, and regulatory clearances aim to
encourage small businesses to formalize and reduce the burden of compliance.
9. Formal Credit Access through Mudra Yojana: The Mudra Yojana provides financial assistance to micro, small, and medium enter-
prises (MSMEs), incentivizing their transition from informal to formal operations.

31
Way forward
1. Universal Coverage: Leverage the eShram portal and collaborate with industry associations to gradually enrol all informal work-
force of over 400 million into social security schemes.
2. Simplifying Registration Processes: Simplifying registration processes for informal businesses can help integrate them and their
workers into the formal economy.
3. Indian Staffing Federation (ISF) has suggested to consider employment services as ‘merit services’, with lower GST slab tax
rates at 5% with ICT benefits instead of the current 18%
4. Implementation of Labour Codes: Swiftly implement the four consolidated labour codes (Wages, Industrial Relations, Social Secu-
rity, Occupational Safety) to address current challenges.
5. Needs-Based Support:
a. Tailored Schemes: Design social security programs specific to diverse worker groups like street vendors, agricultural
labourers, and construction workers.
6. Skill Development and Formalization:
a. Skill Upgradation: Equip informal workers with relevant skills to enhance employability and potentially transition them into
the formal sector.
b. Skilling for Employability: Link skilling initiatives directly to employment opportunities (Indian Staffing Federation (ISF)).
7. Grievance Redressal Mechanism: Grievances from informal workers should be heard and redressed periodically through an ac-
cessible and officially monitored mechanism.

32
Inclusive growth &
Issues Therein
Previous Year Questions (PYQs)
[UPSC Mains 2024] Examine the pattern and trend of public expenditure on social services in the post-reforms period in India. To what
extent this has been in consonance with achieving the objective of inclusive growth?

[UPSC Mains 2022] Is inclusive growth possible under market economy ? State the significance of financial inclusion in achieving eco-
nomic growth in India.

[UPSC Mains 2021] Investment in infrastructure is essential for a more rapid and inclusive economic growth. Discuss in the light of India’s
experience.

[UPSC Mains 2020] Explain intra-generational and inter-generational issues of equity from the perspective of inclusive growth and sus-
tainable development.

[UPSC Mains 2019] It is argued that the strategy of inclusive growth is intended to meet the objectives

of inclusiveness and sustainability together. Comment on this statement.

[UPSC Mains 2017] What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth process? Analyze and
suggest measures for inclusive growth.

[UPSC Mains 2016] Comment on the challenges for inclusive growth which include careless and useless

manpower in the Indian context. Suggest measures to be taken for facing these challenges.

[UPSC Mains 2016] Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing the unbanked to the institutional finance fold. Do
you agree with this for the financial inclusion of the poorer section of the Indian society? Give arguments to justify your opinion.

[UPSC Mains 2014] Capitalism has guided the world economy to unprecedented prosperity. However, it often encourages shortsighted-
ness and contributes to wide disparities between the rich and the poor. In this light, would it be correct to believe and adopt capitalism
driving inclusive growth in India? Discuss.

[UPSC Mains 2013] With a consideration towards the strategy of inclusive growth, the new Companies Bill, 2013 has indirectly made
CSR a mandatory obligation. Discuss the challenges expected in its implementation in right earnest. Also discuss other provisions in the
Bill and their implications.

33
Inclusive Growth

1. UNDP: Inclusive growth is “the process and the outcome where all groups of people have participated in the organization of growth
and have benefited equitably from it”.
2. World Bank: Inclusive growth refers to both the pace and growth pattern, which are interlinked and must be addressed together. It
emphasizes the inclusion of all sections of society in the process of economic development and sharing of its benefits.
3. OECD: Inclusive growth is economic growth distributed fairly across society and creates opportunities for all.

Theoretical perspective
Theory Description
Ronald Reagan popularized the concept through his economic policies, often referred to as “Reaganomics”
Economic benefits provided to the upper echelons of society will eventually “trickle down” to the lower levels.
Trickle-Down Assumes that fostering conditions favorable to the wealthy and businesses will stimulate economic growth, lead-
Theory ing to job creation and higher incomes for all.
Often fails to produce inclusive outcomes as the benefits remain concentrated among the wealthy, exacerbating
inequality.
Proponents: Arthur Cecil Pigou, John Hicks
Concerned with allocating resources to maximize social welfare, emphasizing both efficiency and equity in
Welfare
economic policies.
Economics
Advocates for policies ensuring equitable distribution of resources and opportunities.
Eg: progressive taxation, social safety nets, and public investment in health and education.
Emphasizes grassroots participation and local governance, advocating for decentralization and em-
Bottom-Up powerment of local communities.
Approach Based on the premise that local stakeholders are best positioned to identify and address their develop-
ment challenges.
Proponents: Hollis Chenery and Montek Ahluwalia
Focuses on ensuring that economic growth disproportionately benefits the poor.
Pro-Poor
Grounded in the belief that reducing poverty and inequality is essential for sustainable economic development.
Growth
Eg: microfinance, social protection programs, and investments in sectors employing many poor people, like
agriculture and small-scale enterprises.
Developed by economist Amartya Sen, it focuses on expanding individuals’ capabilities and opportunities
Capability to lead the lives they value.
Approach Policies aim to enhance education, health, and social inclusion, enabling individuals to contribute to and
benefit from economic growth.

34
India’s Achievements In Inclusive Growth
1. Poverty Reduction
a. 230 million people moved out of poverty between 2005-2023
(UNDP, 2023).
b. Multidimensional Poverty Index (MPI) shows a decline from
55% (2005) to 16.4% (2023), improving access to health, educa-
tion, and living standards.

2. Employment & MSME Growth

a. MUDRA Yojana (2015-Present): Provided ₹24.5 lakh crore
loans to 41 crore small businesses and entrepreneurs (Fi-
nance Ministry, 2023).
b. MSME sector contributes 30% to GDP and employs 110 mil-
lion people (Ministry of MSME, 2023).
3. Financial Inclusion & Digital Economy Expansion
a. PM Jan Dhan Yojana (2014-Present): Opened 500 million+
bank accounts, with ₹2 trillion in deposits (RBI, 2023).
b. UPI (Unified Payments Interface): Processed $1.75 trillion worth
of digital transactions in 2023, ensuring financial inclusion.

4. Agriculture & Rural Development

a. PM-KISAN (2019-Present): ₹2.8 lakh crore transferred directly
to 11 crore farmers.
b. MGNREGA (2005-Present): Generated 3.4 billion person-days
of employment in 2022-23, benefiting rural households.

5. Equality of Opportunity - by creating a level playing field where all

individuals have equal access to resources, markets, and opportunities.
Eg- the Rights of Persons with Disabilities (RPwD) Act, 2016

6. Healthcare Access & Social Security

a. Ayushman Bharat (2018-Present): Provided free healthcare to 23
crore people, covering 5 lakh hospitalizations daily (NHA, 2023).
b. National Nutrition Mission: Malnutrition among children under 5
reduced by 8% between 2016-2022 (NFHS-5 Report).

7. Education & Skill Development

a. Samagra Shiksha Abhiyan (SSA): School dropout rate reduced
from 17.8% (2000) to 3.8% (2023) (Education Ministry).
b. Skill India Mission (PMKVY, 2015-Present): Trained 13 million
youth in vocational and technical skills (NSDC, 2023).
8. Access to Essential Services - Eg: NRHM, SSA, and Swachh Bharat
Mission

35
9. Women Empowerment & Gender Inclusion
a. PM Ujjwala Yojana: Distributed 10 crore LPG connections, improving rural
women’s health and reducing indoor pollution.
b. Female Entrepreneurship: Women-led enterprises grew over 20% in last
decade, with ₹9.75 lakh crore loans under MUDRA (NITI Aayog, 2023).
10. Infrastructure Development & Rural Connectivity
a. PM Gram Sadak Yojana: 97% of villages are connected by all-weather
roads (Rural Ministry, 2023).
b. Electrification: 100% of villages were electrified (Saubhagya Yojana,
2023).

11. Environmental & Sustainable Growth Initiatives

a. Renewable energy capacity: India is 4th largest in solar & wind energy
globally, with 43% of power from non-fossil sources (MNRE, 2023).
b. Jal Jeevan Mission (2019-Present): 11.8 crore rural households now have
access to tap water (Jal Shakti Ministry, 2023).
12. Social Equity & Welfare Programs
a. Reservation policies expanded in education & employment for SCs, STs,
OBCs, and EWS.
b. Direct Benefit Transfers (DBT): ₹34 lakh crore transferred since 2014,
reducing corruption and leakages in welfare schemes.

Inclusive Growth Under Market Economy

A market economy is an economic system in which decisions regarding production, investment, and distribution are driven by supply
and demand with minimal government intervention. Prices of goods and services are determined by competition in free markets, and
private individuals or businesses own most of the resources.

Arguments in Favor:
1. Social
a. Education sector saw higher literacy, private participation, and digital expansion. Policies like RTE Act, NEP 2020, and Skill India
improved access, flexibility, and employability.
b. Health sector expanded with increased private investment, healthcare infrastructure, and pharmaceutical growth. Initiatives like
NRHM, Ayushman Bharat, and vaccine manufacturing improved access and affordability
c. Social Entrepreneurship & CSR: Eg- CSR spending in India (2023) of ₹26,000 crore (Ministry of Corporate Affairs) towards
rural development, health, and education.
d. Competition Enhances Accessibility: Market competition leads to lower prices, better quality products, and wider accessibility
of essential goods and services. Eg- Telecom reforms in India (1990s-2020s) led to a drastic fall in mobile data prices, from ₹269
per GB in 2014 to ₹6.98 per GB in 2022 (TRAI)

2. Economic
a. Growth Spillover Effects or trickle-down effect: Economic expansion leads to increased tax revenues, enabling governments to
invest in public goods like healthcare and education. Eg- India’s welfare programs (PMAY, PM-KISAN) supported by tax reve-
nues benefit over 110 million rural families (Finance Ministry, 2023)
b. Financial Inclusion: A well-regulated market economy promotes banking penetration, microfinance, and digital payments, helping
small businesses and rural populations. Eg- India’s Jan Dhan Yojana (2014-present) opened 51 crore+ bank accounts (as of
2023), increasing formal financial access.
c. Resilience to External Shock- India’s post-pandemic recovery has been driven by strong GDP growth (7.2% in FY23), robust
domestic demand, and government-led initiatives like Atmanirbhar Bharat and PLI schemes. Forex reserves in India stand at $630
billion ( Feb, 2024).
d. Foreign Investment & Technology Transfer: Open markets attract foreign investments, improving infrastructure, skills, and tech-
nology, benefiting marginalized sections. Eg- Vietnam attracted $27.72 billion in FDI in 2022 (UNCTAD), boosting manufacturing
and creating millions of jobs.

36
3. Political
a. Transparent and Efficient Governance- E-Governance platforms such as UMANG, GSTN, and DigiLocker have improved trans-
parency, efficiency, and citizen participation.
b. Efficient Resource Allocation: Market economies allocate resources based on demand and supply, leading to economic efficien-
cy and higher productivity, which can drive inclusive growth. Eg- South Korea (1960s-2020s) transformed from a poor agrarian
society to a high-income country, with per capita GDP rising from $158 in 1960 to over $34,000 in 2022 (World Bank).

4. Environmental
a. Sustainable Policies - India has made significant strides in sustainability, achieving 175 GW of renewable energy capacity,
launching the National Green Hydrogen Mission, and expanding EV adoption through FAME-II.
b. Protection of Flora and Fauna- According to the India State of Forest Report 2023, the country’s total forest and tree cover has
increased by 1,445.81 square kilometers since 2021, now encompassing 25.17% of India’s geographical area.

5. Stakeholders
a. Network Governance- India has made significant progress in network governance through initiatives like Digital India, Aad-
haar-based service delivery, and public-private partnerships.

Arguments Against:
1. Income & Wealth Inequality: Eg- India’s top 10% owns 77% of
national wealth (Oxfam Report, 2023), while the bottom 50%
own just 6%.
2. Market Failures: Essential services like healthcare, education,
and housing may remain unaffordable for marginalized popula-
tions due to profit motives. Eg- India’s private school tuition
costs rose by 150% from 2012-2022 (ASER Report), making
quality education unaffordable for the poor.
3. Increased Vulnerability of Indian Economy to Global shocks-
Eg- India’s GDP growth decelerated from 9.8% in 2007 to 3.9%
in 2008 due to impact of Global financial crisis.
4. Labor Exploitation: Unregulated markets can lead to exploitative
wages, poor working conditions, and lack of job security, wid-
ening disparities. Eg- Over 15 million gig workers lack social
security benefits in India (NITI Aayog, 2023)
5. Environmental Degradation: Profit-driven enterprises may pri-
oritize short-term gains over environmental sustainability. Eg-
Amazon deforestation (2022-23): 13,000 sq km lost due to
market-driven agribusiness expansion (WWF Report)
6. Monopoly & Oligopoly Issues: Large corporations can dominate
markets, restricting competition and reducing opportunities for
small businesses and startups. Eg- Tech giants like Google, Ap-
ple, Amazon control 92% of global digital advertising (Statista,
2023)
7. Financial Exclusion: Despite financial sector growth, credit and capital remain inaccessible to many small entrepreneurs and mar-
ginalized communities. Eg- India’s rural credit gap: 45% of small farmers lack formal credit access (NABARD, 2023).
8. Urban-Rural Divide: Market economies often prioritize urban development, leaving rural areas with limited infrastructure and
opportunities.
9. Short-Term Profit Orientation: Businesses often focus on immediate profitability rather than long-term investments in social wel-
fare and sustainability. Eg- India’s urban GDP per capita ($3,400) is 3x higher than rural GDP ($1,100) (NITI Aayog, 2023).
10. Jobless Growth Risk: Market economies may favor automation and capital-intensive industries, leading to limited employment
generation. Eg- India’s GDP grew at 6.7% (2023), but employment rate declined by 3% (CMIE Report, 2023)
11. Regulatory Challenges: Eg- Tax evasion by MNCs: Google, Amazon, and Facebook avoid $500 billion in global taxes annually
(Tax Justice Network, 2023).

Major challenges in achieving Inclusive Growth

1. Income & Wealth Inequality
A. The top 10% of Indians own 77% of national wealth while the bottom 50% hold only 6% (Oxfam, 2023).
B. Gini coefficient: India’s rising inequality (0.35 in 1990 to 0.47 in 2023) indicates widening economic disparity.
C. Growth vs. Development: The benefits of increased GDP often do not trickle down to the bottom of the pyramid. Eg: Economic
growth has been “anti-poor” in urban areas, with significant sections of the population remaining marginalized (IGIDRR)

37
2. Unemployment & Jobless Growth
A. Despite 6.7% GDP growth (2023, CMIE), the unem-
ployment rate remains high at 8.3%.
B. Employment Generation: Employment elasticity (per-
centage growth in employment for one percent growth in
GDP) has fallen from close to unity in the 70s to 0.4 in the 90s to less than 0.1. Hence, the phenomenon of India’s jobless growth.
C. The informal sector employs over 85% of the workforce, lacking job security and social benefits.

3. Agricultural Distress & Rural-Urban Divide

A. Farmers’ income remains low: The average monthly income of an agricultural household is ₹10,218 (NABARD, 2022).
B. Rural GDP per capita ($1,100) is 3x lower than urban GDP ($3,400) (NITI Aayog, 2023).

4. Financial Exclusion & Credit Gap

A. 45% of small farmers lack access to formal credit (NABARD, 2023), depending on high-interest informal loans.
B. MSMEs face a credit gap of ₹20-25 lakh crore (RBI Report, 2023), limiting their growth potential.

5. Poor Health & Education Outcomes

A. Healthcare spending is only 2.1% of GDP (Economic Survey, 2023), leading to 63 million Indians falling into poverty annually
due to medical expenses (Lancet, 2023).
B. Learning crisis: 60% of rural children in Class 5 cannot read a Class 2 textbook (ASER Report, 2023).

6. Gender & Social Disparities

A. India’s female labor force participation (LFPR) is only 24% (World Bank, 2023), among the lowest globally.
B. SC/ST households’ average income is 35% lower than upper-caste households (IHDS Survey, 2023).

7. Environmental Degradation & Climate Change Impact

A. Climate-induced disasters (heatwaves, floods, cyclones) caused $87 billion in losses in 2023 (World Bank), affecting mar-
ginalized communities the most.
B. Air pollution costs India 8.5% of GDP annually (World Bank, 2023).

8. Poverty & Multi-Dimensional Deprivation

A. India still has 230 million people in poverty (MPI Report, 2023), despite economic growth.
B. Regional disparity in poverty: Bihar (33%), Jharkhand (28%), and UP (25%) have the highest poverty rates, while Kerala, Tamil
Nadu, and Himachal Pradesh have single-digit poverty levels.

9. Informal Sector Dominance & Low Wages

A. Over 85% of India’s workforce is in the informal sector (PLFS, 2023), lacking health benefits, job security, and social protection.
B. Unorganized manufacturing, construction, and retail workers earn 35-40% lower wages than their formal sector counterparts.

10. Regional Disparities

A. Bihar, UP, MP, and Odisha have per capita incomes below ₹50,000, while Maharashtra, Karnataka, and Tamil Nadu exceed
₹2 lakh (NITI Aayog, 2023).
B. North-Eastern states lack infrastructure, leading to lower industrial and employment opportunities.

11. Corruption & Governance Issues

A. India ranks 85th in the Corruption Perceptions Index (Transparency International, 2023), affecting public service delivery.
B. Leakages in welfare schemes: 30-40% of subsidies don’t reach the intended beneficiaries (CAG Report, 2023).

12. Slow Infrastructure Development

A. Road & rail connectivity gaps in rural areas limit market access for small businesses and farmers.
B. Power shortages affect industries, with 20% of rural households still facing unreliable electricity (Power Ministry, 2023).

Structural Issues
* Infrastructure: Poor rural electrification, lack of cold storage facilities, and inadequate transportation infrastructure limit economic
opportunities for rural populations. 97% of India’s households have electricity - 95% rural and 99% urban (NFHS 5).

Institutional Issues
* Governance and Accountability: Corruption, bureaucratic inefficiencies, and lack of transparency hinder the effective implementation

38
 of policies aimed at inclusive growth
* Decentralization: The 73rd and 74th Constitutional Amendments aimed to empower local self-governing institutions. 17 of the 18
functions were devolved in 18 states, just 4 functions were effectively devolved with complete autonomy. (CAG Report)

Government Efforts To Achieve Inclusive Growth

A. Financial Inclusion
• Pradhan Mantri Jan Dhan Yojana (PMJDY) (2014): aims to provide universal access to banking facilities. 51.04 crore (PMJDY)
accounts have been opened with a deposit balance of Rs. 2,08,855 crore. (2023) (PIB).
• Micro Units Development and Refinance Agency (MUDRA) Bank provides loans to small and micro enterprises. Sanctioned
₹27 lakh crore to approximately 47 crore loan accounts, promoting entrepreneurship and employment (Ministry of Finance, 2023).
• Employment Generation: MGNREGA guarantees 100 days of wage employment to rural households. MGNREGA generated
289.24 crore person-days of employment(FY 2022-23) (PIB).
• Prime Minister’s Employment Generation Programme (PMEGP) aims to generate self-employment opportunities through mi-
cro-enterprises. Since 2014-15, the number of units set up under PMEGP has increased by 114%, employment creation by 131%,
and margin money distribution by 165% (2023)(PIB)

B. Skill Development
• Skill India Mission (2015): aims to train over 40 crore people in different skills by 2022. As of 2023, more than 1 crore people have
been trained under various skill development programs.
• Pradhan Mantri Kaushal Vikas Yojana (PMKVY) aims to provide industry-relevant skill training. Over 1.2 crore youth have been
trained under this scheme, enhancing their employability (PMKVY Dashboard).

C. Social Empowerment
• Sksham Anganwadi and Poshan Abhiyan 2.0: targets children, pregnant women, and lactating mothers. It aims to reduce malnu-
trition and improve health outcomes.
• Pradhan Mantri Awas Yojana (PMAY) aims to provide affordable housing to the urban poor. The States/UTs have sanctioned 2.85
crore houses to the beneficiaries, and 2.22 crore houses have already been completed( 2023)(PIB).

D. Agricultural Development
• Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) aims to improve farm productivity and ensure better utilization of water re-
sources. As of 2023, more than 125 lakh farmers have benefited from various PMKSY components (PIB)
• National Agriculture Market (e-NAM): It integrates wholesale markets across India to create a unified national market for agricul-
tural commoditieS.

E. Digital Inclusion
• BharatNet was implemented in a phased manner for all Gram Panchayats (approximately 2.5 lakh) in the country to provide
non-discriminatory access to broadband connectivity to all telecom service providers. 2.12 Lakh Gram Panchayats are connected,
and 6,86,963 Km of OFC has been laid.
• PM-WANI (Wi-Fi Access Network Interface): aims to provide public Wi-Fi access across India. 1.5 lakh public Wi-Fi hotspots have
been deployed by 190 PDO aggregators in rural and urban areas. Under the Bharat 6G vision document, India is targeting 50 million
public Wi-Fi hotspots by 2030.

F. Social Welfare
• Atal Pension Yojana (APY): provides a pension scheme for unorganized sector workers. Since its inception had 3.68 crore en-
rolments. Apart from enrolments, the male-to-female subscription ratio of 56:44 is improving, and assets under management are
around Rs. 20,000 crores (2023) (PIB).
• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) offers life insurance coverage. It has settled claims worth over INR 13,000
crore and benefited more than 660,000 people (2023) (BFSI).

Recommendations for Inclusive Growth in the 12th Five Year Plan

12th Five Year Plan (2012-2017): the last of India’s Five Year Plans, focused on achieving faster, sustainable, and more inclusive growth.

39
Key recommendations for inclusive growth:
A. Economic Growth
• Target GDP Growth: aim for an annual growth rate of 8% to ensure rapid economic expansion.
• Sectoral Growth: promote balanced growth across sectors, with specific targets for agriculture (4% growth) and manufacturing
(10% growth).

B. Poverty and Employment

• Poverty Reduction: Reduce the poverty rate by 10% through targeted poverty alleviation programs.
• Employment Generation: Create 50 million new work opportunities in the non-farm sector and enhance skill development initiatives.

C. Education and Skill Development

• Universal Access to Education: Ensure universal access to primary education and improve the quality of education at all levels.
• Higher Education: Increase enrollment in higher education and eliminate gender and social gaps in school enrollment.
• Skill Development: Enhance vocational training and skill development programs to improve employability.

D. Health and Nutrition

• Health Outcomes: Improve health outcomes by reducing the IMR to 25 per 1,000 live births and the MMR to 1 per 1,000 live births.
• Nutrition: Halve the levels of under-nutrition among children aged 0-3 years.

E. Infrastructure Development
• Rural Connectivity: Ensure all villages are connected with all-weather roads.
• Electricity and Water Supply: Provide electricity to all villages and ensure adequate drinking water supply to rural populations.

F. Social and Regional Equity

• Inclusive Policies: Implement policies that specifically address the needs of marginalized groups, including SCs, STs and OBCs,
minorities, women, and differently-abled individuals.
• Regional Balance: Promote regional development to reduce disparities between different regions of the country.

G. Governance and Institutional Reforms

• Good Governance: Strengthen governance structures to ensure transparency, accountability, and effective delivery of public services.
• Public-Private Partnerships (PPP): Encourage PPPs in infrastructure development to leverage private sector expertise and investment.

H. Environmental Sustainability
• Green Growth: Increase green cover by 1 million hectares annually and add 30,000 MW of renewable energy capacity during the
plan period.
• Climate Action: Implement the National Action Plan on Climate Change to promote sustainable development practices.

I. Empowerment and Participation

• Empowerment Programs: Focus on empowerment through education, skill development, and employment programs to ensure
broad-based economic opportunities.
• Participation: Encourage active participation of all sections of society in the growth process to ensure that the benefits of growth
are widely shared.

NITI Aayog’s Strategy for New India @75

A. Economic Growth
• Investment Rate: Increase the investment rate from 29% to 36% of GDP.
• Exports: Increase exports of goods and services from $478 billion to $800 billion by 2022-23.

B. Agriculture
• Agripreneurs: Promote the conversion of farmers to ‘agripreneurs’ through the expansion of e-National Agriculture Markets
(e-NAMs).
• Zero Budget Natural Farming (ZBNF): Promote ZBNF techniques to reduce costs, improve land quality, and increase farmers’
incomes.

C. Employment
• Labour Laws: Complete the codification of labor laws and upscale apprenticeships to ensure maximum employment creation.

D. Health
• Ayushman Bharat: Successfully implement the Ayushman Bharat program.
• Public Health: Create a focal point for public health at the central level with state counterparts and promote an integrative medicine
curriculum.

40
E. Education
• Quality Improvement: Upgrade the quality of the school education system and skills, establish at least 10,000 Atal Tinkering Labs
by 2020, and conceptualize an electronic national educational registry.

F. Housing
• Affordable Housing: Ensure affordable housing in urban areas to improve workers’ living conditions and create large multiplier
effects in the economy.

G. Governance
• Administrative Reforms: Implement the recommendations of the Second Administrative Reforms Commission.
• Arbitration Council of India: Set up an autonomous body to grade arbitral institutions and accredit arbitrators.
• Swachh Bharat Mission: Expand the scope to cover initiatives for landfills, plastic waste, and municipal waste.

Global Best Practices

1. Germany’s dual education system combines apprenticeships in companies with vocational education in schools.
2. Singapore’s SkillsFuture platform offers a comprehensive suite of programs to help individuals develop new skills
and advance their careers.
3. Brazil’s Bolsa Família program provides financial aid to low-income families, conditional on their children attending
school and getting vaccinated.
4. Rwanda has made significant strides in gender equality, with women holding over 60% of parliamentary seats.
5. Bangladesh’s Grameen Bank provides small loans to the impoverished without requiring collateral.

41
Government Budgeting
Previous Year Questions (PYQs)
[UPSC Mains 2024] Examine the pattern and trend of public expenditure on social services in the post reforms period in India. To what
extent this has been in consonance with achieving the objective of inclusive growth?

[UPSC Mains 2021] Distinguish between capital budget and revenue budget. explain the components of both these budgets

[UPSC Mains 2020] Explain the rationale behind the Goods and Services Tax (compensation to States) act of 2017. How has COVID-19
impacted the GST compensation fund and created new federal tensions?

[UPSC Mains 2019] Enumerate the indirect taxes which have been subsumed in the goods and services tax (GST) in India. Also, comment
on the revenue implications of the gst introduced in India since July 2017.

[UPSC Mains 2019] The public expenditure management is a challenge to the government of India in the context of budget making during
the post-liberalization period. clarify it.

[UPSC Mains 2018] Comment on the important changes introduced in respect of the long-term capital gains tax (lCGT) and dividend
distribution tax (DDT) in the union budget for 2018-2019

[UPSC Mains 2017] One of the intended objectives of Union Budget 2017-18 is to ‘transform, energize and clean India’. Analyze the mea-
sures proposed in the budget 2017-18 to achieve the objective.

[UPSC Mains 2016] Women empowerment in India needs gender budgeting. What are the requirements and status of gender budgeting in
the Indian context?

[UPSC Mains 2013] What were the reasons for the introduction of the Fiscal Responsibility and Budget Management (FRBM) Act, 2013?
discuss critically its salient features and their effectiveness.

[UPSC Mains 2013] What is the meaning of the term ‘tax expenditure’? Taking the housing sector as an example, discuss how it influenc-
es the budgetary policies of the government.

[UPSC Mains 2013] Discuss the rationale for introducing the Goods and Services tax (GST) in India. Bring out critically the reasons for the
delay in roll out for its regime.

42
Fiscal policy refers to government decisions on public expenditure, taxation, and public debt to regulate economic growth. It is
based on Keynesian economics, which suggests that governments can influence macroeconomic productivity by adjusting tax rates
and public spending to stabilize the economy.

Objectives :
1. Boost Growth: Encourage investment, consumption, and
economic activity through targeted spending. Eg- Make in
India initiative to boost manufacturing and attract FDI.
2. Public Debt Management: Eg- the FRBM Act sets targets
for reducing the fiscal deficit and public debt.
3. Efficient Resource Allocation by directing it towards areas
that have the highest social and economic returns. Eg. GATI
SHAKTI Master Plan for infrastructure.
4. Generate Employment: Foster economic growth to create
jobs and reduce unemployment. Eg- MGNREGA
5. Reduce Inequality: Promote fairer distribution of resources
through progressive taxes and social programs. E.g.- Pradhan
Mantri Jan Dhan Yojana (PMJDY).
6. Ensure External Stability: Balance external trade and
payments for a sustainable economy. Eg- Export Promotion
Capital Goods (EPCG) scheme,
7. Promote Social Welfare: Uplift marginalized communities
through targeted spending on education, healthcare, and
social security. Eg. MGNREGA.
8. Achieve Environmental Sustainability: Align economic
growth with ecological well-being. Eg. Green Budgeting- Na-
tional Hydrogen Mission

Theories
1. Keynesian Theory: suggests that active government intervention is necessary to manage economic fluctuations. Eg- a stimulus
package worth ₹1.86 lakh crore during the global financial crisis of 2008-09 to boost demand.
2. Supply-Side Economics: This theory argues that lower taxes and deregulation will lead to increased production, job creation,
and economic growth.Eg- reduction of corporate tax rate to encourage investment.
3. Public Choice Theory explains how politicians implement populist schemes, like farm loan waivers, to gain voter support, especial-
ly before elections.
4. Ricardian Equivalence: suggests that when a government increases debt to fund spending, people anticipate higher future taxes
to repay the debt, leading them to save rather than spend, thereby neutralizing the fiscal stimulus.

Tools of Fiscal Policy

1. Taxation: Funds in the form of direct and indirect taxes help the government function + Taxes affect the consumer’s income and
changes in consumption lead to changes in real gross domestic product (GDP).
2. Government spending: It includes welfare programs, government salaries, subsidies, etc.; it can raise or lower the real GDP +
Budget is the most important instrument embodying expenditure policy of the government.
3. Investment and Disinvestment Policy: Optimum levels of domestic and foreign investment are needed to maintain the economic
growth.
4. Debt / Surplus Management: To fund the deficit, the government borrows from domestic or foreign sources. It can also print money
for deficit financing.

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Procyclical vs Countercyclical Fiscal Policy

Fiscal Policy and Taxation for Budget 2025-26

1. Composition of Tax Revenue Direct Tax -7.1% of GDP
Indirect Tax: 4.9% OF GDP
2. Tax to GDP Ratio 12% of GDP
3. Capital Expenditure 3.1% of GDP
4. Fiscal Deficit 4.4 % of GDP
5. Revenue Deficit 1.5% of GDP
6. Primary deficit 0.8% of GDP

Recent Data
Tax Buoyancy (2023-24) 2.12
Total ITR filed for AY 2024-25 7.28 cr
Government debt to GDP Ratio (2023) 81.59%

44
Document containing government receipt and expenditure for a given financial year.
1. It is a main tool used by government to implement its fiscal policy
2. It shows information regarding: a) Budget Estimates (BE) for upcoming year; b) Budget Estimate (BE) and Revised Estimate (RE) for
current year; c) Actuals for the previous year.

Funds related to Budget

1. Consolidated fund of India: Constitutional Fund + Article 266 + Contains incoming tax revenue, raised loans and recovered
loans. Withdrawal from it needs parliament permission.
2. Public Account of India: Constitutional Fund + Article 266, Contains Incoming provident fund, small savings, postal deposit etc.
Government acts as Banker. No need for parliament permission.
3. Contingency Fund of India: Statutory Fund (Art. confers power on the Parliament to set up funds through law) + Article 267, For
unforeseen events upto Rs. 500 crores by Finance secretary on behalf of President. Need subsequent Parliament approval.

Budgeting process in India

The budget process in India comprises four distinct phases:
1. Budget Formulation: Preparation of estimates of expenditure and receipts for the ensuing financial year.
a. Responsibility lies with the Department of Economic Affairs under the Ministry of Finance.
b. The ministries are required to provide three different kinds of figures relating to their expenditures and receipts during this process
of budget preparation. These are: Budget Estimates, Revised Estimates and Actual Estimates.
c. At the end of this process, the finance minister takes the permission of the President of India for presenting the Union
budget to Parliament.
2. Budget Enactment: Approval of the proposed Budget by the legislature through the enactment of Finance Bill and Appropriation Bill.
a. As per Rule 204(1) of the Rules of Procedure and Conduct of Business in the Lok Sabha, the Budget is presented to the Parliament
on such date as fixed by the President.
b. Detailed discussion in the Polity static notes.
3. Budget Execution: Enforcement of the provisions in the Finance Act and Appropriation Act by the government-collection of receipts
and making disbursements for various services as approved by the Legislature; and
4. Legislative review of budget implementation: Audits of government’s financial operations on behalf of the Legislature

Budgetary Process in India

Components:
There are three components of the Budget in India:
1. Government Receipts
2. Government Expenditure
3. Public Debt

Receipts Classification :
Category Sub-Category Examples
Revenue Receipts Tax Revenue Income Tax, GST, Customs Duty
Non-Tax Revenue Interest Receipts, Dividends, Fees
Capital Receipts Debt Receipts Internal Borrowings, External Loans
Non-Debt Receipts Disinvestment, Recovery of Loans

45
Government Expenditure
Revenue Expenditure (Regular Expenses) Capital Expenditure (One-time Expenses)
It refers to the expenses incurred by the government for its It refers to the expenses incurred by the government on the acquisition
day-to-day functioning and for maintaining its operations. of assets, infrastructure development, and investments in projects that
generate economic benefits over the long term.
Interest Payments Repayment of Loans
Major Subsidies including welfare Schemes Extension of Fresh Loans to the States by the Central Govt.
Grants by Centre to States Loans to Public Enterprises
Salaries and Pensions to Central Government employees Expense on Irrigation Projects, etc.
Revenue Expenditure of UTs without legislature

Reasons for high revenue expenditure :

1. Subsidies: food, fertilizer, and fuel subsidies comprised a substantial share (around 1.19% of GDP) in the Union Budget 2025-26.
2. Interest Payments: In Union Budget 2025-26, interest payments were projected to be around ₹12.76 lakh crores, reflecting the
high cost of servicing public debt.
3. Defence Expenditure: In FY 2025-26, the budget for defense services (excluding capital outlay) was around ₹3.11 lakh crores.
4. High Administrative Costs: India spends approximately 9-10% of its GDP on government administration.
5. Large Public Sector: India has a sizable public sector with salary and pension obligations for a vast workforce. While crucial for
social welfare, managing these costs effectively is essential.
6. Social Welfare Schemes: Eg- the allocation for MGNREGA in FY 2025-26 was ₹86,000 crores.
7. Limited Revenue Generation: Due to high tax expenditure, low tax base and tax evasion. Eg- Agriculture is outside the Tax Regime.

Steps Taken by Government to Limit Revenue Deficit

1. Introduction of the Goods and Services Tax (GST): GST collection has shown consistent growth, with an average monthly revenue
of ₹1.68 lakh crores in FY 2023-24.
2. Direct Benefit Transfer (DBT): DBT has saved the government approximately ₹1.75 lakh crores since its inception, improving
subsidy targeting and efficiency .
3. Disinvestment and Strategic Sale: Disinvestment proceeds for FY 2022-23 were targeted at ₹1.75 lakh crores, with significant
contributions from sales of stakes in companies like BPCL and Air India . (Separte disinvestment target has been discontinued from
RE stage of FY 2023-24)
4. Rationalization of Subsidies: have led to savings of around ₹50,000 crores annually .
5. Enhanced Tax Compliance and Administration : Initiatives like the Income Tax Department’s e-filing and faceless assessment.
6. Public Financial Management System (PFMS): to monitor and manage the flow of funds in government schemes more effectively.
7. Austerity Measures in FY 2022-23 helped save around ₹15,000 crores by curtailing travel, conferences, and other discretionary
expenses .

46
Benefits of Capital Expenditure Over Revenue Expenditure
1. Asset Creation and Long-Term Value: which generate future
income and reduce dependency on borrowing. Gross fixed capital
formation (GFCF) is expected to grow at 7.6% in 2023-24 (Economic
Survey of India 2023).
2. Capacity Expansion and Enhanced Productivity: by creation of
long-term assets such as schools, hospitals, and industries,
which stimulate economic growth and development.
3. Fiscal Multiplier Effect: The World Bank highlights that a 1%
increase in infrastructure investment can raise GDP by 0.4% in
developing countries.
4. Technological Upgradation and Investor Confidence: Increased
CapEx in the manufacturing sector enhances product quality and
global competitiveness. Eg: The “Digital India” initiative promotes
CapEx in digital infrastructure.
5. Infrastructure Development, Job Creation, and Increased Proper-
ty Values: CapEx in infrastructure development can create millions
of jobs and boost consumer spending (Economic Survey 2023).
6. Research and Development: Eg: Increased CapEx in agricultural research can develop pest-resistant crop varieties.

Way Forward toLimitRevenue ExpenditureandIncreaseCapitalExpenditure

1. Effective Fiscal Planning: The Arjun Sengupta Committee Report (2009) recommended a medium-term fiscal framework to
prioritize capital expenditure.
2. Scrutiny of Populist Policies and Outcome-Oriented Budgeting:
The NITI Aayog (2018) advocated shifting away from populist schemes with limited long-term benefits. Outcome-oriented
budgeting ensures revenue expenditure delivers measurable results, reducing unnecessary spending.
3. Leveraging Public-Private Partnerships (PPPs):The Economic Survey of India 2023 highlights PPPs’ role in mobilizing private
sector investment for infrastructure projects. Eg: The Delhi Metro Rail project
4. Efficient Revenue Collection and Long-Term Policy Stability: India’s tax-to-GDP ratio remains below the OECD average. The
Tax Administration Reforms Commission Report (2009) emphasized institutional capacity building and improving tax compliance.
5. Reforming Social Welfare Programs: The Shanta Kumar Committee on restructuring the Food Corporation of India (FCI) estimat-
ed that reforms in the Public Distribution System (PDS) could save ₹10,000 crores.
6. Administrative Reforms: The Administrative Reforms Commission recommended measures such as e-governance and better
financial management to cut down administrative costs by 10-15%.
7. Public Sector Optimization: The NITI Aayog suggested that strategic disinvestment could yield ₹1.75 lakh crores in FY 2023-
24, helping reduce the revenue deficit .

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Public debt, often referred to as government debt, is a financial obligation incurred by a government when it borrows funds to finance
its expenditures or investments. It represents the accumulated amount of money owed by a government to various creditors, including
individuals, institutions, and other governments.

Factors Contributing to Increased Public Debt in India

1. Fiscal Deficits for FY 2025-26 was projected at 4.4% of
GDP, significantly higher than the 3% target set by FRBM Act .
2. Subsidies and Social Welfare Programs: The subsidy bill for
FY 2025-26 was estimated at ₹4.26 lakh crores.
3. Interest Payments: The budgetary estimate for 2025-26
shows the Centre will have to spend Rs 12.76 lakh crore on
interest payments forming 23.8 percent of the government’s
total expenditure.
4. Economic Slowdown reduces tax revenues while increasing
the need for government thus increasing public debt. India’s
GDP growth rate contracted by 7.3% in FY 2020-21 due to
the COVID-19 pandemic.
5. Financing Infrastructure needs: The National Infrastruc-
ture Pipeline (NIP) envisages an investment of ₹111 lakh
crores by 2025.
6. Inefficiencies in Tax Collection: The tax-to-GDP ratio in India
is around 10-12%, lower than many other emerging economies.
7. Inefficient Use of Public Funds: Significant amounts of public
funds are expended inefficiently in government departments,
often marred by corruption, bribery, and bureaucratic red tape.
8. Bank Recapitalization Efforts: The infusion of capital into
state-owned banks via recapitalization bonds in 2017-18 sig-
nificantly raised the central government’s debt both in absolute
terms and as a percentage of GDP.
9. Issuance of UDAY Bonds: State liabilities escalated in 2015-16
and 2016-17 due to the issuance of Ujwal Discom Assurance
Yojna (UDAY) bonds.

Public Debt Management in India

1. As per Reserve Bank of India Act of 1934, the Reserve Bank is
both the banker and public debt manager for the Union government.
2. The RBI handles all the money, remittances, foreign exchange
and banking transactions on behalf of the Government. The
Union government also deposits its cash balance with the RBI.
3. Public Debt Management Cell is an interim arrangement before setting up an independent and statutory debt management agency,
namely the Public Debt Management Agency (PDMA).PDMC has the following advisory functions to the Government.”
• Plan borrowings of the Government, including market borrowings, other domestic borrowings, SGBs
• Manage Central Government’s liabilities including NSSF, contingent liabilities.
• Monitor cash balances of the Government, improve cash forecasting and promote efficient cash management practices.

Suggested Measvures to Make Public Debt Sustainable in India

1. Privatization of Loss-Making PSUs can reduce the financial burden on the government and improve public debt sustainability.
2. Expenditure Rationalization: Shift from universal subsidies to targeted subsidies using mechanisms like Direct Benefit Transfer (DBT).
3. Prudential Stance as per the FRBM Act 2003: ensures fiscal discipline by setting targets for fiscal deficit, revenue deficit, and
public debt.
4. Leveraging the Public Financial Management System (PFMS) enhances transparency and efficiency in public financial management
5. PPP Model in Social sectors like healthcare and education can leverage private sector efficiency and investment.
6. Harmonization of Tax Regime can improve compliance, broaden the tax base, and increase revenue collection. Eg: The implementation
of the Goods and Services Tax (GST).

48
Fiscal consolidation involves reducing the budget deficit and public debt through higher revenues (taxes, better collection) and
lower public spending (cuts, efficiency improvements) to ensure economic stability.

Benefits of Fiscal Consolidation:

1. Macroeconomic stability: by reducing budget deficits and limiting the accumulation of public debt leading to Inflation control and
High growth rates Eg: 1990s fiscal consolidation reduced subsidies, controlling high inflation rates.
2. Enhanced investor confidence: fiscal consolidation measures signals a commitment to fiscal responsibility. This can enhance
investor confidence in the government’s financial management, leading to increased foreign and domestic investments.
3. Debt sustainability: avoiding potential balance of payments crises. Eg: Late 1990s reforms helped avoid balance of payments
crises and ensured sustainable debt levels.
4. Flexibility in monetary policy: with lower fiscal deficits, central banks have more room to maneuver interest rates to achieve mone-
tary policy objectives.
5. Increased fiscal space: having room for countercyclical fiscal policies can help stabilize the economy during challenging times.
6. Improvement in credit ratings: make it easier for governments to borrow at favorable terms in financial markets. Eg: Fiscal disci-
pline led Moody’s to upgrade India’s credit rating in 2017.
7. Reduced vulnerability to external shocks: Eg : increased capital expenditure, Atmanirbhar packages helped India’s faster recovery
after COVID-19.
8. Improved intergenerational equity: it ensures that current generations do not burden future generations with high levels of debt and
interest payments.
9. Positive signal to financial markets: this can lead to lower borrowing costs and increased access to capital markets.

Fiscal Consolidation Measures

1997 2003 2008-09 2012 2016-17 2020
• Monetized Deficit • FRBM enacted to • Global Depression • FRBM 2.0 • FRBM review Com- • Corona Pandemic
Stopped lower Fiscal Deficit • Higher Government • Sets the targets of mittee: • High Government
• Fiscal Deficit • Centre’s and expenditure for in- Fiscal deficits and • NK Singh Commit- Expenditure
increased beyond States Fical deficit creasing Economic other deficits tee
limit because of starts to decline Growth • Introdued ERD
Subsidies • FRBM Targets • Centre’s FD de-
missed clines

Recent data on fiscal deficit

1. Centre’s outstanding liabilities in 2025-26 are estimated to be 56.1% of GDP.
2. Internal debt constitutes more than 94% of the overall public debt.
3. The NK Singh Committee on FRBM had envisaged a debt-to-GDP ratio of 40 per cent for the central government and 20 per
cent for states aiming for a total of 60 per cent general government debt-to-GDP.

Issues with a Large Fiscal Deficit

1. Increased Government Debt: High government debt can affect
India’s credit rating and increase borrowing costs, making it
more expensive for the government to finance its deficit.
2. Higher Interest Payments and sustainability concerns:
Unsustainable fiscal policies can lead to a debt trap, where
servicing the debt becomes increasingly challenging.
3. Crowding Out Private Investment: High government borrowing
increases demand for funds, raising interest rates and reducing
access to credit for private businesses.
4. Inflationary Pressures: Borrowing from the central bank to finance
deficits can increase the money supply, leading to inflation.
5. Vulnerability to External Shocks due to Limited Fiscal Space: High deficits reduce the government’s ability to implement coun-
tercyclical measures during economic downturns.
6. Exchange Rate Instability: Large deficits can lead to currency depreciation, affecting trade balances and contributing to inflation.
Eg: significant depreciation of the Rupee in 2013.
7. Erosion of Fiscal Discipline: Persistent large deficits can lead to higher interest rates, reduced foreign investment, and increased
reluctance to lend to the government.
8. High deficits can delay necessary structural reforms as governments prioritize short-term fiscal measures over long-term sustainability.
9. Social Implications: Large deficits may lead to cuts in social spending, impacting public services, education, healthcare, and wel-
fare programs.

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Government steps for fiscal consolidation
1. The Fiscal Responsibility and Budget Management (FRBM) Act was implemented to ensure responsible fiscal management in
India.The escape clause under the act should be used judiciously and exceptionally.
2. Goods and Services Tax (GST) streamlined indirect taxes, increased transparency, and boosted revenue collection.
3. Rationalization of Central Sector Schemes: the number of centrally sponsored schemes was reduced from 66 to 28.
4. Tax Reforms:
a. Corporate Tax Reduction:In 2019, the corporate tax rate was reduced from 30% to 22% for existing companies and 15% for
new manufacturing companies.
b. Tax-to-GDP ratio improved from around 9.9% in 2014-15 to 11.2% in 2019-20, contributing to fiscal consolidation.
5. Technology: Direct Benefit Transfer (DBT): As of 2021-22, over Rs 3 trillion has been transferred through DBT. Eg:The PAHAL
scheme for LPG subsidies and the PM-KISAN scheme for farmers.

FISCAL COUNCIL
A Fiscal Council is an independent public institution aimed at promoting sustainable public finances. It provides non-partisan scrutiny of
fiscal policy and performance, ensuring transparency and accountability in the management of public funds.

Challenges in Fiscal Management

1. Poor Budgetary Forecasting: Budgets often overstate revenue projections (15 out of 20 years since fiscal 1998) and understate
expenditures (12 out of 20 years since fiscal 1998).
2. Creative Accounting: Understating Fiscal deficit (For example – use of ‘creative accounting’ such as ‘rolling over’ a part of the overall
subsidy bill & dues to the states to the next financial year.)
3. Increasing use of Extra Budgetary Resources
4. Non – adherence to FRBM Act: FRBM act is not followed in letter and spirit, its targets continuously changed and diluted very much
from its initial targets.
5. Fiscal Populism – eg loan waivers to farmers

Advantage of Independent Fiscal Management Council

1. As per IMF and OECD, independent fiscal institutions bring transparency in fiscal policy, complement fiscal rules and contribute to
improved fiscal performance.
2. The Fiscal Council can address shortcomings in the current FRBM process, such as failure to meet fiscal targets, lack of budget credibility etc.
3. It can enhance cooperation between Finance Commission and GST council
4. International Experience: Thirty developed and emerging market economies (Eg- Congressional Budget Office in the US, the Office
of Budget Responsibility in the UK) have established such institutions.
5. The 15th Finance Commission has advocated for the establishment of a Fiscal Council as a vital component of modern fiscal
architecture for enhancing the capacity to monitor compliance.
6. Promote good accounting practices because of full disclosure.
7. discipline lawmakers through ‘comply or explain’ obligations

Way Forward for Effective Fiscal Policy in India

1. Strengthening Fiscal Discipline
a. Establish an independent fiscal council to provide unbiased analysis of fiscal policy and enhance transparency and accountabili-
ty. (15th Finance Commission Report)
b. Adherence to FRBM Targets to ensure fiscal discipline and credibility. (NITI Aayog)
2. Enhancing Cooperative Federalism
a. Revisit Borrowing Constraints: Reconsider borrowing constraints on states to enable them to undertake necessary invest-
ments for growth and development.
b. Streamline Transfers: Minimize discretionary transfers and establish clear, non-discriminatory methods for fund allocation to
states.
3. Improving Public Expenditure Management
a. Outcome-Based Budgeting: Implement outcome-based budgeting to ensure efficient allocation and utilization of resources.
b. Enhanced Monitoring and Evaluation: Strengthen monitoring and evaluation mechanisms to track the effectiveness of govern-
ment programs and schemes.
4. Broadening the Tax Base
a. Reduce Informal Economy: Formalize the informal sector to widen the tax base and improve tax compliance.
b. Rationalize Tax Exemptions: Streamline and rationalize tax exemptions and incentives to minimize revenue forgone. (Economic
Survey 2023)
5. Promoting Inclusive Growth
a. Gender Budgeting: Enhance gender budgeting to ensure that fiscal policies address gender disparities and promote women’s
economic empowerment.
b. Green Budgeting: Integrate environmental considerations into fiscal policy to promote sustainable development.

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A direct tax is imposed directly upon the taxpayer and is paid by individuals who are subject to it by the government. Levying and col-
lecting direct taxes as well as developing other direct tax regulations fall within the purview of the Central Board of Direct Taxes.

Types :
1. Income Tax: Levied on income of individuals, Hindu undivided families, unregistered firms, and others. Rates are progressive, meaning
higher income attracts a higher tax percentage.
2. Corporate Tax: Paid by businesses and corporations on their profits. Normal Tax Rates:
a. Companies with turnover up to ₹400 crore: 25%
b. Companies with turnover exceeding ₹400 crore: 30%
3. Minimum Alternate Tax (MAT): Introduced to ensure companies with high profits pay a minimum amount of tax, regardless of ex-
emptions or incentives claimed. The MAT rate is 15%.
4. Capital Gains Tax: Applies to profits earned from selling capital assets like land, buildings, or stocks.

Benefits of Direct Taxes over Indirect Taxes

1. Progressivity: In India, income tax slabs range from 0% for income up to
₹5 lakhs to 30% for income exceeding ₹15 lakhs.
2. Wealth Redistribution: Revenue from progressive income taxes funds
various social programs Eg: PM Jan Arogya Yojana.
3. Equity Based on Ability to Pay: Direct taxes are more equitable as they
are based on the taxpayer’s ability to pay.
4. Lower Inflationary Impact: Direct taxes typically do not contribute to
inflation, unlike indirect taxes which are included in the price of goods
and services, leading to higher prices.
5. Stable Revenue Collection: Fixed tax slabs based on income provide
stable and predictable revenue for the government
6. Educative Effect: Filing tax returns raises awareness about government
spending and the use of tax revenues, enhancing civic participation and
accountability as citizens understand how their taxes are utilized for public
benefit.
7. Targeted Policy Tools: The government offers tax deductions for contri-
butions to retirement savings accounts and specific long-term investment
schemes Eg. Equity Linked Savings Schemes (ELSS).
8. Transparency and Understanding: Direct taxes are more transparent,
allowing taxpayers to see exactly how much they are paying and for what
purpose.
9. Reduced Burden on Low-Income Groups: Direct taxes do not apply to
lower-income groups, ensuring they are not financially burdened.

Major Issues with Direct Taxes in India

1. Structural Issues:
a. Narrow Tax Base: In 2020-21, only 6.8 crore individuals (4.8% of the
total population) filed income tax returns..
b. Largely Informal Economy: A significant portion of the economy remains outside the formal tax net.
2. Institutional Issues:
a. Harassment of Taxpayers: The aggressive pursuit of revenue targets often leads to taxpayer harassment, referred to as “tax
terrorism.”
b. Pendency of Tax Arrears: the number of appeals pending with the Commissioner of Income Tax (Appeals) exceeding 5
lakh, and 53,000 appeals pending in 63 tribunal benches across India.
3. Legal Issues: Multiple tax brackets, exemptions, and deductions complicate the tax system.
4. Technological Issues: Despite advancements, challenges remain in system integration, data security, and the usability of online
platforms. Eg- the new income tax portal introduced in 2021 faced significant glitches.
5. Lack of Financial Literacy: Many taxpayers lack the financial literacy necessary to navigate the complex tax system.

51
Government Steps Regarding Direct Taxes
1. Rate Rationalization:The government has simplified the tax
structure and reduced corporate tax rates.
a. In the Union Budget 2025-26, the Indian government
has raised the personal income tax exemption limit
to ₹12 lakh, aiming to boost middle-class spending and
economic growth. Additionally, the standard deduction
has been increased to ₹75,000.
b. Corporate Tax Reduction: Lowered from 30% to 22% for
domestic companies (with conditions) to boost invest-
ment and competitiveness.
c. ‘Vivad se Vishwas’ Scheme (2020): Encourages the set-
tlement of pending tax disputes to improve tax collection
efficiency.
2. Simplification of Tax Forms and Processes: New ITR Forms
and Promotion of E-filing and Online Payments.
3. Faceless Assessment to eliminate direct interaction between
taxpayers and officers, reducing delays and potential corrup-
tion.
4. Reduction in Compliance Burden by increasing Audit
Threshold and Faster Tax Refund Processing.
5. Dispute Resolution Mechanisms includes Taxpayers’ Charter’ (2020) and National Faceless Assessment Centre.
6. Promoting Digital Transactions:Tax Benefits for Digital Payments: Offers tax deductions and benefits for using digital payment
methods like BHIM and RuPay cards, encouraging a cashless economy.

DIRECT TAX CODE

Through the Direct Taxes Code (DTC), the government aims to simplify the structure of direct tax laws in India into a single legislation.
The DTC replaced the Income-tax Act, of 1961, and other direct tax legislation like the Wealth Tax Act, of 1957. Akhilesh Ranjan’s
committee of 2017 submitted a report on the Direct Tax Code, but the report is yet to become public.
The Direct Taxes Code Bill, 2010
1. The Bill replaces the Income TaxAct, 1961 and the Wealth Tax Act, 1957.
2. The Bill widens income tax slabs for individuals. Income between Rs 2 lakh to Rs 5 lakh will be taxed at 10%, between
Rs 5 lakh and Rs 10 lakh at 20%, and that over Rs 10 lakh at 30%.
3. Companies will be taxed at 30% of business income. Foreign companies shall pay an additional branch profits tax of
15%. Non profit organizations are taxed at 15%.

Benefits
1. Simplification and Clarity: Easier compliance for taxpayers and reduced disputes with tax authorities (supported by Kelkar Task
Force Report, 2002).
2. Increased Efficiency and Reduced Costs: Consolidating various direct tax laws can lower administrative burden for both taxpayers
and the government (supported by Direct Tax Code Committee Report, 2009).
3. Broader Tax Base and Increased Revenue:
4. Horizontal Equity and Fairer System: Reducing the multiplicity of exemptions and deductions can promote a fairer tax structure.
5. Enhanced Transparency and Predictability- A clear and stable tax code can improve transparency for businesses and investors
and encourages investment.
6. Reduced Litigation: A simpler tax code could lead to fewer tax disputes and lower litigation costs.
7. Improved Taxpayer Morale: Easier compliance could lead to a more positive attitude towards paying taxes.

52
Challenges and Issues:
1. Implementation Challenges:Ensuring a smooth transition from the existing system can be complex.
2. Revenue Loss Concerns:Phasing out exemptions might lead to initial revenue loss, requiring careful planning and adjustments.
3. Balancing Simplicity and Comprehensiveness:Striking a balance between a user-friendly code and capturing necessary complexities is
crucial.
4. Lobbying and Special Interests: Powerful groups may resist losing tax benefits, requiring strong political will for effective implementation.

Way Forward for Improving Direct Tax System in India

1. Widening the Tax Base:Taxing large agribusinesses and high-income farmers can increase revenues without burdening small-scale
farmers, who form the majority.
2. Comprehensive Review of Exemptions and Incentives: Simplifying and rationalizing tax exemptions can make the tax structure
more transparent and equitable.Eg: Streamlining Section 80C deductions can reduce complexity, improve compliance, and ensure
effective targeting of incentives.
3. Minimisation of Tax Avoidance/Evasion: Stricter measures and better coordination between departments can curb tax avoidance
and evasion. Eg: Using Direct Tax Task Assessment (DTAA) agreements
4. Formalization of the Economy: Incentivising businesses to operate formally can expand the tax base and improve revenue collec-
tion.Eg: Schemes like GST have helped formulate many businesses, increasing the tax net and compliance rates.
5. Legal Reforms: Direct Tax Code: Introducing a new Direct Tax Code can simplify and modernize tax laws.
6. Institutional Reforms: A customer-centric approach in tax administration can improve voluntary compliance and taxpayer satisfac-
tion. Eg: The Faceless Assessment Scheme reduces harassment.
7. Use of Technology: Leveraging technology to automate tax processes can reduce compliance costs and burdens for taxpayers. Eg:
The new e-filing portal and pre-filled tax returns simplify filing processes, reducing errors and improving compliance.
8. Curbing Parallel Economy and Black Money: Initiatives like demonetisation and the Benami Transactions (Prohibition) Amend-
ment Act, 2016, target black money, promoting transparency and accountability.

Committees
1. Tax Reforms Committee (TRC), 1991: Raja J. Chelliah: broaden the tax base by minimizing exemptions and concessions, drastical-
ly simplifying laws and procedures building a proper information system.
2. Tax Administrative Reform Committee 2014 chaired by Parthasarathi Shome: Emphasized that the goal of tax administration is
not to maximize revenue but to maximize voluntary compliance and minimize compliance gaps.
3. Justice R.V. Easwar: Simplify the Income Tax Act.
4. Akhilesh Ranjan committee: Capacity building of local bodies and reforming property tax.
5. Global Best Practices
a. OECD countries: around 66% of revenue is from direct taxes.
b. The United States: Internal Revenue Service has a whistle-blower office.

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Indirect taxes are levied on the consumption or sale of goods and services. Unlike direct taxes, which are paid directly by individuals
or companies based on their income, the burden of indirect taxes falls on the end consumer who pays a higher price that includes the
embedded tax. The government collects these taxes from businesses registered under the tax regime.

Types of Indirect Taxes in India:

1. Goods and Services Tax (GST): It subsumed various central and state-level indirect taxes, simplifying the tax structure.
2. Customs Duty: Levied on imports and exports of goods.
3. Central Excise Duty (CED): Though largely subsumed under GST, CED might still apply to specific goods like petroleum products
and alcoholic beverages not covered under GST.
4. Union Excise Duty (UED): Similar to CED, UED applies to manufactured goods at the factory level but is now mostly replaced by GST.
5. Additional Duties of Excise (CVD): An additional levy on certain excisable goods under GST.
6. Special Additional Duty (SAD): Imposed on specific goods in addition to GST.

GOODS AND SERVICES TAX (GST) IN INDIA

Goods and Services Tax (GST) is a single, comprehensive indirect tax applied to the supply of goods and services, covering the entire
supply chain from the manufacturer or service provider to the consumer. It is a multi-stage destination-based tax that is levied on every
value addition.

Authorities and their Mandate:

1. GST Council: A constitutional body chaired by the Union Finance Minister and comprising representatives from all states and union
territories. It is responsible for:
a. Recommending tax rates, exemptions, and other key decisions related to GST.
b. Ensuring uniformity in GST implementation across the country.
2. Central Board of Indirect Taxes and Customs (CBIC): Under the Department of Revenue, Ministry of Finance, CBIC is responsible for:
a. Administering CGST and IGST.
b. Formulating policy guidelines for GST implementation.
3. State GST Departments: Each state has its own GST department responsible for:
a. Administering SGST.
b. Facilitating registration, return filing, and grievance redressal for taxpayers within their state.
4. National Authority for Advance Rulings (NAAR): Provides rulings on advance tax disputes arising under GST.

Benefits of GST:
1. For Government:
a. Simplified Tax Administration: Fewer indirect taxes to manage.
b. Improved Compliance: The input Tax Credit mechanism discourages tax evasion.

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2. For Businesses: Budget 2024-25, 94% industry leaders view transition to GST as largely positive
a. Reduced Compliance Burden: Single indirect tax compared to multiple pre-GST taxes.
b. Seamless Credit Flow: The ITC mechanism avoids blockage of working capital.
3. For Consumers:
a. Uniform Pricing: Reduced cascading effect of taxes leads to potentially lower prices.
b. Wider Choice: Easier movement of goods across states due to simplified tax regime.

Achievements of GST
1. Increased tax base and revenue collection: average monthly
revenue of ₹1.68 lakh crores in FY 2023-24.
2. Improved logistics and supply chain efficiency: Abolition
of state-level taxes and check posts reduced transit time and
logistics costs. According to a study by Crisil, logistics costs
dropped by 20% post-GST.
3. Facilitated seamless movement of goods across states: GST
eliminated the need for multiple permits and taxes, allowing
smoother inter-state trade. The average travel time for trucks
was reduced by about 20%, as per a World Bank report.
4. Improvement in State’s revenue: The resource growth for
states averaged 14.8% per annum over the last five years, com-
pared to an annual average growth rate of 9% between 2012
and 2015.
5. Avoiding Cascading of Taxes: With regular adjustments of items
in various tax rate brackets, the effective GST rate decreased to
around 11% in 2012 from 14.4% at its inception.
6. Simplified tax compliance through a single tax system: GST brought uniformity with a single registration, return filing, and tax
payment process.

Issues and Challenges of GST in India

1. Inflation concerns: annualized real GST growth in the last four years (2019-2023) is 8.4%as against 14% nominal growth.
2. Exemptions and Rate Rationalisation: Continuous discussions on streamlining exemptions and revising tax rates add to the com-
plexity.
3. Multiple Tax Slabs: The complexity of managing different tax rates (0%, 5%, 12%, 18%, and 28%) for various goods and services can
be challenging.
4. Compensation issue: The compensation cess was levied on luxury and sin goods to create a compensation fund. However, delays
and shortfalls in disbursing these funds have led to financial strain on states.
5. Compliance Challenges: Small and medium businesses often face difficulties in adapting to new GST procedures. Eg- SMEs strug-
gled with the introduction of e-invoicing.
6. Evasion and fraud: Despite measures to curb tax evasion, fraudulent activities like fake invoices persist. In 2023, the government
detected significant tax evasion amounting to ₹49,623 crore.
7. New Cesses Introduced: While GST eliminated multiple taxes and cesses, it introduced a compensation cess on luxury and sin
goods. This levy was later expanded to include automobiles.
8. Nearly half of the economy remains outside the GST framework. Eg- petroleum products, real estate, and electricity duties are
excluded from GST.
9. Integration with International Trade: Efforts to streamline GST procedures for imports and exports are ongoing. Exporters have
faced delays in GST refunds, impacting their working capital.

Way forward
1. The government can consider including petroleum and electricity under the GST framework to prevent cascading and ensure
greater uniformity.
2. Emerging technologies have introduced new asset classes like virtual digital assets (VDA) or cryptocurrencies. Clarity is needed
on whether these should be classified as the supply of ‘goods’ or ‘services’ and the applicable tax rate.
3. Implementing checks on system-generated GST notices can help prevent unnecessary harassment of taxpayers.
4. The government can consider establishing a central authority to resolve conflicting AAR judgments across states. The Chief
Economic Advisor has suggested setting up a complaint-redressal mechanism, such as a GST Tribunal.
5. Expand the Tax Base: Include goods like electricity, alcohol, petroleum products, and real estate under GST to ensure seamless input
tax credit flow.
6. Enhance Tax Predictability: Adjust GST rates only once a year and avoid introducing new Cess. Rationalize the existing Cess sys-
tem to a minimum, ensuring predictability for states and improving the ease of doing business.
7. Adopt a More Accommodative Approach: The Centre should be more responsive to states’ needs by allocating states’ shares
properly.

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Sources of Non-Tax Revenue for Governments
1. Fees and Charges: This includes fees for government services like passport issuance, driving licenses, court services, and adminis-
trative services. In FY 2022-23, fees collected for services like passport issuance, driving licenses, and court services amount-
ed to approximately ₹12,000 crores.
2. Fines and Penalties: Include traffic fines, environmental violation penalties, and other legal penalties.
3. Profits from Public Enterprises: Union Budget 2025 targets Rs 55,000 crore in PSU dividends for FY25, rising to Rs 69,000 crore
in FY26
4. Interest and Dividends: Income generated from investments held by the government, such as interest from bank deposits or divi-
dends from shares in companies. Interest receipts in BE of Budget 2025-26 amounts to Rs 47000 crore.
5. Royalties and Licenses: Payments received for the use of government resources or property. This often includes royalties from natu-
ral resource extraction (like oil, gas, and minerals) and fees for broadcasting and telecommunication licenses.
6. Grants and Donations: Funds received from other governments, international organizations, or private entities, as well as donations
from individuals and organizations.
7. Sales of Goods and Services: Income from the sale of various goods and services by government agencies.
8. Property Income: Revenue from the rent, lease, or sale of government-owned property and assets.

Global Cooperation Measures for Tax Erosion

1. Base Erosion and Profit Shifting (BEPS) Project:
a. Developed by the OECD and G20 to address profit-shifting strategies used by multinational enterprises. It creates a frame-
work for international cooperation and establishes common standards to prevent tax avoidance.
b. India has implemented the General Anti-Avoidance Rule (GAAR) to combat profit shifting by multinational enterprises.
2. Common Reporting Standard (CRS):
a. An OECD-developed standard for the automatic exchange of financial account information between tax authorities. India
adopted the CRS in 2015.
3. Multilateral Convention to Implement Tax Treaty-Related Measures (MLI):
a. India signed the MLI in 2017, modifying existing bilateral tax treaties to prevent treaty abuse and enhance the efficiency of tax
treaty provisions against profit shifting.
4. Country-by-Country Reporting (CBCR): Under the Finance Act 2016, India mandated CBCR for multinational enterprises head-
quartered in India.
5. Automatic Exchange of Information (AEOI): Involves the automatic sharing of financial account information between countries
to combat tax evasion. Eg- CRS and FATCA
6. Global Forum on Transparency and Exchange of Information for Tax Purposes: A joint OECD and Council of Europe initiative
focusing on implementing international standards for transparency and information exchange.
7. Tax Inspectors Without Borders (TIWB): A joint OECD and UNDP initiative providing expert assistance to developing countries.
8. Exchange of Tax Rulings: Encourages the sharing of tax rulings and advance pricing agreements between tax authorities
9. United Nations Model Double Taxation Convention:Offers an alternative model for bilateral tax treaties, reflecting broader country
perspectives, particularly those of developing nations, to prevent double taxation and tax avoidance.

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Fiscal Overview of STATE GOVERNMENT FINANCES

Budgetary Source of State Government

Revenue Sources
1. State Govt Own Revenues (tax and non-tax)
2. Transfers from Union Govt (as shares of taxes and grants)
3. Market Borrowings
Status of state finances
1. Performance of State finances: As per RBI Report “State Finances
: A study of Budgets” In 2023-24, States contained their gross fiscal
deficit (GFD) at 2.91 per cent of gross domestic product (GDP), within
the Fiscal Responsibility Legislation (FRL) limit of 3 per cent.
2. The Centre mandated the net borrowing ceilings (NBC) for States
3.5 percent of GSDP in FY23.
3. In the last decade (FY16 to FY25), 23-30% of the total revenue of
States was collected from the Centre as transfers. However, in the
2000s and the first half of 2010, the share was 20-24%.
4. Close to 65-70% of the non-tax revenue of States was collected
from the Centre as grants in the last decade compared to the 2000s
and the first half of the 2010s when the share was lower at 55-65%.

Issues with Financial Transfers to States Chart I.37: Greater reliance on share
1. Reduced Financial Transfers: Finance Commission recommended states in central taxes
receive 42% and 41% of net tax revenue. States received a smaller share
40 38.1
of gross tax revenue: 35% in 2015-16 and 30% in 2023-24.
2. Decrease in Grants-in-Aid: Grants-in-aid to states declined from ₹1.95
lakh crore in 2015-16 to ₹1.65 lakh crore in 2023-24. 30
3. Increase in Cess and Surcharge: Collection from cess and surcharge
rose from 11.3% of the gross tax revenue in 2009-10 to 16.3% in 2022-23.
Per cent

It is not shared with states. 20

4. Centralization of Expenditure: The union government’s spending on its
schemes increased from ₹2.04 lakh crore to ₹5.41 lakh crore (CSS) in
10
BE 2025-26 and from ₹5.21 lakh crore to ₹16.21 lakh crore (CSec) in
BE 2025-26, reducing states’ financial autonomy.
5. Variation in Returns to States: There is a significant disparity in the 0
returns states receive for every rupee contributed. Eg. Industrially devel- Tax Revenue Own Tax State’s Share
oped states receive less than a rupee for each rupee they contribute, Revenue of Union
unlike states such as Uttar Pradesh and Bihar. Taxes
6. Decreasing Share for Southern States: Over the last six Finance Growth in April to November FY25 over
Commissions, the share of the divisible pool for southern states has been April to November FY24 (per cent)
decreasing. This reduction is due to criteria that emphasize equity and Source: CAG monthly provisional accounts26
needs over efficiency.

Other issues with state finances

1. State Debt to GDP Ratio: The overall debt of the States declined from 31.8 percent of GDP atend-March 2004 to 28.5 percent of
GDP at end-March 2024; however, it remains well above the level of 20 per cent recommended by the FRBM Review Committee
(2017).
2. Technical Inefficiency in Tax Collection: Issues include high stamp duty rates (5-8% vs. international average <5%) leading to high
transaction costs, tax evasion, and urban land market destabilization.
3. Resorting to Non-Tax Revenue Measures: Measures include e-auction of mining leases, royalty revisions, and increased penalties
for secret mining etc.
4. Freebie Culture: Political parties are outdoing each other promising free electricity and water, laptops, cycles etc.
5. Risks to State Government Finances Highlighted by RBI:
a. Off-budget borrowings increased to about 4.5% of GDP.
b. End of GST compensation regime weakening fiscal positions.

57
Impact on State Finances

1. Strain on State Budgets: Reduced transfers and grants challenge states in financing programs and delivering public services effec-
tively.
2. Impact on Less Wealthy States: Poorer states face more significant challenges, exacerbating financial resource inequality and
development disparities.
3. Limited Fiscal Autonomy: Increased central control over financial resources limits states’ spending flexibility, affecting their ability to
address local needs.
4. Impact on Fiscal Federalism: Centralized financial control contradicts the principles of cooperative federalism.
5. Potential Bias in Resource Allocation: Union government might favor certain states or regions through Central Sector Schemes,
raising concerns about unequal treatment. Eg. opposition ruled states like Kerala, tamil nadu accusing central government of not
releasing the funds they are entitled to.

Way Forward:
1. Increase Statutory Transfers:Enhance states’ financial autonomy by increasing statutory transfers and ensuring equitable fund
allocation.
2. The Union government should reconsider the borrowing limitations imposed on state investment funds, as advocated by Kerala.
3. Enhanced State Participation in Finance Commission: Similar to the GST Council, states could have a more formal role in both
forming and working with the Finance Commission.
4. Prioritizing Inflows of Private Investments to Less Developed States: Eg- The Andhra Pradesh Industrial Infrastructure Corpora-
tion (APIIC) has been proactive in attracting private investments to less developed regions within the state.
5. States also need to undertake large-scale reforms in the power distribution sector to reduce losses and make them financially
sustainable and operationally efficient.
6. Triple E framework” proposed by RBI
a. Expenditure adequacy is in terms of focusing on the government’s primary role;
b. Effectiveness is about assessing performance;
c. Efficiency involves an assessment of the output-input ratio.

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The government has been presenting a Statement on tax expenditure in the parliament since the 2006-2007 union budget. This state-
ment outlines the estimated revenue foregone due to tax incentives and exemptions.
In the Union Budget for 2025-26, the Indian government has implemented significant tax relief measures, particularly benefiting the
middle class. These measures are projected to result in a revenue loss of approximately ₹1 lakh crore in direct taxes.

Justifications for Tax Exemptions:

1. Economic Growth and Development: Eg- incentives for the renewable energy sector aim to promote sustainable development
and reduce dependence on fossil fuels
2. Encouraging Investments: Eg- Special Economic Zones (SEZs) in India benefit from such tax concessions to boost export-oriented
manufacturing and service activities
3. Promoting Research and Development (R&D): This is particularly relevant in high-tech industries like pharmaceuticals and infor-
mation technology, where continuous innovation is crucial for global competitiveness .
4. Supporting Small and Medium Enterprises (SMEs): Tax exemptions and concessions help SMEs by reducing their tax burden,
allowing them to reinvest profits into their businesses.
5. Social Welfare Objectives, such as promoting education, healthcare, and housing. Eg- tax deductions for investments in educa-
tional savings plans or health insurance premiums aim to enhance social welfare and public health.
6. Regional Development: By offering tax holidays or reduced tax rates, governments aim to attract businesses to these areas,
thereby creating jobs and fostering economic development.
7. Environmental Protection by promoting environmentally friendly practices, such as investments in renewable energy projects or
energy-efficient technologies
8. Revenue Generation through Compliance: Tax incentives can reduce the incidence of tax evasion by making the tax system more
attractive and manageable for taxpayers
9. Neutralization of Location Disadvantages: Offsetting disadvantages due to location.
10. Priority Sectors: Providing incentives to priority sectors, including infrastructure.

Challenges and Distortions:

1. Revenue Loss: Eg- extensive corporate tax exemptions reduce the revenue base, forcing the government to look for other sources of
funding or increasing public debt
2. Resource Allocation Distortions: Excessive tax exemptions can distort resource allocation and hinder productivity.
3. Administrative and Legal Complexities: Multiple rates, legal complexities, classification disputes, and litigation can arise from a
plethora of tax incentives.
4. Inequity: Tax exemptions and concessions often benefit larger corporations more than small businesses or individuals. For example,
SEZs and large corporations with substantial resources can exploit these benefits more effectively, leading to an uneven playing field
and exacerbating income inequality

Way Forward
1. Rationalizing Tax Exemptions & Deductions – Reduce unnecessary exemptions, especially in corporate taxes, to widen the tax
base and improve revenue collection.
2. Periodic Review of Tax Incentives – Conduct regular cost-benefit analyses of tax exemptions and subsidies to ensure they achieve
their intended policy objectives.
3. Phasing Out Non-Targeted Concessions – Gradually eliminate broad-based exemptions and replace them with direct benefit trans-
fers (DBTs) to avoid revenue leakage.
4. Enhancing Compliance & Digital Monitoring – Strengthen GST and income tax compliance using AI-driven analytics, e-invoicing,
and real-time transaction tracking.
5. Minimizing Sector-Specific Preferences – Avoid excessive sectoral tax breaks and maintain a uniform tax structure to promote
neutrality in the economy.

59
Outcome Budgeting is a financial management and planning approach where the allocation of resources is directly linked to the
achievement of specific, measurable outcomes.

Outcome budgeting was first introduced in India during the financial year 2005-06. It has been integrated with other financial
management reforms such as the Performance Monitoring and Evaluation System (PMES) and the Results Framework Document
(RFD) to create a comprehensive framework for measuring and reporting the performance of government programs.

Annual Outcome Budgets are published by ministries detailing the objectives, financial outlays, and physical and financial performance
targets.

Significance of Outcome Budgeting

1. Enhanced Accountability: Ensures that government spending is directly tied to tangible results, increasing accountability.
2. Improved Efficiency: Helps in identifying and discontinuing ineffective programs, thereby optimizing resource use.
3. Transparency: Provides a clear link between taxpayer funds and the outcomes achieved, enhancing transparency.
4. Better Service Delivery:Outcome budgeting ensures that funds are allocated based on the expected results, leading to improved
service delivery.
5. Effective Decision-Making:By focusing on measurable outcomes, policymakers can make informed decisions about resource alloca-
tion.
6. Evaluation of Program Performance and Results:Outcome budgeting facilitates regular monitoring and evaluation of programs.
7. Communicating Program Goals:Outcome budgeting clearly outlines program goals and the expected outcomes, making it easier to
communicate objectives to stakeholders.

Challenges
1. Data Quality: Requires reliable and comprehensive data to set accurate performance indicators and evaluate outcomes.
2. Capacity Building: Needs skilled personnel and robust systems for effective implementation and monitoring.
3. Lack of Political Ownership: Political leaders often prioritize short-term gains and populist measures over long-term planning and
accountability.
4. Identifying Outcomes: Defining and measuring outcomes is complex and problematic. Long-term outcomes are influenced by multi-
ple factors, making it difficult to attribute results directly to specific programs.

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According to World Bank, Gender budgeting ensures fair resource distribution by analyzing the differential impacts of policies on men
and women, promoting inclusion and equality.

Current Status of Gender Budgeting in India

1. The Union Government has set up Gender Budgeting Cells in
56 Departments to coordinate gender budgeting initiatives.
2. Many State Governments like Rajasthan, Gujarat and Madhya
Pradesh have adopted Gender Budgeting.
3. The Ministry of Women and Child Development (MWCD) in
collaboration with UN Women, has developed a Manual and
Handbook for Gender Budget Cells in Central Ministries and
Departments.

The Framework adopted for gender analysis of expenditures

is often broken down in three categories:

1. Gender-specific allocations are allocations specifically targeting

women and girls or men and boys. Eg- school nurseries for girls or
domestic violence counseling for men.
2. Mainstream allocations need to be examined for their gendered impacts.
3. Equal opportunity employment allocations are allocations intended to promote gender equality in the public service. Eg- day-care
facilities for employees’ children or paid parental leave.

Advantages:
1. Political
a. Promotes Gender Equality in Policies by promoting inclusiveness and equality in political representation and decision-making pro-
cesses.
b. Enhances Accountability: It holds governments accountable for their commitments to gender equality.
2. Economic
a. Boosts Economic Growth: Empowered women participate more actively in the economy, increasing productivity and income levels.
b. Reduces Poverty: Targeted financial support for women can reduce poverty levels.
3. Social
a. Improves Social Outcomes: Gender budgeting leads to better health, education, and welfare outcomes for women and girls.
b. Enhances Social Inclusion: It fosters a more inclusive society by addressing social norms and barriers that prevent women from fully
participating in social and economic life.
4. Promotes Gender-Inclusive Technology Development: Gender budgeting can encourage investment in technologies that specifi-
cally address women’s needs, such as healthcare innovations, educational tools, and safety applications
5. Supports Legal Frameworks: Gender budgeting reinforces the implementation of gender equality laws and policies, ensuring that
legal frameworks are supported by adequate financial resources.

Challenges:
1. Limited Increase in Share: Despite the increase in absolute terms, the share of the Gender Budget in the overall Union Budget has
consistently remained below 6%. The highest allocation recorded was 5.8% in 2011-12.
2. The lack of gender-disaggregated data hinders the ability to effectively measure the impact of gender budgeting policies and initia-
tives.
3. Poor implementation- The NITI Aayog’s paper on Gender Mainstreaming (June 2022) noted that only 62 out of 119 centrally-spon-
sored schemes are practicing gender budgeting.
4. Concentration in Specific Ministries: Focus remains on ministries like Women & Child Development, neglecting crucial sectors like
infrastructure and sanitation.

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Way Forward:
1. NITI Aayog has recommended the introduction of a Gender Budgeting Act to mainstream gender-based budgeting across all Minis-
tries and States/UTs.
2. Targeting Schemes to identify programs with high gender impact for increased allocation.
3. Performance Monitoring to track the effectiveness of gender-targeted programs.
4. Capacity Building to train government officials on gender budgeting principles.
5. Create a ranking for state level gender budgeting to incentivise the states in taking further steps to improve the efficacy of these
measures.
6. Gender audits of centrally sponsored schemes and flagship programs should be undertaken to measure impacts.
7. Deviation between budgetary allocation and actual spending needs to be addressed through proper monitoring of outcome.

Green budgeting is a budgetary tool that integrates environmental considerations into the traditional budgeting process.

It aims to achieve sustainable development by:

1. Allocating funds: Earmarking resources for environmental initiatives
like clean energy, pollution control, and resource conservation.
2. Shifting subsidies: Redirecting subsidies away from environmentally
damaging activities and towards sustainable alternatives.
3. Promoting efficiency: Encouraging government departments to re-
duce their environmental footprint through practices like energy-saving
measures.

Advantages of Green Budgeting:

1. Combating climate change: Reduces greenhouse gas emissions
and promotes adaptation strategies.
2. Conservation of resources: Protects natural resources like water,
forests, and biodiversity.
3. Sustainable growth: Supports economic development that considers
environmental well-being.
4. Nudge people to go green: Tax incentives on environmental friendly
initiatives and fines, more taxes on more carbon emitting entities.
5. Accountability: Monitoring the environmental impact of budget
allocations. Eg. green taxation, old vehicle scrappage policy
6. Encourages Environmental Innovations- This can lead to the
development of new green industries and job creation in sectors like
renewable energy and sustainable agriculture.

Government Steps:
1. The 2023-24 Budget focuses on inclusive development and green
growth, aligning with LiFE and Panchamrit strategies.
2. Punjab: Introduced “Green Budget Statements” to identify envi-
ronmentally sustainable components within existing schemes.
3. Budgetary allocation to the Mininstry of New and Renewable Ener-
gy has increased from 1535 cr in 2015 to 32626 cr in 2025.
4. A National Hydrogen Mission was launched with an initial budget
of $36 million to produce green hydrogen and replace fossil fuels.
5. Electric vehicle subsidies nearly doubled to over $600 million, and import duties were removed for equipment to manufacture EV batteries.
6. A $1 billion outlay is proposed to electrify the Indian Railways, which aims for net-zero carbon emissions by 2030.

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Best Practices:
1. France pioneered green budgeting by introducing the “Green Budget” in its 2021 budget.
2. The UK uses a “Green Book” methodology, which provides guidance on how to appraise policies, programs, and projects to achieve
better environmental outcomes.
3. Tag It Green: The EU’s green budgeting uses tagging to clearly show which expenditures benefit the environment.

Issues and Challenges:

1. Lack of Institutional Capacity: Implementing green budgeting requires robust institutional frameworks and technical expertise,
which is lacking in many government departments.
2. Effective green budgeting requires coordination between central and state governments. Discrepancies in priorities, capacities,
and resource allocation can create implementation challenges.
3. Limited awareness: Lack of understanding of green budgeting principles among policymakers.
4. Data scarcity: Difficulty in quantifying the environmental impact of budget allocations.
5. Competing priorities: Balancing environmental goals with immediate economic needs.

Way Forward:
1. Capacity building: Training government officials on green budgeting practices.
2. Standardization: Developing a national framework for green budgeting.
3. Public awareness: Raising public awareness about the importance of green budgeting.

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Banking Sector in India

1. First Generation Banking (Pre-1947): During the Swadeshi Movement (1905-1911), many small, local banks were established.
Most of these banks failed due to internal fraud, interconnected lending, and the blending of trading with banking activities.
2. Second Generation Banking (1947-1967): After Independence, banks consolidated resources from retail deposits, primarily
funding a few business families. This period saw neglect in agricultural credit, with only about 2% of total bank credit going to
agriculture by the 1950s.
3. Third Generation Banking (1967-1991): The government nationalized 14 major private banks in 1969 and 6 more in 1980.
Priority Sector Lending (PSL) was introduced in 1972. This transformed banking from ‘class banking’ to ‘mass banking,’ with rural
branches increasing from 8,262 in 1969 to over 30,000 by 1991, and agricultural credit rising to over 15% of total bank credit.
4. Fourth Generation Banking (1991-2014): Economic liberalization led to new licenses for private and foreign banks such as ICICI
and HDFC. The sector adopted technology (ATMs, internet banking), prudential norms (NPA recognition), operational flexibility,
and corporate governance practices. The capital base was strengthened in line with Basel norms.
5. Current Model (From 2014 onwards): The adoption of the JAM (Jan-Dhan, Aadhaar, Mobile) trinity, licenses for Payments Banks
(e.g., Airtel Payments Bank) and Small Finance Banks (SFBs) were granted to improve last-mile connectivity and financial inclu-
sion.

Functions of Banks in India

1. Primary Functions
a. Accepting Deposits
i. Savings Deposits: Allow individuals to save money with interest.
ii. Fixed Deposits: Offer higher interest rates for a fixed period.
iii. Current Account Deposits: Mainly for business purposes, these accounts provide liquidity and allow for numerous trans-
actions without limitations.
b. Lending Loans and Advances: By providing loans and advances, banks create credit which increases the money supply in the economy.
2. Secondary Functions
a. Agency Functions
i. Payment and Collection of Cheques: Banks act as agents for their customers, handling the collection and payment of cheques.
ii. Remittance of Funds: Facilitate the transfer of funds through demand drafts, mail transfers, and electronic transfers.
b. Investment of Funds
i. Government Securities: Banks invest in government securities to maintain statutory liquidity requirements.
ii. Corporate Bonds and Shares: Banks invest in corporate bonds and shares to earn a return on idle funds.
c. Providing Specialized Services
i. Foreign Exchange Services: Facilitate foreign trade by providing foreign exchange and handling currency conversion.
ii. Advisory Services: Offer financial advice to individuals and businesses regarding investments, taxation, and wealth management.
3. Modern Functions
a. Promoting Financial Inclusion: Small Finance Banks, Payment Banks, Regional Rural Banks promote banking services in under-
served sections of society.
b. Regulatory Functions
i. Compliance with RBI Regulations: Banks must adhere to CRR, SLR, and priority sector lending.
ii. Risk Management: Implement measures to manage and mitigate financial risks including credit risk, market risk, and operational risk.
c. Innovative Services
i. Digital Banking: Adoption of internet banking, mobile banking, and digital wallets for accessible banking services.
ii. Green Banking: Initiatives focused on promoting environmental sustainability by reducing carbon footprints and supporting
green projects.

64
Scheduled and Non-Scheduled Banks
Aspect Scheduled Banks Non-Scheduled Banks

Definition Included in the Second Schedule of the RBI Act, 1934. Not included in the Second Schedule of the RBI
Act, 1934.
Criteria for Inclusion Must have paid-up capital and reserves of at least ₹5 Do not meet the minimum paid-up capital and
lakhs. reserve requirements.

Borrowing and Loans Eligible for loans from the RBI at bank rate Cannot borrow from the RBI.

Statutory Re- Must maintain a percentage of total demand and time Maintain cash reserves with themselves or other
quirements liabilities as CRR with the RBI. scheduled banks.

Subject to higher regulatory compliance and periodic Subject to less stringent regulatory oversight.
inspections by the RBI.

Banking Operations Enjoy higher confidence among depositors due to RBI Generally smaller with a limited branch network,
supervision. primarily catering to local customers.
Usually larger in size with extensive branch networks.

Examples Public Sector Banks (e.g., SBI, PNB), Private Sector Local area banks and some cooperative banks that
Banks (e.g., HDFC, ICICI), Foreign Banks, Regional Rural do not meet the criteria for scheduled banks.
Banks, and some Cooperative Banks.

Participation in Allowed to participate in the call money market, and Limited or no access to the call money market and
Financial Mar- obtain membership of clearing houses. clearinghouse facilities.
ket Operations

Banking Reforms
1. Narasimham-I Committee (1991): Formed to enhance the efficiency and productivity of the financial system, recommending com-
prehensive reforms like SLR should be brought down to 25%, establishing Asset Reconstruction Company (ARC).
2. Narasimham-II Committee (1998): Tasked with reviewing the progress of banking reforms since 1992, focused on issues like the
size of banks and Capital Adequacy Ratio (CAR).
3. SARFAESI Act (2002): allows banks to seize securities without court intervention for secured loans. The 2016 amendment empow-
ered District Magistrates to secure creditors’ interests within 30 days and mandated the registration and regulation of securitization
and reconstruction companies by the RBI.
4. Bimal Jalan Committee/New Bank Licenses (2014):
• It granted in-principle approval for banking licenses to Bandhan Microfinance and IDFC.
• The committee set conditions for the entities to obtain a banking license, requiring them to achieve a net worth of 1000 crore or
more within 18 months and open at least 25% of branches in unbanked rural areas.
5. Nachiket Mor Committee (2014):
• It recommended that every Indian resident, above the age of 18 years, would have an individual, full service, safe and secure bank
account.
• Aadhaar should drive rapid expansion in the number of bank accounts.
• Every resident in India should be within a fifteen- minute walking distance of a payment access point.
6. Urjit Patel Committee (2014): Key recommendations included adopting the Consumer Price Index (CPI) as the nominal anchor for
inflation, setting an inflation target of 4% with a +/-2% band, and establishing a Monetary Policy Committee (MPC).
7. Bimal Jalan Committee (2019): This committee was constituted to review the Economic Capital Framework (ECF) for the RBI.
• It recommended that the Contingency Risk Buffer(CRB) should be maintained between 5.5% to 6.6% of the RBI’s balance sheet.
• This buffer acts as a safeguard for economic stability, ensuring that the RBI can function effectively as the Lender of Last Re-
sort(LoLR) during financial crises.
8. Upendra Kumar Singh Committee (2019): Major recommendations are
• Shift to the Consumer Price Index(CPI) as the nominal anchor for inflation, setting an inflation target of 4% with a band of + or -2%,
establishing a Monetary Policy Committee (MPC).
• suggested the re-examination of subvention on interest rates for lending to certain sectors, and a flexible setting of monetary
policy in the short run due to volatility in capital inflows and outflows.
9. Financial Services Institutions Bureau (FSIB) (2022): Replacing the Bank Board’s Bureau (BBB), FSIB identifies manpower capa-
bilities and makes recommendations for senior positions in government-owned financial institutions, ensuring proper training and
development programs.

65
Central Bank: RBI
The Reserve Bank of India (RBI) was established through the Reserve Bank of India Act of 1934, based on the recommendations of the
Hilton Young Commission. Initially privately owned, the RBI was nationalized in 1949 and is now entirely owned by the Government of
India.

Roles and Functions

1. Monetary Authority:
a. Regulate Money Supply: The RBI is responsible for controlling, issuing, and maintaining the supply of the Indian rupee.
b. Public Debt Management: The RBI is mandated with the management of public debt of India.
c. Monetary Policy: the RBI is also mandated with the responsibility of maintaining and stabilizing the monetary policy in India. It
does so through the Monetary Policy Committee.
d. Quantitative and qualitative tools of monetary policy like open market operations, CRR, and SLR are decided by RBI.
e. Issuer of Currency: The RBI is responsible for issuing and controlling the supply of currency in the country, ensuring adequate
circulation of the Indian rupee.
2. Regulator and Supervisor of the Financial System:
a. Regulation and Supervision of the Banking Sector: The RBI formulates and implements policies to regulate and supervise
banks and financial institutions.
b. Bankers’ Bank: The RBI provides banking services to other banks and financial institutions, maintains accounts for scheduled
banks, and acts as a lender of last resort, offering funds to financial institutions in times of liquidity crises.
c. The Government’s Banker: The RBI acts as the banker and financial advisor to both central and state governments.
3. Manager of Foreign Exchange: The RBI manages India’s foreign exchange reserves and gold reserves, ensuring stability in interna-
tional transactions.
4. Developmental role: Performs a wide range of promotional functions to support national objectives. Eg- Priority Sector Lending (PSL)
norms
5. Regulator and Supervisor of Payment and Settlement Systems: Introduces and upgrades safe and efficient modes of payment
systems in the country to meet the requirements of the public at large. Eg- RTGS and NEFT Enhancements, Digital Rupee (CBDC)

Issues Faced by RBI

1. Inflation Control vs. Growth: RBI must balance inflation targeting (via monetary policy) while ensuring economic growth,
which often creates policy dilemmas. (eg- Raising interest rates to curb inflation may slow down growth)
2. Balancing Autonomy vs. Government Pressure: RBI often faces political pressure on monetary policy, banking regula-
tions, and economic decisions. (eg- Government’s demand for excess RBI reserves in 2018 leading to tensions with RBI
leadership)
3. Currency Depreciation & Forex Management: Managing the rupee’s stability against foreign currencies, especially
during global economic shocks, is a major challenge. (eg- Rupee depreciation due to rising crude oil prices or US Fed rate
hikes)
4. Slow Global economy: global economic headwinds, including political conflicts, high interest rates in advanced economies, and
economic slowdown in key markets like the USA and China, have the potential to impact India’s financial system.
5. Banking Sector NPAs: High Non-Performing Assets (NPAs) in banks, especially public sector banks, strain the financial
system and require RBI’s intervention.
6. Regulation of Digital & Crypto Assets: The rise of cryptocurrencies, fintech, and digital lending poses regulatory chal-
lenges due to lack of legal frameworks and risks of financial fraud. (eg- RBI’s stance on banning cryptocurrencies vs.
government’s push for regulation)
7. Financial Inclusion & Rural Banking: Ensuring banking penetration in rural areas remains a challenge despite initiatives
like Jan Dhan Yojana. (eg- Poor digital infrastructure limits rural banking access)
8. Managing Liquidity & Interest Rates: RBI has to carefully manage money supply and liquidity to prevent excessive infla-
tion or slowdown.
9. Shadow Banking & NBFC Regulation: Non-Banking Financial Companies (NBFCs) operate with less stringent regula-
tions, increasing risks of financial instability. (eg- IL&FS crisis exposed gaps in RBI’s oversight of NBFCs)
10. Cybersecurity & Digital Payments Risks: With increasing reliance on UPI, RTGS, and digital banking, RBI faces chal-
lenges in preventing cyber fraud and maintaining secure transactions. Eg- In 2023, over $4 billion in digital loans were
disbursed (Digital Lending Report 2023).

66
Way Forward for RBI
1. Strengthening Inflation Management: A flexible inflation-targeting approach can help balance price stability and GDP expansion.
eg- Adopting a dynamic inflation band instead of a rigid 4% target
2. Enhancing Forex Reserves & Rupee Stability: diversify forex reserves and explore bilateral trade settlements in local currencies.
eg- Encouraging INR-based trade with Russia, UAE, and Sri Lanka to reduce dependence on the US dollar
3. Reducing Banking Sector NPAs: eg- Strict supervision of high-risk loans and stress-testing banks with high retail NPAs
4. Regulating Digital Lending & Crypto Assets: Establishing clear regulatory frameworks for and renifing CBDC (Central Bank Digital
Currency) roadmap. eg- Launching a regulatory sandbox for crypto and digital lending startups to operate under RBI’s supervision
5. Boosting Financial Inclusion in Rural Areas: Expanding digital banking infrastructure, promoting self-help groups (SHGs) and
microfinance, and improving Jan Dhan accounts’ usability by mandating banks to set up digital kiosks in villages
6. Ensuring Liquidity Management Efficiency: eg- Conducting timely variable repo rate auctions to avoid liquidity crunches like in Feb 2025
7. Strengthening NBFC & Shadow Banking Regulation: Introducing real-time tracking of NBFC lending patterns to prevent
future IL&FS-like crises
8. Enhancing Cybersecurity & Digital Payment Security: eg- Enforcing ‘.bank.in’ and ‘.fin.in’ domains for all financial websites to prevent
phishing scams
9. Promoting Green Finance & Sustainable Banking: eg- Offering lower interest rates for renewable energy financing and green startups

Commercial Banks
1. Public Sector Banks (PSBs): These banks are majority-owned by the government (more than 51%). Eg- include the State Bank of India (SBI).
2. Private Sector Banks: These banks are predominantly owned by private entities. Examples include HDFC Bank, ICICI Bank, and Axis Bank.
3. Foreign Banks: These banks have their headquarters in foreign countries but operate in India through branches or wholly-owned
subsidiaries. Eg- Citibank, HSBC, and Standard Chartered.

Differentiated Banks
Small Finance Banks (SFBs):
1. Purpose: Providing basic banking services to underserved segments, including small business units, small and marginal farmers,
micro and small industries, and other unorganized sector entities.
2. Functions: Accept deposits, provide loans to underserved sections, sell mutual funds, insurance, and pensions. They cannot deal in
sophisticated financial products or large loans.
3. Regulatory Requirements: Must maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as per RBI norms. They are
required to extend 75% of their credit towards priority sector lending obligations, with at least 50% of loans up to Rs. 25 lakhs.
Payment Banks:
1. Purpose: To further financial inclusion by providing small savings accounts and payment/remittance services to low-income house-
holds, small businesses, and other unorganized sector entities.
2. Functions: Accept deposits up to Rs. 2 lakhs per customer, issue debit cards, and distribute financial products like mutual funds and
insurance. They cannot issue loans or credit cards.
3. Regulatory Requirements: Must maintain CRR and invest a minimum of 75% of their “demand deposit balances” in government
securities/treasury bills with maturity up to one year.
Regional Rural Banks (RRBs)
1. Purpose: To provide sufficient banking and credit facilities for agriculture and other rural sectors.
2. Ownership: Joint venture between the central government (50%), state government (15%), and a sponsor bank (35%).
3. Regulatory Requirements: 75% of total credit must be given to priority sectors, with focus primarily on rural development.

India Post Payment Bank (IPPB)

• Purpose: A wholly-owned subsidiary of the Department of Post, aimed at providing banking services through physical and digital
platforms.
• Functions: Accept deposits up to Rs. 2 lakhs, issue debit cards, provide direct benefit transfers, and offer remittance services. They
cannot issue credit cards or provide loans.

Local Area Banks (LABs)

1. Purpose: To mobilize rural savings and make them available for investments in local areas. LABs operate within a limited area com-
prising three contiguous districts.
2. Regulatory Framework: Established under the Companies Act, 2013. They are regulated by the RBI and must adhere to priority
sector lending norms.

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Cooperative Banks
1. Purpose: They are financial institutions formed by cooperative societies providing financial services at affordable rates to their members.
2. Types:
• Urban Cooperative Banks: Operate in urban and semi-urban areas.
• Rural Cooperative Banks: Operate in rural areas.
3. Regulations:
• Under the Banking Regulation Act, of 1949, and the Banking Laws (Application to Co-operative Societies) Act, of 1965, the
RBI is responsible for regulating banking aspects such as capital adequacy, risk control, and lending norms.
• Registrar of Co-operative Societies (RCS) of respective State or Central Government responsible for regulation of manage-
ment-related aspects of these banks, such as incorporation, registration, management, audit, supersession of board of directors,
and liquidation.

Aspect Scheduled Commer- Cooperative Banks

cial Banks (SCBs)
Definition and Listed in the Second Schedule of Financial entities are established on a cooperative basis.
Objective the RBI Act, 1934.

Regulatory Authority Reserve Bank of India (RBI). Dual control by RBI and respective State Governments.
Subject to the rules laid by the Registrar of Co-operative Societies.

CRR and SLR Relatively higher. Relatively lower.

Compliance Strict adherence to RBI norms. Urban Cooperative Banks (UCBs): Regulated by RBI.
Rural Cooperative Banks: Regulated by NABARD and State
Governments.

Ownership Owned by shareholders, including Owned by members who use the bank’s services.
the public, corporations, and the
government.
Management Professional management with a Managed by an elected board of members.
board of directors.
Scope of Operations Operate nationwide with a wide Typically operate within local areas, districts, or states.
range of services.

Services Offered Comprehensive services including Agricultural loans, small business loans, and basic banking.
savings, loans, credit cards, and
digital banking.

Capital Adequacy Higher requirements as per Basel III Lower requirements compared to SCBs.
norms.

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A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956, that provides financial services
like lending, investing in securities, leasing, and insurance but does not hold a banking license.
• NBFCs are regulated by both the Ministry of Corporate Affairs and the Reserve Bank of India (RBI).
• It does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of
any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

Difference between banks & NBFCs

Aspect Banks NBFCs
Regulation Regulated by the RBI under the Banking Regulated by the Companies Act, 1956, and regulated by
Regulation Act, 1949. RBI under the RBI Act, 1934.
CRR and SLR Must maintain CRR (Cash Reserve Ratio) and SLR Not required to maintain CRR or SLR, but must adhere to
(Statutory Liquidity Ratio). certain prudential norms.
Deposit Acceptance Authorized to accept demand deposits (savings Not authorized to accept demand deposits.
and current accounts).
Issue of cheques Can issue cheques and provide transactional Cannot issue cheques or provide transactional banking
banking services. services.
Services Offered Wide range of services including deposits, loans, Offer loans, asset financing, hire purchase, leasing, and
credit cards, and payment services. investment in securities.
Credit Creation Ability to create credit through the fractional Do not create credit like banks; rely on borrowing and
reserve banking system. equity.
Access to Pay- Direct access to payment and settlement systems Do not have direct access to payment and settlement
ment Systems like NEFT, RTGS, and IMPS. systems; often partner with banks.

A Non-Performing Asset (NPA) is a loan where the principal or interest has been overdue for 90 days or more. NPAs are classified based
on the duration they remain overdue:
• Sub-Standard Asset: NPAs for up to 12 months.
• Doubtful Asset: NPAs for over 12 months.
• Loss Asset: Assets with minimal recovery value and are considered impractical to continue as bankable, though not entirely written off.

Data
1. RBI’s Financial Stability Report (Dec 2024) highlights a positive shift, with Gross NPAs for Scheduled Commercial Banks declining
to a 12-year low of 2.6% in September 2024, down from 3.9% in March 2023.
2. Net NPA Ratio also dropped to 0.6%.
3. Agriculture had the highest GNPA ratio at 6.2%, while personal loans stood at 1.2%.

Reasons for the NPA Crisis

1. Twin Balance Sheet Problems: Post-2011, both the banking and
corporate sectors faced severe financial stress.
2. Economic Slowdown – The slowdown between 2013-2017 led to
lower cash flows, impacting loan repayments in industries like real
estate, construction, and power.
3. Corporate Defaults – Major corporate groups like Kingfisher
Airlines (₹9,000 crore), Jet Airways (₹8,500 crore), Essar Steel
(₹49,000 crore), and Videocon Group (₹40,000 crore) defaulted
on bank loans due to mismanagement and declining revenues.
4. Unviable Infrastructure Projects – Projects like Delhi-Gurgaon Ex-
pressway, Ultra Mega Power Projects faced cost overruns and delays.
5. Lax Credit Appraisal – Punjab National Bank’s (PNB) ₹13,000 crore
fraud involving Nirav Modi was a classic case of poor risk assessment.
6. Crony Capitalism – ICICI Bank-Videocon loan scandal saw favor-
itism in lending, where loans were granted based on business ties
rather than financial viability.

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7. Global Factors – The 2008 financial crisis caused liquidity stress globally, affecting Indian companies dependent on foreign bor-
rowings. The commodity price crash (2014-2015) severely impacted metal and oil companies, increasing defaults.
8. Evergreening of Loans – Banks avoided recognizing NPAs by restructuring loans through Corporate Debt Restructuring (CDR).
RBI’s Asset Quality Review (AQR) in 2015 revealed hidden bad loans of ₹8.5 lakh crore, forcing banks to recognize them as NPAs.
9. Weak Insolvency Framework (Before IBC 2016) – Before the Insolvency and Bankruptcy Code (IBC) 2016, bad loans took years
to resolve. Eg- Essar Steel’s ₹49,000 crore default dragged on for years until IBC facilitated resolution.
10. PSB Governance Issues – Public Sector Banks (PSBs) like IDBI Bank, Punjab National Bank, and Allahabad Bank faced high
NPAs due to political interference and weak risk management. Eg- IDBI Bank had NPAs exceeding 28% in 2018.
11. Agricultural Distress & Farm Loan Waivers – Loan waivers by states like Maharashtra (₹34,000 crore in 2017), Uttar Pradesh
(₹36,000 crore in 2017), and Karnataka (₹44,000 crore in 2018) encouraged defaults, weakening rural credit discipline.

Measures to Control NPAs

1. Insolvency and Bankruptcy Code (IBC), 2016: A time-bound framework for resolving bad loans. As of December 2023, ₹9.2 lakh
crore worth of stressed assets were resolved through IBC, with an average recovery rate of 32-35%.
2. Asset Quality Review (AQR), 2015: AQR led to banks reporting nearly ₹10 lakh crore in NPAs, forcing them to strengthen credit
assessment.
3. Debt Restructuring Schemes: Implemented schemes like the Scheme for Sustainable Structuring of Stressed Assets (S4A).
4. Indradhanush Plan: Envisages capital infusion in PSBs to meet regulatory norms and support growth based on performance.
5. Prompt Corrective Action (PCA) Framework – RBI placed weak banks under PCA, restricting their lending and dividend distribution
until financial health improved. Example: IDBI Bank, UCO Bank, and Indian Overseas Bank were put under PCA due to high NPAs.
6. 1-Day Default Rule & Revised Framework (2018) – RBI required banks to classify a loan as stressed if even a single day’s payment
was missed, replacing older restructuring schemes like CDR, SDR, and S4A.
7. Strengthening NBFC Regulations – RBI tightened supervision of Non-Banking Financial Companies (NBFCs) after the IL&FS
crisis (2018) to prevent contagion effects.
8. National Asset Reconstruction Company Ltd (NARCL) (2021) – Known as the ‘Bad Bank’, NARCL was set up to take over large
NPAs from banks and facilitate resolution. NARCL took over ₹50,000 crore of stressed assets from banks in its first phase.
9. Tighter Loan Classification Norms – RBI enhanced Early Warning Systems (EWS) and forensic audits to detect frauds and ensure
accurate recognition of stressed assets.
10. Encouraging Loan Write-offs & Provisions – RBI required banks to increase provisioning for NPAs, reducing their impact on bank
balance sheets.

Way Forward
1. 4R Strategy: Recognition, Resolution, Recapitalization, and Reform
• Recognition: Ensuring accurate reporting of NPAs through AQR.
• Resolution: Strengthening IBC and other recovery mechanisms.
• Recapitalization: Infusing capital into weak banks.
• Reform: Strengthening banking governance and lending norms.
2. Time-bound Project Evaluation: Implementing a timely evaluation process for assessing project viability can help banks avoid NPAs
resulting from ministry decisions.
3. Rapid NPA Resolution: The Insolvency and Bankruptcy Code (IBC) of 2016 was a positive step, but adherence to the law’s timelines
must be enforced to prevent delays.
4. Infrastructural Reforms: Increasing the number of benches in the National Company Law Tribunal (NCLT) and equipping them
with adequate operational capacity.
5. Governance Reforms: Implementation of Nayak Committee’s recommendations on bank board governance to strengthen oversight
and management.
6. Institutional mechanism: To cater to large industrial and infrastructure projects and the need for long-term funding, new Develop-
ment Financial Institutions (DFIs) can be developed.
7. Risk management: Encourage banks to diversify their loan portfolios to reduce concentration risk.

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Economic Capital Framework (ECF)
It is a policy framework used by theRBI to determine the optimal level of reserves (capital buffers) that it should maintain and the
amount of surplus it can transfer to the government. It was introduced in 2019 based on the recommendations of the Bimal Jalan
Committee.
For 2023-24, the RBI transferred a record ₹2,10,874 crore to the Union government, significantly higher than the ₹87,416 crore trans-
ferred the previous year.

Components of RBI’s Reserves Under ECF

1. Contingency Risk Buffer (CRB) – A capital buffer to cover financial and operational risks, set at 5.5%–6.5% of RBI’s balance
sheet.
2. Revaluation Reserves (Currency, Gold, and Securities Revaluation Account) – Unrealized gains from currency fluctuations, gold,
and investments.
3. Asset Development Fund (ADF) – Used for the RBI’s internal investments (such as research, IT infrastructure).
4. Realized Equity – Retained earnings to cover potential losses.

Key Objectives of ECF

1. Ensuring Financial Stability – Maintains adequate reserves to absorb financial shocks, safeguarding the banking sector.
2. Determining Optimal Surplus Transfer – Establishes a formula-based approach for surplus transfer from RBI to the govern-
ment.
3. Maintaining RBI’s Autonomy – Prevents excessive government interference in RBI’s reserve management.
4. Transparent & Predictable Surplus Distribution – Provides a systematic method for transferring funds rather than ad-hoc
transfers.

Challenges & Criticism

1. Fiscal Dependence on RBI Surplus – Over-reliance on RBI’s reserves may weaken monetary independence.
2. Balancing Risk & Surplus Transfers – RBI needs adequate reserves to handle economic shocks, especially during financial crises.
3. Political Pressure – There have been concerns about the government pushing for higher transfers, affecting RBI’s autonomy.
4. Global Benchmarking – Some argue that India’s central bank holds lower reserves compared to global standards, raising con-
cerns over economic stability.

Way Forward
1. Maintaining a Balance – RBI should ensure a balance between financial stability and fiscal support.
2. Long-Term Fiscal Discipline – The government should reduce fiscal reliance on RBI transfers and improve tax revenue.
3. Periodic Review of ECF – Adjusting the framework based on economic conditions and external risks.

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Monetary Policy
Monetary Policy refers to the process by which a central bank (such as the Reserve Bank of India) controls the money supply, in-
terest rates, and availability of credit to achieve macroeconomic objectives like inflation control, economic growth, and financial
stability.

Monetary Policy Framework Agreement (2015): It is a formal agreement between the Government of India and the Reserve Bank of
India (RBI), signed in February 2015, to institutionalize inflation targeting as the primary objective of monetary policy in India.

Key Points:
• The inflation target has been set at 4%, with a tolerance band of +/- 2%, for the period from 2021 to 2026 (Flexible inflation target-
ing )
• The inflation measure used is the Consumer Price Index (CPI): Combined, published by the Ministry of Statistics and Programme
Implementation (NSO).
• Monetary Policy Committee (MPC) – Established as a six-member committee to decide key policy rates (e.g., repo rate) based on
inflation trends.
• Accountability of RBI – If inflation breaches the 2%-6% range for three consecutive quarters, RBI must submit a report to the
government explaining reasons, corrective actions, and an estimated time frame for resolution.
• Transparency & Communication – RBI must publish bi-monthly monetary policy statements explaining its rationale for rate
changes and inflation control measures.

Monetary Policy Tools:

1. Repo Rate:The interest rate at which the RBI lends money to commercial banks for short-term liquidity, usually overnight, against
collateral of government securities.
2. Reverse Repo Rate: The rate at which the RBI borrows money from banks, absorbing excess liquidity from the system. It’s also an
overnight rate.
3. Standing Deposit Facility (SDF): allows banks to deposit funds with the RBI at a rate 0.25% below the repo rate, offering another
tool for liquidity absorption.
4. Marginal Standing Facility (MSF): Allows banks to borrow overnight funds from RBI at penal rate (repo rate + 0.25%), using their
Statutory Liquidity Ratio (SLR) securities as collateral.
5. Bank Rate: The rate at which the RBI buys or rediscounts commercial papers or bills of exchange. It’s aligned with the MSF rate, serv-
ing as a penalty rate for reserve shortfalls.
6. Cash Reserve Ratio (CRR): The percentage of a bank’s total deposits that it must maintain as cash reserves with the RBI.
7. Statutory Liquidity Ratio (SLR): The percentage of a bank’s net demand and time liabilities (NDTL) it must hold in liquid assets such
as government bonds or cash.
8. Open Market Operations (OMO): RBI’s purchase and sale of government securities to regulate liquidity. Outright OMOs are perma-
nent, while LAF OMOs are temporary.
9. Market Stabilization Scheme (MSS) to absorb surplus liquidity due to large capital inflows. It involves issuing government securities
and placing the proceeds in a separate account.

Monetary Policy Transmission (MPT)

Monetary policy transmission is the process by which the central bank’s policy action is transmitted in order to achieve the goals of
inflation and growth. For instance, if the RBI reduces the policy rates, then the benefits of reduced lending rates must be passed on to
the customers.

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Reasons Behind Weak Monetary Policy Transmission
1. High Dependence on Public Sector Banks (PSBs) – PSBs hold a majority share of lending (over 60%), but they often delay passing
rate cuts due to poor financial health and high NPAs.
2. Sticky Interest Rates – Banks hesitate to cut lending rates even when RBI reduces the repo rate because deposit rates remain
high to attract funds, limiting their ability to lower loan rates.
3. Double Financial Repression (2015 Economic Survey)
• Asset-Side Constraints – A high SLR locks bank funds in government securities, while Priority Sector Lending (PSL) norms
limit credit flow to productive sectors.
• Liability-Side Constraints – Low deposit growth due to declining household savings, restricts banks’ access to cheap funds,
making them hesitant to pass on rate cuts.
4. High Savings in Fixed Deposits – Since Indians prefer fixed deposits, banks are reluctant to lower deposit rates, which affects
their ability to reduce lending rates.
5. Small Share of External Benchmark Lending – Until 2019, most loans were linked to the Marginal Cost of Funds-Based Lending
Rate (MCLR) instead of the repo rate, delaying rate transmission. The introduction of the External Benchmark Lending Rate (EBLR)
improved transmission but remains limited.
6. Dominance of Informal Credit Markets – A significant portion of rural and small business credit comes from moneylenders and
NBFCs, which do not strictly follow RBI rate cuts.
7. Rigid Small Savings Scheme Interest Rates – Government-backed savings schemes (PPF, NSC, Sukanya Samriddhi, etc.) offer
high interest rates, making banks less willing to lower deposit rates.
8. Weak Competition Among Banks – Large banks like SBI, HDFC, and ICICI dominate lending, giving them pricing power and reduc-
ing competitive pressure to pass on rate cuts.
9. Fiscal Deficit & High Government Borrowing – When the government borrows heavily, it crowds out private credit and keeps inter-
est rates high, reducing RBI’s policy impact.
10. Slow Pass-Through to Housing & MSME Loans – Sectors like real estate and MSMEs rely on long-term credit with fixed rates,
leading to slower rate transmission.
11. Transmission Asymmetry in Monetary Policy – Banks are quicker to raise rates when RBI hikes repo rates but delay rate cuts
due to fear of margin loss.

Impact of Lag in Monetary Policy Transmission

1. Reduced Borrowing by Household Sector: Ineffective transmission of repo rate cuts results in higher lending rates, leading to less
borrowing by households, reducing overall consumption.
2. Deters Investment by Corporate Sector: Delays in passing on rate cuts due to weak transmission affect corporate sentiment,
reducing investments by private firms.
3. Ineffective RBI Policies: Banks not aligning with RBI’s rate changes undermine it’s efforts to control inflation and stimulate growth,
rendering monetary policies ineffective.
4. Delayed Economic Growth – Slow transmission prevents timely access to cheaper credit, reducing investments and consumption,
hindering GDP growth.
5. Ineffective Inflation Control – When rate hikes fail to curb excess liquidity quickly, inflation remains high, impacting purchasing
power.
6. Increased NPAs in Banking Sector – Stagnant lending rates burden borrowers, increasing loan defaults, worsening the NPA crisis.
7. Weak Credit Growth in Productive Sectors – Sectors like infrastructure, manufacturing, and MSMEs suffer due to slow reduc-
tion in interest rates, slowing job creation.
8. Persistent Fiscal Deficit – Slow transmission limits private sector investment, increasing reliance on government spending, wors-
ening the fiscal deficit.
9. Currency Volatility – Delayed response to rate changes affects foreign capital flows, leading to exchange rate fluctuations.

Way Forward
1. Adjusting Base Rate-Linked Loans: Recalculate the base rate by removing arbitrary components, as recommended by the RBI’s
Internal Study Group.
2. Enhance External Benchmarking – Expand the External Benchmark Lending Rate (EBLR) to all loan categories to ensure faster
rate transmission.
3. Reduce Dependence on Statutory Liquidity Ratio (SLR) – Gradually lower SLR requirements to free up bank funds for productive
lending.
4. Improve Deposit Mobilization – Encourage higher household savings through better returns on bank deposits and incentivize
digital banking adoption.
5. Enhance Competition Among Banks – Strengthen private and small finance banks to increase competition and force faster rate
pass-through.
6. Reduce Small Savings Rate Rigidity – Align interest rates on PPF, NSC, and Sukanya Samriddhi Yojana with market trends to
enable banks to adjust deposit rates.
7. Reduce Fiscal Deficit to Avoid Crowding Out – Government should rationalize borrowing to allow more credit flow to the private
sector, improving monetary policy effectiveness.

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Priority Sector Lending (PSL)
Priority Sector Lending (PSL) was introduced in 1972 to ensure the flow of credit to vital sectors and underdeveloped areas which, strug-
gle to secure loans from formal financial institutions.

Priority Sector Lending Certificates (PSLCs): PSLCs are certificates issued against priority sector loans. They allow banks to meet
their PSL targets by purchasing these instruments. PSLCs provide a safeguard against shortfalls and incentivize additional lending to
priority sectors.

Categories of Priority Sectors:

• Agriculture
• Micro, Small, and Medium Enterprises (MSMEs)
• Export Credit
• Education
• Housing
• Social Infrastructure
• Renewable Energy
• Others

PSL Targets:
Category of Bank Priority Sector Lending (PSL) Target
Domestic Banks & Foreign Banks (≥ 20 branches) 40% of Adjusted Net Bank Credit (ANBC)
Foreign Banks (< 20 branches) 40% (phased implementation by 2024)
Regional Rural Banks (RRBs) & Small Finance Banks 75% of ANBC
(SFBs)

*ANBC: Adjusted Net Bank Credit (total credit after adjustments for PSL compliance).

Revised Priority Sector Lending Norms

1. Incentive framework: It establishes an incentive framework for districts with lower credit flow starting from FY25. More weight
(125%) will be given to fresh priority sector loans in districts where loan availability is low (less than Rs 9,000 per person).
2. Disincentive framework: In districts with high loan availability (more than Rs 42,000 per person), the loans will have a weight of 90%.
3. Other districts: With exception of outlier districts with low credit availability and those with high loan sizes, all other districts will
continue to have the current importance level of 100%.
4. MSME loans: All bank loans to MSMEs shall qualify for classification under PSL.

Benefits of PSL:
1. Promotes Economic Growth: PSL ensures funds to agriculture, MSMEs, and educational institutions, etc., helps to boost economic
activities and uplift disadvantaged groups.
2. Financial Inclusion: PSL facilitates access to finance for the unbanked and underserved sectors.
3. Employment Generation: Lending to sectors such as MSMEs, agriculture, and rural housing contributes to the generation of jobs in
small and medium-sized enterprises.
4. Balanced Regional Development: PSL helps reduce regional economic disparities by directing credit to backward and underserved areas.
5. Sustainable Development: Credit directed to sectors like renewable energy and education under PSL supports sustainable long-
term development and human capital formation.

Challenges of PSL:
1. Risk of Loan Defaults and Non-Performing Assets (NPAs): Sectors like agriculture and MSMEs, etc. are prone to defaults, which
can lead to a rise in NPAs.
2. Inefficiency in Credit Allocation: Banks may disburse loans to enterprises or borrowers without proper credit assessment, under
pressure to meet PSL requirements, resulting in unproductive investments.
3. Resource Misallocation: Credit may be misallocated or diverted to non-viable ventures in the priority sectors. This can lead to a
distortion in market dynamics, with less efficient or profitable businesses receiving funding at the cost of more productive sectors.
4. Impact on Bank’s Profitability: PSL mandates force banks to lend to sectors with lower profit margins, which may impact their over-
all profitability. In the case of small loans to agriculture or MSMEs, the operational costs of lending may exceed returns.
5. Compliance and Monitoring Issues: Eg- banks may focus on lending to sectors with high demand, like housing loans, and meet their
PSL targets without effectively promoting rural development or agriculture.

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Cooperative Banks
Cooperative banks are financial institutions that are owned and controlled by their members, who are also customers of the bank. They
are registered under the Cooperative Societies Act of the State concerned or the Multi-State Cooperative Societies Act, of 2002. They
are governed under:
1. Banking Regulations Act, 1949
2. Banking Laws (Co-operative Societies) Act, 1955
As of Feb, 2024, there are over 1,500 scheduled and non-scheduled Urban Cooperative Banks in India with a total number of branches
exceeding 11,000.

Significance of Cooperative Banks in India:

1. Credit for Agriculture and Rural Sectors: Cooperative banks, including PACS, DCCBs, and SCBs, provide crucial credit to farmers,
aiding agricultural activities and rural development.
2. Support for MSMEs and SHGs: Urban Cooperative Banks (UCBs) fund small and medium-sized businesses, and self-help groups,
boosting local economies.
3. Democratic Governance: Members collectively decide policies and elect the board, ensuring democratic control.
4. Member-Focused Services: Cooperative banks focus on member needs over profits, offering personalized products like affordable
housing loans and customized savings plans.
5. Community support: They support local projects in infrastructure, education, and healthcare, strengthening community socio-eco-
nomic fabric.
6. Economic Resilience: Cooperative banks are more resilient to economic downturns due to lower exposure to high-risk assets. Eg-
UCBs’ resilience during the 2008 Global Financial Crisis.

Issues
1. Financial Issues
a. Financial Frauds: Many cooperative banks have failed due to large-scale financial scams. Eg- PMC Bank, Guru Raghavendra
Cooperative Bank, MSC Bank.
b. Financial Instability: Cooperative banks frequently face issues like low capitalization, high NPAs, and poor Capital Adequacy
Ratio (CAR).
2. Governance and Regulatory Issues
a. Board Members Misusing Borrowing Powers: Unlike commercial banks, cooperative bank board members can borrow from
their own banks, leading to misuse of funds. Eg- PMC Bank.
b. Political Interference and Corruption: Boards dominated by local politicians often engage in illegal loan issuance and black
money transactions.
c. Regulatory Confusion: Dual control by the RBI and state governments. Managerial, administrative activities are overseen by the
state government while banking activities are regulated and supervised by RBI/NABARD.
d. Lack of compliance with regulatory norms: Eg- in July 2023, the RBI cancelled the banking licenses of Adoor Co-operative
Urban Bank of Kerala and Mahalaxmi Cooperative Bank Dharwad.
e. Inadequate Audit Practices: Irregular and superficial audits by state officials weaken oversight.
f. Governance Challenges: Small size, scattered locations, and lack of unified policies complicate effective governance and oversight.
3. Competition from Emerging Financial Services: Growth of MFIs, FinTech companies, payment gateways, and NBFCs hampers
cooperative banks’ ability to attract deposits and offer loans.
4. Technological and Logistical Deficiencies: Poor software and bookkeeping systems increase vulnerability to fraud.
5. Regional Disparities: Almost 82 percent of total UCBs and around 90 percent branches of all UCBs are concentrated in Western
and Southern regions of the country (2020).
6. Limited Access to capital limits their ability to expand and modernize their operations.Over 50% of Urban Cooperative Banks have
less than Rs 100 crore deposits.

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Steps taken to reform Cooperative Banks:
Steps taken by RBI:
1. Supervisory Action Framework (SAF): It seeks expeditious resolution of UCBs experiencing financial stress.
2. Scheme for voluntary conversion: The RBI had announced a scheme for the voluntary conversion of eligible UCBs into Small Fi-
nance Banks (SFBs) in 2018.
3. Umbrella Organisation for UCBs: RBI has accorded approval to the National Federation of Urban Co-operative Banks and Credit
Societies Ltd. (NAFCUB) for the formation of an Umbrella Organisation (UO) for UCB sector, which will provide necessary IT infra-
structure and operation support to around 1500 UCBs.
4. Amalgamation & Strengthening: Eg- the amalgamation of 10 weak co-operative banks with the Maharashtra State Co-operative Bank.
Steps taken by the Government of India:
1. 97th Amendment: The 2011 amendment gave cooperatives constitutional status, promoting transparency and democratic functioning.
2. Amendment to the Banking Regulation Act (2020) to bring cooperative banks under tighter regulatory control of the RBI.
3. Multi-State Cooperative Societies Amendment Act, 2022: Establishment of Cooperative Election Authority, Appointment of Co-
operative Ombudsman, Creation of Cooperative Rehabilitation, Reconstruction, and Development Fund, Inclusion of Women and SC/
ST Members in Board of Directors, Introduction of Concurrent Audit and Provision for Merger of Cooperative Societies.
4. Ministry of Cooperation to streamline the cooperative sector, providing separate administrative, legal, and policy frameworks.
5. Tax Benefits & Incentives: Cooperative societies enjoy tax exemptions under Section 80P of the Income Tax Act.
6. Credit Facilities & Interest Subsidies from the National Cooperative Development Corporation (NCDC).
7. Integration of Primary Agricultural Credit Societies (PACS): PACS are being integrated with district central cooperative banks
(DCCBs) and state cooperative banks (SCBs) to create a more efficient and organized structure for governance of cooperative banks,
especially in rural areas.
8. Training & Capacity Building: The National Cooperative Union of India (NCUI) and NABARD offer training programs for cooperative staff.

Way Forward:
1. Strict RBI Oversight: RBI should enforce regular delicensing and compulsory amalgamation of loss-making cooperative banks to
ensure better regulation.
2. Formation of Cooperative Federation: Establish a cooperative federation to conduct comprehensive and regular audits of coopera-
tive banks.
3. Infrastructure Upgrade: Implement standardized software and bookkeeping systems linked to a central database for effective finan-
cial monitoring using AI.
4. Reduce Political Influence: Introduce young professionals in managerial roles to steer cooperative banks forward, minimizing politi-
cal interference.
5. Implement N.S. Vishwanathan Committee Recommendations on Urban Cooperative Banks:
6. Implement R Gandhi Committee Recommendations(2015):
a. Professional management of cooperative banks, similar to the corporate banking sector. Granting the board of directors’ powers
akin to those held by directors in commercial banks.
b. Conversion to Small Finance Banks under RBI regulations, provided they meet specific criteria and conditions.

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RBI defines financial inclusion as the process of ensuring access to financial services and timely and adequate credit where needed by
vulnerable groups such as weaker sections and low-income groups at an affordable cost.

Importance of Financial Inclusion

1. Economic Growth: It acts as a Multiplier Effect which boosts overall economic output, reduces poverty and income inequality, and
promotes gender equality and women empowerment.
2. Entrepreneurship: Access to formal credit promotes entrepreneurship in the country.
3. Poverty Alleviation: Poor people get access to banking and financial services. e.g., DBT, MGNREGA, etc.
4. Efficient Service Delivery: Ensures funds reach targeted beneficiaries, reducing leakage and ensuring effective subsidy distribution.
5. Women Empowerment: Inclusion if females in the financial sector makes them financially independent and secure.
6. Social Security: Financial inclusion provides people with access to insurance, pension schemes, and other risk-mitigating products.
7. Inclusive Growth: Ensures that economic growth is more equitable by integrating previously excluded sections of society into the
formal financial system.

CHALLENGES IN FINANCIAL INCLUSION

1. Low Financial Literacy: NABARD’s 2023 survey found that only 24% of rural households are fully aware of financial products.
2. Inadequate Banking Infrastructure: As of 2023, there were only 14 bank branches per 1 lakh people in rural India, compared to 50+
in urban areas.
3. Digital Divide & Poor Internet Connectivity: Limited smartphone penetration and slow internet speeds hinder digital banking adop-
tion. (eg- RBI reported that 41% of rural areas still face internet connectivity issues, restricting access to mobile banking and
UPI.)
4. Dependence on Cash Transactions: RBI’s 2023 data shows that 70% of transactions in rural India are still cash-based.
5. High Cost of Banking Services: Banking services involve fees, minimum balance requirements, and hidden charges, discouraging
low-income groups from using them.
6. Gender Disparity in Financial Access: Women face social and mobility restrictions, reducing their ability to open and operate bank
accounts. (eg- Only 53% of women in India actively use bank accounts compared to 70% of men, as per World Bank 2023.)
7. Challenges in Credit Access for MSMEs & Farmers: Collateral requirements, strict credit norms, and high-interest rates limit access
to formal credit.
8. Cybersecurity & Digital Fraud Risks: Phishing, UPI fraud, and ATM skimming discourage people from adopting digital banking.
9. Lack of Tailored Financial Products: Many financial products do not cater to the needs of rural and low-income populations, such as
informal workers with irregular incomes.
10. Regulatory & Administrative Challenges: Complex documentation (e.g., KYC norms) and delays in government benefit transfers
affect financial access. (eg- Many pension and subsidy payments face delays due to Aadhaar verification issues.)
11. Geographical Barriers: Limited access to financial services in rural and remote areas.
12. Inadequate Infrastructure: Limited banking touchpoints, such as bank branches and ATMs, especially in rural areas.
a. Although Business Correspondents (BCs) have expanded access, internet connectivity and mobile banking infrastructure remain
weak in remote areas.
b. Concerns regarding inadequate digital infrastructure. According to NSO, only 15% are connected to the internet.

Schemes launched for financial inclusion:

1. Financial Inclusion Index(FII) by RBI: Financial Inclusion Index has
risen to 64.2 in March 2024, up from 60.1 in March 2023.
2. Pradhan Mantri Jan Dhan Yojana (PMJDY)
a. By July 2024, around 52.6 crore accounts were opened
under PMJDY, marking significant progress toward universal
access to banking.
b. Nearly 56% account holders are women.
c. The Economic Survey 2023-24 highlights that the PMJDY
and PMMY have played a pivotal role in ensuring that financial
services reach the most vulnerable sections.
3. Pradhan Mantri MUDRA Yojana (PMMY): By FY 2023, more than
28 crore loans have been disbursed under PMMY, supporting the
MSME sector and enabling self-employment.
4. Digital Payment Initiatives (UPI, AEPS, and BHIM) – Unified Pay-
ments Interface (UPI), Aadhaar Enabled Payment System (AEPS),
and BHIM app enable easy digital transactions, even for people
without smartphones. (eg- UPI transactions crossed ₹15 lakh
crore in December 2023.)

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5. Direct Benefit Transfer (DBT) Scheme – Government
subsidies and welfare benefits are directly transferred into
bank accounts to reduce leakages and ensure transpar-
ency. (eg- Over ₹5.5 lakh crore transferred via DBT in FY
2023-24.)
6. Banking Correspondents (BCs) and Digital Banking:
Over 16 lakh BCs have been deployed across the country,
ensuring that financial services are delivered to the remotest
corners of India.
7. PM SVANidhi Scheme for Street Vendors – Provides collat-
eral-free working capital loans of up to ₹50,000 for street
vendors to integrate them into the formal financial system.
(eg- Over 60 lakh loans sanctioned since its launch in
2020.)

Way Forward for Financial Inclusion

1. Expanding Digital Infrastructure: Increase the number of bank branches, ATMs, and Business Correspondents (BCs) in under-
served regions.
2. Strengthening Digital Banking & UPI Accessibility: Expanding BharatNet project to all villages for faster internet access.)
3. Customizing Financial Products for Informal Sector: Design flexible savings, micro-loans, and insurance schemes for gig work-
ers, daily wage earners, and farmers. (eg- RBI should introduce credit scoring models for informal sector workers.)
4. Scaling Up Microfinance & Priority Sector Lending (PSL): Expand low-cost loans for MSMEs, agriculture, and renewable energy
projects under PSL norms. (eg- Increasing MSME credit limit under PSL from ₹50 crore to ₹100 crore.)
5. Regulatory Reforms for Inclusive Banking: Simplify KYC norms, ease documentation requirements, and streamline bank ac-
count opening procedures for the unbanked population.
6. Targeted Financial Literacy Programs: Conducting continuous campaigns to educate people about the benefits and use of formal
financial services.
7. Budget 2024-25 also proposes a National Financial Inclusion Strategy to integrate more than 10 crore households into the formal
financial system by 2025.
8. Partnerships with Fintech: Collaborating with fintech companies to provide affordable and easily accessible financial products to
rural customers, such as micro-loans and insurance.
9. Leverage the support of Local bodies: The Panchayati Raj institutions, municipalities, and city councils can help in identifying as
well as encouraging the unbanked to start operating in formal banking channel.

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Insolvency and Bankruptcy Code (IBC)
The Insolvency and Bankruptcy Code (IBC), enacted in 2016 to establish a time-bound and creditor-driven process for resolving insol-
vency, thereby enhancing the credit culture and business environment in the country.

Key Provisions
1. Time-Bound Resolution Process: The Corporate Insolvency Resolution Process (CIRP) must be completed within 180 days (extend-
able to 330 days) to ensure fast-track resolution and avoid prolonged litigation. (Before IBC, insolvency cases took an average of
4.3 years.)
2. Applicability to Individuals & Corporates: IBC applies to companies, LLPs, partnership firms, and individuals, covering all types
of insolvency cases.
3. Corporate insolvency handled by NCLT, while individual cases go to DRT.
4. Moratorium on Legal Proceedings: It is imposed once insolvency is admitted, preventing lawsuits, asset seizures, or debt recov-
ery actions against the debtor during resolution.
5. Insolvency Professionals (IPs) is appointed to manage the debtor’s assets and operations, replacing the existing management
during insolvency proceedings.
6. Formation of Committee of Creditors (CoC): The CoC consists of financial creditors who decide on resolution plans by voting
(66% approval required). Operational creditors can submit claims but do not have voting rights.
7. Liquidation in Case of Failed Resolution: If no resolution plan is approved within the timeline, the debtor automatically moves to
liquidation. The proceeds are distributed as per the waterfall mechanism. (eg- Over 70% of IBC cases have ended in liquidation.)
8. Waterfall Mechanism for Debt Repayment: The priority order for repayment in liquidation is:
• Insolvency resolution costs & workmen’s dues
• Secured creditors (banks & financial institutions).
• Unsecured creditors & government dues.
• Equity shareholders (last priority, usually get nothing)
9. Pre-Packaged Insolvency Resolution (For MSMEs): Introduced in 2021, this fast-track resolution process allows MSMEs (with
debt up to ₹10 crore) to settle insolvency without full CIRP.
10. Insolvency of Personal Guarantors: Personal guarantors (e.g., promoters and directors) of corporate debtors can also be made
liable under IBC. (eg- NCLT ordered insolvency proceedings against Anil Ambani as a personal guarantor for RCom’s loans.)

Institutions Under IBC

1. Insolvency and Bankruptcy Board of India (IBBI): Regulatory body overseeing insolvency professionals and agencies.
2. National Company Law Tribunal (NCLT): Adjudicating authority for corporate insolvency cases.
3. Debt Recovery Tribunal (DRT): Handles insolvency cases of individuals and partnership firms.
4. Insolvency Professionals (IPs): Licensed professionals managing the resolution process.
5. Committee of Creditors (CoC): Comprising financial creditors, responsible for approving resolution plans.

Significance of the Insolvency and Bankruptcy Code (IBC)

1. Standardized and Transparent Insolvency Process – eg- Before IBC, recovery was fragmented under SARFAESI, DRT, and
Companies Act.
2. Effective Resolution of Stressed Assets
a. Debt Resolution: Since 2016, IBC has resolved ₹3.16 lakh crore of debt in 808 cases over seven years (CRISIL).
b. Higher Recovery Rates: Creditors have recovered an average of 32% of admitted claims and 169% of liquidation value, outper-
forming previous mechanisms (5-20% recovery).
3. Behavioral Change Among Borrowers: Proactive Settlements: Borrowers, fearing company loss, have settled over ₹9 lakh crore in
debt before insolvency proceedings.
4. Time-Bound Resolution – Average case resolution time reduced from 4.3 years to 1.6 years.
5. Increase in CIRP Cases: CIRP cases admitted by NCLTs rose from 744 in March 2018 to 5,893 by September 2022, indicating the
growing reliance on IBC.
6. Shift from Debtor-Controlled to Creditor-Controlled Process – Unlike previous laws where management continued operations
despite default, IBC gives control to creditors via the Committee of Creditors (CoC).
7. Reduction in NPAs – Helped in recovering over ₹9.2 lakh crore in stressed assets since 2016.
8. Better Business Climate – India’s Ease of Doing Business ranking improved from 130 (2016) to 63 (2020).

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Issues
1. Delay in Default Identification: Time-consuming processes for
identifying defaults delay the initiation of resolution proceedings.
2. Prolonged Pre-IBC Admission Stage: Delays in the pre-ad-
mission stage extended to 650 days in fiscal 2022, up from
450 days in fiscal 2019.
3. Delays in Resolution Process: While IBC mandates resolu-
tion within 330 days, many cases exceed this limit due to
legal disputes, multiple appeals, and procedural inefficiencies.
(eg- Jaypee Infratech’s insolvency case has been pending
since 2017.)
4. High Haircuts for Creditors: Recovery rates have fallen from
43% in March 2019 to 32% by September 2023. eg- In the
Videocon Industries case, creditors accepted a 96% haircut,
recovering only ₹2,962 crore out of ₹64,838 crore.
5. Excessive Liquidation Over Resolution: Over 70% of cases under
IBC have resulted in liquidation rather than successful resolu-
tion.
6. Backlog & Overburdened NCLT: As of 2024, over 15,000 insol-
vency cases were pending before NCLT.
7. Lack of Bidders for Stressed Assets: eg- DHFL’s assets were sold at a 60% haircut due to lack of bidders.
8. Sector-Specific Challenges (Real Estate & Infrastructure): In sectors like real estate, homebuyers are often left stranded due to
delayed projects and incomplete resolution plans. eg- In the Amrapali case
9. Frequent Amendments & Legal Uncertainty: eg- The 2019 amendment reduced voting thresholds for CoC but faced legal
challenges.

Way Forward
1. CDE Approach as Suggested by CRISIL
a. Capacity Augmentation: Strengthen the infrastructure and increase human resources at key institutions like the NCLT.
b. Digitalisation: Create a Digital Platform which connects all stakeholders involved in the IBC process.
c. Expansion of Pre-Pack Resolutions to large corporates.
2. Recommendations by the IBBI: Increasing the number of NCLT benches and extending timelines for filing claims.
3. Phased introduction of voluntary mediation as a dispute resolution mechanism under IBC ( T.K. Vishwanathan committee recom-
mendation ).
4. Asset Reconstruction Companies (ARCs): Implement Reserve Bank of India (Asset Reconstruction Companies) Directions,
2024 to improve their efficiency.

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Major issues in Banking Sector
1. Rising Non-Performing Assets (NPAs) – As per RBI report,
banks’ gross NPAs could rise to 3% by the end of March 2026
from a 12-year low of 2.6 per cent in September 2024. This is
primarily due to risks from stretched asset valuations, credit
quality, high public debt, and geopolitical conflicts.
2. Slow Loan Recovery & High Haircuts: eg- In the Videocon
Group insolvency, creditors accepted a 96% haircut, recovering
only ₹2,962 crore out of ₹64,838 crore.
3. Weak Governance & Frauds: eg- Punjab National Bank (PNB)
fraud of ₹14,000 crore by Nirav Modi in 2018 exposed weak-
nesses in internal controls.
4. Capital Adequacy & Recapitalization Needs to meet Basel
norms: eg- The Indian government infused ₹3.1 lakh crore into
PSBs between 2017 and 2022.
5. Inefficient Public Sector Banks (PSBs): PSBs suffer from
low operational efficiency, political interference, and slow
decision-making, affecting competitiveness. Eg- PSBs account
for nearly 60% of total banking assets but have lower profitability
than private banks.
6. Limited Financial Inclusion & Rural Banking Challenges: Eg-
As of 2023, only 14 bank branches per 1 lakh people exist in
rural areas compared to 50+ in urban regions.
7. Cybersecurity Threats & Digital Frauds: Eg- RBI reported a
20% increase in digital payment fraud cases in 2024
8. Banking Consolidation & Merger Challenges: integration
issues, employee resistance, and operational inefficiencies remain concerns.
9. Low Credit for Productive Sectors: Banks prefer lending to low-risk corporate borrowers rather than MSMEs and startups. Eg-
MSME sector gets only 10% of total bank credit
10. Regulatory & Compliance Burden: Stringent RBI regulations, Basel III norms, and frequent policy changes increase operational
challenges for banks.

Way Forward to Strengthen the Indian Banking Sector

1. Establishing Major Banks
a. Narasimham Committee Insights (1991): Advocated for three or four major commercial banks with both domestic and inter-
national presence.
b. Secondary Tier Banks: Include mid-sized and niche banks with extensive economic reach.
c. Government Actions: Consolidation of some PSBs and creation of entities like Development Finance Institution (DFI) and a Bad Bank.
2. Adherence to Basel III Standards: Implementing Basel III norms enhances risk management and financial stability by increasing cap-
ital adequacy and liquidity requirements.
3. Enhancing Governance & Accountability in Banks – Strengthen internal risk management, independent board oversight, and
fraud detection systems to prevent financial mismanagement.
4. Improving Capital Adequacy & Financial Stability by encouraging banks to raise capital via market instruments instead of
government bailouts.
5. Central Negative Registry for Fraud Prevention: A parliamentary committee recommended establishing a Central Negative Regis-
try to consolidate information on fraudulent accounts and enhance fraud detection in the banking sector.
6. Invest in secure digital banking infrastructure, AI-driven fraud detection, and strong data protection laws to counter cyber
threats. Eg- Mandate regular cybersecurity audits and introduce insurance cover for digital banking frauds.
7. Promoting Financial Inclusion & Rural Banking Expansion – Expand banking services, digital kiosks, and Business Correspon-
dents (BCs) in unbanked areas while strengthening financial literacy.
8. Strengthening Regulatory & Supervisory Frameworks – RBI must enhance real-time monitoring of banking risks, stress testing,
and proactive intervention in weak banks. Eg- Introduce dynamic risk-based supervision using AI and Big Data analytics.

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These are loans offered through mobile applications or online platforms. Unlike traditional banks, these lenders leverage technology for a
streamlined application process, often with minimal paperwork and near-instantaneous approvals.
The digital lending market size is expected to reach USD 795.34 billion by 2029 from USD 453.32 billion in 2024, growing at a CAGR
of 11.90%

Key Players in the Digital Lending Ecosystem

• Banks & NBFCs: eg- HDFC Bank’s Digital Loans, Bajaj Finserv.
• Fintech Companies: eg- Paytm, Cred, KreditBee.
• Peer-to-Peer (P2P) Lending Platforms: eg- Faircent, LenDenClub.
• Neobanks & Payment Platforms: eg- Razorpay, Slice, Jupiter

Data
Need for Digital Lending in Personal Loans
1. Financial Inclusion: Digital lending platforms reach unbanked
or underbanked populations, promoting financial inclusion, a
key government objective in India.
2. Financial Inclusion for the Underserved: Over 190 million
Indians remain unbanked. Fintech lenders use digital KYC,
UPI, and Aadhaar-based verification to provide loans in rural
areas. Eg- Paytm and KreditBee
3. Ease of Access: Personal loans can now be disbursed quickly
through digital platforms, providing customers with instant ac-
cess to funds for various needs, such as medical emergencies,
education, or home renovation.
a. Disbursed loans through digital channels have increased by
12 times from 2017 to 2020.
4. Eliminating intermediaries: It reduces the cost of borrowing
by offering competitive interest rates, and lowering the cost of
credit for consumers.
5. Innovative Credit Scoring: Digital platforms use alternative
data sources (such as mobile usage, utility payments, and social
media activity) to assess creditworthiness, extending loans to a
wider customer base.

Challenges of Digital Lending

1. Regulatory Gaps and Unregulated Lenders: Proliferation of
unregulated or “loan sharks” operating through digital platforms,
often charging exorbitant interest rates and engaging in predatory
lending practices.
2. High-Interest Rates: Several lenders charge exorbitant interest
rates, often disguised under terms like processing fees or penalty
charges.
3. High Default Rates: Unsecured loans, easy access, and lack of
proper credit assessment lead to increased non-performing assets (NPAs). Eg- In 2024, personal loan delinquencies in India overdue
by more than 90 days increased to 5.1% from 3.9% the previous year.
4. Data Privacy Concerns: Eg- In February 2021, a security researcher claimed that nearly 100 million MobiKwik users’ Know Your
Customer (KYC) details were compromised and put up for sale on the dark web.
5. Cybersecurity Risks: Eg- In March 2023, HDB Financial Services experienced a data breach exposing information of over 70 million
customers, including email addresses, phone numbers, and loan details.
6. Predatory Lending & Hidden Charges: Some platforms charge exorbitant interest rates and hidden fees, trapping borrowers in debt
cycles.
7. Algorithmic Bias & Transparency Issues: AI-based credit scoring may discriminate against certain demographics, leading to unfair
lending practices.
8. Lack of Financial Literacy: Despite significant growth in account openings, 48% of account holders in India made no deposits or
withdrawals over the past year, indicating low financial literacy and engagement with financial services.
9. Increase in illegal apps: Rise in unregistered lending apps operating without regulation or approval from the RBI. Eg- apps like Rupee
Day, Real Rupee, and First Cash.

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RBI Initiatives to Regulate and Reform Digital Lending
1. Direct Fund Flow: Loan disbursements and repayments must occur directly between the borrower’s and the lender’s bank accounts,
prohibiting third-party involvement in fund handling.
2. Guidelines on Digital Lending (2022): Mandated direct loan disbursal to borrower accounts and restricted pass-through accounts
by lending service providers (LSPs).
3. First Loss Default Guarantee (FLDG) Norms (2023): Capped FLDG arrangements at 5% of loan portfolios to reduce systemic risks
in digital lending.
4. Peer-to-Peer (P2P) Lending Regulations: prohibiting them from assuming credit risks or providing credit guarantees. Any loss of
principal or interest is to be borne by the lenders.
5. Digital Lending Apps (DLAs) Oversight: Introduced a whitelist of RBI-compliant apps to eliminate fraudulent lending platforms.
6. Data Privacy and Consent: Digital Lending Apps (DLAs) are mandated to collect only essential borrower data, strictly on a need-to-know
basis, and must obtain explicit prior consent from borrowers. Borrowers retain the right to revoke consent and request data deletion.
7. Cooling-Off Period for Loan Foreclosure: Allowed borrowers to exit digital loans without penalties within a specified period.
8. Grievance Redressal Mechanism: Digital lenders must have dedicated grievance redressal officers, and unresolved complaints can
be escalated to RBI.
9. Regulation of Buy Now, Pay Later (BNPL) Models: Brought BNPL under formal lending regulations, ensuring better borrower protection.
10. Framework for Self-Regulatory Organizations (SROs): Encouraged fintech players to form SROs for digital lending to maintain
industry best practices.

Government Initiatives
1. National Strategy for Financial Education (NSFE) 2020-2025: It emphasizes educating consumers about the risks involved in
digital lending and equipping them with skills to make informed borrowing decisions.
2. Regulatory Crackdown on Unregistered Apps: In December 2024, the Indian government proposed stringent penalties for unau-
thorized digital lending activities, including imprisonment and hefty fines.

Way Forward:
1. Establishment of a Unified Regulatory Framework that includes clear guidelines on interest rates, collection practices, and lending
terms.
2. Collaboration with Technology and Data Analytics: RBI should develop better risk assessment models that can reduce the depen-
dence on traditional credit scores.
3. Encouraging Ethical Lending Practices such as offering flexible repayment options, providing transparent disclosures, and avoiding
hidden charges. This could be part of the larger Financial Literacy and Consumer Protection Programs.
4. Legal Recourse: Utilise Debt Recovery Tribunals (DRT) to facilitate the recovery of dues. And leverage legal frameworks like Lok
Adalat and SARFAESI ACT, 2002 for efficient recovery.

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The Digital Rupee (e₹) is India’s Central Bank Digital Currency (CBDC), issued by the RBI as a digital form of the Rupee (₹). It offers
cash-like features such as RBI guarantee, settlement finality, and ease of transactions. Stored in a digital wallet, e₹ can be used
for payments, transfers, and transactions like physical cash.

Types of Digital Rupee

1. CBDC-W (Wholesale): For settling secondary market transactions.
2. CBDC-R (Retail): A digital version of fiat money, serving as a direct liability of RBI, unlike UPI, which involves commercial banks.

Benefits of CBDC
1. Financial Inclusion: CBDCs can offer financial services to
unbanked populations, providing them with easier access to
money transfers, savings, and credit.
a. For instance, China’s “Digital Yuan” aims to integrate the
large number of rural and unbanked people into the formal
financial system.
2. Cost Reduction: CBDCs can reduce the operational costs for
central banks, especially in terms of printing, managing, and
securing physical currency.
3. Faster & Cheaper Cross-Border Transactions: eg: RBI and
UAE’s central bank have partnered to use CBDCs for faster
cross-border payments, reducing reliance on SWIFT.
4. Efficient Government Subsidy Transfers: Direct Benefit Trans-
fers (DBT) like PM-KISAN and MGNREGA could be disbursed via
CBDC, minimizing leakages and ensuring real-time settlements.
Eg., public sector banks have started extending DBT via digital
currency.
5. Reduced Fraud & Counterfeiting: Digital Rupee transactions are secured through cryptographic methods, reducing risks associated
with counterfeit currency.
6. Mitigating the Threat of Cryptocurrencies: Since CBDCs are issued by central banks, they can ensure compliance with anti-mon-
ey laundering (AML) and combating the financing of terrorism (CFT) norms.
7. Lower Transaction Costs: CBDC eliminates intermediaries in digital payments, reducing merchant fees that are currently charged by
UPI and card networks.

Challenges in Implementing CBDC

1. Data Privacy and Security Concerns: Governments could access personal transaction histories, leading to fears of surveillance and
data misuse.
2. Cybersecurity Risks: A shift to a digital currency system could make financial systems vulnerable to cyber-attacks, hacking, and
technological malfunctions.
3. Dominance of UPI: the existing systems like NEFT, RTGS and UPI make it difficult for a new payment method to gain traction.
4. Lack of convenience: The retail digital rupee is available only in specific denominations, presenting a significant hurdle for everyday use.
e₹-R comes in different denominations from 50 paise to Rs 2,000, therefore payments in decimals are not possible in the retail segment.
5. Fewer marketing initiatives: UPI’s success can be largely attributed to significant marketing efforts and incentives like cashbacks,
However, this level of promotion may be hard to replicate for CBDC, as banks might be reluctant to spend heavily on marketing.
6. High Implementation Costs: It requires significant investment in technology and infrastructure, including cybersecurity, data stor-
age, and blockchain or other digital ledger technologies.
7. Potential for Increased Government Surveillance: Unlike cash, CBDC transactions are traceable, raising concerns about financial
privacy and potential misuse of data.
8. Risk of Digital Divide: Rural areas with low smartphone penetration and poor internet connectivity, CBDC adoption may be challenging.
9. Competition with Existing Digital Payment Systems: Eg, UPI, which processed over 14.03 billion transactions in January 2024,
already provides an efficient digital payment system, reducing the need for CBDC.

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Way Forward
1. Establish Legal and Regulatory Standards: Uniform standards for security, privacy, anonymity, and grievance redressal are necessary.
2. Enhance Public Awareness & Adoption
a. Conduct nationwide campaigns on the benefits and security of e₹.
b. Encourage merchants, businesses, and government institutions to accept Digital Rupee payments.
3. Ensure Robust Technological Infrastructure
a. Develop scalable and secure blockchain or DLT-based platforms.
b. Strengthen cybersecurity measures to prevent fraud and hacking risks.
4. Expand Financial Inclusion
a. Promote offline e₹ transactions for areas with limited internet access.
b. Ensure interoperability with UPI and other digital payment systems.
5. Introduce Incentives for Usage
a. Offer discounts, cashback, or tax benefits to users transacting with e₹.
b. Encourage government welfare disbursements using Digital Rupee.
6. Improve Security & Fraud Prevention
a. Implement multi-layered encryption and biometric authentication.
b. Establish real-time fraud detection and consumer grievance redressal mechanisms.
7. Facilitate Cross-Border Transactions
a. Work with global financial institutions to enable e₹ in international trade and remittances.
b. Explore bilateral agreements for CBDC-based payments with other nations.

Cryptocurrency is a decentralised digital or virtual currency that

uses cryptography for security. Cryptocurrency transactions are
documented on a public digital ledger known as the blockchain.
This ledger is maintained by a decentralised network of computers
distributed globally, which verify and add each new transaction to the
blockchain. Eg- Bitcoin, Ethereum, Ripple and Litecoin.

Nearly 1 billion people expected to use cryptocurrencies as invest-

ment or a payment method by 2027.
By 2027, India is expected to hit 328 million crypto users, or three
times more than the United States and the United Kingdom com-
bined. That means, one in three crypto users in 2027 will be from
India.
Current status of Cryptocurrency regulation in India

As of 2025, the Indian government imposed a 30% tax on profits

from trading, selling, or spending cryptocurrencies, along with a 1%
Tax Deducted at Source (TDS) on crypto sales exceeding ₹50,000
per financial year.

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The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
1. Prohibition of Private Cryptocurrencies: The bill is aimed at ‘private cryptocurrencies,’ as these are seen as opaque
currencies that may propel unlawful use such as money laundering and fraudulent activities.
2. Supporting Blockchain, Restricting Cryptocurrency: The bill categorically dismisses cryptocurrencies in the private sector, and is
positive about exploring blockchain technology in other areas such as supply chain, healthcare, and finance, etc.
3. Development of an Official Digital Currency: The RBI launched the Central Bank Digital Currency (CBDC), backed by the state and
regulated like fiat money. CBDC would thus help India get the best of a digital currency with a decentralized system and control by the
central authority.

Need for Cryptocurrency Regulation

1. Volatility : Cryptocurrencies are highly volatile.
a. Bitcoin, the leading cryptocurrency, saw a price drop of over 50% from its peak of nearly $69,000 in November 2021 to around
$30,000 in June 2022.
b. The lack of a stable framework increases risks to investors and the wider economy.
2. Prevention of Illicit Activities: Cryptocurrencies are often used in illegal activities such as money laundering, ransomware attacks,
and financing terrorism.
3. Consumer Protection: The collapse of major cryptocurrency exchanges, such as FTX in November 2022, has led to significant
financial losses for investors.
4. Investor Protection and Market Integrity: The cryptocurrency market is prone to fraudulent schemes and market manipulation. Eg-
in 2021, a reported $14 billion worth of cryptocurrency was lost in scams and frauds.
5. Rising frauds and scams: According to CipherTrace, the value of cryptocurrency scams in 2020 alone was over $1.9 billion.
6. Taxation & Revenue Generation: A regulated crypto market can generate revenue through taxation (e.g., 30% tax on crypto gains
in India).

Challenges in Cryptocurrency Regulation

1. Lack of Clear Classification: Cryptocurrencies function as assets, currencies, and securities, making regulation difficult. India has
yet to decide whether to classify them as legal tender, commodities, or digital assets.
2. Legal Ambiguity & Regulatory Delays: India lacks a comprehensive legal framework for cryptocurrencies.
3. Decentralized & Borderless Nature: Cryptos operate without a central authority, making enforcement challenging. Cross-border
transactions make it difficult to track and regulate illicit activities.
4. Risks of Money Laundering & Terror Financing: Anonymity and pseudo-anonymity enable illegal transactions.
5. Price Volatility & Investor Protection: Extreme fluctuations make cryptos high-risk investments. No consumer protection mech-
anisms exist in case of exchange failures or fraud.
6. Taxation & Revenue Challenges: Tracking crypto transactions for accurate taxation is difficult due to decentralization.
7. Cybersecurity Risks & Exchange Frauds: Crypto exchanges are vulnerable to hacks, phishing, and insider trading.
8. Impact on Monetary Policy & Banking System: Widespread crypto adoption can reduce demand for fiat currency, affecting
RBI’s monetary control. Banks face liquidity risks if crypto-based financial products become mainstream.

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Way Forward
1. Establish a Clear Legal Framework: Create a Crypto Regulation Bill covering taxation, trading, and investor protection.
2. Implement Strong KYC & AML Measures
• Mandate KYC (Know Your Customer) norms for all crypto exchanges.
• Enforce Anti-Money Laundering (AML) and Combating Terror Financing (CFT) rules in compliance with FATF guidelines.
3. Regulate Crypto Exchanges & Service Providers
• Require crypto exchanges to register with SEBI or RBI for oversight.
• Impose licensing requirements for crypto service providers and wallet operators.
4. Improve Investor Protection & Risk Awareness
• Set up a Crypto Investor Protection Fund to compensate users in case of fraud.
• Conduct nationwide awareness campaigns on crypto risks and taxation policies.
5. Taxation Clarity & Compliance
• Provide clear guidelines on taxation of crypto gains, losses, and transactions.
• Ensure crypto transactions are tracked via exchanges for tax compliance.
6. Strengthen Cybersecurity & Fraud Prevention
• Mandate regular audits of crypto platforms to prevent hacking and data breaches.
• Implement multi-layered security protocols for crypto storage and transfers.
7. Integrate Crypto With Existing Financial Systems
• Allow regulated institutions to provide crypto-related services under RBI supervision.
• Develop stablecoin regulations to ensure price stability and financial integration.
8. Strengthen International Cooperation: Align India’s crypto policies with global regulatory standards (e.g., EU’s MiCA framework).
9. Prevention of Illicit Activities: The Financial Action Task Force (FATF) recommends that virtual asset service providers adhere to
Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements to mitigate these risks.
10. Global Regulation of Crypto Assets
a. United States: The U.S. proposals to create a strategic Bitcoin reserve and establish a crypto advisory council.
b. European Union: The EU has implemented the Markets in Crypto-Assets (MiCA) Regulation, set to commence in January
2025. MiCA aims to provide a comprehensive regulatory framework for digital assets, ensuring consumer protection and market
integrity.
c. IMF-FSB Synthesis Paper: In the recently concluded G20 summit, the countries endorsed the report by the IMF and the Finan-
cial Stability Board (FSB) on risks and the framework for regulating crypto assets.

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The banking sector has been struggling with slower growth in deposits compared to credit. The bank deposits stood at 11.7%, while the
bank credit growth stood at 15%, pointing to a higher credit-deposit gap, in the quarter that ended in June 2024.
Major banks like State Bank of India (SBI) have reported a drop in deposits, with SBI’s Current Account and Savings Account (CASA)
deposits falling from Rs 19.14 lakh crore to Rs 19.41 lakh crore, and overall deposits decreasing from Rs 49.16 lakh crore to Rs 49.01
lakh crore.

Reasons for a slower growth in deposits:

A. Structural Factors:
1. Shift to Market Instruments: Rising popularity of mutual
funds, stocks, and digital investment platforms (like Zerodha,
Groww) has reduced bank savings.
2. Lower Interest Rates on Deposits: Real returns on fixed depos-
its (FDs) have declined due to inflation outpacing interest rates.
3. Changing investment habits: The number of demat accounts
with both depositories (NSDL and CDSL) rose from 11.45 crore
in FY23 to 15.14 crore in FY24. (Economic Survey 2023-24)
4. Strong Stock Market Performance: Eg- the net AUM (assets
under management) of the mutual fund industry grew by
6.23% to touch a record high of Rs 64.97 lakh crore as of July
31, 2024.
5. Increase in Household Debt: More disposable income is being
directed towards loan repayments rather than savings.

B. Macroeconomic and Policy Factors:

1. High Inflation: Reduces the real purchasing power, discourag-
ing savings.
2. Rise in Consumption & Digital Payments: Greater consumer
spending post-pandemic has led to lower bank savings.
3. Reduction in Government Saving Schemes: Small savings
schemes like PPF and NSC have become relatively less attrac-
tive due to moderate returns.

C. Technological & Behavioral Changes:

1. Growth of FinTech & Digital Wallets: Rise of UPI, Paytm, PhonePe, and instant payment systems reduce the need to keep money in banks.
2. Crypto & Alternative Assets: A shift in investor preference toward crypto, gold ETFs, and sovereign gold bonds (SGBs).

Concerns over declining deposits:

1. Liquidity Crisis for Banks: Banks depend on deposits for lending. A deposit slowdown affects credit availability to industries and MSMEs.
2. Rising Cost of Borrowing for Banks: To retain deposits, banks offer higher interest rates, increasing cost of funds. Eg-SBI raised its
FD rates multiple times in 2023 to attract deposits.
3. Risk of Financial Instability: Deposits form the primary source of funds for Indian banks (~77% of total liabilities in 2023). A con-
tinued decline could impact banking stability. Eg- The US banking crisis (2023) saw runs on Silicon Valley Bank (SVB) and Signature
Bank due to declining deposits.
4. Reduced Ability to Support Economic Growth: Lower deposits impact the bank’s ability to lend to businesses, affecting GDP growth.
5. Reliance on Short-Term Deposits: To meet rising credit demand, banks are increasingly relying on short-term deposits and other
liability instruments. This dependency could lead to long-term liquidity issues for banks.
6. Shift to Alternative Investments: Like mutual funds, stocks, insurance, and pension funds. This trend, coupled with a decline in net
financial assets (falling from 11.5% of GDP in 2020-21 to 5.1% in 2022-23) and rising inflation, is contributing to slower deposit growth.

Steps Taken by the Government & RBI

1. Monetary & Policy Measures
a. Increase in Repo Rates: RBI hiked the repo rate in 2022-23 to curb inflation and boost real interest rates on deposits.
b. Liquidity Management: Open Market Operations (OMOs) to control excess liquidity and ensure banks have funds.
2. Encouraging Long-Term Deposits: Special fixed deposit schemes like SBI Amrit Kalash FD (7.1% interest rate) were launched to
attract savers.
3. Innovative initiatives to attract depositors:
a. SBI launched ‘Amrit Vrishti’, a scheme that offers 7.25% interest on deposits for 444 days.
b. Bank of Baroda also launched the ‘Monsoon Dhamaka’ deposit scheme, offering interest rates of 7.25% for 399 days and
7.15% for 333 days.
4. Increase in Small Savings Scheme Rates: Senior Citizen Savings Scheme (SCSS) interest rate was increased to 8.2% in 2023 from 7.4%.

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Way Forward:
1. Enhancing Deposit Returns: Banks should offer inflation-beating deposit rates and flexible investment-linked savings accounts. Eg-
The Philippines introduced “tiered interest rates” where higher balances earn better returns.
2. Boosting Long-Term Savings Culture: More tax benefits for long-term deposits and integration of insurance-linked fixed deposits
e.g., HDFC Life-linked deposits.
3. Strengthening Digital & Neo-Banking Infrastructure: Eg- Neobanks like Jupiter and Fi Money are offering personalized savings
strategies with AI-based financial planning.
4. Leveraging Technology: Banks can use data analytics, AI, etc. to create personalised savings and deposit products, making it
easier for customers to manage their finances.
5. Expanding Financial Inclusion: Increasing rural and semi-urban banking penetration via Payments Bank model and Business
Correspondents (BCs).

A payment system is a network of institutions, instruments, and processes that facilitate the transfer of money between individ-
uals, businesses, and financial entities. It ensures the secure, efficient, and seamless settlement of financial transactions through
cash, electronic, or digital means.

Types of Payment Systems in India

1. Cash-based Payments: As per RBI, cash accounts for nearly
50% of all transactions in India.
2. Banking Payment Systems:
a. NEFT (National Electronic Funds Transfer):Transferring
funds between banks in real-time. Eg., 53% value of India’s
digital payments is dominated by RTGS and NEFT.
b. RTGS (Real-Time Gross Settlement): Used for large-value,
time-sensitive transactions.
c. IMPS (Immediate Payment Service): Offers 24/7 real-time
payments across banks.
3. Digital Payment Systems: In 2013 there were 222 crore digital
transactions valued at Rs 772 lakh crore, it has increased 94
times in volume and more than 3.5 times in value in CY-2024.
a. UPI (Unified Payments Interface):
i. As of 2024, UPI recorded over 8 billion transactions
per month, contributing significantly to India’s move
towards a cashless economy.
ii. India accounts for 46% of all digital payments in
the world and UPI transactions now account for 80%
of all digital payments in India.
b. Mobile Wallets (e.g., Paytm, PhonePe, Google Pay):
Allow users to store money electronically and make pay-
ments directly from their phones.
c. POS (Point of Sale) Machines: Widely used in retail and
other commercial setups to process payments via credit
and debit cards.
4. Cheque-based Payments remain an important tool for certain
high-value transactions.
5. Bharat Bill Payment System (BBPS): An integrated bill pay-
ment system for utilities, taxes, etc.
6. National Automated Clearing House (NACH): Facilitates bulk payments such as salaries, pensions, and dividends.

Issues in the Payment System

1. Cybersecurity Risks: In February 2025, RBI Governor Sanjay Malhotra highlighted the rise in digital payment frauds, emphasizing
the need for robust security measures.
2. Technical Glitches & Downtime Issues: Frequent bank server downtimes, affecting real-time payments. Multiple payment fail-
ures on UPI, IMPS, and banking apps.
3. Digital Divide: According to a 2020 survey, only 53% of rural households had access to the internet, limiting their participation in
digital payments.
4. Regulatory and Operational Challenges: The complexity of compliance for different payment systems, including issues related to
interoperability.

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5. Cash Dependency in Rural Areas: According to the 2011 Census, only 35% of rural households had access to formal banking services.
6. High Transaction Fees for Merchants
• MDR (Merchant Discount Rate) charges make digital payments expensive for small businesses.
• Cross-border remittances still have high processing fees and forex conversion costs.

STEPS TAKEN:
1. Aadhaar-based Payment Systems: The adoption of Aadhaar for KYC (Know Your Customer) and authentication has enabled better
access to financial services, especially in rural areas.
2. Strengthening Digital Payment Infrastructure
• UPI Expansion: UPI transactions have been made interoperable with multiple banks and wallets.
• Real-Time Payments: IMPS, NEFT, and RTGS now function 24x7 for faster transactions.
3. RBI’s Payments Vision 2025: Emphasizing the 5Is for Digital Payment Landscape- integrity, inclusion, innovation, institutionaliza-
tion, and internationalization: essential for shaping the digital payment ecosystem.
4. Cybersecurity & Fraud Prevention Measures
• OTP & Multi-Factor Authentication (MFA): Required for digital payments to prevent unauthorized access.
• Digital Payment Security Controls (RBI Guidelines, 2022): Banks and fintech firms must comply with strict cybersecurity norms.
5. Promoting Financial Inclusion & Rural Digitization
• Aadhaar-Enabled Payment System (AePS): Allows biometric-based transactions for unbanked populations.
• Offline Digital Payments: RBI introduced offline UPI transactions for low-connectivity areas.
• Jan Dhan Yojana & DBT Integration: Ensures government subsidies reach directly into beneficiaries’ bank accounts.
6. Reducing Merchant Transaction Costs
• Zero MDR on UPI & RuPay Cards: To promote digital transactions, RBI has removed MDR fees for small businesses.
• UPI Lite: Launched for small-value transactions without PIN authentication, improving speed and efficiency.
7. Expanding Cross-Border Payment Capabilities
• UPI & RuPay Internationalization: India has partnered with UAE, Singapore, and France for UPI and RuPay acceptance.
• Bilateral Agreements for Digital Payments: MoUs with Singapore (PayNow-UPI linkage) and UAE (Dirham-Rupee payments).
8. Introduction of Central Bank Digital Currency (CBDC: Digital Rupee): Retail (e₹-R) and Wholesale (e₹-W) pilots launched by RBI to
explore CBDC use cases.
9. Strengthening Data Privacy & Regulatory Framework
• RBI Digital Lending Guidelines: Stricter norms for fintechs and loan apps to prevent fraud and ensure consumer protection.
• Payment Aggregator & Gateway Regulation (PAG Guidelines, 2021): All digital payment platforms must be RBI-licensed for
better compliance.
10. Promoting Contactless & Card-Based Payments
• NFC-Enabled Cards & Tap-and-Pay: Boosting contactless payments for faster checkout.
• Tokenization of Cards: RBI mandated card data masking to reduce fraud risk in online transactions.
11. Enhancing Customer Grievance Redressal
• Digital Ombudsman System: RBI launched a centralized complaints portal for digital payment disputes.
• Increased Chargeback Protection: Banks must auto-reverse failed transactions within T+1 days.
12. India joined Project Nexus, conceptualized by Bank for International Settlements (BIS), enables instant cross-border retail pay-
ments by interlinking domestic fast payment systems (FPSs).
13. Boosting Innovation & Fintech Collaboration
• Regulatory Sandbox for Fintech: Allows startups to test new payment technologies under RBI supervision.
• National Payments Corporation of India (NPCI) Initiatives: Supports interoperability and digital payment innovations like
BharatQR & BBPS.

Way Forward:
1. Strengthening cybersecurity frameworks, enhancing encryption technologies, and implementing stricter norms for digital
platforms.
2. Strengthening UPI dominance: Building upon the success of UPI by integrating it with more services, expanding its use in offline
payments, and enabling cross-border transactions.
3. Cloud-based infrastructure: Migrating to cloud-based payment systems for improved scalability, reliability, and faster transaction
processing.
4. Innovation in payment methods: Exploring emerging technologies like voice-based payments, wearable devices, and QR code-
based payments for a seamless user experience.
5. Interoperability across platforms: Ensuring seamless integration between different payment systems like UPI, credit/debit cards,
and mobile wallets.
6. Expanding Bharat QR adoption: Making Bharat QR codes widely available for easy merchant payments, especially in rural areas.
7. Developing specialized payment solutions: Creating tailored payment systems for specific sectors like healthcare, education, and
transportation.
8. Bridging the Digital Divide: Expanding digital infrastructure in rural areas, coupled with financial literacy programs (PM DISHA).

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Microfinance refers to financial services provided by financial
institutions to individuals and small businesses, typically in un-
derbanked or unbanked communities, through loan facilities and
savings accounts.
1. Gross Loan Portfolio (GLP): The microfinance industry report-
ed a GLP of ₹4,33,697 crore, marking a 24.5% year-on-year
increase.
2. Active Loans and Borrowers: There were approximately 1,238
lakh active loans and 6.6 crore unique live borrowers.
3. Portfolio Outstanding: The total portfolio outstanding stood at
₹3,77,706 crore. (SIDBI)
4. Annual Growth: The microfinance industry experienced an
18% growth in portfolio outstanding from March 2023 to March
2024.
5. Asset Quality Concerns: The sector faced rising delinquencies,
with 30+ days past due (DPD) delinquency rates at 2.29% and
90+ DPD at 1.16% as of March 2024.
6. According to a World Bank research, NABARD’s microfinance programs have contributed to a 1.5 percentage point decrease in
poverty in India.
7. According to a survey done by the International Labor Organization, the microfinance programs developed by NABARD in India
have enabled women there to attain 10 percentage point gains in the employment rate.
8. As per National Council of Applied Economic Research (NCAER) study, microfinance contributes about 130 lakh jobs and 2% of
our GVA.

Significance of Microfinance in India

1. Poverty Alleviation: Microfinance provides opportunities for
low-income individuals to escape the cycle of poverty by access-
ing financial resources for income-generating activities.
2. Entrepreneurship Promotion: Microfinance enables aspiring
entrepreneurs to start or expand small businesses, fostering
economic growth and job creation.
3. Empowerment of Women: Microfinance plays a significant role
in empowering women by providing them with financial resourc-
es, promoting their economic independence, and enhancing their
decision-making power.
4. Financial Inclusion: Microfinance fills the gap left by traditional
banks and brings marginalized populations into the formal finan-
cial system.
5. Community Development: Through Self Help Groups (SHGs)
and community-based approaches, microfinance has facilitated
social cohesion and community development.
6. Social Impact: Improves access to education, healthcare, and
living conditions. Eg- mothers with access to credit can increase
their children’s school enrollment rates by approximately
1.9%for girls and 2.4% for boys. (Grameen Bank)
7. Microfinance’s Role in Achieving SDGs: Microfinance contributes to SDG 1 (No Poverty), SDG 5 (Gender Equality), and SDG 8
(Decent Work and Economic Growth) by empowering marginalized communities and promoting inclusive economic development.

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Initiatives taken by Government for Microfinance in India
1. Based on Malegam Committee recommendations, RBI established regulatory framework for NBFC-MFIs, including interest rate
caps, margin caps, and guidelines on fair practices.
2. Self Help Group – Bank Linkage Programme (SHG-BLP): SHG-BLP is a cost-effective model linking poor households to formal
financial institutions.
3. In 2014, the RBI recognised the Microfinance Institutions Network (MFIN) and Sa-Dhan as Self-Regulatory Organizations (SROs) for
guaranteeing regulatory compliance and advancing best practices.
4. In 2022, the RBI introduced harmonised regulations for all regulated entities (REs) engaged in microfinance, aimed to create a level
playing field, address matters of over-indebtedness, and guarantee transparent pricing and fair practices.
5. NABARD Financial Services Ltd. (NABFINS) as a model microfinance institution, focusing on governance, transparency, and rea-
sonable interest rates.
6. SIDBI Foundation for Microcredit (SFMC): A division of the Small Industries Development Bank of India, SFMC provides bulk loans
to MFIs.
7. Pradhan Mantri Mudra Yojana (PMMY): The Union Budget 2024 enhanced the limit to ₹20 lakh from the current ₹10 lakh for
those who have availed and successfully repaid loans previously taken under Tarun category.
8. e-Shakti Programme (NABARD): Digitizes SHG accounts to enhance financial inclusion.
9. PM SVANidhi: Supports street vendors with collateral-free loans up to ₹10,000 for one year. It has disbursed approximately 94.31
lakh loans, totaling ₹13,422.16 crore, to street vendors across India, as of December 2024.

Challenges associated with microfinance in india

1. Higher Interest Rate Compared To Mainstream Banks : Serving remote and rural areas involves significant administrative and logis-
tical expenses. Operational costs of MFIs often translate into higher interest rates for borrowers.
2. Transaction cost: Extending microfinance services to a significantly higher number of small debtors entailed high transaction costs,
including travel and monitoring expenses, which often rendered the operations of formal financial institutions unsustainable;
3. Absence of collateral: Several rural poor lacked documentary evidence and collateral, making it difficult to secure loans and guaran-
tee repayment;
4. Money lenders: Several borrowers continued to depend on conventional moneylenders because of easier availability and flexible
conditions
5. Skewed Distribution: As of 2022, 82% of the loan portfolio was concentrated in ten States.
6. Regulatory and Lending Practices: In October 2024, the Reserve Bank of India (RBI) barred four non-bank finance companies
from issuing new loans due to improper pricing practices and excessive mark-ups over funding costs.
7. Rising Delinquencies: Between April and September 2024, loans overdue in the microfinance sector increased from 2.15% to
4.30%, indicating a doubling of asset quality stress.
8. Lack of Financial Literacy: Poor financial literacy can lead to misuse of loans and an inability to repay. Eg., only about 27% of India’s
population is financially literate.

Way Forward
1. Leverage Mobile Banking: Utilize mobile platforms to deliver financial services, increasing accessibility for clients in remote areas
and reducing operational costs.
2. Uniform Interest Rate Mechanism: Implement risk-based pricing instead of flat interest rate caps, allowing flexibility while ensuring
affordability.
3. Mandatory Credit Bureau Integration: Enforce real-time reporting of microfinance loans to prevent over-indebtedness and multi-
ple borrowings.
4. Develop Government-Backed Microfinance Bonds: Introduce social impact bonds to provide long-term, low-cost funding for MFIs.
5. Enhance Financial Literacy Programs: Educate clients on financial management, the implications of borrowing, and the importance
of savings to empower them to make informed decisions.
6. Promote Social Business Models: Encourage MFIs to adopt business models that prioritize social impact over profit maximization,
ensuring that financial services contribute to poverty alleviation and community development.
7. Strict Borrower Protection Laws: Enforce zero-tolerance policies against coercive recovery practices and unfair lending terms.
(Smart Campaign Framework)

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Financial technology, also known as fintech, refers to the use of technology to improve, innovate, and optimize financial services. It inte-
grates technology with financial services and covers a broad spectrum of services such as digital payments, lending, insurance, wealth
management, and personal finance, all powered by modern technologies.

India remains a global leader in fintech, 3rd highest globally after the US and UK. India’s FinTech market, valued at $110 billion in
2024, is one of the fastest-growing globally and is projected to reach $420 billion by 2029, expanding at a CAGR of 31%.

Different Types of Fintechs in India, classified according to their functions

Payment Fintechs These offer digital payment solutions, such as mobile wallets, online payment gateways, and peer-to-
peer (P2P) payments. Eg-Phonepe
Lending Fintechs These offer digital lending solutions, such as personal loans, business loans, and credit cards. Eg-
Lending Kart
Insurance Fintechs These offer digital insurance solutions, such as health insurance, life insurance, and car insurance. Eg-
Policy bazaar
Investment Fintechs These offer digital investment solutions, such as stock trading, mutual funds, and cryptocurrency
trading. Eg-Zerodha

The total market opportunity for fintech in India is predicted to reach $1.3 trillion by 2025, expanding at a CAGR of 31% from
2021 to 2025.

Growth Drivers
1. Digital Infrastructure: Key initiatives like Aadhaar, UPI, Bharat
Bill Payments, and GSTN have laid the foundation for seamless
digital financial services.
2. Favorable Regulatory Environment: RBI’s Digital Lending
Guidelines, Account Aggregator Framework, and FinTech
Sandbox foster innovation.
3. Technological Innovation: The adoption of technologies such as
Artificial Intelligence and Machine Learning has driven the emer-
gence of new business models. Eg- Inter-Operable Regulatory
Sandbox (IORS) System by RBI.
4. Rising Internet & Smartphone Penetration: India ranks as the
second-largest market globally for internet and smartphone
users, providing a large base for fintech growth. India had 659
million smartphone users in 2024, resulting in a penetration rate
of 46.5%.
5. Demographic Advantage: By 2025, the working-age population
is expected to represent 56% of the total population.
6. Increasing Middle-Class Population: By 2030, India is set to
add 140 million middle-income households and 21 million
high-income households, further driving the growth of fintech.
7. Rising Financial Inclusion: Over 500 million Jan Dhan accounts
and increased penetration of neo-banks & digital lending plat-
forms.
8. High adoption rate: As per Economic Survey 2022-23, fintech
companies in India witnessed an 87% adoption rate across varied user bases as opposed to the global average rate of 64%.
9. Embedded Finance & BNPL Growth: Buy Now Pay Later (BNPL) services and embedded finance models expanding digital credit
access.
10. Booming InsurTech & WealthTech: Digital insurance and investment platforms witnessing 2x growth in customer adoption.

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Challenges
1. Regulatory Complexity: Multiple regulatory bodies, including the RBI and SEBI, oversee the fintech industry, and the dynamic nature
of the Fintech sector, creating a complex regulatory landscape.
2. Dominance of foreign entities owned fintech companies, apps, etc.: Walmart backed PhonePe(46.91%) and Google- backed Goo-
gle Pay(36.39%), dominate the Indian fintech sector. Low adoption of Indian fintech apps within the NPCI’s BHIM UPI’s share being 0.22%.
3. Cybersecurity Threats: risks of data leaks, platforms downtimes, and information theft, etc. Eg- UPI frauds constituted 55% of total
digital frauds in 2022-23, with cases rising to 95,000 from 84,000 in 2021-22.
4. Money laundering: Eg- Abu Dhabi-based payment app called Pyppl, operated by the Chinese investment scamsters was used for
money laundering in India.
5. Capital Acquisition: In the first half of 2024, fintech startups in India witnessed a 59% drop in funding, collectively raising $795
million compared to $1.9 billion in the same period in 2023.
6. Customer Trust and Retention: Approximately 73% of new app users discontinue usage within a week of installation, underscoring
the need for improved user experiences and retention strategies.
7. Data privacy issues: Misuse of personal information and financial data leading to cyberattacks, phishing, identity thefts, etc.
8. Illegal and unethical practices: Like illegal digital lending, mis-selling of financial products, opaque lending practices, brutal collection,
methods, and customer harassment.
9. Financial literacy deficit: Approximately 27% of India’s population is financially literate.
10. Infrastructure inadequacy: Like slow Internet, limited network connectivity, etc.

Government Initiatives Supporting the Fintech Sector in India

1. UPI Expansion & Global Integration – Promoting UPI interoperability with Singapore, UAE, France, and Sri Lanka to boost global
adoption.
2. Digital Lending Guidelines (RBI, 2022) – Regulating FinTech lending to ensure consumer protection, transparency, and fraud
prevention.
3. Account Aggregator (AA) Framework – Enabling secure data sharing across financial institutions to improve credit access.
4. e-RUPI (Digital Voucher Initiative) – Facilitating direct, cashless, and targeted benefit transfers for welfare schemes.
5. Interoperable Digital Payments (NPCI Initiatives) – Strengthening UPI, RuPay, BharatQR, and Aadhaar Pay for seamless transactions.
6. Regulatory Sandbox (RBI, SEBI, IRDAI, IFSCA) – Allowing FinTech startups to test innovations in payments, lending, and block-
chain under supervision.
7. DigiLocker & Aadhaar-Based eKYC – Simplifying digital onboarding and KYC verification for banking and lending services.
8. Open Network for Digital Commerce (ONDC) – Democratizing e-commerce with FinTech payment integration to boost digital
transactions.
9. 50-Year Interest-Free Fund (Budget 2023) – ₹1 lakh crore ($12B) for tech-driven growth, fostering innovation and lending com-
petition.
10. Startup India & Digital India Initiatives – Supporting FinTech innovation, MSME credit access, and digital transformation.
11. Digital Public Infrastructure: It includes Aadhaar, Video KYC, PM Jan Dhan Yojana, UPI, etc.
12. Aadhaar: According to a World Bank study, Aadhaar has facilitated bank account opening for over 570 million previously unbanked
adults in India.
13. Unified Payments Interface (UPI): The UPI (Unified Payments Interface), which processed just 1 million transactions in 2016, now
handles over 10 billion transactions annually.
14. Fintech Hub at IFSC, GIFT City: A state-of-the-art fintech hub in Gandhinagar, Gujarat, designed to position India as a global leader
in the fintech space.

Way Forward
1. Strengthening Cybersecurity Frameworks: Fintech companies must invest in advanced security infrastructure to safeguard against
evolving cyber threats. Collaborative efforts with cybersecurity firms can enhance resilience against attacks.
2. Conducive Policy Framework addressing the risk of market concentration and interoperability to facilitate large scale adoption of
technology.
3. Promoting Regulatory Sandboxes: It allows fintech innovations to be tested in a controlled environment, facilitating compliance and
fostering innovation.
a. Regulatory sandbox as suggested by Watal committee.
4. Recommendations by Standing Committee Report on Fintechs in India:
a. Implementation and strict enforcement of NPCI’s 30% transaction value cap for Fintechs
b. Strengthened regulations that encompass both local and foreign applications.
c. Multifold penetration of the Digital Payment Market to achieve overall market equilibrium. The existing and new players (banks
and non-banks) must scale up their consumer outreach for the growth of UPI payments through their platforms.
d. Maintain the low fraud to sales ratio to sustain consumer trust in digital transactions.

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Money and Capital Market

The money market is a segment of the financial market where short-term borrowing and lending occur, typically for one year or less.
It falls directly under the regulatory jurisdiction of RBI.

Key Features
1. Participants in the call/notice money market currently include banks (excluding RRBs) and Primary Dealers (PDs), both as borrow-
ers and lenders
2. The Indian money market is known for its high liquidity due to the presence of diverse participants and instruments
3. Key trading platforms in the Borrowing and Lending market include NDS-CALL, CROMS, and F-TRAC.

Importance
1. Serves as an equilibrating mechanism to even out the demand and supply of short-term funds
2. Avenue for central bank intervention for influencing liquidity and the general level of interest rates in the economy
3. Ensures Liquidity in the Economy: Provides short-term funds to banks, corporations, and financial institutions to maintain liquidity.
Eg- Call Money Market
4. Instruments are generally considered low-risk because of their short maturities and backing by credible issuers such as the govern-
ment, banks, and financial institutions.
5. Supports Government Borrowing: The government raises short-term funds through Treasury Bills (T-Bills) to manage fiscal defi-
cits.
6. Facilitates Short-Term Credit: Businesses use Commercial Papers (CPs) and Certificates of Deposit (CDs) to meet working
capital requirements.
7. Provides Investment Avenues: Investors, including mutual funds and corporates, use money market instruments to park surplus
funds in low-risk, high-liquidity options.
8. Enhances Economic Stability: By regulating liquidity and credit flow, the money market plays a crucial role in economic growth
and financial system resilience.
9. Enabling Industrial Growth: The money market provides businesses with an accessible framework to obtain short-term loans for
their working capital needs
10. Self-Sufficiency for Commercial Banks: The money market offers commercial banks a ready platform to invest their excess funds
and earn interest while maintaining liquidity.

Types of Instruments in the Money Market

1. Treasury Bills (T-Bills): Short-term government securities issued by RBI with maturities of 91 days, 182 days, and 364 days. They
are issued at a discount and redeemed at face value.
2. Commercial Papers (CPs): Unsecured, short-term promissory notes issued by corporates and financial institutions for working
capital requirements. Maturity ranges from 7 days to 1 year.
3. Certificates of Deposit (CDs): Negotiable, time deposits issued by banks and financial institutions, offering a fixed interest rate for
a specific period, usually ranging from 7 days to 1 year (for banks) and up to 3 years (for financial institutions).
4. Call and Notice Money: Short-term interbank lending instruments where funds are borrowed/lent for 1 day (Call Money) or 2-14
days (Notice Money).
5. Repurchase Agreements (Repo & Reverse Repo): Repo: Banks sell securities to the RBI with an agreement to repurchase them at a
predetermined price. Reverse Repo: RBI borrows funds by selling securities, helping in liquidity management.
6. Banker’s Acceptance (BA): A short-term credit instrument used in international trade, guaranteed by a commercial bank, with a
maturity of 30 to 180 days.
7. Money Market Mutual Funds (MMMFs): Investment funds that pool money to invest in money market instruments, offering liquidity
and relatively safe returns.
8. Promissory Notes: Unsecured short-term debt instruments where a borrower promises to pay a fixed amount at a future date.
9. Interbank Term Market: Banks lend/borrow funds among themselves for a tenure beyond 14 days up to 1 year, facilitating liquidity
adjustment.
10. Foreign Exchange Swaps: A combination of a spot and forward contract, where two parties exchange currencies for a short peri-
od, commonly used for liquidity management.

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Challenges in the Indian Money Market
1. Fragmented Structure: The coexistence of organized (banks, RBI) and unorganized sectors (moneylenders, chit funds) creates
inefficiencies and reduces transparency.
2. Limited Retail Participation: The money market is dominated by institutions, with restricted access for individual investors,
limiting broader financial inclusion.
3. Volatility in Interest Rates: Frequent fluctuations in repo rates, call money rates, and treasury bill yields create uncertainty for
borrowers and investors.
4. Liquidity Constraints: Eg- Liquidity crunch during festive seasons affects interbank lending.
5. Low Depth of the Corporate Bond Market: Lack of a well-developed secondary market for money market instruments, reducing
the attractiveness for corporate issuers.
6. Regulatory Constraints: RBI-imposed restrictions on who can issue and invest in money market instruments limit market expan-
sion and dynamism.
7. High Dependence on Banks: Commercial banks dominate the money market, limiting the role of NBFCs and mutual funds in
short-term financing.
8. Lack of Awareness & Financial Literacy: Many businesses and individuals lack knowledge about money market instruments,
limiting participation and efficiency.
9. Limited Role of NBFCs & Small Financial Institutions: Strict regulatory norms restrict the participation of NBFCs and coopera-
tive banks, affecting market liquidity and competition.
10. Capital Shortages: The limited availability of capital restricts trade and industrial growth, hampering sectoral development and
slowing economic expansion.
11. Underdevelopment Compared to Global Markets: The Indian money market lacks depth, diversity, and sophistication compared
to developed global financial markets.

RBI Guidelines
1. Revised Borrowing Limits in Call and Notice Money Markets (June 2023): Scheduled Commercial Banks (excluding small finance
and payment banks) now have the autonomy to set their own borrowing limits in call and notice money markets.
2. Master Directions on Money Market Instruments (Effective April 1, 2024): The RBI has consolidated regulations governing the
issuance of Commercial Papers (CPs) and Non-Convertible Debentures (NCDs) with original maturities up to one year.
3. Liquidity Management Measures (January 2025): In response to tightening liquidity conditions, the RBI commenced daily liquidity
infusions through Variable Rate Repo (VRR) auctions. This initiative aims to alleviate overnight interbank and money market rates,
ensuring adequate liquidity in the banking system.

International Agreements
1. Chiang Mai Initiative (CMI) (2000): Established as a multilateral currency swap arrangement among the ten ASEAN countries, along
with China, Japan, and South Korea. The CMI was designed to manage regional short-term liquidity issues and reduce reliance on the
International Monetary Fund (IMF).
2. Central Bank Liquidity Swap Lines: Bilateral agreements between central banks to exchange currencies, ensuring liquidity during
financial stress.
3. Federal Reserve’s FIMA Repo Facility (2020): The Federal Reserve introduced the Foreign and International Monetary Authorities
(FIMA) Repo Facility to offer a backstop source of U.S. dollar liquidity for foreign central banks and international monetary authorities.

Way Forward for the Indian Money Market

1. Deepening the Market Structure: Strengthen the secondary market for money market instruments. Eg- Expanding the corpo-
rate bond and commercial paper market.
2. Enhancing Retail Participation: Allow greater access to individual investors through mutual funds and digital investment plat-
forms to promote financial inclusion.
3. Regulatory & Policy Reforms: Simplify investment guidelines, risk management norms, and compliance requirements to make
the money market more dynamic.
4. Enhancing Financial Literacy & Awareness: Conduct awareness campaigns, training programs, and investor education to
improve market participation and decision-making.
5. Strengthening Liquidity Management Framework: Develop more robust liquidity buffers, enhanced open market operations
(OMOs), and flexible repo mechanisms.
6. Expanding Role of Public-Private Partnerships (PPPs): Encourage collaboration between banks, fintech firms, and financial
institutions to drive innovation in the money market.

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The capital market is a financial market where long-term securities (stocks, bonds, debentures, etc.) are traded, enabling businesses
and governments to raise capital.
Capital Market deals with long-term financial instruments used for investment and raising capital. It includes Equity, Debt, and
Hybrid instruments.

Types of Capital Markets

• Primary Market: Where new securities (IPOs, FPOs) are issued. Eg- Reliance Jio’s IPO in 2024.
• Secondary Market: Where existing securities are traded among investors. Eg- NSE & BSE stock exchanges facilitate trading.

Key Components of the Capital Market

• Equity Market: Facilitates trading in stocks/shares. Eg- Sensex & Nifty indices track stock performance.
• Debt Market: Deals with long-term debt instruments like corporate bonds and government securities (G-Secs).
• Derivatives Market: Includes futures & options (F&O), swaps, providing hedging and risk management tools.
• Foreign Exchange Market: Enables trading of currencies and forex derivatives.

Major Capital Market Institutions

• Stock Exchanges: BSE (Bombay Stock Exchange), NSE (National Stock Exchange).
• Depositories: NSDL (National Securities Depository Ltd.), CDSL (Central Depository Services Ltd.) for electronic holding of
securities.
• Mutual Funds & Investment Banks: Facilitate investment and portfolio management.

Key Characteristics
1. The Securities and Exchange Board of India (SEBI) is a financial
regulator that oversees capital markets in India.
2. The increased participation of retail investors in the capital
market has helped to stabilize the market and increase returns
on savings.

Instruments of Capital market

1. Equity Instruments
• Common Shares (Equity Shares): Represent ownership in
a company with voting rights and dividends but carry higher
risk.
• Preference Shares: Shareholders receive fixed dividends before common shareholders and have priority in case of liquidation.
• Depository Receipts (ADRs, GDRs, IDRs): Instruments that allow foreign investors to trade domestic shares in international
markets.
2. Debt Instruments (Bonds & Debentures)
• Government Bonds: Long-term securities issued by the government with fixed interest payments (e.g., Sovereign Bonds, Treasury
Bonds).
• Corporate Bonds: Issued by companies to raise funds, offering periodic interest payments.
• Convertible Debentures: Bonds that can be converted into equity shares after a specified period.
• Municipal Bonds: Issued by local governments to fund infrastructure projects.
• Zero-Coupon Bonds: Issued at a discount and redeemed at face value, with no periodic interest payments.
3. Hybrid Instruments
• Warrants: Give investors the right (but not obligation) to buy a company’s stock at a predetermined price.
• Convertible Preferred Shares: Preference shares that can be converted into equity shares.
• Exchange-Traded Funds (ETFs): Investment funds that track an index and trade like stocks.
4. Derivative Instruments
• Futures & Options: Contracts to buy/sell assets at a future date, used for speculation and hedging.
• Swaps: Agreements between two parties to exchange cash flows, commonly used for interest rate or currency risk management.

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Significance
1. Mobilizes Long-Term Capital: Facilitates fundraising for businesses and governments through equity and debt instruments, driv-
ing economic expansion. Eg- Reliance Industries raised ₹53,124 crores through rights issues.
2. Supports Economic Growth: Funds raised through capital markets are used for business expansion, infrastructure projects, and
technological advancements, boosting GDP
3. Encourages Foreign Investment: Attracts Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDI), strengthening
India’s financial ecosystem.
4. Strengthens Corporate Governance: Listing on stock exchanges mandates regulatory compliance and financial disclosures,
improving corporate transparency.
5. Encourages Savings & Investment Culture: Enables individuals to invest in stocks, bonds, and mutual funds, reducing reliance on
traditional savings. Eg- Growth of Systematic Investment Plans (SIPs) in mutual funds.
6. Enhances Financial Inclusion: Expands retail participation through online trading platforms, fintech apps, and mutual funds,
making investments more accessible. Eg- Zerodha & Groww have democratized stock market access.
7. Supports Government Borrowing: The debt market helps fund fiscal deficits by allowing the government to issue G-Secs, bonds,
and treasury bills. Eg- The government raised ₹14.1 lakh crore in 2023-24 through bonds.
8. Ensures Liquidity & Efficient Capital Allocation: The stock market provides instant liquidity, allowing investors to buy/sell securi-
ties easily, ensuring efficient resource allocation.
9. Attracts Foreign Investments: Encourages Foreign Portfolio Investment (FPI) & Foreign Direct Investment (FDI), improving forex
reserves and global economic standing.

Factors Behind the Rise in Stock Market Investment in India

1. Increased Retail Participation: The number of Demat accounts crossed 13 crore in 2023, reflecting a surge in individual investors,
especially from Tier-2 and Tier-3 cities.
2. Growth of Digital Trading Platforms: Fintech apps like Zerodha, Groww, Upstox, and Angel One have simplified stock market ac-
cess, leading to higher trading volumes.
3. Rise of Mutual Funds & SIPs: Monthly Systematic Investment Plans (SIPs) inflows reached ₹18,000 crore in 2024, reflecting a shift
towards equity investments.
4. Low Interest Rates & Declining FD Returns: Traditional investments like Fixed Deposits (FDs) offer ~5-6% returns, pushing investors
toward stocks and mutual funds for higher yields.
5. Strong Corporate Earnings & GDP Growth: India’s GDP growth (6-7% annually) and robust corporate profits have boosted investor
confidence.
6. Foreign Investment Inflows (FPI & FDI): Foreign investors pumped $46 billion into Indian equities in 2023, driving stock prices
higher.
7. Government Reforms & Economic Policies: Initiatives like PLI schemes, Make in India, and financial sector liberalization have en-
couraged long-term stock market growth.
8. Expansion of IPO Market: The rise of startup IPOs like Zomato, Paytm, and Nykaa has attracted a new generation of investors into
equities.
9. Rise of Work-from-Home & Pandemic-Era Investing: The COVID-19 lockdowns led to a surge in stock market trading as people
explored online investment options.

Issues in Capital Market

1. Regulatory Oversight and Scandals: The Securities and Exchange Board of India (SEBI) has faced criticism for its handling of finan-
cial irregularities, such as the Satyam scandal, the Infrastructure Leasing & Financial Services (IL&FS) crisis, etc.
2. Limited Retail Investor Participation: The market is dominated by institutional investors, with only ~6% of Indians investing in
equities, compared to 55% in the US.
3. Market Manipulation: activities like insider trading, price rigging, and “pump and dump” schemes affect market integrity. Eg- Yes
Bank crisis (2020).
4. Influencer-Induced Misleading Investment Advice: The rise of “finfluencers,” on social media platforms has led to the dissemina-
tion of misleading investment advice.
5. Retail Investor Exposure to High-Risk Derivatives: There has been a surge in participation by young retail investors in high-risk
derivatives trading, often influenced by unregulated online platforms and social media personalities.
6. Impact of Financial Crises: Events like the IL&FS crisis in 2018 have had significant repercussions on the mutual fund industry and
the broader financial system.
7. High Market Volatility: frequent fluctuations in Stock markets impact investor confidence and long-term investment stability. Eg-
Nifty fell 7% in a single day during the 2020 COVID crash.
8. Dominance of Promoters in Listed Companies: Many Indian firms have high promoter shareholding, reducing corporate gover-
nance transparency. Eg- Reliance, Adani, and Tata have over 50% promoter holding.
9. Foreign Investment Volatility: FPI (Foreign Portfolio Investors) can withdraw funds rapidly, causing sudden market crashes. Eg-
FPIs pulled out $18 billion in 2022, impacting stock prices.
10. Limited Depth in Derivatives & Alternative Investment Markets: Indian derivatives markets are highly speculative, with limited
institutional participation in futures and options.

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SEBI Guidelines
1. Optional Same-Day Settlement: SEBI has decided to broaden the scope of its optional same-day settlement cycle (T+0) to encom-
pass the top 500 stocks by market capitalization, effective from January 31, 2025.
2. Regulations on Derivatives Trading: These include increasing the minimum contract size for derivatives, restricting weekly options
contracts, and enhancing transparency in transaction fees.
3. Guidelines for Research Analysts and Investment Advisers: These guidelines focus on ensuring transparency, preventing conflicts
of interest, and safeguarding investor interests.
4. Corporate Bond Buyback Option: SEBI has introduced a provision allowing companies issuing listed bonds to offer investors an
annual buyback option.

Way Forward for the Indian Capital Market

1. Increase Retail Participation: Expand access to stock markets through awareness programs, digital trading platforms, and
simplified KYC procedures.
2. Deepen the Corporate Bond Market: Encourage companies to raise funds through bonds instead of relying on bank loans, improv-
ing capital availability.
3. Promote Financial Literacy & Inclusion: Introduce capital market education in schools and colleges to build a long-term invest-
ment culture.
4. Develop Alternative Investment Avenues: Expand REITs, InvITs, and SME stock exchanges to diversify capital raising options.
5. Reduce Compliance Burden for Companies: Simplify IPO regulations, reduce listing costs, and speed up approval processes to
attract more firms to the stock market.
6. Encourage Sustainable & ESG Investing: Promote Environmental, Social, and Governance (ESG) funds to align with global
investment trends and attract foreign investors.

Difference between Capital and Money Market

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Infrastructure
(Energy, Ports, Roads, Airports, Railways), Investment Models

Previous Year Questions (PYQs)

[UPSC Mains 2024] What is the need for expanding the regional air connectivity in India? In this context, discuss the government’s UDAN
Scheme and its achievements.

[UPSC Mains 2024] What is the technology being employed for electronic toll collection on highways? What are its advantages and limita-
tions? What are the proposed changes that will make this process seamless? Would this transition carry any potential hazards?

[UPSC Mains 2023] The adoption of electric vehicles is rapidly growing worldwide. How do electric vehicles contribute to reducing carbon
emissions and what are the key benefits they offer compared to traditional combustion engine vehicles?

[UPSC Mains 2022] Do you think India will meet 50 %of its energy needs from renewable energy by [UPSC Mains 2030? Justify your
answer. How will the shift of subsidies from fossil fuels to renewables help achieve the above objective? Explain.

[UPSC Mains 2022] The Gati-Shakti Yojana needs meticulous coordination between the government and the private sector to achieve the
goal of connectivity. Discuss.

[UPSC Mains 2021] Investment in infrastructure is essential for more rapid and inclusive economic growth”. Discuss in the light of India’s
experience.

[UPSC Mains 20] Describe the benefits of deriving electric energy from sunlight in contrast to conventional energy generation. What are
the initiatives offered by our government for this purpose?

[UPSC Mains 20] Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered
while designing a concession agreement between a public entity and a private entity.

[UPSC Mains 2018] “Access to affordable, reliable, sustainable and modern energy is the sine qua non to achieve Sustainable Develop-
ment Goals (SDGs).” Comment on the progress made in India in this regard.

[UPSC Mains 2018] Why is Public Private Partnership (PPP) required in infrastructural projects ? Examine the role of PPP model in the
redevelopment of Railway Stations in India.

[UPSC Mains 2017] Not many years ago, river linking was a concept but it is becoming a reality in the country. Discuss the advantage of
river linking and its possible impact on the environment.

[UPSC Mains 2017] Examine the development of Airports in India through joint ventures under Public-Private-Partnership (PPP) model.
What are the challenges faced by the authorities in this regard?

[UPSC Mains 2017] One of the intended objectives of Union-Budget [UPSC Mains 2017-18 is to ‘transform, energize and clean India’.
Analyze the measures proposed in the Budget [UPSC Mains 2017-18 to achieve the objective.

[UPSC Mains 2016] Give an account of the current status and the targets to be achieved pertaining to renewable energy sources in the
country. Discuss in brief the importance of the National Programme on Light Emitting Diodes (LEDs).

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[UPSC Mains 2015] To what factors can the recent dramatic fall in equipment costs and tariff of solar energy be attributed? What implica-
tions does the trend have for the thermal power producers and the related industry?

[UPSC Mains 2015] Discuss the Namami Gange and National Mission for Clean Ganga (NMCG) programmes and causes of mixed results
from the previous schemes. What quantum leaps can help preserve the river Ganga better than incremental inputs?

[UPSC Mains 2014] Should the pursuit of carbon credits and clean development mechanisms set up under UNFCCC-be maintained even
though there has been a massive slide in the value of a carbon credit? Discuss with respect to India’s energy needs for economic growth.

[UPSC Mains 2014] International Civil Aviation laws provide all countries complete and exclusive sovereignty over the airspace above their
territory. What do you understand about ‘airspace’? What are the implications of these laws on the space above this airspace? Discuss
the challenges which this poses and suggest ways to contain the threat.

[UPSC Mains 2014] National urban transport policy emphasizes on moving people instead of moving vehicles. Discuss critically the success of
various strategies of the government in this regard.

[UPSC Mains 2013] Enumerate the National water policy of India. Taking river Ganges as an Eg] , discuss the strategies which may be ad-
opted for river water pollution control and management. What are the legal provisions of management and handling of hazardous wastes
in India.

[UPSC Mains 2013] Write a note on India’s green energy corridor to alleviate the problems of conventional energy.

[UPSC Mains 2013] What do you understand by run of the river hydroelectricity project? How is it different from any other hydroelectricity
project?

[UPSC Mains 2013] Adaptation of PPP model for infrastructure development of the country has not been free from criticism. Critically
discuss the pros and cons of the model.

The World Bank defines infrastructure as “the basic physical and organizational structures and facilities (Eg- , buildings, roads, power
supplies) needed for the operation of a society, enterprise, or system.”

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DATA
Category Details
Current Investment Rs. 11.21 lakh crore (3.4% of GDP) [FY 2025-26]
Planned Investment (NIP) Rs 100 lakh crore (2020-2025)
Investment Split Centre + State Govt (80%) & Private Sector (20%)

Sector-wise AnalysisAdditional Relevant Data

Category Details
Infrastructure Market Size Expected to reach USD 204.06 billion in 2024, growing to USD 322.27 billion by 2029.
Metro Rail Network 810 km operational in 20 cities, 5th largest globally, projected to become the 3rd largest.
Foreign Direct Investment (FDI) FDI in construction development (US$ 26.54 billion) and construction (US$ 33.52 billion)
between April 2000-December 2023.

Significance
1. Essential for achieving India’s 2047 vision of a $40 trillion economy and transitioning from a developing to a developed economy.
2. Productivity and Efficiency: As per ADB, 1% increase in infrastructure stock is associated with a 0.20%–0.40% increase in output.
3. Boosts Economic Growth: Infrastructure development contributes to GDP growth by facilitating trade, investment, and industrial
expansion. Eg- A 1% increase in infrastructure investment leads to a 1.2-1.5% increase in GDP (NITI Aayog).
4. Job Creation:
a. Direct Employment: Eg- construction sector alone employs around 71 million people as of 2023. The PM Gati Shakti initiative
is expected to create 1 crore+ jobs by 2030.
b. Indirect Employment due to spillover effect: Eg- Improved rural roads under the Pradhan Mantri Gram Sadak Yojana boost
local businesses and agriculture.
5. Poverty Reduction:
a. Access to Services: Social Infrastructure improves access to education, healthcare, particularly in rural areas. Eg- Rural electrifi-
cation Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY).
b. Income Generation: Improved irrigation infrastructure under the Pradhan Mantri Krishi Sinchayee Yojana increases agricultur-
al productivity and farmers’ income.
c. Reduces Regional Disparities: Eg- The Aspirational Districts Program focuses on infrastructure in underdeveloped regions to
bridge economic gaps.
d. Improves Quality of Life: Eg- The Jal Jeevan Mission aims to provide tap water to all rural households by 2024, improving
health and productivity.
6. Environmental Sustainability: Investments in sustainable and eco-friendly infrastructure, such as renewable energy projects and
eco-friendly transportation. Eg- National Solar Mission.
7. Supports Industrial & Manufacturing Growth: Power supply, logistics, and industrial corridors enhance production efficiency. Eg-
The Delhi-Mumbai Industrial Corridor (DMIC) is expected to contribute 5% to India’s GDP once completed.
8. Attracts Domestic & Foreign Investment: Improved infrastructure encourages FDI in sectors like real estate, logistics, and manu-
facturing. Eg- India attracted $82 billion in FDI in 2022-23, with 40% in infrastructure-related sectors (DPIIT).
9. Improves Agricultural Productivity: Rural infrastructure like irrigation, cold storage, and rural roads enhances farm productivity and
reduces wastage. Eg- Cold Storage infrastructure
10. Facilitates Urbanization & Smart Cities: Eg- The Smart Cities Mission is developing 100 smart cities with better transport,
waste management, and digital connectivity.
11. Global Competitiveness: Infrastructure facilitates trade and enhances a nation’s connectivity with the global economy. Eg- Devel-
opment of major ports under the Sagarmala Project.

Major Issues
1. Lack Of Integrated Policy- India has the second largest infrastructure deficit in the world (after Brazil)
2. Delays And Cost Overruns- A report of the Infrastructure and Project Monitoring Division showed that delays in projects costing
over Rs 150 crores had resulted in a cost overrun of more than Rs 4 trillion.
3. Financing Issues
a. Fiscal Burden: Almost half of the total investment in the infrastructure sector is done by the Government through budget allocations.
b. Subdued Investments in PPP Projects: Legacy issues and weak balance sheets
c. Insurance and Pension Funds: constrained by an Investment obligation to invest a substantial portion of their funds in Government
securities.
d. Lack of Vibrant Corporate Bond Market: this led to excessive foreign borrowing which has overall negative impact on the infra-
structure sector.
4. Bureaucratic Delays & Regulatory Bottlenecks: Multiple clearances, slow approvals, and red tape increase project timelines and
costs. Eg- The Ganga Expressway faced delays due to environmental clearances and land disputes.
5. Insufficiency Of User Charges: Eg-
a. Irrigation: Eg- In Punjab, irrigation water is provided at highly subsidized rates.

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 b. Urban Sanitation: Municipalities recover less than 25% of sewerage treatment costs from user charges
c. State Road Transport: Due to subsidised rates for women, older persons state-run transport corporations recover only 50-60%
of operating costs.
6. Technological Obsolescence:
a. Lack of Technological Upgradation: inefficient and outdated infrastructure systems. Eg- Railways
b. Inadequate Research and Development hinder the adoption of innovative solutions. Eg- India’s R&D expenditure is around
0.7% of its GDP.
7. Poor Quality & Maintenance: Eg- Over 40% of Indian roads require urgent repairs, increasing logistics costs
8. Logistics & Transportation Bottlenecks: High logistics costs (14% of GDP) reduce global competitiveness. Eg- India ranks 38th in
the Logistics Performance Index (2024), below China (19th) and the US (6th).
9. Energy Deficits & Transmission Losses: Despite capacity expansion, power cuts and transmission losses of 20-25% persist
(Power Ministry).
10. Social Infrastructure:
a. Inadequate Human Resources: Eg- Only about 5% of our labor force has undergone any formal skill training (80% in
Japan).
b. Fiscal issues: Health expenditure is around 1.9% of GDP, while education fluctuates around 2.9%, well below recom-
mended levels of 2.5% and 6%
11. Digital Infrastructure:
a. Despite digitalization efforts, only 55% of rural India has access to reliable internet (TRAI). Eg- The BharatNet Project,
aimed at providing rural broadband, is behind schedule with only 60% completion.
b. Digital Divide: According to the India Inequality Report 2022, only 31% of the rural population uses the internet com-
pared to 67% in urban areas. Internet penetration in rural India stands at roughly 29%, which means that nearly 700
million citizens are living in digital darkness.
c. Cybersecurity Concerns: India faced approximately 370 million malware attacks in 2024, disclosed a study by the Data
Security Council of India (DSCI).
12. Environmental and Social Impact:
a. Infrastructure projects often lead to deforestation, displacement, and ecological damage. Eg- The Ken-Betwa River Linking
Project faces opposition due to concerns over biodiversity loss in Panna Tiger Reserve.
b. Social Displacement: infrastructure projects often led to development induced displacement of large scale populations espe-
cially tribals. Eg- sardar sarovar dam.

Steps taken
PM Gati Shakti Scheme: Digital platform that integrates 16 ministries and national schemes like Bharatmala, Sagarmala, UDAN, and
various industrial corridors, allowing for Integrated planning and execution for roadways, railways, ports, waterways, and airports. The
proposed investment is of INR 100 trillion.
• Private Sector Access: Private companies can access select data and maps from the PM Gati Shakti portal for infrastructure
planning, investment, and logistics.
• District Master Plan (DMP): A DMP portal is under development, with a beta version in 28 aspirational districts; full rollout by
March 31, 2025.
• Identified Projects: 434 projects under PM Gati Shakti include 192 Energy, 200 High Traffic Density, and 42 Port Connectiv-
ity Corridor projects, with a ₹11.17 trillion investment.
• Gati Shakti Cargo Terminals (GCTs): As of October 31, 2024, 91 GCTs commissioned, 234 projects approved, and 339
terminal applications submitted.
• Sanctioned & Appraised Projects: 68 projects (6,290 km, ₹1.11 trillion) sanctioned; 88 projects (10,603 km, ₹2.25 trillion)
under appraisal.
Six Pillars of PM Gati Shakti
1. Comprehensiveness: Integrates all current and future projects across ministries into a single central portal, ensuring seamless
interdepartmental coordination.
2. Prioritisation: Enables ministries to align projects strategically, considering cross-sectoral dependencies and ongoing initiatives.
3. Optimisation: Identifies gaps in infrastructure and suggests the most efficient routes and cost-effective solutions for
project execution.
4. Synchronisation: Enhances inter-ministerial coordination, preventing delays and ensuring streamlined execution across
governance levels.
5. Analytical: Uses GIS-based spatial planning and 200+ analytical tools to improve visibility and decision-making for executing
agencies.
6. Dynamic: Provides real-time project monitoring with satellite imagery and regular updates, enabling timely interventions and
course corrections.

Bharatmala Pariyojana launched in 2017, aimed to develop 34,800 km of highways by 2022 to enhance connectivity and reduce
logistics costs. However, only 50% of Phase-I was completed by March 2024 due to slow implementation and financial constraints,
with completion now expected by 2027-28.

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 Bharatmala project category
• Economic Corridor of 9000kms will be undertaken by the central government.
• Feeder Route or Inter Corridor of 6000kms.
• National Corridor Efficiency Improvement of 5000kms
• Border Road and International Connectivity of 2000kms.
• Port Connectivity and Coastal Road of 2000km.
• Green Field Expressway for better management of traffic and freight.
• Balance NHDP Works: construction and maintenance of about 10,000kms.

UDAY scheme for Operational and Financial Turnaround of Power Distribution Companies. Under the Union Budget 2020-21, the Indian
government launched ‘UDAY 2.0’ scheme, with an aim to install smart prepaid metres, prompt payments by DISCOMs, ensure short-term
availability of coal and revive gas-based plants.

Foreign Direct Investment and Infrastructure Development: 100% FDI is allowed under the automatic route in some of the sectors
such as mining, power etc. Further, FDI is also allowed through the approval route in some sectors such as the civil aviation sector etc.

Public-Private Partnership: Hybrid Annuity Model balances government support and private sector efficiency.

Budgetary: The Union Budget 2025-26

• Increased Capital Expenditure: A record allocation of ₹11.21 lakh crore is designated for infrastructure, focusing on enhancing
transportation, energy, and urban facilities.
• Interest-Free Loans to States: An outlay of ₹1.5 lakh crore is proposed for 50-year interest-free loans to states.
• Asset Monetization Plan 2025-30: second asset monetization plan targeting ₹10 lakh crore to be reinvested into new infrastructure
projects.
• Urban Challenge Fund: A ₹1 lakh crore fund is established to implement initiatives under Cities as Growth Hubs.
• Public-Private Partnerships (PPP): Infrastructure-related ministries are tasked with developing a three-year pipeline of projects in PPP mode.

Progess in 10 Years (2014-2023)

National Highway Network Expanded by 60% from 91,287 km in 2014 to 1,46,145 km in 2023.
Rural Road Infrastrure 3.74 lakh km of roads constructed under PMGSY
Vande Bharat Trains More than 100 trains operational by Dec,24
Metro Rail Network 697 Km added
UDAN 84 Airports Operationalized

India Infrastructure Finance Company Limited (IIFCL): wholly-owned Government of India company to provide long term finance to
viable infrastructure projects through a Special Purpose Vehicle.

Funding:
1. National Infrastructure Pipeline: a group of social and economic infrastructure projects in India over a period of five years with a
sanctioned amount of ₹102 lakh crore.
2. National Monetization pipeline: Lease out central government assets as an alternative to outright asset sales. Focus on leasing
brownfield projects to generate proceeds for financing greenfield projects. NMP estimates aggregate monetisation potential of
Rs 6.0 lakh crores over a four-year period, from FY 2022 to FY 2025.
3. Masala Bonds: The National Highways Authority of India (NHAI) launched Masala Bonds in May 2017, for raising capital for
funding the infrastructure projects in India.

Digital Infrastructure-
1. First Phase:
a. JAM trinity: Jan Dhan, Aadhaar and mobile linkages
b. Digital India programme: to make its services available to citizens electronically via improved online infrastructure and by
increasing Internet connectivity.
2. Second Phase:
a. Development, application, and large-scale expansion of cutting-edge technologies such as 5G, Internet of Things (IoT), Artificial
Intelligence (AI), quantum computing, mechatronics, robotics and more.
b. Digital India Bhashini portal: AI led language translation platform.
c. The Agriculture Accelerator Fund for agricultural ecosystem (startups, businesses, and farmers) to work collaboratively and
find knowledge-based and farmer-centric solutions.

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Social Infrastructure-
1. Health Infrastructure:
a. PM Atmanirbhar Swasth Bharat Yojana: Allocates ₹64,180 crore over six years to enhance health systems.
b. National Health Mission (NHM): Focuses on affordable healthcare for rural and vulnerable populations .
2. Education Infrastructure: Samagra Shiksha Abhiyan: Integrates education from pre-school to class 12. PM eVidya: Unifies digital,
online, and on-air education efforts

Narendra Modi: “Urban infrastructure is the foundation of smart cities, a testament to high quality of life, sustainable living, and bound-
less opportunities for growth.”

Data
1. According to the United Nations, urbanization in India will increase to 50% by 2050.
2. According to a survey by the UN, in 2030 40.76% of the country’s population is expected to reside in urban areas.
3. The Isher Judge Ahluwalia report says that by 2030, nearly ₹39.2 lakh crore would be required for Urban Infrastructure.

Major Issues
1. The strain on water supply and sanitation infrastructure is causing water scarcity and inadequate sewage systems in many urban
areas. Eg: Bengaluru’s water crisis in early 2023
2. The surge in urban populations has led to increased traffic congestion and insufficient public transportation. Eg: Banglore and
Pune ranks first and second in the most traffic.
3. Urban India generated around 62 million tonnes of municipal solid waste annually, with only about 70% being collected and 20%
being processed. Eg: Delhi’s Ghazipur landfill
4. Rapid urbanization is driving up housing prices, particularly affecting low and middle-income individuals and families, leading to the
proliferation of slums and housing shortages for migrants. Eg: Dharavi slum in Mumbai
5. Urban heat island effect, urban flooding emerged due to haphazard urbanization, climate change and lack of green spaces in urban areas.

Challenges related to urban infrastructure and planning in India:

1. Planning Challenges: Around 50% of statutory towns are expanding in unplanned manner due to absence of Master Plan for Urban
Planning.
2. Parastatal Bodies: As per World Bank report, cities primarily are run by parastatals and the city governments hardly have any role
to play in their functioning. Eg: Delhi jal Board.
3. Housing Issues:
• Regulations like low floor space indexes limit vertical development, housing availability, increasing property prices. Eg: In cities
like Mumbai, the FSI values are significantly low (1.33) compared to global standards.
• Inadequate financing options for low-income groups and outdated rent controls reduce available rental housing, leading to more slums.
4. Service Delivery Problems:
• Environmental Concerns: Encroachment on wetland in Bengaluru is the prime reason for the recent water crisis.
• Poor urban transport planning focuses more on vehicles than on pedestrians or cyclists.
• Environmental degradation: Destruction of urban forest and urban wetlands decreases ease of living in urban areas. This
leads to increased pollution, urban heat island effect, urban flooding which impacts public health.
5. Other Bottlenecks:
• Financing gaps: Eg: According to a report by the Ministry of Housing and Urban Affairs, there is a financing gap of over ₹50
lakh crore needed to meet urban infrastructure needs by 2030.
• The share of municipalities’ own revenue sources has declined from 51% to 43%. Since 2002, municipal finance has stayed at just
1% of GDP.
• Challenges with land acquisition and compensation leading to disputes. Eg: Land acquisition delays in Mumbai Ahmedabad
bullet train project
• Delays from numerous required clearances and stringent environmental safeguards. Eg: Projects like the Mumbai Coastal
Road and Aarey car shade project have faced delays due to the need for numerous environmental clearances.

Major urban infrastructure development schemes in India:

1. Smart City Scheme: upgrading infrastructure, promoting sustainable environments, and incorporating technology for smarter ser-
vice delivery in 100 cities.
2. Atal Mission for Rejuvenation and Urban Transformation (AMRUT): Focuses on improving basic urban services in over 500 cities,
funded with INR 50,000 crores over five years.

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3. Pradhan Mantri Awas Yojana (Urban):Targets affordable housing for all by 2022, especially for the economically weaker sections,
with central assistance to states.
4. Heritage City Development and Augmentation Yojana (HRIDAY):Dedicated to revitalizing the unique heritage character of 12
selected cities with an investment of INR 500 crores.
5. Swachh Bharat Mission: Aims at 100% scientific management of municipal waste to keep urban areas clean.
6. In the budget FY 2023-24, a new fund Urban Infrastructure Development Fund (UIDF) was established through Priority Sector
Lending shortfall. The proceeds of the UIDF were to be used by public agencies to create urban infrastructure in Tier 2 & Tier 3 cities.
7. National Urban Transport Policy to ensure safe, affordable, quick, comfortable, reliable and sustainable access to Urban Public Transport.
8. National Mission on Sustainable Habitat: To promote
• Improvements in energy efficiency in buildings through extension of the Energy Conservation Building Code (ECBC)
• Better urban planning and modal shift to public transport
• Improved management of solid and liquid waste

Way Forward:
1. Planning for Growth: Forward-thinking planning on the model of Singapore is required to ensure that megacities can handle the
expansion without falling into patterns of traffic congestion and resource strain.
2. Redeveloping underutilized central urban areas: to transform low-density areas into high-density mixed-use developments with
adequate infrastructure.
3. Robust pipeline of projects: A ₹70 lakh crore investment is needed for urban infrastructure over the next 20 years, as per the
High-Powered Expert Committee and 12th Plan Working Group. Achieving this requires a pipeline of 600-800 projects.
4. Leveraging Digital Public Infrastructure (DPI) for improved operations, particularly in public transport.
5. Application of ‘smart growth’ or ‘mixed growth’ by adopting the principle of new urbanism that aligns with the existing infrastruc-
ture and development policies.
6. Capturing land value in transport projects: Metro and rail projects should be integrated with urban development, ensuring that they
bring jobs closer to transit hubs and contribute to the overall efficiency and design of cities.
7. Strengthening Urban Fiscal Governance:
a. The world bank report has suggested increasing property taxes, user fees and service charges to improve the fiscal base and
creditworthiness of the Indian cities.
b. The K.C. Sivaramakrishnan-led task force on the 74th Constitutional Amendment recommended allocating 10% of
city-collected income tax exclusively for urban infrastructure development. (Urban areas contribute nearly 85% of govern-
ment revenue)
8. Global Best Practices on Urban Governance-
a. ‘City Deals’ Model of UK- It is an agreement between the Union government and a city economic region (group of two or more
councils), to promote ‘economic growth budget’ across regions.
b. Regional governance model of Australia on similar lines
9. Municipal Level Best Practices
a. Surat had created a new revenue stream of Rs 140 crore in FY 2022 by selling treated wastewater for industrial reuse.
b. Ghaziabad has become the first ULB to issue India’s first municipal green bonds worth Rs 150 crore.
c. Shifting the focus from ‘city’ level to ‘city-region’ level under Greater Bengaluru Governance Bill, 2018. It proposes for a
Greater Bengaluru Authority, responsible for the overall planning of Greater Bengaluru with powers for inter-agency coordination.

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DPI is a set of “shared digital systems” used to drive development, inclusion, innovation, trust, competition, and respect for human rights
and fundamental freedoms.
Digital public infrastructure (DPI) could help India become an $8-trillion economy by 2030, according to a report by Nasscom.

Three Pillars of DPI

India, through its India Stack Platform, has become the first country to develop all the
three foundational pillars of DPI.
1. Flow of people through a digital ID System.
2. Flow of money through a real-time fast payment system.
3. Flow of personal information through a consent-based data-sharing system to actualize
the benefits of DPIs and to empower the citizen with a real ability to control data.

Advantages:
1. Addressing the Digital Divide: as per NFHS Report, only 57.1% of males and 33.3%
of females have used the internet. National Optical Fibre Network (NOFN) and
Digital India have laid the robust ground framework for digital connectivity of every
corner of the country.
2. Social Security for Vulnerable Sections: linking financial accounts with IDs or
phone numbers facilitated quick cash assistance during COVID-19 through Garib
Kalyan Yojana. Chart VIII.20: Average wireless data usage per data user per month
3. Digital Financial Inclusion: DPI enables seamless digital pay- 25.0
ments, benefiting 540+ million Jan Dhan accounts through UPI and 19.3
21.2

20.0
Aadhaar-linked services. 17.0
Data usage in GB

14.9
4. Efficient Governance: Platforms like DigiLocker, CoWIN, and 15.0 12.1
e-Governance portals streamline service delivery and reduce 10.0
bureaucratic delays.
5. Boost to Digital Economy: UPI facilitates 10+ billion transactions 5.0

monthly, driving India’s $1.5 trillion digital economy vision. 0.0

6. Strengthening Healthcare & Education: Platforms like Ayush- FY21 FY22 FY23 FY24 FY25
(upto Sep)
2G data usage 3G data usage
man Bharat Digital Mission (ABDM) and DIKSHA improve 4G data usage 5G data usage
healthcare access and e-learning. Total wireless data usage
7. Enhanced Transparency & Accountability: Direct Benefit Trans- Source: Department of Telecommunication
fers (DBT) via DPI eliminate middlemen, saving ₹3.8 lakh crore in
leakages (as per GOI).
8. Universal Identity & Authentication: Aadhaar-based KYC reduces verification costs by 90%, expediting banking, SIM issuance,
and government services.
9. Expansion of UPI and RUPAY cards to other countries is regarded as digital payment diplomacy.

Challenges Associated with Digital Public Infrastructure (DPI) in India:

1. Cybersecurity Risks: Increasing data breaches and digital frauds pose threats to financial transactions and personal data. Eg-
over 13 lakh cyber incidents in 2022 (CERT-In).
2. DPI raises concerns about data privacy due to frequent data leaks and thefts. Eg- ICMR data leak.
3. Infrastructure Gaps: Frequent network outages and slow internet speeds hinder digital transactions. Eg- BharatNet project
delays limit rural DPI accessibility.
4. Fraud & Misinformation: Rise in digital payment frauds, deepfakes, and misinformation campaigns poses governance challeng-
es. Eg- UPI-related frauds crossed ₹1,200 crore in 2023.
5. Dependence on Big Tech: Excessive reliance on private tech companies for cloud, AI, and payments raises concerns over monop-
olization. Eg- UPI is dominated by Google Pay and PhonePe (80% market share).
6. Scalability & Load Management: Sudden spikes in digital service demand cause system failures and transaction delays. Eg-
CoWIN faced outages during COVID-19 vaccine registrations.
7. Regulatory & Legal Challenges: Lack of clear legal frameworks for AI, blockchain, and data sharing creates uncertainty. Eg-
The Digital Personal Data Protection Act (2023) is still evolving.
8. Lack of interoperability among different digital platforms hinders seamless access to services. Eg- Interoperability issues in Indian e-wallets.
9. Digital Divide and Digital Illiteracy: Eg- as per India Inequality Report 2022, only 31% of the rural population uses the Internet
compared to 67% of the urban population.
10. India is far behind manufacturing of digital components, spare parts and most importantly semiconductors as compared to
countries like Taiwan, China, South Korea.
11. India has one of the largest e-waste generations in the world. Poor e waste management reflects the fact that 90% collected and
70% recycled by the informal sector.

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Recommendations to Improve India’s Digital Public Infrastructure:
1. Collaborate with countries in the Digital Public Goods Alliance (DPGA) like Brazil and Norway to develop a new model for digital
cooperation.
2. Expand Rural Digital Connectivity: Accelerate BharatNet implementation to provide 100% broadband access in rural areas.
Ensure fiber-optic coverage in all 6 lakh villages by 2025.
3. Enhance Cybersecurity Framework: Strengthen CERT-In capabilities and enforce robust encryption and multi-factor authenti-
cation for financial transactions.
4. Strengthen Data Privacy Laws: Ensure effective enforcement of the Digital Personal Data Protection Act (2023) with strict
penalties for data breaches.
5. Upgrade Digital Infrastructure: Expand 5G networks, increase data centers, and deploy cloud-based DPI solutions for scalability.
6. Enhance Digital Literacy Programs: Scale up Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA).
7. Implement Stronger Fraud Prevention Measures: Deploy AI-driven risk analytics to detect fraudulent digital transactions in real time.
8. Diversify DPI Players & Reduce Dependence on Big Tech: Promote homegrown fintech startups and public digital solutions to
reduce reliance on private monopolies. Eg- Encourage adoption of India Stack by local fintech firms.
9. Improve Scalability & Resilience: Develop high-capacity servers and cloud-based solutions to handle peak digital loads.
10. Strengthen Regulatory Oversight & Legal Frameworks: Establish dedicated DPI regulatory bodies to oversee AI ethics, digital
lending, and data-sharing norms.
11. Create a strong digital infrastructure and legal framework to prevent digital colonization and monopolization. Implement data
localization policies.
12. Adhar based tokenization of our personal data. These tokens can be used as alternatives against personal information asked on websites.
13. Parliamentary Standing committee on communication and information technology recommended controlling of local apps by
RBI and NPCI.
14. Promotion of a circular economy and recycling of e waste through the formal sector can help tackle the problem of e waste management.

India has the second-largest road network in the world, spanning a total of 5.89 million kilometers (km). This road network transports
64.5% of all goods and 90% of total passenger traffic.

Significance Of The Roads Sector In India

1. Boost the manufacturing sector and exports and can com-
plement programs such as “Make in India”. Eg- Feeder roads
to important railway routes and ports
2. Backbone of Economic Growth: Contributes 6% to GDP, sup-
porting trade, commerce, and industrial development.
3. Employment Generation: Provides direct and indirect em-
ployment to 40 million+ people, especially in construction and
logistics.
4. Boosts Rural Connectivity: Expands access to healthcare,
education, and markets, improving rural livelihoods.
5. Facilitates Trade & Logistics: Roads handle over 64% of
freight movement, reducing transit time and costs. Eg- The
Golden Quadrilateral.
6. Supports Urbanization & Real Estate Growth: Expands cities,
boosts property values, and enables smart city development.
Eg- Delhi-Mumbai Expressway.
7. Reduces Travel Time & Fuel Costs: Eg- The Mumbai-Pune
Expressway reduced travel time from 6 hours to 2.5 hours.
8. Promotes Tourism & Regional Development: Eg- Improved
road connectivity to Char Dham Yatra sites has increased
pilgrim inflow.
9. National Security & Border Infrastructure: Enhances military
mobility and strategic defense. Eg- Border Roads Organisation
builds roads in Ladakh and Arunachal Pradesh.
10. Encourages Private Investment & FDI: Public-Private Partnership (PPP) models attract foreign and domestic investments. Eg- The
Hybrid Annuity Model (HAM).
11. Supports Sustainable Mobility & Green Transport: Promotes electric vehicle corridors, reducing carbon footprint.

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Challenge with the Roads Sector:
1. Slow Project Execution due to land acquisition, environmental clearances, and bureaucratic hurdles. Eg- Bharatmala Pariyojana
Phase-I is only 50% complete as of March 2024.
2. Land Acquisition Issues: High compensation demands, legal disputes, and rehabilitation concerns delay road construction. Eg-
The Mumbai-Nagpur Samruddhi Expressway.
3. Funding Constraints: Eg- The road sector needs ₹25 lakh crore by 2040, but private investment remains low.
4. Poor Road Maintenance: 40% of Indian roads are in poor condition due to inadequate maintenance budgets and poor quality control.
5. Traffic Congestion & Overloading: Urban roads suffer from high congestion, while highways experience vehicle overloading,
leading to rapid wear and tear.
6. Road Safety: highest road accident deaths globally (1.5 lakh fatalities annually) due to poor road design and weak enforcement.
Eg- Black spots on highways.
7. Corruption & Inefficiencies: Cost escalations, delays in tendering, and substandard construction due to corruption. Eg- ₹3,000
crore road scam in Karnataka.
8. Lack of Efficient Public-Private Partnership (PPP): Limited private investment due to delays in returns, regulatory risks, and toll
revenue uncertainty.
9. Environmental & Sustainability Concerns: deforestation, habitat destruction, and carbon emissions. Char Dham road project
faced Supreme Court scrutiny for environmental impact.
10. Inadequate Connectivity in Remote Areas: Eg- Northeast India’s poor road network hampers trade and development.

Measures taken:
1. National infrastructure Pipeline: to invest Rs 111 Lakh
crore in the infrastructure sector during 2019-25. Out of this
18% of funds shall be allocated to the road sector.
2. Bharat Mala Pariyojana to improve the quality of roads and
the construction of new roads. It focuses on developing Eco-
nomic Corridors, Feeder Routes, Port Connectivity, etc.
3. PM Gati Shakti Scheme: Also called “National Master Plan
for multi-modal connectivity plan”.
4. North-South East-West Corridor: to connect Northern
and westernmost parts of the country to the southern and
eastern parts of the country respectively.
5. Pradhan Mantri Gram Sadak Yojana (PMGSY) for provid-
ing all-weather roads to unconnected rural areas.
6. Shift from a Project based approach to a Corridor based
approach: Eg- Chardham Dham Mahamarg Pariyojana
7. Improving logistics efficiency through Multi Modal Logistics
Parks (MMLP) and National Highway Maintenance Policy
8. Electronic Toll Collection through FASTag: This has reduced
the average waiting time at toll plazas from 734 seconds to 47 seconds.

Way Forward for India’s Road Infrastructure Development

1. Streamline Land Acquisition: Simplify and ensure transparency in the land acquisition process. Enhance the functionality of
MORTH’s Bhoomi Rashi web portal.
2. Ensure Safe Road Designs: Align road designs with Indian Roads Congress Standards, enhance material testing facilities at con-
struction sites.
3. Use Advanced Technologies: Develop intelligent transport systems and smart road infrastructure. Implement sensors to monitor
traffic flows.
4. Focus on Road Maintenance: Adopt a Maintenance Management System (MMS) for effective maintenance of National Highways.
5. Increase Investment: Explore funding options like road bonds and green bonds for highway development and making the sector
financially attractive to maximize FDI.
6. Incorporate Lane Capacity Measurement:Focus on measuring lane kilometers rather than road kilometers for a true picture of road
capacity.
7. Increase Emphasis on Research and Development: to innovate and improve road construction and maintenance techniques.
8. S. Sunder Committee on road safety -
a. Create Road Safety Board to reduce accidents
b. Standardize reporting of accidents and achieve better preparedness through logistics to tackle post accident measures.

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Narendra Modi: “Railway modernization is not just about upgrading tracks
and trains; it’s about transforming our nation’s connectivity, boosting eco-
nomic growth, and making travel safer and more efficient for every citizen.”

Data
1. Third largest network in the world under single management with over
68,102 routes (in kms)
2. 68% of the traffic revenue comes from freight services.
3. In 2025-26, capital expenditure is estimated at Rs 2,65,200 crore

Issues and Challenges as per the NITI

AAYOG’S INDIA@75 REPORT
1. Congested Networks: Over-stretched infrastructure with 60 %plus
routes being more than 100 %utilized.
2. Sub-optimal internal generation of resources: Negligible non-fare reve-
nues and high freight tariffs have led to a sub-optimal freight share.
3. Slow Modernization & Infrastructure Deficit: Outdated tracks, signaling systems, and locomotives. Eg- 40% of railway routes
still rely on diesel engines.
4. Funding & Revenue Challenges: Eg- The Operating Ratio (expenses vs. earnings) remains above 98%, leaving minimal surplus for
development.
5. Project Delays & Land Acquisition Issues: Eg- The Mumbai-Ahmedabad Bullet Train Project has been delayed due to land acqui-
sition disputes.
6. Safety Concerns & High Accident Rates: Derailments, level crossing accidents, and train collisions due to poor maintenance
and signaling failures. Eg- The Balasore train accident (2023) killed over 280 people due to a signaling fault.
7. Slow Pace of Privatization & PPP Model due to regulatory uncertainties and lack of incentives.
8. Freight Sector Challenges: High freight tariffs to cross-subsidize passenger fares make rail freight less competitive than road
transport. Eg- Railways’ freight share has dropped from 80% in 1950 to 30% today, with logistics shifting to highways.

Steps taken
1. Net zero carbon emission: targets of 30 GW of renewable energy by 2029-30, with 375 MW of solar and 103 MW of wind commis-
sioned as of October 2024.
2. For Agriculture: Kisan Rails are introduced to provide freight service to agricultural commodities. Under this initiative, 157 trains
have been introduced on eight routes
3. Station Infrastructure Redevelopment Programme to redevelop 400 railway stations under a public-private partnership (PPP) model.
4. PM-Gati Shakti National Master Plan: The government has approved three economic corridors spanning 40,900 kilometers, with an
estimated investment of Rs 11 lakh crore.
5. Dedicated Freight Corridors (DFCs): over 90% of its Dedicated Freight Corridors operational covering a distance of over 2,800 kilo-
meters. They are expected to increase the value of freight transported by rail from 317.26 billion in 2023 to 484.43 billion by 2029.
6. The Kavach automated train protection system is designed to prevent collisions on the same track, enhancing railway safety.
7. Electrification Drive: Indian Railways has achieved significant milestones in electrification, with over 95% of the railway network
now electrified.
8. Hydrogen-Powered Trains: Indian Railways plans to operate 35 hydrogen-powered trains across 8 heritage routes.
9. The Rashtriya Rail Sanraksha Kosh (RRSK), launched in 2017-18 with a ₹1 lakh crore budget for safety upgrades, was extended
in 2022-23 for five more years with an additional ₹45,000 crore Gross Budgetary Support (GBS).
10. For Improving Efficiency:
a. Mission Hungry for Cargo to increase the share of railways in goods transportation from 27% to 45%.
b. Mission Raftaar: It aims to double the average speed of the freight trains. It also aspires to increase the speed of express trains
by 25 KMPH.
11. Bibek Debroy Committee on Railway Modernisation:
a. Transition to commercial accounting consistent with principles and norms nationally and internationally accepted.
b. Establishment of Independent Regulator Railway Regulatory Authority of India (RRAI).

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Way Forward
1. Capacity Expansion & Decongestion: Expediting the Dedicated Freight Corridors (DFCs) to free up passenger routes.
2. Modernization & Electrification: Complete 100% electrification and adopt semi-high-speed rail technologies to improve efficien-
cy. Eg- Expanding Vande Bharat Express.
3. Enhancing Safety Measures: Strengthen track maintenance, automated signaling, and accident prevention systems. Nation-
wide implementation of Kavach.
4. Financial Sustainability & Revenue Growth: Reduce cross-subsidization of passenger fares by freight revenues and boost non-
fare income.
5. Faster Project Execution: Streamline land acquisition, environmental clearances, and project approvals to avoid delays.
6. Freight Sector Reforms: Lower freight tariffs and improve logistics efficiency to regain lost market share.
7. Boosting Private Investment & PPP Model: Encourage private train operations, FDI, and industry partnerships in rolling stock
and infrastructure.
8. Sustainability & Green Railways: Increase use of solar and wind energy, bio-toilets, and electric locomotives. Indian Railways tar-
gets net-zero carbon emissions by 2030.

DFC is a high-speed and high-capacity railway corridor dedicated exclusively for freight (goods and commodities) movement. In
2006, the Government of India established a dedicated body, the Dedicated Freight Corridor Corporation of India (DFCCIL), to develop
two corridors: Western Dedicated Freight Corridor (WDFC) and Eastern Dedicated Freight Corridor (EDFC).
Western Dedicated Freight Corridor (WDFC) is funded by Japan International Cooperation Agency. Eastern Dedicated Freight Corridor
(EDFC) is funded by the World Bank.

Four more Freight Corridors were also announced in 2010:

1. East coast corridor from Kharagpur to Vijayawada (1115 km)
2. East-west sub-corridor-I from Palghar to Dankuni (2073 km)
3. East-west Sub-corridor-II from Rajkharsawan to Andal (195 km)
4. North-south sub-corridor from Vijayawada to Itarsi (975 km).

Present status:
As of April 2024, Eastern Freight Corridor is fully operational whereas Western Freight Corridor has 85% operational status. Overall
90% of the network is operational. 300 trains run on the lines every day.
Reduced freight costs and faster transit on DFCs have lowered commodity prices by up to 0.5% and boosted Indian Railways’ reve-
nue by 2.94% (FY 2018–19 to FY 2022–23).

Significance of DFCS:
1. Decongests Passenger Rail Network: Shifts freight traffic to dedicated corridors, freeing up existing railway lines for faster pas-
senger trains.
2. Enhances Freight Efficiency & Speed: Enables faster goods movement with speeds up to 70 km/h, compared to 25 km/h on
regular tracks.
3. Boosts Industrial Growth & Logistics: Improves connectivity to industrial hubs, ports, and economic zones. Eg- The Eastern
DFC connects coal mines to power plants.
4. Reduces Transportation Costs: Cuts logistics costs from 13-14% of GDP to 8-10%, improving India’s trade competitiveness.
5. Increases Railway’s Freight Market Share which declined from 80% in 1950 to 30% today. DFCs aim to raise rail freight share to
45% by 2030.
6. Supports Economic Corridors & Exports: Enhances connectivity to ports, SEZs, and industrial corridors. Eg- The Western DFC
links major ports like Mundra, Kandla, and JNPT to northern India.
7. Environmental Benefits: Reduces CO₂ emissions by shifting freight from road to rail. DFCs are expected to save 457 million
tons of CO₂ emissions over 30 years.
8. Promotes Multi-Modal Transport by integrating with highways, ports, and inland waterways and complement PM Gati Shakti for
seamless freight movement.

Issues and challenges:

1. Project Delays & Cost Overruns: Eg- The Western DFC, initially planned for 2017 completion, is now expected by 2025, with costs
rising significantly.
2. Funding Constraints: The estimated ₹81,000 crore cost of DFCs has escalated due to delays and inflation.
3. Coordination with Existing Rail Network: Integrating DFCs with Indian Railways’ passenger and freight network poses logistical
challenges.

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4. Security & Theft Issues: Eg- Cargo theft incidents along the Eastern DFC have been reported in Bihar and Jharkhand.
5. Environmental & Social Impact: Eg- The Western DFC project faced protests over its impact on agricultural land in Gujarat and
Rajasthan.
6. Delays in Multimodal Integration: Eg- Inadequate rail connectivity at Mundra and JNPT ports affects cargo movement.
7. Double stack vs single stack: The project has adopted different technical standards for WDFC and EDFC. WDFC would have
moving dimensions made for double stacked containers and moving dimensions for EDFC are being made for single stack container
operations.
8. Slow progress: The progress for both Logistics Parks and Delhi Mumbai Industrial Corridor has been very slow which will have an
impact on the overall objective of the project.

RAILWAY SAFETY
Accidents like the one that occurred at Bahanaga Bazar railway station at Balasore highlight the need for better safety measures and
infrastructure.

Reasons for lack of safety

1. According to CAG reports, derailments are one of the major concerns. 7 in 10 railway accidents during 2016-17 to 2020-21 were
derailments. The primary reason for derailments is track defects and maintenance issues.
2. According to National Rail Plan 2020, 80% of tracks on High-Density Networks (HDN) were overburdened.
3. According to recent data, India has seen a significant decrease in rail accidents, with the number of “consequential” train accidents
averaging around 40 per year from 171 accidents per year 10 year ago

Steps taken by government

1. Elimination of mechanical signalling by replacing mechanical signalling with Electrical/Electronic Interlocking systems
2. Kavach: This indigenously developed Automated Train Protection system has seen ₹1,547 crore invested (till November 2024). The
specification version 4.0 was approved on July 16, 2024.
3. Electronic interlocking: EI systems have been installed at 227 stations in FY25, increasing the coverage to a total of 3,576 stations
4. Mission Zero Accident: All unmanned level crossings (UMLC) on Broad Gauge were eliminated by January 2019.
5. Train Collision Avoidance System (TCAS) to prevent collisions and signal passing at danger by the Loco Pilot.
6. Rashtriya Rail Sanraksha Kosh” (RRSK) with a corpus of Rs. 1 lakh crore to fund railway safety projects.

Challenges that still persists

1. Shortage of better coaches like Linke Hofmann Busch (LHB) coaches, who have better safety records.
2. Human errors by loco pilots: Loco pilots’ fatigue and lack of adequate facilities for the loco pilots to rest are the primary reasons.
3. Capital Intensive The cost for provision of Track Side including Station equipment of Kavach is approximately Rs. 50 Lakhs/Km
4. Aging Infrastructure – 40% of railway tracks, bridges, and signaling systems are outdated, increasing accident risks.
5. Poor Track Maintenance – Overloaded freight trains and delayed repairs cause track fractures and derailments. Eg- In 2022, 70%
of derailments were due to track defects.
6. Level Crossing Accidents – Unmanned and poorly managed level crossings cause frequent accidents.
7. Overburdened tracks: The rising traffic on railway tracks due to the introduction of new rails every year has resulted in overburdened
tracks.
8. Lack of training: The inadequate training of railway employees and understaffing is also a cause of concern.

Way Forward
1. Recommendation of the Anil Kakodkar committee:
a. The Research Design and Standards Organization (RDSO) should be restructured to give it more autonomy.
b. Switch over from the ICF (Integral Coach Factory) design coaches to the much safer LHB (Linke Hofmann Busch) coaches.
c. The level crossings should be eliminated by the introduction of Rail over bridges and Rail under bridges.
2. An Advanced Signaling System (similar to the European Train Control System) should be introduced.
3. Automatic Train control systems should be introduced on all routes.
4. More funds should be made available for railway safety, as recommended by Sam Pitroda committee.

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Inland waterways
PM Modi “ Inland waterways transport is proving to be a game-changer as well as emerging as an environment friendly and cost-effective
mode of transportation.”

Data:
1. There are 111 officially notified Inland National Waterways
(NWs) in India identified for the purposes of inland water transport,
as per The National Waterways Act, 2016. The NW network covers
around 20,275.5 km.
2. Total traffic increased from 29.16 MMT in FY 2014-15 to
133.03 MMT in FY 2023-24, with Compound Annual Growth
Rate (CAGR) of 18.07%.
3. India: Inland water transport has a 0.5% modal share. China:
8.7% modal share. USA: 8.3% modal share.

Significance
1. Strategic Infrastructure Integration: Integration with major
projects like the Dedicated Freight Corridors and the Sagarmala
Project, enhancing logistical efficiencies.
2. Multiplier Economic Effect: Infrastructure investment in waterways
is expected to trigger forward and backward linkages.
3. Cost-Effective Transport – Eg- Water transport costs ₹1 per
ton/km, compared to ₹1.6 for rail and ₹2.5 for road.
4. Reduces Road & Rail Congestion – Eg- The Ganga Waterway
(NW-1) is expected to shift 12 million tons of cargo from roads
annually.
5. Eco-Friendly & Energy Efficient – Eg- One litre of fuel moves 24 tons/km on roads, 85 tons/km on rail, and 105 tons/km on
waterways.
6. Boosts Trade & Connectivity by linking industrial hubs with ports. Eg- The India-Bangladesh Protocol Route enables seamless
cargo movement between the two nations.
7. Supports Rural & Coastal Economies by promoting fishing, tourism, and local trade.
8. Enhances Port Connectivity – Eg- The Jal Marg Vikas Project links Varanasi to Haldia port, improving cargo movement.
9. Facilitates Multimodal Transport – Strengthens integration with rail, road, and coastal shipping for seamless logistics. Eg- The
Sagarmala Project.
10. Tourism & Passenger Transport Potential – Promotes river cruises and ferry services, enhancing tourism and local transport.
Eg- The Ganga Vilas Cruise.
11. Strategic & Defense Importance – Eg- The Brahmaputra (NW-2) and Barak (NW-16) waterways improve defense mobility in the
Northeast.
12. Reduces Dependence on Fossil Fuels – Promotes LNG and solar-powered vessels, making freight movement more sustainable.
Eg- LNG-powered barges on NW-1 and NW-2.
13. Support for Heavy and Bulk Transport: Ideal for transporting heavy and bulk goods, hazardous materials, and oversized cargos.

Issues and Challenges in Inland Waterways in India

1. Cost Estimation:
a. Route Curvature: Rivers bend and curve, unlike straight roads, which increases travel distance and time.
b. Loading/Unloading Costs: Additional costs for transferring cargo between different transport modes.
2. Inadequate Depth:
a. Rivers need sufficient depth year-round for navigability, but many Indian rivers lack this, requiring extensive dredging.
b. Siltation: Severe siltation, particularly in northern plains rivers, complicates maintaining navigable depths.
3. Competing Water Demands:Rivers are used for multiple purposes like dams and farming, which may conflict with maintaining water
levels for navigation.
4. Low vertical clearance of bridges obstructs larger vessels, particularly affecting waterways like NW 3.
5. Night Navigation Infrastructure:Rudimentary night navigation facilities and markings limit operations after dark.
6. Shortage of IWT Vessels:Building vessels is capital-intensive, and securing project finance from banks and financial institutions is
challenging.
7. Shortage of MRO Facilities:There is a significant shortage of Maintenance, Repair, and Overhaul (MRO) facilities for IWT vessels.
8. Inadequate Industrial Units:Lack of riverside industrial units, especially along the Brahmaputra, discourages private sector cargo
commitments.

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9. Environmental Impact:
a. Dredging: Damages riverbeds, alters habitats, and affects aquifers.
b. Saline Ingress: Removal of riverbed material can cause saline water ingress in estuaries and creeks.
c. Deforestation: Construction of jetties and ports necessitates tree and mangrove removal, as seen at Dharamtar port in NW10.
d. Pollution: Oil and diesel spills, and cargo leakage, contribute to environmental degradation.
10. Social Impact:
a. Livelihoods: Ecological changes affect those dependent on fishing and riverbed cultivation.
b. Displacement: Infrastructure development requires land acquisition, displacing communities.

Legal and Policy Framework

1. Inland Waterways Authority of India Act, 1985: Regulates and develops inland waterways.
2. Indian Vessels Act, 1917 (amended 2007): Covers vessel registration, navigation, and pollution control.
3. Inland Water Transport Policy 2001: Advocates private sector participation for infrastructure and fleet operations.
4. National Waterways Act 2016: Declares 111 waterways as national assets for development.

NITI Aayog Recommendations (Action Agenda, Three-Year 2017-2020)

1. Streamlining the regulatory structure and bringing an overarching body to oversee Inland Water Transport such as the IWAI to
more consistency in the rules and strategy of the sector.
2. Develop measures for year-round navigation: develop deeper stretches of the river, i.e., at least 2.5 m to 3 m to achieve year-around
navigation and adequate maintenance of rivers
3. Ease restrictions on river-sea movement: Utilizing a single vessel for both inland and coastal waters, lowers transport costs and
minimizes handling.
4. Develop inland waterways transport to facilitate movement of goods to neighboring countries and the Northeast

Way Forward
1. Public-Private Partnerships: Encourage private sector involvement in terminal development, cargo and passenger handling, and
building low-draft vessels and repair facilities.
2. Seamless Connectivity: Develop multimodal last-mile connectivity to reduce trans-shipment costs and enhance economic viability
of inland water transport.
3. Incentivize Cargo Transport:
a. Mandate/encourage industries near national waterways to use this mode for a portion of their shipments.
b. Promote industrial corridors along riverbanks to foster waterways-based industrialization.
c. Implement higher road taxes for long-distance transportation of coal and inflammable materials.
4. Passenger Transport: Develop passenger terminals, provide financial support to ferry operators for safety improvements, and facili-
tate insurance coverage.
5. Promote River Tourism: Encourage river tourism in states like Assam and Kerala.
6. Environmental and Social Assessment to mitigate potential environmental and social impacts of inland waterways development
and associated infrastructure.

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India has a coastline that is more than 7,517 km long, interspersed with more than 200 ports. Most cargo ships that sail between East
Asia and America, Europe, and Africa pass through Indian territorial waters.
The cargo handling capacity at major ports has doubled over the past decade (reached 1,630 million tonnes per annum (MTPA) by
March 2024, as compared to 800.5 MTPA in 2014).

Status of Trade Handling by the Port Infrastructure in India

1. Over 95% of India’s trade by volume and 65% by value is done using maritime transport facilities at ports.
2. India’s key ports had a capacity of 1600 million tonnes per annum (MTPA) in FY23.
3. World Bank’s Logistics Performance Index report, 2023
a. India reaches 22nd rank in International Shipment category in 2023 as against 44th rank in 2014.
b. The average turnaround time at Major Ports has decreased by 48.65%, from 93.59 hours in 2013-14 to 48.06 hours in 2023-24.

Significance of developed port infrastructure for India

1. Facilitates International Trade: In April-Nov FY 24, major ports in India
handled 1600 million tonnes of cargo.
2. Employment Generation: According to a study by the National Council
of Applied Economic Research (NCAER), the port sector could create
approximately 40 million direct and indirect jobs in India by 2025.
3. Reduction of Logistics Cost: The growth of coastal shipping and
inland waterways, which are 60 to 80% less expensive, will help reduce
logistics costs, currently at 14% of GDP. This will enhance trade com-
petitiveness, improve supply chain efficiency, and boost economic growth.
4. Boost to Blue Economy: India, being one of the world’s top five producers
of fish, can benefit from developed port infrastructure to boost marine
product exports.
5. Strengthening of National Security: security of strategic installations
near ports, such as naval bases and can control illegal practices like drug
trafficking and maritime piracy.
6. Emergence of India as a Net Security Provider in the Indian Ocean
Region: Indian port development can serve as a hub-and-spoke model
for the coastal development of other South Asian countries, countering
the coercive nature of the Chinese BRI project.
7. Development of Coastal Communities: Sustainable development of the
fisheries sector promotes the inclusive growth of coastal communities.

Challenges with the Port Infrastructure

of India:
1. High Turnaround Time: Despite improvements to 48 hours, Indian ports still lag behind global standards, such as Japan (8.16
hours) and Taiwan (10.56 hours).
2. Underdeveloped Port Infrastructure: According to the National Transport Development Policy Committee, the capacity utiliza-
tion of major Indian ports was about 65% in 2019.
3. Capacity Constraints: Many ports operate at near full capacity, leading to congestion and inefficiencies. Eg- Major ports like JNPT
and Chennai face delays due to high traffic.
4. Non-major ports, with greater operational flexibility, saw 7.6% cargo traffic growth in FY23, outperforming major ports (4.7%),
which face congestion due to shared access channels.
5. Shallow Draft Depth: Most Indian ports lack deep draft facilities, restricting the entry of large container ships.
6. Poor Last-Mile Connectivity: Inadequate road, rail, and inland waterway links slow cargo movement. Eg- Haldia and Kandla ports
struggle with inefficient hinterland connectivity.
7. Underdeveloped Port Modernization: Automation and digitalization lag behind global standards, affecting efficiency. Eg- Limited
use of AI-driven cargo management systems at Indian ports.
8. Issues with Land Acquisition for Port Expansion: A report by the Parliamentary Standing Committee on Transport, Tourism, and
Culture highlights that land acquisition for port development in India is a significant challenge, causing delays in numerous projects.
9. Complex Customs Procedures: In contrast to modernized customs administrations like Singapore, which allow about 95% of con-
tainers to clear without physical examinations, Indian regulations require 10% of container contents to be checked
10. Problems with the PPP Model of Port Operations: Issues such as tariff regulation and lack of a dispute resolution process hinder
the efficiency of the PPP model.
11. Environmental Challenges: Activities such as oil spills, ballast water discharge, and dredging operations harm the marine environment
and ecology.
12. Social Impacts of Port Development: displacement of indigenous coastal populations, as seen with Gangavaram Port in Andhra
Pradesh and Mundra in Gujarat.

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Government Initiatives for Development of Port Infrastructure
1. Sagarmala Programme: Aims to modernize ports, enhance coastal connectivity, and develop port-led industrialization with an
investment of ₹5.48 lakh crore.
2. Major Port Authorities Act, 2021: Grants more autonomy to major ports, enabling faster decision-making and greater private
sector participation.
3. Bharatmala & Sagarmala Integration: Enhances last-mile connectivity by linking ports with highways, railways, and inland water-
ways for seamless cargo movement.
4. Public-Private Partnership (PPP) in Ports: Encourages private investment in port terminals, cargo handling, and logistics parks.
Eg: JNPT and Mundra Port operate on PPP models.
5. Gati Shakti National Master Plan: Uses GIS-based planning to improve logistics efficiency and optimize infrastructure development for ports.
6. Green Ports Initiative: Promotes shore-to-ship power, LNG bunkering, and eco-friendly port operations to reduce carbon emissions.
7. National Maritime Vision 2030: Aims to increase port capacity, improve cargo handling efficiency, and digitize port operations
for global competitiveness.
8. Project UNNATI: to benchmark operational and financial performance of 12 major ports with selected private and best-in-class
international ports for identifying improvement areas.
9. 100 % FDI under the automatic route for construction and maintenance of India Ports
10. Development of Mega Transhipment Port at Galathea Bay, Great Nicobar Island to capture transhipment cargo from ports on
the Indian East Coast, Bangladesh, and Myanmar.
11. The Indian Vessels Act 2021: The Act aims to bring uniformity in law and standardized provisions across all inland waterways in the
country.
12. Tax Holiday for private players: A 10-year tax holiday to enterprises engaged in the business of developing, maintaining and oper-
ating ports, inland waterways and inland ports.
13. India and the UAE signed an Inter-Governmental Framework Agreement to enhance cooperation in ports, maritime, and logis-
tics, supporting the India-Middle East-Europe Economic Corridor (IMEC).
14. Coastal Berth Scheme: Provides financial assistance for developing coastal berths, breakwaters, and passenger terminals to
boost coastal shipping.

Way Forward for Improving Port Infrastructure in India:

1. Employment Generation Policies: Establish Coastal Economic Zones (CEZs), Coastal Economic Units (CEUs), Port-Linked
Industrial & Maritime Clusters, and Smart Industrial Port Cities to create job opportunities.
2. Link Private and Public Ports: Integrate private ports with major and minor ports to meet the growing demand for import/export of
goods and raw materials.
3. Smart Port Technologies: Implement blockchain, IoT, and data analytics to improve transparency, efficiency, and security in port operations.
4. Green Port Development: Formulate guidelines and conduct environmental impact assessments before funding port connectivity projects.

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“Today, India is among the top players in the global civil aviation ecosystem. In just one decade, India has achieved a significant transfor-
mation. In these 10 years, India has evolved from a country exclusive to aviation to one that is inclusive of aviation.” PM Modi

Data
1. India, the third-largest domestic aviation market, recorded
a 15% YoY growth in air passengers, reaching 37.6 crore in
FY24.
2. 15% of India’s pilots are women, significantly higher than the
global average of 5%.
3. The number of operational airports in the country has
doubled from 74 in 2014 to 157 in 2024 and the aim is to
increase this number to 350-400 by 2047.
4. By the year 2040, the Indian aviation sector is likely to fly 110
crore passengers. The overall CAGR works out to around 9% in
domestic and 7% in international traffic during FY 2018-2040

Significance of the Aviation Sec-

tor
1. Economic Growth Driver: Contributes 5% to India’s GDP, supporting trade,
tourism, and investment. The sector is projected to generate $30 billion by 2025.
2. Employment Generation: supports 4 million+ jobs in airlines, airports, MRO
(Maintenance, Repair & Overhaul), and tourism.
3. Connectivity & Regional Development: Enhances domestic and global con-
nectivity, boosting regional economies. Eg- UDAN Scheme.
4. Growth in Passenger & Cargo Traffic: Handles 37.6 crore air passengers
(FY24) and enables faster movement of goods. Eg- Delhi and Mumbai airports
rank among the busiest globally.
5. Boosts Tourism & Hospitality: Facilitates international and domestic tourism,
contributing to foreign exchange earnings.
6. Supports National Security & Disaster Response: Aids in military opera-
tions, emergency evacuations, and disaster relief efforts. Eg- Air India’s
Vande Bharat Mission repatriated 7 million Indians during COVID-19.

Issues and challenges-

1. Shortage of Skilled workforce: Lack of skilled pilots, maintenance
engineers, and cabin crew members have led to operational disrup-
tions like increase in turn-around time of airlines.
2. Liquidity issues to airlines: Eg- : Recently, Go Air grounded its
airlines because of liquidity issues.
3. Concerns with respect to Aviation safety: Between 2013 and
2022, airlines in India reported 19 accidents, 99 serious incidents
and 74 incidents (Total 192 airline safety issues).
4. Heavy Financial Losses- Indian airlines are projected to record a
consolidated loss of $1.6 to 1.8 billion in FY24, due to heavy finan-
cial bleeding of Go first, SpiceJet and Jet Airways.
5. Per-capita penetration of domestic air travel (0.13 seats de-
ployed per capita) remains significantly lower than countries like
China (0.49) and Brazil (0.57).
6. Duopoly in Indian Aviation Market with IndiGo (60% market size)
and the Tata group airlines (20% market size).
7. Policy Lacunae- The Aircraft Act, 1934 and Aircraft Rules, 1937
have not kept pace with modern technology in aerospace.
8. High Operational Costs: Rising fuel prices, airport charges, and maintenance costs impact airline profitability. Eg- Aviation Tur-
bine Fuel (ATF) accounts for 40% of airline expenses, among the highest globally.
9. Infrastructure Bottlenecks: Overcrowded airports, inadequate runways, and slow expansion. Eg- Delhi and Mumbai airports

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Government initiatives
1. Digi Yatra Platform: It is a biometric-based digital processing system that avoids multiple checks of passengers at the airport by
issuing a unique Digi Yatra ID.
2. UDAN Scheme (Ude Desh Ka Aam Naagrik): An air connectivity scheme for connecting tier 2 and tier 3 cities. The government’s
push for Uran in the 2025 Union Budget is to launch 120 new destinations over the next 10 years
3. GAGAN-GPS-Aided Geo Augmented Navigation (GAGAN): It is India’s first Satellite-based Augmentation System. It provides
additional accuracy for safety in civil aviation.
4. Human Resource Planning: The highest number of Commercial Pilot Licenses (CPL) of the last decade was issued by DGCA in 2022.
5. Drone Policy Drone Certification Scheme, Drone Import policy, Drone (Amendment) Rules, 2022 notified by the government.
6. Policy for Greenfield Airports: provides guidelines, procedures and conditions for the establishment of new Greenfield Airports in the country.
7. Disinvestment to improve efficiency: Strategic disinvestment of Air India completed in the financial year 2022-23 which will help in
scale-up of the industry.
8. National Civil Aviation Policy (NCAP), 2016
a. Promoting ‘Make in India’ in the Civil Aviation Sector.
b. Ensuring availability of quality certified 3.3 lakh skilled personnel by 2025.
c. Enhancing ease of doing business through deregulation, simplified procedures, and e-governance.
9. Vision 2040 document
a. Increase the number of airports to handle over a billion passenger trips annually
b. Improve technical knowledge of the nation and create jobs in the aviation sector
c. Spur industrial growth and spread economic prosperity in India’s hinterland

Way Forward
1. The NITI Aayog INDIA@75 suggested that:
• Ease the Regulatory Environment for Airport: Adopt a consistent model for tariff determination so that it reduces passenger cost.
• Address Shortage of Skilled Manpower:Facilitate greater involvement of the private sector in sponsoring aviation institutions,
industrial training and R&D projects.
2. Enhance aviation infrastructure: Complete the planned airports under the UDAN initiative in a time-bound manner. The infrastruc-
ture capacity in the 10 biggest airports (in terms of traffic) should be significantly augmented.
3. Reducing Fuel Costs & Tax Reforms – Rationalizing GST on Aviation Turbine Fuel (ATF) and ensuring bulk procurement at lower
prices can improve airline profitability.
4. Development of MRO industry: India has strong comparative advantages to become a world-leading center of MRO (Maintenance
Repairs and Overhaul/Operations)
5. Promote air-cargo growth: Develop an integrated digital supply chain or e-cargo gateway based on the National Air Cargo Commu-
nity System (NACCS) platform and promote “Fly-from-India” through the creation of transhipment hubs.
6. A post of ombudsman can be created in addition to AIRSEWA helpline to address passenger complaints, transparent fees manage-
ment, clarity in refunds, etc.
7. Modification of the India’s Aircraft Act, 1934 and Aircraft Rules, 1937- These acts must be updated to keep pace with modern tech-
nology in aerospace, growth of industry and passenger traffic.
8. Promoting Aircraft Manufacturing & Leasing in India – Reducing dependence on foreign aircraft leasing by developing domestic
aircraft financing hubs.
9. Sustainability & Green Aviation – Promoting biofuel-based ATF, electric aircraft, and carbon offset programs to reduce emis-
sions. Eg- India’s first biofuel-powered flight (2018).
10. Improving Financial Resilience – low-cost carriers (LCCs), better fare management, and industry consolidation for long-term
viability. Eg- Air India-Vistara merger

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Energy is a critical aspect of the development process of a nation. The government is aiming to achieve energy independence by 2047,
i.e., before 100 years of independence.

Data:
1. As per Indian Energy Outlook Report, India is the 3rd largest
primary energy consumer country of the world.
2. Per capita electricity consumption in India has surged to
1,395 kWh in 2023-24, marking a 45.8% increase (438 kWh)
from 957 kWh in 2013-14. It is around one-third of the glob-
al average of per capita energy consumption.
3. India successfully met an all-time maximum power demand of
250 GW during FY 2024-25.
4. India’s total installed power generation capacity has surged
by 83.8%, increasing from 249 GW in 2014 to 457 GW as of
November 30, 2024.
5. India stands 4th globally in Renewable Energy Installed
Capacity (including Large Hydro), 4th in Wind Power capac-
ity & 4th in Solar Power capacity. According to the Central
Electricity Authority, the total renewable energy-based
electricity generation capacity now stands at 203.18 GW
in 2024, accounting for over 46.3% of the country’s total
installed capacity.
6. Target is to achieve 500 GW of installed electricity capac-
ity from non-fossil sources by 2030. Estimated potential of
solar energy is 748 GWp according to the National Institute of Solar Energy.

Issues and challenges with energy sector in India

1. Multiple Ministries and Agencies: This creates challenges
in coordination and optimal resource utilization. Eg- ministry
of coal, ministry of power, ministry of renewable energy,
department of atomic energy.
2. Fossil Fuel Dependency: India’s 89% of primary energy supply
is fulfilled by fossil fuel and imports around 40% of its primary
energy
3. High Aggregate Technical & Commercial (AT&C) Losses: The
energy losses in transformation, transmission and distribution
during the year FY24 was 17.6% (15.4% in 2023).
4. Financial Health of State Discoms: As per the RBI report,
DISCOM losses reached Rs 6.5 lakh crore in 2024 due to
inadequate tariffs relative to the cost of supply, higher-than-reg-
ulator-approved AT&C losses and delays in payment by govern-
ments
5. Policy Paralysis: The micro level policies governing the fuel cost pass-through, mega power policy, competitive bidding guidelines are
not in consonance with the macro framework like The Electricity Act 2003 and the National Electricity Policy.
6. Variety of Subsidies and Taxes: They distort the energy market and promote the use of inefficient over efficient fuels. Eg- electricity
subsidy in Punjab
7. Coal Shortages & Supply Chain Issues: mining inefficiencies, transport bottlenecks, and stock shortages lead to periodic
crises. Eg- The 2021 coal crisis.
8. Lower Average Tariff: In 2020-21, the average cost of supplying power was Rs 6.1/kWh whereas the revenue from discoms opera-
tions worked out to only Rs 4.21 per unit.
9. Agricultural Wastage: Average tariff was the lowest for agricultural consumers at Rs.1.8/kWh due to direct subsidies received from
the state government and cross-subsidisation.
10. Aging Power Plants and Transmission Network: Since most of the power plants and transmission lines have been installed imme-
diately after independence, they have become old and inefficient.
11. Dependence on Energy Imports: Rising LNG and crude oil imports expose India to supply disruptions and geopolitical risks.

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Energy Sector- Government Actions
1. Collaboration with Global Energy Firms: In January 2025, ONGC partnered with BP to boost output from the Mumbai High field,
India’s largest oil field.
2. Privatization and Private Sector Participation: Companies like Tata Power have expressed interest in acquiring and managing
state-owned power distribution companies.
3. Environmental Compliance and Policy Review: The government is reviewing a $30 billion program requiring coal-fired power plants
to install flue-gas desulphurization systems.

ENERGY SECTOR: Government achievements

1. Ethanol Blending target of 20% by 2025. 15 % target is achieved in 2024.
2. As of March 2021, 2.82 crore households have been electrified under Pradhan Mantri Sahaj Bijli Har Ghar Yojana(Saubhagya Scheme ).
3. By 2023, over 36.86 crore LED bulbs, 72.18 lakh LED tube lights and 23.59 lakh energy-efficient fans have been distributed across
the country, saving around 48,411 million kWh per year and Rs. 19,332 crores in cost savings.
4. Solar tariffs in India have reduced from Rs. 7.36/kWh in FY15 to Rs. 2.45/kWh in July 2021. However, they have slightly risen to
2.5/kWh in 2024.

Way Forward
1. Unified Ministry of Energy: It is advocated by the Kelkar Committee and National Energy Policy (by NITI Aayog).
2. Strengthening Renewable Energy Infrastructure: Invest in grid-scale battery storage, pumped hydro storage, and green hydro-
gen to address intermittency issues. Eg- The National Green Hydrogen Mission
3. Reviving DISCOMs & Power Sector Reforms: Improve financial viability of DISCOMs through better billing, reduced transmission
losses, and smart metering.
4. Enhancing Coal & Thermal Efficiency: Improve coal mining efficiency, transportation logistics, and cleaner coal technologies.
Eg- supercritical and ultra-supercritical coal plants.
5. Expanding Energy Storage & Smart Grids: Invest in AI-based demand management, smart grids, and decentralized power
solutions.
6. Boosting Industrial & Residential Energy Efficiency: Implement strict energy efficiency norms, green building codes, and effi-
cient appliances. Eg- The PAT Scheme
7. Removing Financial constraints in Energy Sector: A sustainable credit mechanism through global funding agencies like World
Bank, ADB etc. in the entire value chain.
8. Public Private Partnership (PPP) model: Eg- Dahanu Solar Power Plant in Rajasthan exemplify PPP success, having received
substantial funding from Asian Development Bank.
9. Renewable purchase obligations (RPO): RPO should be strictly enforced and inter-state sale of renewable energy should be facilitated.
10. General Network Access: Implementation of GNA to bring in a radical change in the country’s power disbursal system and create
a level playing field.
11. Investing in R&D & Green Innovation: Encourage next-generation energy research in hydrogen, fusion, and carbon capture
technologies.

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Challenges faced by DISCOMS in india
1. High AT&C Losses: The energy losses in transformation, transmis-
sion and distribution during the year FY24 increased to 17.6% from
15.4% in 2023.
2. Inadequate Infrastructure: Transformers and substations are often
outdated, leading to inefficiencies.
3. High Costs: Expensive long-term Power Purchase Agreements
(PPAs), frequent renegotiations, and soaring coal prices intensify
financial pressures
4. Irregular Tariff Revisions, sometimes stalled for seven to ten years,
have hampered financial sustainability.
5. Delayed Payments: Delayed payments, including state government
subsidies and unpaid dues from government departments
6. High Subsidies: Around 25% of energy sales are heavily subsi-
dized, impacting revenue.
7. High Power Procurement Costs: These costs account for 80% of
DISCOMs’ expenditure.
8. Profitability Issues: The gap between the average cost of supply
(ACS) and average revenue realized (ARR) stands at ₹0.49 per unit.
9. Poor Cash Flow: Eg- As of January 2024, outstanding dues from
distribution companies to power generators stood at ₹1.2 lakh
crore, highlighting the persistent cash flow issues.
10. Lack of Independence: Political interference affects tariff set-
ting, despite the Electricity Amendment Act, 2003.
11. Alternative Energy Sources: The adoption of renewable energy
reduces the financial viability of conventional power plants that
traditionally support cross-subsidisation.

Steps Taken by Government:

1. Revamped Distribution Sector Scheme (RDSS) with outlay of ₹3,03,758 crore (2021- 2026) to provide financial assistance to DISCOMs
for modernizing infrastructure, implementing smart metering, and reducing aggregate technical and commercial (AT&C) losses.
2. Ujwal DISCOM Assurance Yojana (UDAY)- state governments were allowed to take over 75% of DISCOM debt, while the remain-
ing 25% was restructured through bonds.
3. Privatization and Private Sector Participation: States like UP have initiated the privatization of certain DISCOMs, inviting private
firms to manage and operate distribution networks.
4. Policy and Regulatory Reforms:
• Electricity Act, 2003: Provides a comprehensive framework for the generation, distribution, transmission, and trading of electrici-
ty, promoting competition and protecting consumer interests.
• State Electricity Regulatory Commissions (SERCs): Established to regulate tariffs, issue licenses, and ensure the efficient
operation of the power sector at the state level.

Road Ahead:
1. Operational Reforms: Improve AT&C losses through better and
smart metering. RDSS aims to reduce AT&C losses to 12-15% and
close the ACS-ARR gap by FY 2024-25.
2. Subsidy Rationalization: Limit free electricity to deserving recipients only.
3. Discom Restructuring: Separate generation, transmission, and distri-
bution functions; enhance governance with private participation and
franchisee models. Eg- Franchisee models in Odisha and Bhiwandi,
Maharashtra.
4. Regulatory Reforms: autonomy of State Electricity Regulatory
Commissions (SERCs); ensure regular tariff revisions.
5. Introducing market-based contracting to allow High-Tension (HT)
consumers access to competitive supply options
6. Innovative metering solutions Implementing innovative solutions
such as virtual net metering for public entities and group metering for small consumers

Combining low-cost renewable energy, smart prepaid meters, and privatization can help DISCOMs overcome their financial challenges
and improve efficiency.

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Renewable Energy
India has experienced the fastest growth rate in renewable energy capacity among large economies in the last 7.5 years, with a 2.9-fold
increase in overall capacity and an 18-fold expansion in solar energy. The Ministry of New and Renewable Energy aims to achieve 500
GW of installed capacity from non-fossil sources by 2030.

Government Initiatives to Promote Renewable Energy:

1. FDI Policy: Allows 100% FDI in the renewable energy sector under the Automatic route without prior government approval.
2. National Solar Mission: Part of the National Action Plan on Climate Change, aimed for 280 GW by 2030. Focuses on large-scale
grid-connected solar parks and off-grid applications like solar pumps, mini-grids, and rooftop solar systems.
3. Production Linked Incentive (PLI) Scheme: Encourages domestic solar panel and cell manufacturing.
4. National Green Corridor Programme: ims to enhance renewable energy integration into the national grid by improving transmis-
sion infrastructure for solar and wind power. Plans to establish transmission corridors for 500 GW non-fossil fuel energy capaci-
ty by 2030, covering solar parks and wind energy hubs.
5. Promotion of Solar Parks and Ultra Mega Solar Power Projects: Aims to establish at least 25 Solar Parks and Mega-Solar Power
Projects to produce 20,000 MW of solar energy.
6. National Clean Energy Fund: Utilises carbon tax revenues to support R&D in eco-friendly technologies.
7. SRISTI Scheme: Provides financial aid for rooftop solar installations. Aimed to achieve 40 GW of rooftop solar capacity. Subsidies
up to 30% for general states and 70% for special category states.
8. PM-KUSUM: Aims to provide financial and water security to farmers by harnessing 25,750 MW of solar energy.
9. International Solar Alliance: A collaborative platform for increased deployment of solar technologies, initiated by India and France.
• Solar Risk Mitigation Initiative (SRMI): Supports financing for solar projects in developing nations.
• One Sun One World One Grid (OSOWOG): Aims for a global interconnected solar power grid to ensure energy security.
• Affordable Finance at Scale: Mobilizes $1 trillion in solar investments by 2030.

Benefits of Renewable Energy:

1. Investment Opportunities: Potential for $20 billion annual business in the sector, targeting 500 GW by 2030, requiring over 30 GW
annual capacity addition.
2. Low Maintenance Costs compared to traditional sources, resulting in higher long-term returns.
3. Environmental Sustainability: Reduces carbon emissions, air pollution, and ecological degradation, mitigating climate change.
4. Energy Security & Independence: Reduces dependence on imported fossil fuels, enhancing national energy resilience.
5. Cost-Effectiveness & Affordability: Solar and wind power costs have dropped by 80% over the past decade, making them cheap-
er than coal-based electricity. Eg- Solar tariffs in India reached a record low of ₹2 per unit.
6. Energy Access & Rural Development: Promotes decentralized power generation, improving electricity access in remote areas.
Eg- The Saubhagya Scheme.
7. Diversification of Energy Sources: Strengthens energy security by balancing power generation between solar, wind, hydro, and
bioenergy.
8. Support for Circular Economy: Encourages the reuse and recycling of materials in solar panels, wind turbines, and biofuel produc-
tion, reducing waste.
9. Alignment with Global Climate Goals: Helps nations meet their Paris Agreement and SDG-7 (Affordable & Clean Energy) targets.

Challenges:
1. Reliability: Solar and wind energy are variable and must be supplemented to maintain a stable energy supply.
2. Storage Infrastructure: Requires investment in large-capacity, affordable batteries to address the variability of renewable sources.
3. High Initial Capital Costs: Upfront investment for solar panels, wind turbines, and battery storage remains expensive. Eg- Setting
up a solar power plant costs ₹4-5 crore per MW
4. Financial Stress on DISCOMs: Power distribution companies (DISCOMs) struggle with losses and delay payments to renewable
energy producers.
5. Dependency on Chinese Equipment: India heavily relies on Chinese solar equipment, with about 70% of the country’s solar capacity
being built using Chinese-made solar equipment.
6. Inadequate grid infrastructure: India’s current grid infrastructure was designed to support conventional fossil fuel-based power generation.
7. Frequency & voltage issues: The unpredictability of solar and wind energy production makes the frequency and voltage produced
relatively unpredictable.
8. Right of way (ROW) for the transmission line: Conducting a transmission line survey and obtaining access rights from private prop-
erty holdings is challenging.
9. Land Acquisition & Environmental Concerns: Large solar and wind farms require vast land areas, often leading to deforestation,
displacement, and land conflicts.
10. Regulatory & Policy Uncertainty: Frequent changes in tariffs, power purchase agreements (PPAs), and subsidies create investor
uncertainty.

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Way forward
1. National Grid Development: A comprehensive national grid should be prioritized to ensure efficient energy distribution across
regions, utilizing the uneven distribution of renewable sources optimally.
2. Pricing and Consumption Strategies: Transition from traditional power-purchase agreements to real-time pricing. Implement time-
of-day (ToD) power tariffs to encourage the use of electricity when renewable supply is abundant.
3. Innovations in Energy Storage: Develop energy storage solutions such as Pumped Hydro Storage (PHS) and Battery Energy Storage
Systems (BESS) which are essential for maintaining grid stability and balancing.
4. Structural Reforms in Electricity Sector: Implement the proposed Electricity Act to revitalize discoms, incorporating measures like
direct benefit transfer, discom privatization, and strict Renewable Purchase Obligation (RPO) compliances.
5. Streamlining Regulations for Financing: Simplify administrative procedures to attract low-cost, long-term investment in renewable
energy projects.

Rajiv Ranjan committee report :

1. Solar Energy:
a. Promote benefits and incentives for rooftop solar systems.
b. Develop a long-term policy to boost domestic solar manufacturing, reducing import dependence and increasing employment.
2. Wind Energy: Investigate and expand wind power potential in other coastal states beyond Gujarat and Tamil Nadu.
3. Renewable Purchase Obligation (RPO):
a. Enforce RPO compliance with penalties for non-compliance.
b. Prohibit the carry forwarding or waiver of RPO requirements.
4. Green Energy Corridor: Improve monitoring and prioritization to meet the project’s construction and commissioning targets.
5. Financing of Projects:
a. Secure long-term loans to fund the installation of 58 GW of renewable projects.
b. Review and improve the loan disbursement process to prevent non-performing assets (NPAs).

Green infrastructure refers to environmentally sustainable infrastructure that integrates natural ecosystems with urban planning,
transportation, and energy systems to enhance sustainability, resilience, and resource efficiency.
Narendra Modi: “Green infrastructure is not just about planting trees; it’s about creating sustainable ecosystems that support life and
livelihoods. It is an investment in the future of our planet and the well-being of our people.”

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Key Components of Green Infrastructure

• Renewable Energy Systems: Solar, wind, hydro, and bioenergy-based power generation.
• Sustainable Urban Planning: Green buildings, rainwater harvesting, and eco-friendly public spaces.
• Clean Transportation: Electric vehicles (EVs), metro rail, and non-motorized transport (cycling, pedestrian-friendly cities).
• Waste Management & Circular Economy: Recycling, composting, and zero-waste infrastructure.
• Climate Resilient Infrastructure: Flood control systems, green roofs, and afforestation projects.

Benefits of green infrastructure

1. Environmental Sustainability: Reduces carbon footprint, air pollution, and ecological degradation, promoting climate resilience.
2. Efficient Water Management: Supports rainwater harvesting, wastewater treatment, and groundwater recharge, reducing
water scarcity. Eg- Chennai’s restoration of urban lakes
3. Climate Resilience & Disaster Mitigation: Strengthens flood control, heatwave protection, and coastal resilience. Eg- Man-
grove restoration in Sundarbans acts as a natural barrier against cyclones.
4. Energy Efficiency & Renewable Adoption: Enhances solar, wind, and hydro power integration, reducing reliance on fossil fuels.
5. Economic Growth & Green Jobs: Creates employment in renewable energy, eco-tourism, waste management, and sustainable
transport.
6. Improved Public Health: Reduces air pollution-related diseases, urban heat stress, and waterborne infections, lowering healthcare
costs.
7. Biodiversity Conservation: Preserves natural habitats, wildlife corridors, and urban green spaces, supporting ecological balance.
Eg- The Aravalli Biodiversity Park in Gurugram
8. Sustainable Urban Development: Promotes green buildings, eco-friendly transport, and smart city planning.
9. Cost Savings & Long-Term Economic Benefits: reduces energy bills, cooling costs, and disaster recovery expenses. Eg- Green
buildings save 30-50% in energy consumption compared to conventional buildings.
10. Enhancing Quality of Life: Improves urban livability, aesthetic appeal, and recreational spaces, fostering healthier communities.

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Global Best Practices in Green Infrastructure
Country Initiative
Japan Miyawaki Method of Afforestation
Singapore Skyrise Greenery Program mandates green roofs and vertical gardens on buildings.
Germany Freiburg, a model “Green City,” integrates solar panels, bike-friendly streets, and sustainable transport.
Netherlands The Room for the River Program: flood protection through wetlands and natural water storage. Eg-
Rotterdam’s Water Squares
Denmark Copenhagen aims to be the world’s first carbon-neutral capital by 2025.
China The Sponge City Program: water absorption using green roofs, permeable pavements, and artificial wetlands.

Challenges:
1. Lack of Active Master Plan for Cities: 52% of the statutory towns and 76% of the census towns lack Master Plans to guide
their spatial growth and infrastructural investments.
2. High Initial Costs: Green infrastructure projects require large capital investments, and funding sources like green bonds and
PPP models are still evolving.
3. Limited Policy Implementation & Regulatory Gaps: Eg- The Green Building Code is not uniformly implemented across Indian
states.
4. Land Scarcity & Urban Expansion Issues: Rapid urbanization leaves limited space for green infrastructure like parks, Miyawaki
forests, and wetlands.
5. Lack of Awareness & Public Participation: Eg- Rooftop solar adoption in residential areas remains low due to limited consumer
awareness.
6. Infrastructure & Technological Gaps: Limited R&D and slow adoption of smart grids, energy storage, and rainwater harvesting
reduce efficiency.
7. Weak Coordination Between Government & Private Sector: Collaboration between urban planners, environmental agencies,
and private firms is lacking, delaying projects.
8. Dependence on Imports: India imports most of its solar panels, wind turbines, and smart grid components, making it vulnera-
ble to global supply chain disruptions.
9. Maintenance & Long-Term Sustainability Issues: Eg- Rainwater harvesting structures in Indian cities often become non-func-
tional due to poor upkeep.
10. Slow Expansion of Sustainable Transportation: Adoption of EVs, cycling lanes, and public transit systems faces resistance
due to lack of infrastructure and incentives.

Government steps
1. National Action Plan on Climate Change (NAPCC): Launched in 2008, NAPCC outlines measures to promote sustainable development
and reduce the impacts of climate change.
2. Smart Cities Mission:
a. Green Spaces: Incorporates the development of parks, green belts, and green roofs.
b. Sustainability: Promotes the use of renewable energy and sustainable urban planning.
3. Atal Mission for Rejuvenation and Urban Transformation (AMRUT): Emphasizes the creation and maintenance of green spaces in
cities and provides financial support for the development of urban greenery and parks.
4. National Clean Air Programme (NCAP): Focuses on reducing air pollution through the increase of green cover in urban areas.
5. Green Highways Policy: Mandates the planting of trees along 140,000 km of national highways to mitigate pollution and enhance
aesthetic value.
6. Compensatory Afforestation Fund Management and Planning Authority (CAMPA): Supports afforestation, wildlife protection,
and ecosystem restoration projects across the country.
7. Urban Forestry Scheme Nagarvan scheme: Increase green cover in urban areas to improve air quality and provide green spaces.
8. Jal Shakti Abhiyan: Encourages the development of green landscapes that facilitate water recharge and management.
9. Towards Nature Based Solutions: India launched its first National Coalition platform for Urban nature-based solutions (NbS)
under the Cities4Forests initiative.
10. Missions for e-mobility
• PM E-DRIVE scheme aims to accelerate the adoption of electric vehicles (EVs) and establish essential charging infrastructure
across the country.
• National Electric Mobility Mission Plan (NEMMP) 2020: Provide a roadmap for the adoption of electric vehicles (EVs) in India.

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Steps Taken by Various State Governments
1. Haritha Haram of Telangan: A massive afforestation program aimed at increasing the tree cover to 33% of the total geographical area.
2. Sabarmati Riverfront Development of Gujarat: Includes extensive green belts and parks along the riverfront.
3. Integrated Watershed Management of Kerala: Focus on reforestation and the creation of green spaces to manage watersheds and
prevent soil erosion.
4. Bottom-Up Approach: Eg- Delhi is one of the first cities in India to include a blue-green infrastructure focus in its 2041
masterplan.

Suggestions:
1. Mainstreaming Green Infrastructure in Urban Planning: Integrate green spaces, rainwater harvesting, and renewable energy
solutions into Smart Cities, AMRUT, and urban master plans. Eg- Mandating urban Miyawaki forests in new housing projects.
2. Green Finance: Expand green bonds, carbon credits, and blended finance mechanisms. Eg- India’s Sovereign Green Bond
Framework can be expanded to attract global investors.
3. Promoting a Circular Economy Approach: Shift from linear consumption patterns to a circular economy by emphasizing recy-
cling, reusing, and energy recovery.
4. Localized & Community-Based Solutions: bottom-up approaches like community-led afforestation, rooftop solar coopera-
tives, and decentralized waste management. Eg- Odisha’s community-driven mangrove restoration
5. Climate-Resilient Infrastructure: Incorporate nature-based solutions like wetland conservation, flood buffer zones, and per-
meable pavements in urban expansion plans.
6. Strengthening Public-Private Collaboration: Eg- Green highways can be developed under the Hybrid Annuity Model (HAM).
7. Developing Indigenous Green Technologies & R&D: Invest in next-gen innovations such as solar paint, bioengineered building
materials, and AI-driven smart grids.
8. Multi-Modal Green Transport Networks: integration of metro, electric buses, cycling lanes, and pedestrian-friendly streets.
Eg- Bengaluru’s Public Bicycle Sharing program
9. Integrating Green Infrastructure into Industrial Corridors by eco-friendly zoning in industrial hubs, with mandatory wastewa-
ter recycling, solar power, and green buffer zones
10. Institutionalizing Green Governance & Metrics: Eg- Developing a National Green Infrastructure Index to rank states on sus-
tainability metrics.

According to World Bank “ Logistics services are the backbone of international trade.”
The major reforms in logistics sector include the GST, roll out of E-Way bill and the sector being granted infrastructure status.

Overview
1. The India logistics market generated a revenue of USD 228.4 billion in 2024 and is expected to reach USD 357.3 billion by 2030.
The India market is expected to grow at a CAGR of 7.7% from 2025 to 2030.
2. Growth Drivers: Flourishing e-commerce market, technological advancement, government policies.
3. GDP Contribution: Predicted to account 14.4% of GDP.
4. Employment: Employs 22 million people, valued at US$ 250 billion in 2021, expected to grow to US$ 380 billion by 2025.
5. The National Logistics Policy (NLP) aims to reduce logistics costs to 8% by 2030.

Significance of the Logistics Sector in India

1. Backbone of Economic Growth contributing around 14% to
GDP and employing over 22 million people.
2. Enhances Trade Competitiveness: reduces transportation
costs, delivery delays, and inefficiencies.
3. Supports Manufacturing & MSMEs: Strengthens supply
chain networks, enabling faster delivery and cost efficiency..
4. Enhances Agricultural Supply Chains: Reduces post-harvest
losses through improved cold storage, food processing, and
agri-logistics networks. Eg- The Kisan Rail initiative.
5. Strengthens Infrastructure & Multi-Modal Transport: Integrates
road, rail, air, and waterways for faster, cost-effective freight movement.
6. Drives E-Commerce & Digital Transformation: Expanding logistics infrastructure supports rapid e-commerce growth, 3PL ser-
vices, and digital logistics platforms.
7. Supports Green & Sustainable Mobility: electric vehicles (EVs), LNG-powered trucks, and smart logistics reduce carbon emis-
sions. Eg- The Green Freight Corridor initiative.
8. Improves National Security & Disaster Response: Eg- Efficient logistics helped in COVID-19 vaccine distribution under Mission
Indradhanush.

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Issues/Challenges
1. Cost of Logistics: logistics costs in India have been in the
range of 14-18% of GDP against the global benchmark of 8%.
(Economic Survey 2022-23)
2. Lack of Interoperable Technology: The movement of goods
across modes suffers from the absence of last mile connectivi-
ty and infrastructure.
3. Handling and warehousing facilities are still largely un-mech-
anized with manual loading, unloading, and handling in the
case of many commodities.
4. Border compliance and document processing time: India’s
document processing time is an average of 38 hours for ex-
ports and 61 hours for imports.
5. Safety aspects: poor logistics practices lead to practices such
as overloading of trucks, which compromises road safety, and
derailing of rail wagons.
6. Lack of multi-model capabilities: The global average for road
transportation is 25% and 60% of cargo is handled by railways,
on the other hand, 60% of logistics movement in India is by
road and only 32% by Railways.
7. Poor Infrastructure & Connectivity Gaps: Eg- The average
freight speed on Indian Railways is ~25 km/h, much lower
than global standards.
8. Fragmented & Unorganized Sector: Over 85% of logistics
players are small, unorganized firms, leading to inefficien-
cies and lack of standardization.
9. Regulatory Bottlenecks & Compliance Issues: Multiple
agencies regulate logistics, leading to complex approvals,
high documentation burden, and inconsistent state
policies.
10. Environmental & Sustainability Concerns: The logistics
sector contributes ~10% of India’s CO₂ emissions, with
diesel trucks dominating freight transport.
11. Delays in Port & Cargo Handling: Eg- India’s average
port turnaround time is 48 hours, compared to 12 hours
in Singapore.

Government Initiatives
1. Infrastructure Status:The Logistics sector is now classified under the infrastructure sector; thus, stakeholders now can avail them-
selves of long gestation period funds.
2. PM Gati Shakti National Master Plan (NMP): A ₹100 lakh crore initiative to develop integrated infrastructure, ensuring seamless
logistics across road, rail, ports, and airways.
3. National Logistics Policy (NLP), 2022: Aims to reduce logistics costs from 13-14% of GDP to 8% by 2030, enhance multi-modal
connectivity, and improve supply chain efficiency. Introduced Unified Logistics Interface Platform (ULIP) for real-time tracking.
4. Bharatmala Pariyojana: Targets 35,000 km of highways, including economic corridors, border roads, and coastal routes.
5. Dedicated Freight Corridors (DFCs): Developing high-speed, electrified rail corridors to separate freight from passenger trains,
reducing transit time and costs.
6. Sagarmala Programme: Focuses on port modernization, coastal shipping, inland waterways and developing mega ports, multi-
modal hubs.
7. Multi-Modal Logistics Parks (MMLPs): Establishing 35+ logistics hubs with world-class warehousing, cold storage, and contain-
er handling.
8. E-Way Bill & FASTag Implementation: E-Way Bill under GST reduces transit delays by enabling seamless goods movement across
states. FASTag ensures contactless toll collection, reducing waiting time at toll booths.
9. Kisan Rail & Krishi Udaan Scheme: Dedicated rail and air freight services for farmers and agri-produce, reducing post-harvest
losses.
10. Digital Transformation in Logistics: Eg- The Logistics Data Bank (LDB) tracks container movement from ports to delivery points.
11. National Rail Plan (NRP) 2030: increase rail freight share from 30% to 45% by modernizing rail logistics, boosting private sec-
tor participation, and reducing transport costs.

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National Logistics Policy (NLP), 2022
National Logistics Policy (NLP) was launched on 17th September 2022 to boost the ease of doing business and enhance the liveability
quotient.

Objective
1. Reduce cost of logistics in India from 14% of GDP to a global average of 8 %by 2030
2. Improve the Logistics Performance Index ranking: endeavor is to be among top 25 countries by 2030
3. Create data driven decision support mechanism for an efficient logistics ecosystem.

NLP is based on four pillars

1. Integration of Digital System (IDS): Different systems from
seven different departments will be digitally integrated.
2. Unified Logistics Interface Platform (ULIP): enables confidential
real-time information exchange while ensuring faster and more
seamless cargo movement.
3. Ease of Logistics (ELOG) through transparency and accessibility.
4. System Improvement Group: It will routinely keep track of all
logistics-related projects.

Way Forward
1. Technological intervention: Focus on new technology such as automation, digitization, skilling, removing bottlenecks related to
technology upgradation. Eg- ICEGATE and E-Logs
2. Setting of smart warehousing: increase investment in digitization and automation to develop smart warehousing.
3. Improve regulatory regime: National Logistics Law to provide an agile regulatory environment through a unified legal framework for
“One Nation-One Contract” paradigm.
4. Greater standardization in logistics equipment and facilities that will lead to enhanced interoperability across the logistics chain.
5. Development of sector specific logistics plans and their interaction with national and state level plans.
6. The sector needs to conform with leading global benchmarks such as Energy Efficiency Existing Ship Index, Carbon Intensity
Rating, and Emissions Trading System.
7. Reduce Logistics Costs to Global Standards: Improve freight optimization, route planning, and bulk cargo handling to lower costs.
8. Strengthen Multi-Modal Logistics Integration: Fast-track Dedicated Freight Corridors (DFCs) and inland waterway projects
under Sagarmala.
9. Port Modernization: Implement paperless trade, digital customs, and port automation.
10. Green Logistics: LNG/CNG vehicles, EV logistics fleets, solar-powered warehouses. Invest in electric trucks, green corridors,
and railway electrification.
11. Encourage Private Sector & Foreign Investment: Strengthen PPP models, attract FDI, and simplify regulatory approvals for
logistics projects.
12. Develop industry-relevant skill training programs under National Skill Development Corporation (NSDC). Eg- logistics & supply
chain management courses in universities.

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ADB describes PPP as “a cooperative venture between the public and private sectors, built on the expertise of each partner, that best
meets clearly defined public needs through the appropriate allocation of resources, risks, and rewards.”

Data
1. 77 projects with a total cost of ₹2.4 lakh crore were recommended
from FY15 to FY24 by PPP Appraisal committee.
2. Total VGF (Viability Gap Funding) approval of ₹5,813.6 crore
(both Union Government & State share) from FY15 to FY24.

Organizational Structure
The Infrastructure Finance Secretariat (IFS) has been established
under the Department of Economic Affairs (DEA) to boost infrastructure development through a multitude of initiatives.

The Private Investment Unit is responsible for policy-level matters concerning PPPs,including Policies, Schemes, programs and Model
Concession Agreements.

PPPs based on Operational Type

1. Build Operate and Transfer (BOT): private partner designs,builds,operates, and transfers the facility back to the public sector. The
private partner brings in finance and is allowed to collect revenue from users.
2. Build-Own-Operate (BOO): In this variant of the BOT model, the private party retains ownership of the facility. The public sector
purchases the goods and services produced by the project on agreed terms and conditions.
3. Build-Operate-Lease-Transfer (BOOT): Similar to BOT, the private partner operates the infrastructure asset for a specified period
and then transfers ownership to the government or another private operator.
4. Build-Operate-Finance-Operate (BOFO): The private party assumes responsibility for design, construction, finance, operation, and
maintenance of the project for the concession period.
5. Lease-Develop-Operate (LDO): The government retains ownership of the infrastructure facility, and the private promoter pays a
lease fee for its use.
6. Joint Venture (PPP): The public and private sectors jointly own and operate the infrastructure project, forming a special purpose
vehicle (SPV).
7. Management Contract and Service Contract: Under these models, the private promoter assumes responsibility for various opera-
tional and maintenance functions of the project for a fee or profit-sharing arrangement.
8. Hybrid Annuity Model (HAM): The government (or its designated authority) typically provides 40% of the project cost as a grant
during the construction phase. The remaining 60% of the project cost is financed by the private sector in the form of debt and equity.
9. Engineering, Procurement, and Construction (EPC): the private contractor is responsible for designing, procuring materials and
equipment, and executing the construction of the project as per the specifications provided by the government or the project owner.

Significance of PPP Projects in India

1. Reduces Government Financial Burden: Eg- The Hybrid Annuity Model (HAM) in road projects shares risk between the government
and private players.
2. Brings Technological & Managerial Expertise: Private sector involvement ensures better project design, quality construction,
and advanced technology adoption.
3. Access to Funding- Attracts domestic and international private investments. Eg- The Hyderabad Metro Rail Project attracted
₹14,132 crore in private investment.
4. Quality Service Delivery: According to the Ministry of Finance, PPP projects have shown a 25% improvement in service delivery
quality compared to purely public sector projects.
5. Faster Project Implementation: Eg- The Bangalore International Airport was constructed in a record time of 33 months.
6. Promotes Risk Sharing & Better Project Management: Risks related to financing, construction delays, and operational ineffi-
ciencies are shared between the public and private sectors, ensuring balanced project execution.
7. Improves Urban & Rural Connectivity: PPPs in roadways, railways, and airports ensure better connectivity and regional development.
8. Encourages Sustainable & Green Infrastructure: Enables investment in solar energy, waste management, and water treatment
plants through private participation. Eg- The Rewa Ultra Mega Solar Park in Madhya Pradesh was developed under the PPP model.
9. Enhances Competitiveness in Global Markets: Well-developed infrastructure improves ease of doing business, attracting foreign
direct investment (FDI) and global investors.
10. Supports Government’s Long-Term Development Vision: Aligns with national policies like PM Gati Shakti, Smart Cities Mission,
and Bharatmala. Eg- Multi-modal logistics parks under Bharatmala Pariyojana are being developed through PPPs.

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Issues
1. Structural
a. Ambiguity in concessionaire agreement regarding revenue sharing, dispute settlement etc
b. DPR is not prepared efficiently, leading to cost overruns
c. Lack of an independent regulator
d. Poor projections regarding traffic to access funds
e. Long term projects, uncertain market conditions, lack of capacity at both Government and Private players leads to disputes and
litigation
2. Limited Participation in Social Infrastructure: PPPs in sectors like education, healthcare, and water supply are fewer due to
longer break-even periods and lower profitability.
3. Operational & Maintenance Challenges: Post-construction maintenance responsibility is often ignored or poorly executed, lead-
ing to deteriorating infrastructure.
4. Financing & High Capital Risks: PPP projects require huge upfront investments, making it difficult for private players to secure
funds. Eg- Banks are hesitant to fund long-term road and metro projects due to viability concerns.
5. Risk Allocation issues: Unclear risk-sharing mechanisms lead to disputes and project cancellations. Eg- The Delhi-Gurgaon
Expressway project
6. Weak Contract Enforcement & Renegotiation Issues: Private players often seek renegotiation of contracts due to cost overruns.
7. Revenue Generation & Tariff Issues: Low user charges, political interventions, and public resistance impact revenue generation
for private players. Eg- The Bangalore-Mysore Expressway toll protests
8. Delays in Land Acquisition, environmental approvals, and legal disputes delay project execution, increasing costs. Eg- The Mum-
bai Trans Harbour Link (MTHL)
9. Credit: Failure of BOT Model adoption due to unavailability of long term finance to private entities.
10. Long Timelines & Cost Overruns: Extended construction periods and market fluctuations lead to delays and increased costs,
impacting project viability.
11. Sectoral Imbalance & Inflexibility: PPPs are concentrated in limited sectors and lack adaptability for renegotiation under
changing conditions.

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Government Initiatives
1. Viability Gap Funding scheme : Provides up to 40% capital grant to make projects financially viable. In 2020, CCEA extended it to
Social Infrastructure as well.
2. Swiss Challenge: The government invites a bidder to submit a proposal, which is then made public for competitive counter-bids. If
the original bidder fails to match the best counter-bid, the project is awarded to the highest counter-bidder.
3. India Infrastructure Project Development Fund (IIPDF): Supports PPP project preparation by funding feasibility studies and
structuring at all government levels.
4. IIFCL Support: Offers long-term debt financing to address capital requirements for infrastructure projects with long gestation periods.
5. Government Incentives
a. Foreign Direct Investment up to 100 % in the road sector.
b. 100% tax exemption in any consecutive 10 years out of 20 years after commissioning of the project.
c. Duty free import of high capacity and modern road construction equipments

WAY FORWARD
1. Kelkar Committee recommendations
a. Prioritizing service delivery over fiscal benefits in contracts
b. Establishing independent sector regulators
c. Better risk allocation between stakeholders
d. Utilizing advanced risk management techniques
e. Amending the Prevention of Corruption Act to differentiate between genuine errors and corrupt practices;
2. Consolidated infrastructure law on lines of UK’s Infrastructure Law, 2015 that simplifies procedures, reduces bureaucratic hur-
dles, and sets clear timelines for approvals.
3. Participatory approaches to land acquisition: auction-based approach to land acquisition over state-driven compulsory acquisi-
tion of land. Eg- The Delhi Mumbai Industrial Corridor (DMIC) project has adopted a model of land pooling with willing farmers.
4. Financing solutions like Sovereign wealth funds, Infrastructure bonds and a well-developed municipal bond market is crucial for
financing urban infrastructure projects.
5. Improved Project Planning and Implementation- Strengthening project preparation, transparent bidding processes, and ensuring
efficient dispute resolution mechanisms.
6. Plug and Play Model: Prerequisites to be taken care by the government before inviting Private investment i.e. Clearances of electrici-
ty, water, environment, etc.
7. Take out Finance: Provide funding for long duration projects through DFIs
8. Institutional & Policy Framework: Establish a dedicated PPP body and implement a National PPP Policy for streamlined management.
9. Risk Allocation & Regulation: Ensure balanced risk-sharing and create sector-specific regulators for efficiency and accountability.
10. Project Review & Fast-Tracking: Form a review committee to expedite stalled PPP projects and ensure timely execution.
11. Dispute Resolution & Contract Flexibility: Set up a PPP tribunal for swift dispute resolution and allow contract flexibility for
policy/economic changes.
12. Capacity Building: Develop a National Institute for PPPs to enhance stakeholder expertise and project management.

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India’s Industrial Policy
Previous Year Questions (PYQs)
[UPSC Mains 2023] Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Com-
ment on the present policies of the Government in this regard. 10

[UPSC Mains 2017] Account for the failure of the manufacturing sector in achieving the goal of labour-intensive exports. Suggest meas-
ures for more labour intensive rather capital-intensive export. 10

[UPSC Mains 2017] “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic- Product(GDP) in the post-reform
period” Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate? 15

[UPSC Mains 2016] Justify the need for FDI for the development of the Indian economy. Why there is gap between MOUs signed and
actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. 12.5

[UPSC Mains 2015] There is a clear acknowledement that Special Economic Zones (SEZs) are a tool of industrial development, manufac-
turing and exports. Recognizing this potential, the whole instrumentality of SEZs requires augmentation. Discuss the issues plaguing the
success of SEZs with respect to taxation, governing laws and administration. 12.5

[UPSC Mains 2014] Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agricul-
ture to services. What are the reasons for the huge growth of services vis-a-vis industry in the country? Can India become a developed
country without a strong industrial base? 12.5

[UPSC Mains 2014] Foreign direct investment in the defence sector is now said to be liberalised. What influence this is expected to have
on Indian defence and economy in the short and long run? 12.5

[UPSC Mains 2013] Discuss the impact of FDI entry into multi-trade retail sector on supply chain management in commodity trade pat-
tern of the economy. 5

[UPSC Mains 2013] Examine the impact of liberalization on companies owned by Indian. Are the competing with the MNCs satisfactorily? 10

“Atma Nirbhar Bharat is not about being self-contained or being closed

to the world. It is about being self-sustaining and self-generating.”
PM Modi
Industrial policy refers to a strategic effort by a government to encourage the development and growth of specific sectors or industries
within the economy. This approach aims to promote economic transformation by shifting resources from lower to higher productivity
activities, thereby enhancing overall economic performance.
Evolution of Industrial Policy in India
Early Industrial Policies (1948-1980s):
1. Industrial Policy Resolution (IPR) 1948: First industrial policy laying the foundation for a mixed economy. Classified industries
into strategic (state-controlled), key (private participation allowed), and unregulated sectors.
2. Industrial Policy Resolution (IPR) 1956
• Strengthened the public sector and emphasized state-led industrialization.
• Divided industries into three categories:
• Schedule A (exclusively public sector)
• Schedule B (joint public-private ownership)
• Schedule C (open to private sector)
3. Industrial Licensing (1960s-1970s): License Raj, restricting private sector entry into several industries. Aimed to control monopolies but
led to bureaucratic inefficiencies and slow growth.
4. MRTP Act, 1969 (Monopolies and Restrictive Trade Practices Act): Prevented economic concentration by regulating large business
houses. Restricted expansion of big firms and controlled foreign investment.
5. Industrial Policy Statement, 1977: Focused on small-scale industries (SSIs) and decentralized production. Encouraged rural
and agro-based industries to promote self-reliance.
6. Industrial Policy Statement, 1980: Reversed some 1977 policies to promote modernization and competition. Encouraged the
core sector and heavy industries under public control.

Economic Liberalization (1991 Onwards):

Facing economic challenges in the early 1990s, India initiated a series of reforms to liberalize its economy:

New Industrial Policy of 1991:

• De-Reservation of Public Sector: Reduced public sector ex-
clusivity. The public sector retained a dominant role only in five
core areas: arms and ammunition, atomic energy, mineral oils,
rail transport, and mining. (Presently only Atomic Energy and
Railway Operations)
• De-Licensing: Industrial licensing was abolished for most sec-
tors, with only four industries requiring a license: Aerospace &
defense electronics, Hazardous chemicals, Industrial explo-
sives, Tobacco products
• Public Sector Disinvestment: government reduced stakes in
PSUs to boost efficiency and competitiveness.
• Liberalization of Foreign Investment: Allowed majority foreign
ownership, permitting 51% FDI in 47 high-priority industries
and 74% in export trading houses. Today, 100% FDI is allowed in
multiple sectors.
• Foreign Technology Agreements: Introduced automatic ap-
provals for technology collaborations.
• MRTP Act Reforms: Removed asset threshold restrictions, later
replacing the MRTP Act with the Competition Act, 2002 to
regulate monopolies.

Recent Initiatives:
1. Make in India (2014): Launched to transform India into a global manufacturing hub, this initiative aims to raise manufacturing’s
GDP contribution from 15% to 25%. Pillars of ‘Make in India’
• New Processes: Focus on ease of doing business through streamlined regulations, fostering entrepreneurship and investment.
• New Infrastructure: Development of industrial corridors, smart cities, and high-speed communication to support global-standard
industries.
• New Sectors: Expanded FDI in Defence, Insurance, Medical Devices, Construction, and Railways, attracting global investments.
• New Mindset: Shifted the government’s role from regulator to facilitator, fostering industry collaboration and innovation.
2. Atmanirbhar Bharat (Self-Reliant India) (2020): This policy emphasizes self-sufficiency by promoting local industries, reducing
import dependence, and enhancing domestic production capabilities across sectors.
3. Production-Linked Incentive (PLI) Scheme: The scheme covers 14 key sectors (sunrise and strategic sectors). It aims to provide
financial incentives to manufacturers based on measurable outcomes—such as sales of products manufactured in India—and to
offset the manufacturing cost disabilities in India.
4. Tariffs & Import Substitution: India’s trade policy has focused on reducing foreign dependence by promoting domestic produc-
tion. The average tariff rate rose from 12% in FY 2011 to 13% in FY 2015 and 14.3% in FY 2021.
5. Domestic Content Requirements: certain projects require their component parts to be manufactured domestically. Eg- projects
using crystalline silicon solar technology are required to procure solar modules domestically. Similarly, in 2020, India extended public
procurement preference to domestic suppliers of desktops, laptops, tablets, servers, and mobile phones.

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Need for New Industrial Policy
1. Lack of Comprehensive Manufacturing Policy: Major countries have historically relied on manufacturing to reduce poverty and
sustain economic growth. Over 100 countries have developed industrial policies in the last decade, while India lacks a compre-
hensive manufacturing policy.
2. Industrial policy can help organize domestic firms into effective coalitions for negotiations, similar to strategies employed by China
since the 1990s.
3. Declining Manufacturing Contribution: Manufacturing’s share in GDP stagnates at ~16-17%, far below the 25% target under the
National Manufacturing Policy (2011).
4. Global Competitiveness & Trade Deficit: India lags in ease of doing business and export competitiveness, with a high trade
deficit in technology-intensive sectors.
5. Technological Advancements & Industry 4.0: The adoption of AI, automation, IoT, and green technologies is essential to modern-
ize industries and enhance productivity.
6. MSME Growth & Job Creation: MSMEs contribute 30% to GDP but face credit, technology, and infrastructure challenges; a new
policy can boost employment and formalization.
7. Infrastructure & Logistics Bottlenecks: High logistics costs (13-14% of GDP) hinder industrial growth; policy support is needed
for supply chain efficiency and smart manufacturing zones.
8. FDI & Domestic Investment: While FDI inflows increased ($70.95 billion in 2023-24), domestic private investment remains slug-
gish, requiring policy incentives for capital formation.
9. Green & Sustainable Manufacturing: Industries need incentives for low-carbon technology adoption, circular economy, and
renewable energy integration.
10. Reducing Import Dependence & Strengthening Atmanirbhar Bharat: High reliance on electronics, semiconductors, and phar-
ma imports necessitates a stronger push for self-reliance.
11. Regulatory & Labor Law Reforms: Simplifying industrial regulations, labor codes, and compliance processes can enhance the
ease of doing business.
12. Skilling & Workforce Readiness: With Industry 4.0 adoption, there is a need for retraining & upskilling the workforce to align
with emerging industrial demands.

Challenges/issues
1. Impact of Pandemic: The pandemic shifted economic perspectives, emphasizing state-led industrial policies. Eg-, in February
2025, President Trump signed an executive order directing the Department of Commerce to explore imposing tariffs on copper and
derivative products for national security reasons.
2. Balancing Liberalization & Protectionism: Finding the right mix between global market integration and domestic industry pro-
tection under Atmanirbhar Bharat.
3. Infrastructure & Logistics Bottlenecks: High logistics costs (13-14% of GDP), inadequate industrial corridors, and poor last-mile
connectivity hinder competitiveness.
4. High-skill services growth has poor employment elasticity. The service sector cannot absorb labor exiting agriculture effectively.
Inequality in wages is higher in services compared to manufacturing.
5. Regional disparity: 40 % of net value added is contributed by Maharashtra, Gujarat, and Tamil Nadu. Half of the states do not
have any operational special economic zones.
6. India’s manufacturing sector has been slow to transition to advanced technology, particularly in sectors such as electronics,
semi-conductors, and renewable energy components (Ficci-Mckinsey Report)
7. Land Resources Challenge: Limited availability of large land parcels with clear titles hinders manufacturing expansion. Land
record digitization gaps and a cumbersome registration process further add to the constraints.
8. Skilling & Workforce Readiness: Mismatch between industry needs and workforce skills, especially with Industry 4.0 technolo-
gies like AI and automation.
9. Limited R&D & Technological Innovation: India’s R&D investment (0.7% of GDP) is low compared to global leaders, slowing indig-
enous technological advancements.
10. MSME Growth & Financial Constraints: MSMEs struggle with access to credit, technology, and global markets, limiting their
role in industrial expansion.
11. Environmental & Sustainability Concerns: Balancing industrial growth with climate commitments, ensuring adoption of green
manufacturing and renewable energy.
12. Import Dependence & Supply Chain Gaps: High reliance on critical imports (electronics, semiconductors, pharma ingredi-
ents) weakens self-reliance efforts.
13. State-Center Coordination Issues: Industrial policies often face implementation delays due to coordination challenges between
central and state governments.
14. Unorganized sector in India: India has 63 million workers in unorganized sectors, facing precarious job conditions. Lack of imple-
mentation of Four Labour Codes deter scalability and flexibility for industries.

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Way forward
1. Strengthening Infrastructure & Logistics- Improve transport networks, power supply, and digital connectivity to support indus-
tries. Fast-track projects under National Infrastructure Pipeline (NIP) and Gati Shakti Mission to reduce logistics costs.
2. Enhancing Ease of Doing Business- Simplify regulatory frameworks and reduce compliance burden to attract investments.
Implement single-window clearance systems to streamline industrial approvals.
3. Boosting Domestic Manufacturing & Innovation Expand Production-Linked Incentive (PLI) Scheme to new sectors like green
hydrogen and advanced materials.
4. Skilled Workforce: Improve vocational training and industry-academia partnerships through Skill India Mission. Upgrade curric-
ulum in engineering and technical institutes to meet global industry demands.
5. Supporting MSMEs & Startups: Enhance access to credit, technology, and market linkages for MSMEs under Make in India 2.0.
Expand funding support and incubation programs for tech-driven startups.
6. Expanding Green & Sustainable Industrial Growth: Incentivize circular economy models for waste reduction and resource efficiency.
7. Strengthening Global Trade & Investment Partnerships- Enhance participation in global value chains (GVCs) through free trade
agreements (FTAs). Attract foreign direct investment (FDI) in high-tech industries like electronics, defense, and AI-based
manufacturing.

India’s manufacturing sector is a key driver of economic growth, contributing around 17% to the GDP. The number of persons em-
ployed in manufacturing industries rose 7.5% in 2022-23 to 1.85 crore from 1.72 crore in the previous year

Data
1. India has 2.8 % of the global share in manufacturing, compared to China’s 28.8 %.
2. India’s manufacturing output for 2023 was valued at $455.77 billion, reflecting a 3.57% increase from 2022.
3. In FY 2023-24, India’s manufacturing sector production growth rate stood at 1.4 percent, as against a growth rate of 4.7 percent in
FY 2022-23. (Economic Survey 2024-25)
4. The Production-Linked Incentive (PLI) scheme, launched in 2020, has attracted over $17 billion in investments across 14 sectors,
including electronics, pharmaceuticals, and textiles.
5. In the fiscal year 2023-24, India’s exports reached $776.68 billion, with manufactured goods comprising 70.7% of this total.
6. In December 2024, the Manufacturing Purchasing Managers’ Index (PMI) stood at 56.4, indicating expansion, though it was the sec-
tor’s weakest growth rate for that year.

Significance
1. Contribution to GDP Growth: The sector contributes 17% of India’s GDP,
with a vision to reach 25% under the “Make in India” initiative.
2. Employment Generation: Provides direct and indirect employment to
over 27 million people in industries like automobiles, textiles, electronics,
and steel.
3. Boost to Exports & Trade: Major contributor to India’s exports,
including engineering goods, pharmaceuticals, chemicals, and
textiles.
4. Attracting Foreign Direct Investment (FDI): Policies like the Pro-
duction-Linked Incentive (PLI) Scheme have drawn significant FDI in
electronics, telecom, and automobiles.
5. Technological Advancement & Innovation: Encourages automation,
robotics, AI-driven production (Industry 4.0), and green manufactur-
ing.
6. Infrastructure Development & Industrial Growth: Drives demand for pow-
er, roads, ports, and logistics, leading to multi-sectoral economic expansion.
7. Driving Economic Resilience & Global Competitiveness: A strong
manufacturing sector ensures economic resilience during global dis-
ruptions (Eg- supply chain shocks).
8. Export Growth & Trade Balance: Strengthens global trade competitive-
ness, reducing import dependence and trade deficits.
9. Enhances Self-Reliance (Atmanirbhar Bharat): Strengthens do-
mestic production in defense, electronics, and pharmaceuticals,
reducing reliance on imports.
10. Supports MSME & Startup Ecosystem: Encourages local entrepreneurship, fostering innovation and decentralized industrialization.
11. Multiplier Effect on Other Sectors: Fuels growth in services, agriculture, and supply chains, creating a ripple effect in the economy.
12. Environmental & Sustainable Manufacturing Potential: Adoption of green technologies and circular economy can enhance
sustainable industrial practices.

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Major issues
1. Regional disparity: 40 % of net value added is contributed by Maharashtra, Gujarat, and Tamil Nadu. Half of the states do not have
any operational special economic zones.
2. India’s manufacturing sector has been slow to transition to advanced technology, particularly in sectors such as electronics,
semi-conductors, and renewable energy components (Ficci-Mckinsey Report)
3. Skilled Labor Shortage due to inadequate vocational training and education systems. According to Economic Survey 2023-24,
only around 51% of Indian graduates are considered employable.
4. Unorganized sector in India: India has 63 million workers in unorganized sectors, facing precarious job conditions. Lack of imple-
mentation of Four Labour Codes deter scalability and flexibility for industries.
5. Lack of integration in global supply chains: India’s share in global merchandise exports is 1.8% compared to China’s 14.7%. Eg-
India coming out of RCEP
6. Infrastructure Deficiencies:
a. Transportation and Logistics: Inadequate transport networks and underdeveloped supply chains increase operational costs
and reduce efficiency.
b. Power Supply: Frequent power outages disrupt production schedules, affecting overall productivity.
7. Regulatory and Policy Barriers:
a. Complex Regulations: Cumbersome land acquisition laws, labor regulations, and environmental clearances deter investment
and slow project implementation.
b. Taxation Issues: Frequent changes and lack of clarity in tax policies create uncertainty, hindering corporate investments
8. Financial Constraints: Out of 64 million MSMEs, only 14% have access to credit. They often struggle to access finance due to
high interest rates and stringent collateral requirements.
9. Global Competition: India faces stiff competition from countries like China, which offer more developed manufacturing ecosystems
and lower production costs.
10. Supply Chain Dependencies: Over-reliance on imports for critical raw materials and components exposes the sector to global
supply chain disruptions.
11. Technological Adoption: The sector’s inclination towards labor-intensive processes, due to the availability of low-cost labor and the
high cost of technology, hampers competitiveness and efficiency
12. Trade and Tariff Issues: High tariffs and regulatory clashes in international trade negotiations can limit market access.
13. Limited R&D Investment: India’s investment in R&D is only about 0.64% of GDP in 2023. This is far below China, which spent around
2.4% to 2.5%, and the US, which spent around 3.4%. Companies struggle to develop new technologies and improve processes.

Government steps
1. Production-Linked Incentive (PLI) Scheme: Launched in March 2020, the PLI Scheme offers financial incentives to manufacturers
based on measurable outcomes, such as sales of products manufactured in India. It covers 14 sunrise sectors and is expected to gen-
erate $500 billion worth of manufacturing output.
2. Industrial Corridor Development Programme: The objective of this programme is to develop Greenfield Industrial regions with sustain-
able infrastructure & make available Plug and Play Infrastructure at the plot level. 11 Industrial Corridors are being developed in 4 phases.
3. National Single Window System (Budget 2020-21): to provide “end to end” facilitation and support to investors, including pre-in-
vestment advisory, provide information related to land banks and facilitate clearances at Centre and State level.
4. PM Gati Shakti National Master Plan (NMP): a GIS based platform with portals of various Ministries/Departments to facilitate
data-based decisions related to integrated planning of multimodal infrastructure, thereby reducing logistics cost. Empowered Group
of Secretaries (EGoS) and Network Planning Group (NPG) have been created as institutional arrangement.
5. Make in India Initiative: Introduced in 2014, the ‘Make in India’ program focuses on transforming India into a global manufacturing
hub by encouraging both domestic and foreign companies to produce their goods in India.
6. National Logistics Policy to address cost inefficiency by laying down an overarching interdisciplinary, cross-sectoral, and multi-juris-
dictional framework for developing entire logistics ecosystem.
7. Ease of Doing Business Reforms: To attract investments and simplify business operations, the government has undertaken reforms
to improve the ease of doing business. These include streamlining regulatory processes, enhancing transparency, and reducing
bureaucratic hurdles.
8. Skill Development Initiatives: Addressing the skilled labor shortage, programs like the Skill India Mission have been launched to
provide vocational training and upskilling opportunities.

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Sector specific schemes
1. Promotion of Bulk Drug Parks: ₹3,000 crore scheme (2020-25) to support three states in establishing bulk drug parks
for pharmaceutical manufacturing.
2. Strengthening of Pharmaceutical Industry (SPI): ₹500 crore scheme (2021-26) to provide infrastructure and technol-
ogy upgrades for pharma MSMEs.
3. Medical Devices Parks Scheme: ₹100 crore each approved for Uttar Pradesh, Tamil Nadu, Madhya Pradesh, and Him-
achal Pradesh to develop common facilities.
4. Semiconductor & Display Manufacturing Program: ₹76,000 crore initiative under Aatmanirbhar Bharat to position
India as a global hub for semiconductors and electronics.
5. FAME-India Scheme (Faster Adoption of EVs):
• Phase I (2015-2019, ₹895 crore) promoted electric and hybrid vehicles.
• Phase II focuses on EV adoption in public transport and demand aggregation.
6. Udyami Bharat Initiative: Supports MSMEs through schemes like MUDRA Yojana, SFURTI, and RAMP (₹6,000 crore) to
expand coverage and impact.
7. PM MITRA (Mega Integrated Textile Parks): ₹4,445 crore scheme to develop 7 world-class textile parks, creating a
complete textile value chain in one location.

Major Achievements Under ‘Make in India’

1. Vaccine Manufacturing & Exports: India rapidly developed and exported COVID-19 vaccines, aiding global health
efforts.
2. Vande Bharat Trains: India’s first indigenous semi-high-speed trains, with 102 services operational, showcasing ad-
vanced rail technology.
3. INS Vikrant: India’s first domestically built aircraft carrier, strengthening self-reliance in defense production.
4. Electronics Growth: The Industry reached $155 billion in FY23, with 99% of smartphones now made domestically.
5. Record Merchandise Exports: India’s exports hit $437.06 billion (FY24), solidifying its role in global trade.
6. ‘Made in Bihar’ Boots in Russian Army: Indian boots now equip the Russian Army, marking global defense market suc-
cess.
7. Amul’s Global Expansion: Launched dairy products in the US, strengthening India’s dairy industry on the world stage.
8. UPI’s Global Adoption: India’s Unified Payments Interface (UPI) expanded internationally, reinforcing India’s fintech
leadership.

Major Achievements Under PLI Scheme

Electronics Manufacturing: India became a net exporter of mobile phones (5 crore

Pharmaceuticals & Medical Devices: India is now the third-largest pharma

producer, exports 50% of production, and manufactures key bulk drugs and

Automotive: The $3 billion PLI scheme attracted $8 billion in investments,

Renewable Energy: The solar PV PLI targets 65 GW manufacturing, reducing

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Way forward
1. Ajay Shankar Committee on Replacing Multiple Prior Permissions
a. Introduce third-party certification to reduce regulatory approvals for investors.
b. Align emission norms with global standards to enhance ease of doing business.
c. Establish an independent regulatory impact assessment body within the government.
2. Reducing Import Dependence & Strengthening Supply Chains- Boost domestic production of critical raw materials like
semiconductors, rare earth metals, and lithium-ion batteries. Develop alternative global sourcing strategies to mitigate risks from
supply chain disruptions (Eg- China+1 strategy).
3. Simplify Regulatory Frameworks & Boost Ease of Doing Business: Streamline labor laws, land acquisition, and environmental
clearances to reduce compliance costs
4. Strengthen Infrastructure & Reduce Logistics Costs
• Establish Component Manufacturing Clusters in industrial regions to improve local sourcing.
• Accelerate investments in multi-modal transport, port connectivity, and freight corridors under Gati Shakti to enhance sup-
ply chain efficiency.
• Strengthen the Eastern and Western Dedicated Freight Corridors to lower freight costs by up to 25%.
• Expand port capacity and automation, following the modernization of JNPT terminal.
5. Promote Research & Development (R&D) & Innovation
• Increase public and private R&D investments and offer tax breaks and subsidies for innovation.
• Introduce a Manufacturing Innovation Fund for advanced materials, AI-driven production, and semiconductors.
6. Integrate India into Global Value Chains (GVCs)
• Strengthen trade agreements to align India’s manufacturing with global supply chains in electronics, textiles, and pharma.
• Establish a Critical Input Reserve for essential imports like semiconductors and rare earth metals.
7. Focus on Skill Development & Workforce Upskilling
• Align skill development programs with advanced manufacturing technologies.
• Establish Centers of Excellence (CoEs) with global tech companies for hands-on training.
8. Leverage Digital Transformation in Manufacturing: Eg- Implement blockchain for supply chain management in high-export
sectors like pharma.
9. Boost Quality Standards & Global Certifications
• Promote adherence to ISO, CE, and other international quality standards.
• Introduce sector-specific Quality Upgradation Missions for textiles, automotive, and electronics.
• Offer subsidies for CE certifications to boost exports to the EU and global markets.
10. Revitalize Traditional & Heritage Industries
• Expand the SFURTI Scheme to support tech-enabled handicraft units.
• Provide export incentives for modernized Khadi and handloom products targeting premium global markets.

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Industrial corridor
An industrial corridor is a geographical area with a collection of infrastructure to support industrial development. These corridors are
designed to create clusters of manufacturing or other industries.
The government of India has accorded approval for the development of 11 Industrial corridors (32 projects) in four Phases. In 2024, the
Government approved 12 new Industrial nodes/cities under the National Industrial Corridor Development Programme.

Key features
1. High-speed transportation network: rail and road
2. Ports with state-of-the-art cargo handling equipment
3. Modern airports
4. Special economic regions/industrial areas
5. Logistic parks/transhipment hubs
6. Knowledge parks focused on catering to industrial needs
7. Complementary infrastructure such as townships/real estate
8. Other urban infrastructure along with enabling policy framework

Benefits of Industrial Corridors in India

1. Multi-modal connectivity through highways, railways, ports, and airports. Eg- The Delhi-Mumbai Industrial Corridor is linked to the
Western Dedicated Freight Corridor for faster movement of goods.
2. Development of Smart Cities, Industrial Clusters, Special Economic Zones (SEZs), and industrial townships. Eg- Dholera Smart City
under DMIC is India’s first planned greenfield smart city.
3. Regional Economic Integration by connecting urban and rural areas. Eg- The Amritsar-Kolkata Industrial Corridor (AKIC) connects
Northern and Eastern India, boosting agro-processing industries.
4. Public-Private Partnerships (PPP): encouraging private investments in logistics parks, highways, and industrial estates.
5. Promotion of Manufacturing & Make in India: Industrial corridors reduce logistics costs and improve ease of doing business, sup-
porting Make in India.
6. Integration with Global Supply Chains: Eg- The Visakhapatnam-Chennai Industrial Corridor (VCIC) enhances India’s trade with Southeast Asia.
7. Environmental Sustainability & Green Growth, including renewable energy, waste management, and green transportation.
8. Job Creation & Skill Development: Eg- VCIC’s industrial parks have led to the rise of textile, pharma, and food processing clusters,
creating local employment.

Challenges in Developing Industrial Corridors

1. Uncoordinated Planning: Cities lack preparedness for industrial corridors, with limited involvement of local governments (Eg- Delhi-Mumbai
Industrial Corridor).
2. Governance Issues: SPVs operate independently, creating jurisdictional ambiguities (Eg- Tumakuru Industrial Township Limited
bypasses local bodies).
3. Institutional Constraints: Long gestation periods for new cities and insufficient trained personnel to manage urban transformation.
4. Land Acquisition Delays: 70% of infrastructure project delays stem from land acquisition issues (India Infrastructure Report, 2009).
5. Infrastructure Deficiency: Inadequate transport, power, and logistics connectivity slow down industrial corridor development.
6. Financing Challenges: High capital investment requirements and delayed private sector participation hinder progress.
7. Conversion of Agricultural Land: Irreversible loss of fertile land to industrial and urban use, threatening food security.
8. Environmental Concerns: Industrial corridors strain water resources, especially in water-scarce regions.

Way Forward for Industrial Corridor Development in India

1. Integrated Planning & Governance: Ensure coordination between urban and industrial planning, with active local government
involvement in decision-making.
2. Strengthening Institutional Capacity: Train government officials and SPV staff to manage industrial corridors efficiently and
reduce long gestation periods.
3. Streamlining Land Acquisition: Implement transparent land acquisition policies, fair compensation, and use land pooling models
to minimize delays.
4. Local Participation: Engage local authorities and communities in planning to address site-specific challenges.
5. Sustainable Land Use Management: Restrict conversion offertile agricultural land and promote brownfield development to protect farmland.
6. Policy & Regulatory Reforms: Establish uniform policies, fast-track approvals, and a single-window clearance system to boost
investor confidence.
7. Digital & Smart Industrial Corridors: Implement AI-driven infrastructure monitoring, automated logistics, and smart energy
grids for efficient operations.

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India’s Special Economic Zone (SEZ) Policy was introduced in 2000 to promote export-led industrial growth, attract foreign invest-
ment, and enhance competitiveness in manufacturing and services. The policy was formalized through the SEZ Act, 2005, providing
a business-friendly environment with tax benefits, simplified regulations, and world-class infrastructure.

Data
1. Number of SEZs: Approximately 280 operational SEZs.
2. Top states with SEZs: Tamil Nadu, Maharashtra, and Telangana
3. Investment in SEZs: Around US$ 83.18 billion
4. Exports from SEZs: Approximately US$ 163.67 billion in 2023-24
5. FDI policy: 100% FDI allowed through automatic route

Approval mechanism
1. The developer submits the proposal for the establishment of SEZ to the concerned State Government.
2. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal
to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval.
3. All the decisions are taken by the Board of Approval by consensus.

Administrative setup:The functioning

of the SEZs is governed by a three-
tier administrative setup.
1. The Board of Approval is the apex body and is headed by the Sec-
retary, of the Department of Commerce.
2. The Approval Committee at the Zone level deals with the approval
of units in the SEZs and other related issues. Each Zone is headed
by a Development Commissioner, who is the ex-officio chairperson
of the Approval Committee.
3. All post-approval clearances including grant of importer-exporter
code number, change in the name of the company or implementing agency, broad banding diversification, etc. are given at the Zone
level by the Development Commissioner.
4. The performance of the SEZ units are periodically monitored by the Approval Committee and units are liable for penal action under
the provision of Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval.

Key Features of SEZ Policy:

1. Duty-free enclave treated as a territory outside India’s customs jurisdiction for SEZ-authorized operations.
2. No import license required for goods.
3. Manufacturing and service activities permitted within SEZs.
4. Units must maintain Positive Net Foreign Exchange (NFE) over five years from production start.
5. Domestic sales subject to customs duties and taxes despite SEZ benefits.
6. Freedom to subcontract production or services.
7. No routine customs inspections for export/import cargo.
8. Tax benefits for SEZ developers, co-developers, and units under the SEZ Act, 2005.

Issues
1. Smaller Size & Limited Scale: India’s combined SEZ area (47,000 ha) is smaller than Shenzhen SEZ (49,000 ha, China), restricting
economies of scale and quality infrastructure.
2. Underutilization of Land: Many export-oriented units (EOUs) converted into SEZs lost relevance post-tax exemptions, leaving
less than half of SEZ land in use.
3. Infrastructure Deficiencies: Inadequate road, port, and logistics connectivity hampers seamless trade and industrial operations.
4. Global Trade Challenges: Rising protectionism, trade barriers, and shifting supply chains have affected India’s SEZ export com-
petitiveness.
5. High Customs Duties on Domestic Sales: SEZ products face duties on the entire finished good, not just imported raw materials,
discouraging domestic market sales.
6. WTO Ruling Against SEZ Subsidies: In 2019, the WTO declared Indian SEZ incentives as unfair trade practices, limiting future
policy support.
7. State-Central Law Mismatch: Many states failed to align local laws with the SEZ Act, disrupting the single-window clearance
system.

140
8. Competing Economic Zones: Multiple models like NIMZs and Coastal Economic Zones create integration challenges for SEZ policies.
9. Sunset Clause & Tax Uncertainty: Withdrawal of tax incentives post-2020 has reduced attractiveness for investors, impacting
new SEZ developments.
10. Land Acquisition & Utilization Issues: Large tracts of SEZ land remain unutilized, with challenges in acquisition, conversion,
and repurposing for other uses.
11. Global Competition: East Asian SEZs (Eg- Indonesia, Thailand) offer 12-13 years of tax exemptions, attracting investments
over India.

Way Forward for Strengthening

SEZs in India
1. Revamp SEZ Policy: Implement a new SEZ framework align-
ing with global trade norms to ensure WTO compliance and
investor confidence.
2. Tax Stability & Incentives: Restore long-term tax incentives,
reconsider Minimum Alternate Tax (MAT), and introduce com-
petitive tax policies like East Asian SEZs.
3. Better Integration with Domestic Market: Modify customs
duty structure to tax only imported raw materials, making
domestic sales more viable.
4. Enhance Land Utilization: Allow flexible land use, and repurpose
underutilized SEZ land for new-age industries like EVs, semicon-
ductors, and green energy.
5. Streamline Regulatory Framework: Establish a single-win-
dow clearance system with State-Central coordination to

remove bureaucratic delays.

6. Develop Multi-Model Economic Zones: Merge SEZs with other economic zones (NIMZs, Coastal Economic Zones, and Industrial
Corridors) for better integration.
7. Encourage High-Tech & Service-Based SEZs: Expand SEZ incentives for high-value industries like AI, R&D, biotech, and fintech hubs.
8. Leverage Digital Technology: Implement AI-driven monitoring, blockchain for supply chains, and digital customs clearance to
enhance transparency and efficiency.
9. Boost Global Competitiveness: Align SEZ policies with global best practices, improve investor outreach, and expand trade agree-
ments to integrate SEZs into Global Value Chains (GVCs).

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Service sector
In FY25, the service sector has driven GDP growth amid a decline in manufacturing, with logistics services regaining pre-pandemic momentum
and digital initiatives like ONDC promoting inclusivity.

Data
1. Services account for 62% of global GDP.
2. The Global Services PMI Business Activity Index reached 53.8 in December 2024, indicating expansion for the twenty-third consecutive
month.
3. In 2023, the United States led global services exports with a 13% share, while India ranked seventh with 4.3%.
4. Service sector’s contribution to total GVA rises from 50.6% in fy14 to 55.3% in fy25: Economic Survey 2024-25
5. The service sector grew at 8.3% from FY 23 to FY 25, fuels GDP growth: Economic Survey 2024-25
6. Services exports grew at a trend rate of 11% from FY14 to FY23, with computer and business services making up 70% of exports.
7. In FY25, financial, real estate, rental, and professional services contributed to 45% of India’s total service sector GVA growth.
8. In 2024, the service sector in India received US\$6.6 billion in foreign direct investment (FDI) equity inflows.

Significance
1. Largest Contributor to GDP: The services sector accounts for over 50% of India’s GDP, making it the backbone of economic growth
and development.
2. Major Employment Provider: It generates more than 30% of total employment, absorbing skilled and semi-skilled workers across vari-
ous sub-sectors like IT, healthcare, education, and retail.
3. High Export Potential: India is a global leader in IT & IT-enabled services (ITeS), business process outsourcing (BPO), and soft-
ware exports, contributing significantly to foreign exchange earnings.
4. Growth Driver for Other Sectors: Services support manufacturing (logistics, finance, R&D) and agriculture (agri-tech, warehousing,
cold storage), enhancing productivity and efficiency.
5. Attracting Foreign Direct Investment (FDI): The sector receives the highest FDI inflows, particularly in IT, telecom, banking, and
retail, fostering economic expansion and job creation.
6. Boosts Entrepreneurship & Startups: The rise of fintech, ed-tech, health-tech, and gig economy platforms has fueled innovation
and self-employment opportunities in the country.
7. Enhancing Urbanization & Infrastructure: Growth in hospitality, real estate, transport, and financial services has accelerated
urbanization and infrastructure development.
8. Tourism & Medical Value Travel: Eg- The number of medical tourists visiting India is projected to be around 7.3 million in the calen-
dar year (CY) 2024, up from 6.1 million estimated in CY 2023
9. Financial & Banking Services Expansion: A strong banking, insurance, and fintech ecosystem. Eg- India hosts over 3,000 fintech
startups, with PhonePe, Paytm, and Razorpay driving digital financial services.
10. Global Competitiveness: India is a global hub for knowledge-based services, with a strong presence in consultancy, legal, engi-
neering, and research services. Eg- L&T, Tata Consulting Engineers, and PwC India

Major issues as Identified by Economic Survey 2024-25.

1. Supply chain disruptions due to geopolitical issues.
2. Financial services are concentrated in Maharashtra, Tamil Nadu, Gujarat, and Karnataka, which together account for over 50%
of total financial services GSVA.
3. The unincorporated sector comprises 6.5 crore enterprises, with 72.6% in the service sector, highlighting the need for policy
reforms to aid incorporation.
4. Regulatory & Policy Uncertainty: Frequent changes in FDI norms, licensing rules, and taxation policies create unpredictability
for businesses. Eg- The retrospective tax dispute with Vodafone and Cairn.
5. Infrastructure Deficiencies & Digital Divide: Eg- Only 35% of rural households have access to broadband internet, limiting
e-commerce, fintech, and telemedicine penetration.
6. Skilled Workforce Shortage & Talent Mismatch: Eg- The India Skills Report (2023) found that only 48.7% of graduates are em-
ployable, affecting high-tech service industries.
7. Slow Digital & Financial Inclusion: While UPI transactions exceed ₹17.4 lakh crore/month (2024), rural banking penetration
remains weak. Eg- 37% of Indian adults still lack basic financial literacy (OECD, 2023).

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8. Limited Global Market Access & Trade Barriers: Visa restrictions, trade protectionism, and intellectual property disputes limit
India’s IT and consultancy exports. Eg- The U.S. H-1B visa cap
9. High Taxation & Cost of Compliance: Eg- India’s corporate tax (22%) is higher than ASEAN competitors (15-20%), making ser-
vice exports less competitive.
10. Underdeveloped Tourism & Hospitality Sector: Despite having 40 UNESCO heritage sites, infrastructure gaps, high hotel
taxes, and complex visa rules limit foreign tourist inflow. Eg-
India ranked 54th in the 2021 Travel & Tourism Competi-
tiveness Index, behind smaller economies like Thailand and
Malaysia.
11. Cybersecurity & Data Privacy Concerns: With India
accounting for 7% of global data breaches (IBM, 2023),
the lack of strict data privacy laws weakens IT and BPO
services.
12. Low R&D & Innovation Investment: India spends only 0.7%
of GDP on R&D, much lower than China (2.4%) and the U.S.
(3.1%). Eg- The number of patents filed in India (67,000 in
2022) is significantly lower than in China (1.5 million).
13. Over-Reliance on Services Without Industrial Support:
Services contribute 55% to GDP but generate only 30% of
employment, leading to jobless growth.

Government steps
1. Centre has formulated an ‘Action Plan for Champion Sectors
in Services’ to give focused attention to 12 identified Champi-
on Services Sectors.
2. Tourism Promotion: Government schemes such as Swadesh
Darshan, PRASAD, and Dekho Apna Desh focus on infra-
structure development, heritage tourism, and eco-tourism.
3. Healthcare Reforms: Ayushman Bharat Digital Mission
(ABDM) and Production Linked Incentive (PLI) scheme for
pharmaceuticals are strengthening healthcare services and
medical tourism.
4. Logistics and Transport Development: The PM Gati Shakti
National Master Plan aims to improve logistics infrastructure,
reducing service delivery costs and improving efficiency.
5. Digital & Financial Services
• Digital India Mission (2015): Boosts internet connectivity,
digital literacy, and e-governance services.
• Unified Payments Interface (UPI, 2016): Promotes cash-
less transactions, strengthening fintech services.
• Pradhan Mantri Jan Dhan Yojana (PMJDY, 2014): Expands
banking access, supporting financial services inclusion.
6. Skilling & Employment Generation
• Pradhan Mantri Kaushal Vikas Yojana (PMKVY, 2015):
Provides vocational training in IT, tourism, healthcare,
and retail.
• National Apprenticeship Promotion Scheme (NAPS,
2016): Encourages industry-led skill development in logis-
tics, telecom, and hospitality.
• National Education Policy (NEP, 2020): Focuses on AI, digital skills, and industry-linked courses for service jobs.
7. IT & BPO Services Promotion
• India BPO Promotion Scheme (IBPS, 2014): Expands IT/BPO operations to Tier-2 & Tier-3 cities.
• Production Linked Incentive (PLI) Scheme for IT Hardware (2021): Strengthens domestic manufacturing of servers, laptops,
and networking devices.
• Data Protection Act (2023): Enhances cybersecurity and data privacy, crucial for IT services.
8. Trade & Export Promotion
• Service Export from India Scheme (SEIS, 2015): Offers incentives for IT, legal, engineering, and financial services exports.
• India-UAE CEPA & India-Australia ECTA (2022): Expands market access for IT, fintech, and consulting services.
• Special Economic Zones (SEZ) Reform (2023): Boosts SEZ flexibility and integration with the domestic market.

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Way forward
1. Policy & Regulatory Reforms: Develop a National Services Policy to address sector-specific challenges, boost private sector par-
ticipation, and create a long-term roadmap for sustainable growth.
2. Enhancing Infrastructure & Digital Connectivity: Expand high-speed broadband networks, 5G, smart cities, and logistics infra-
structure to boost efficiency in service delivery, especially in rural areas.
3. Sustainability & Green Services: Promote sustainable tourism, green infrastructure, and eco-friendly business practices to
align services with environmental goals.
4. Strengthening IT & Digital Services for Global Competitiveness
• Invest in 5G and AI infrastructure to accelerate growth in cloud computing, blockchain, and cybersecurity services.
• Expand Data Protection Act (2023) enforcement to align with EU GDPR standards, improving trust in Indian IT services.
5. Boosting Knowledge-Intensive & High-Value Services
• Promote legal, engineering, consulting, and R&D services in global markets through improved trade agreements.
• Develop India as a global arbitration hub by enhancing international legal and dispute resolution services.
6. Strengthening Financial & Fintech Ecosystem: Expand India Stack & UPI globally, leveraging India’s fintech leadership for
cross-border digital payments.
7. Advancing Tourism & Hospitality Industry
• Improve tourism infrastructure, airport capacity, and last-mile connectivity to attract high-value tourists.
• Incentivize medical tourism and develop world-class healthcare hubs to make India a leading destination.
8. Expanding Healthcare & Telemedicine Services
• Integrate Ayushman Bharat Digital Health Mission with global health networks to improve cross-border medical services.
• Promote home healthcare and AI-driven diagnostics to make medical services more accessible.
9. Fostering Innovation & R&D in Service Industries
• Increase India’s R&D expenditure from 0.7% to at least 2% of GDP, focusing on biotech, space, and AI-driven services.
• Establish Public-Private Innovation Hubs for emerging sectors like biopharma, space technology, and green energy services.
10. Enhancing Export Competitiveness & Global Market Access
• Strengthen India’s role in Global Value Chains (GVCs) by negotiating better trade agreements (CEPA, ECTA, Indo-Pacific
Economic Framework).
• Reform SEZ policies to allow greater integration with the domestic market while maintaining tax benefits for service exporters.

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Under section 7 of the ‘Micro, Small and Medium Enterprises Development Act, 2006 the Government of India classifies Micro, Small,
and Medium Enterprises (MSMEs) based on their investment in plant and machinery or equipment and annual turnover.

Data
1. As of February 2025, there were 5.93 crore registered MSMEs in
India, with around 99% classified as micro-enterprises.
2. The Gross Value Added (GVA) by MSMEs in India’s GDP was
29.7% in 2017-18, rising to 30.1% in both 2022-23.
3. Indian MSME sector is projected to grow to $1 Trillion by 2028.
4. In 2024, the total employment reported by the MSMEs on the
Udyam Registration Portal and Udyam Assist Platform is 20.51 crore.
5. Over 2.39 crore informal micro-enterprises have been
formalized through the platform Udyam Assist Platform (UAP)
6. In 2023-24, MSME-related products accounted for 45.73% of
India’s total exports. MSME exports have increased from ₹3.95
lakh crore in 2020-21 to ₹12.39 lakh crore in 2024-25.
7. MSMEs contribute around 30% of India’s total GDP and 45% of
manufacturing output.
8. Men predominate in MSME ownership, with 79.56% of micro-
businesses, 94.74% of small businesses, and 97.63% of medium
businesses.
9. Udyam Registration (as of 2024): Over 4.69 crore MSMEs have
been registered since its launch.

Significance
1. Contribution to Economy
a. MSMEs contribute 30% to India’s GDP and are a major driver of
industrial output.
b. Manufacturing MSMEs contribute 35.4% of India’s total
manufacturing output.
c. MSMEs account for 45.7% of India’s total exports, playing a
crucial role in global trade.
2. Employment & Enterprise Growth: In 2024, the total employment
reported by the MSMEs on the Udyam Registration Portal and
Udyam Assist Platform is 20.51 crore.
3. Boosting Industrial & Manufacturing Base: MSMEs act as
ancillary units for large industries like automobiles, textiles, and
pharmaceuticals.
1. Import Substitution & Self-Reliance: Strengthen domestic supply chains for raw materials and manufacturing inputs.
Reduce dependency on imports in automobile components, textiles, and pharmaceuticals.
4. Boost to Exports & Foreign Exchange Earnings: MSMEs contribute ~45.7% of India’s total exports, making them a crucial part of
global trade supply chains.
5. Promoting Entrepreneurship & Innovation -MSMEs foster grassroots entrepreneurship, particularly among women and first-time
business owners.
6. Enhancing Regional & Rural Development: Over 54% of MSMEs operate in rural India, helping reduce regional income disparities.
Nearly 40% of MSME employment is in rural areas, reducing migration.
7. Contribution to Digital & E-commerce Growth: MSMEs are rapidly adopting e-commerce platforms, fintech solutions, and digital
marketing. 2.5 lakh+ MSMEs onboarded on GeM (Government e-Marketplace), increasing procurement opportunities.

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Major Issues
1. Registration Delays: Cumbersome processes and an inefficient single-window clearance system slow down MSME registration.
2. Access to Finance: Many MSMEs struggle to secure adequate financing due to stringent lending norms, lack of collateral, and
insufficient credit histories.
3. According to the Economic Survey, excessive licensing, inspections, and compliance requirements imposed by various government
levels create a heavy burden, especially on small and medium enterprises (SMEs), which are least equipped to handle it.
4. Delayed Payments: late payments from large enterprises and government agencies, strain working capital and cash flow. This
disrupts operations and jeopardizes business continuity.
5. Scheme Confusion & Poor Coordination: Lack of awareness and Centre-State coordination complicates access to government
schemes. Eg- complex GST registration and frequent amendments.
6. Technological Constraints
a. Outdated Technology: A significant number of MSMEs operate with obsolete technologies, limiting productivity and competitiveness.
b. High Adoption Costs: The financial burden of upgrading to modern technologies is often beyond the reach of small enterprises.
7. Administrative Burden: Overlapping documentation for Professional Tax, Contract Labour, and Minimum Wages increases
compliance costs.
8. Labour Challenges: No standardized trial period, unskilled workforce, wage variations across states, and ineffective training
centers hinder MSME operations.
9. Limited Branding & Market Reach: MSMEs lack resources and expertise for effective marketing, making it difficult to compete
with larger brands, especially in online marketplaces.
10. Infrastructure Deficiencies: Poor infrastructure, including unreliable power supply and inadequate transportation networks,
affects operational efficiency.
11. Lack of Professionalism and Standardization: Many MSMEs operate without standardized processes, affecting quality and
scalability.

Government Support & Policy Initiatives

1. RAMP Scheme (Raising & Accelerating MSME Performance): Allocated ₹6,000 crore to improve MSME competitiveness.
2. Digital & E-commerce Integration: Over 2.5 lakh MSMEs onboarded on GeM (Government e-Marketplace) for direct
government procurement.
3. Financial Support & Credit Growth
a. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) approved ₹2.03 lakh crore in credit guarantees in FY24.
b. Emergency Credit Line Guarantee Scheme (ECLGS): Helped over 1.3 crore MSMEs survive COVID-19 with financial
assistance.
4. MSME SAMADHAAN portal is an online system that helps Micro, Small, and Medium Enterprises (MSMEs) file complaints about
delayed payments.
5. Pradhan Mantri MUDRA Yojana: Provides collateral-free loans up to ₹10 lakh for non-corporate, non-farm micro and small
enterprises.
6. Udyam Registration: A simplified online registration system for MSMEs to access government benefits and schemes.
7. CHAMPIONS Portal: A tech-driven grievance redressal and support platform to help MSMEs resolve issues and enhance
competitiveness.

Way forward
1. Improving Credit Access & Financial Support
• Expand collateral-free loans under MUDRA & CGTMSE to improve MSME financing.
• Encourage alternative funding sources like venture capital, invoice financing, and MSME bonds.
2. Strengthening Market Linkages & Exports
• Increase global market access through FTA-backed incentives for MSME exports.
• Strengthen SEZ and cluster-based export hubs for MSME-driven industries.
3. Simplifying Regulatory & Compliance Framework
• Reduce GST complexities and filing burdens for small enterprises.
• Improve single-window clearance for MSME registrations and licensing.
4. Ensuring Timely Payments & Working Capital Support
• Enforce strict payment timelines under MSME SAMADHAAN to curb delayed payments.
• Promote factoring services and trade credit insurance for cash flow stability.
5. MSME Innovation Hubs: Establish physical or virtual hubs to connect MSMEs with industry experts, researchers, and
mentors. Facilitate knowledge sharing, co-innovation, and access to advanced technologies.
3. Boosting Rural & Women-Led MSMEs: Strengthen SFURTI (Scheme of Fund for Regeneration of Traditional
Industries) for rural clusters.
2. Infrastructure and Supply Chain Development: Develop MSME clusters with better infrastructure, cold storage, logistics, and
warehousing facilities. Improve connectivity to national and global markets.
3. Skill Development and Capacity Building: Strengthen skill training programs under PMKVY and NSDC to enhance productivity.
Encourage entrepreneurship through incubation centers and vocational training.
4. Encouraging Formalization: Offer tax benefits and incentives for MSMEs to register formally. Expand Udyam Registration and
reduce procedural complexities for micro-enterprises.
5. Resilience Against Economic Shocks: Strengthen financial safety nets for MSMEs during downturns through interest subvention
schemes, emergency credit support, and insurance coverage.

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India’s FDI Policy

According to the OECD, “FDI is a category of cross-border

investment in which an investor resident in one economy
establishes a lasting interest in and a significant degree of
influence on the management of an enterprise in another
economy.”

India’s cumulative FDI inflows crossed $1 trillion, reaching

$1,033.40 billion between April 2000 and September
2024, as per DPIIT data.

Between 2014–24, India’s FDI inflows rose by 119% over

2004–14. Since 2000–01, inflows have grown nearly 20
times, with the services sector receiving the highest FDI
equity at US$ 115.18 billion.

Routes of FDI
1. Automatic Route: Under this route, no prior approval
from the Government or the Reserve Bank of India (RBI) is
required. Only post-investment filing required with RBI (via
Form FC-GPR)

Sector FDI Limit

Manufacturing 100%
Renewable Energy 100%
E-commerce (Marketplace Model only) 100%
Telecom Services Up to 100% (74% automatic)
Infrastructure (including industrial parks) 100%

2. Government (Approval) Route: Under this route, prior approval from the Government of India is mandatory before making the invest-
ment. Proposals are considered by respective ministries/departments.
• Application submitted via FDI Portal hosted by DPIIT
• Forwarded to the relevant administrative ministry (Eg- Defence to Ministry of Defence)
• Post-approval, investment proceeds with compliance steps

Sector FDI Limit

Defence (beyond 74%) Up to 100%
Print Media (News & Current Affairs) 26%
Digital Media (News & Content Aggregators) 26%
Multi-brand Retail Trading 51%
Satellite Establishment and Operation 100%

Regulation of FDI: FDI in India is primarily governed by the FDI Policy 2020 and the FEMA (Non-debt Instruments) Rules, 2019. The
DPIIT acts as the main regulatory body, while the RBI is responsible for implementing these rules.

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Significance of FDI

1. Capital Inflow and Economic Growth

• Augments domestic investment: FDI brings in much-needed
capital, especially for developing countries, supplementing domestic
savings.
• Boosts GDP: Increased investment in infrastructure, manufacturing,
and services contributes directly to GDP growth. Eg- Studies by
the RBI have shown that a 1% increase in FDI correlates with a 0.4%
increase in GDP in emerging markets.

2. Technology Transfer and Innovation

• Access to modern technology: Eg- Hyundai and Kia brought
advanced automobile manufacturing technology to India,
establishing modern facilities in Tamil Nadu and Andhra Pradesh.
• Improves productivity: Use of updated machinery, processes, and
management techniques enhances operational efficiency.
• Encourages R&D: Multinational corporations often establish R&D centers in host countries, promoting local innovation. Eg- IBM,
Intel, and Google have set up R&D hubs in Bengaluru and Hyderabad, driving India’s emergence as a global tech hub.

3. Employment Generation
• Creates jobs: Eg- Amazon’s cumulative investment of $6.5 billion in India has supported over 1 million indirect and direct jobs,
including warehousing, logistics, and IT services.
• Skilling the workforce: Eg- Maruti Suzuki, originally a joint venture with Japan’s Suzuki, established one of the most robust
technical training centers in the Indian auto sector.

4. Export Competitiveness
• Improves balance of payments: Eg- The mobile phone manufacturing industry in India, led by FDI-backed firms like Foxconn
and Samsung, has made India a net exporter of mobile phones since 2021.
• Global market access: Local firms partnering with global corporations gain access to international distribution networks. Eg-
Tata Motors’ acquisition of Jaguar Land Rover

5. Infrastructure Development
• Public-private partnerships: Eg- The Delhi and Mumbai Airports were modernized under PPP models with FDI participation
from companies like GMR (with foreign stakeholders like Fraport AG and Malaysia Airports).
• Builds modern ecosystems: Urban development, logistics, and IT infrastructure benefit from long-term capital infusion.

6. Market Efficiency and Competition

• Improves standards: Entry of foreign firms raises the bar for quality and service. Eg-Retail and FMCG sectors saw dramatic
shifts after the entry of companies like Walmart, Unilever, and IKEA.
• Consumer benefits: Eg- The telecom sector became more competitive and consumer-friendly after Vodafone’s entry, eventually
leading to lower call/data tariffs.

7. Strategic Global Integration

• Economic diplomacy: Eg- The India-Japan Economic Partnership Agreement has led to strong investment flows and
infrastructure collaborations like the Mumbai-Ahmedabad bullet train project.
• Part of global value chains: Countries with robust FDI are better integrated into international production and supply networks.
Eg- India’s role in Apple’s supply chain is growing as Foxconn and Pegatron expand manufacturing in Tamil Nadu and Karnataka.

8. Sectoral Development and Diversification

• Promotes sectoral balance: Targeted FDI policies can direct funds to underserved or priority sectors like renewable energy or
rural healthcare. Eg- FDI in India’s renewable energy sector reached $7.5 billion in 2022, with major investments from firms like
ReNew Power (backed by Goldman Sachs) and Total Energies.
• Diversifies the economy: Helps reduce over-reliance on a few industries or exports. Eg-Besides IT and software, India is
now attracting FDI in electric vehicles, semiconductors, and pharmaceuticals, thanks to schemes like PLI (Production Linked
Incentives).

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Major Challenges
1. Regulatory and Policy Uncertainty: Frequent policy changes and lack of consistency in rules across sectors and states create
confusion.
• Eg:
- Abrupt changes in e-commerce FDI rules affected companies like Amazon and Flipkart.
- Retrospective taxation (now withdrawn) had impacted firms like Vodafone and Cairn.
2. Bureaucratic Red Tape: Complex approval processes, licensing, and administrative delays hamper ease of doing business. Proce-
dural delays still persist in land acquisition, environmental clearance, and taxation.
3. Institutional Gaps: The Competition Commission of India (CCI) has struggled to effectively curb anti-competitive practices and
abuse of dominance, affecting investor confidence. Eg- The Flipkart controversy contributed to India losing its preferential trade
status under the US Generalised System of Preferences (GSP).
4. FDI Concentration: FDI inflows are heavily skewed toward a few sectors (like services) and regions (urban centers in Maharashtra,
Karnataka, etc.), leading to regional and sectoral development imbalances.
5. Inadequate Infrastructure: Power shortages, poor logistics, and underdeveloped industrial clusters in certain regions increase
operational costs. Eg- Logistics costs in India are about 14% of GDP, compared to 8-10% in developed economies.
6. Land Acquisition and Legal Disputes: Difficulty in acquiring land due to legal complexities and resistance from local stakeholders
delays large projects. Eg- POSCO’s $12 billion steel plant in Odisha was shelved due to land acquisition issues and local opposition.
7. Labour Law Rigidity: Although recent reforms have aimed to consolidate 44 labor laws into 4 labor codes, implementation across
states remains uneven.
8. Geopolitical Risks and Protectionism: Tensions with neighboring countries (Eg- China) have led to tighter FDI scrutiny. Eg- FDI
from countries sharing land borders with India now requires Government route approval, slowing investment from entities based in
China.
9. Taxation Issues and Compliance Burden: High compliance burden with frequent changes in GST structure and tax procedures af-
fects investor confidence. Eg- The introduction of equalisation levy on digital services led to concerns from global tech companies.
10. Concerns Over Intellectual Property (IP) Protection: Eg- The USTR’s Special 301 Report continues to list India on the Priority
Watch List due to IP enforcement gaps.
11. Sectoral Caps and Restrictions: Certain high-potential sectors (Eg- multi-brand retail, defence beyond 74%) still have FDI caps or
conditional access, limiting full investor freedom.
12. Pressure on Local Businesses: The scale and purchasing power of foreign firms often undermine local businesses, which struggle
to compete. Eg- Walmart’s entry into India faced strong resistance from local retailers fearing market displacement.
13. Dependency on Foreign Capital: Eg- In 2023, fears of recession, rising protectionism, and the Russia-Ukraine conflict led to a dip
in FDI inflows, triggering investor caution and currency pressure.
14. Development vs. Environment: Eg- Vedanta’s mining project in Odisha’s Niyamgiri Hills was stalled due to strong opposition over
ecological and tribal rights concerns.

Steps Taken
1. Liberalization of FDI Policy
• Expansion of Automatic Route: Many sectors have been opened to 100% FDI via the automatic route. Eg- Defence (up to 74%),
Insurance (up to 74%), Telecom (up to 100%), and Coal Mining (100%).
• Relaxation in sectoral caps: Caps have been raised in key sectors to attract strategic investments. Eg- Insurance sector cap
increased from 49% to 74% in 2021.
2. Launch of Make in India: Encouraged inflows by easing norms, especially in manufacturing, which now allows 100% FDI under the
automatic route.
3. Ease of Doing Business Reforms: Streamlining procedures for starting a business, obtaining permits, and enforcing contracts.
Introduction of systems like National Single Window System (NSWS) to facilitate investor clearances.
4. Legal Reforms: The Jan Vishwas (Amendment of Provisions) Act, 2023 has reduced over 42,000 compliances and
decriminalized more than 3,800 provisions, easing regulatory burden and enhancing business confidence.
5. Production Linked Incentive (PLI) Scheme: Launched across 14 sectors including mobile manufacturing, pharmaceuticals,
auto components, and semiconductors. Encourages FDI by offering performance-based incentives to companies for boost-
ing domestic production and exports.
6. FDI Facilitation Cell and Foreign Investment Promotion Board (FIPB) Reforms
• Establishment of Invest India, a dedicated investment promotion and facilitation agency.
• Abolished the FIPB in 2017, reducing bureaucratic delays in approval-based FDI.
7. Digital Reforms and Online Approvals
• Introduction of e-biz portals and the FDI Portal for application tracking, transparency, and faster approvals.
• RBI has simplified FDI reporting with Single Master Form (SMF) via FIRMS portal.
8. Bilateral and Multilateral Agreements
• India has signed Bilateral Investment Treaties (BITs) and is part of trade pacts (Eg- ASEAN FTA) to create a secure legal
framework for foreign investors.
• Negotiating Free Trade Agreements (FTAs) with the UK, EU, and Canada to improve investor sentiment.
9. Reforms in Taxation and Corporate Laws
• Introduction of Goods and Services Tax (GST) for unified tax structure.
• Reduction in corporate tax rates to one of the lowest in Asia (15% for new manufacturing firms).
• Decriminalization of minor company law violations to improve investor confidence.

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10. FDI in Startups and Digital Economy
• 100% FDI allowed in startups under automatic route.
• Initiatives like Startup India and Digital India have attracted significant foreign venture capital, especially in fintech, edtech,
and e-commerce.
11. State Investment Summits: States like Gujarat and Uttar Pradesh have hosted Global Investment Summits to highlight their
economic potential and attract FDI. Eg- The Vibrant Gujarat Global Summit

Way Forward
1. Ensure Policy Stability and Transparency
• Maintain predictability in FDI policies to build long-term investor confidence.
• Avoid retrospective tax amendments and ensure clear communication of regulatory changes.
2. Accelerate Infrastructure Development
• Invest in modern ports, roads, railways, and digital infrastructure under schemes like PM Gati Shakti.
• Develop industrial corridors and plug-and-play infrastructure to reduce setup time for foreign investors.
3. Deepen Sectoral Reforms
• Open up sensitive sectors like multi-brand retail, defence (beyond 74%), and media with calibrated safeguards.
• Simplify sector-specific entry barriers and remove overlapping regulations.
4. Strengthen Single-Window Clearance Mechanism
• Fully operationalize the National Single Window System (NSWS) across all central and state departments.
• Reduce interface with multiple agencies by digitizing approvals and integrating portals.
5. Improve Land and Labour Market Reforms
• Implement uniform land acquisition laws and create land banks with clear titles and zoning.
• Ensure nationwide implementation of the new Labour Codes to reduce compliance burden and promote formalization.
6. Enhance IP Protection and Contract Enforcement
• Strengthen enforcement of intellectual property rights through faster adjudication and dispute resolution.
• Improve judicial efficiency in commercial litigation and arbitration processes.
7. Promote Tier-II and Rural Investment Destinations
• Provide incentives for FDI in underdeveloped regions to reduce regional imbalances.
• Develop rural industrial parks and strengthen local supply chains for broader economic inclusion.
8. Foster Global Trade Partnerships
• Conclude pending Free Trade Agreements (FTAs) with the UK, EU, and Canada to boost investor confidence.
• Leverage India’s role in global forums (e.g., G20, Quad) to enhance its economic diplomacy.
9. Support Startups and Innovation-Led FDI
• Encourage FDI in emerging sectors like AI, semiconductors, clean tech, and EVs through targeted incentives.
• Expand access to venture capital and simplify norms for foreign investments in startups.
10. Build Investor Confidence Through Dialogue
• Strengthen outreach through global roadshows, investment summits, and structured feedback from industry bodies.
• Establish sector-specific investment desks and grievance redressal mechanisms to address investor concerns.

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 Key Committee Recommendations (India)

Arvind Mayaram Committee (2014): FDI Rationalization

• Recommended a single composite cap on foreign investment in each sector to simplify limits.
• Urged harmonization of FDI policy and FEMA regulations, which often conflicted and created ambiguity.
• Suggested clearer distinctions between FDI and FII to streamline capital flows.

Ajay Shankar Committee on Ease of Doing Business (2015)

• Proposed creation of an investor facilitation cell at the central and state levels.
• Emphasized the need for time-bound approvals via an integrated online portal.
• Advocated for predictable tax and regulatory environment.

NITI Aayog Strategy for New India @75 (2018)

• Recommended boosting FDI in job-intensive sectors like electronics, food processing, and textiles.
• Pitched for legal reforms in contract enforcement and IP rights protection.

Global Best Practices in FDI Promotion

Singapore: Pro-business Regulatory Environment

• Offers zero capital gains tax and a flat corporate tax rate of 17%.
• Maintains a transparent legal system and fast-tracked business registration, often completed within 1 day.
• The Economic Development Board (EDB) acts as a one-stop shop for investors, offering post-investment services
and sector insights.

Ireland: Investment in High-skill Sectors

• IDA Ireland, its FDI promotion agency, offers tailored support to each investor, including site selection and training
grants
• Created technology parks and innovation clusters to foster collaboration between foreign firms and local
universities.

United Arab Emirates: Special Economic Zones

• Established Free Zones offering 100% foreign ownership, full repatriation of profits, and tax exemptions.
• Dubai International Financial Centre (DIFC) operates with independent legal and regulatory frameworks to attract
finance and fintech firms.
Malaysia: Digital and Logistics Infrastructure
• Created the Malaysia Digital Economy Blueprint (MyDIGITAL) to attract FDI in tech-driven sectors.
• Offers sector-specific tax incentives and plug-and-play infrastructure through the Malaysian Investment
Development Authority (MIDA).

China: Gradual Opening with Institutional Reform

• Used pilot Free Trade Zones to test FDI reforms before national rollout.
• Integrated industrial policy with FDI strategy, e.g., Made in China 2025.
• Strengthened IP laws and commercial courts in response to global investor feedback.

India stands at a pivotal moment to transform into a global investment hub. By focusing on reform, resilience, and responsiveness,
the country can ensure that FDI becomes a consistent engine of inclusive and sustainable economic growth.

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Global Economic Institutions
Previous Year Questions (PYQs)
[UPSC Mains 2013] The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental
pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many com-
mon characteristics, yet their role, functions and mandate are distinctly different. Elucidate.

[UPSC Mains 2014] India has recently signed to become founding a New Development Bank (NDB) and also the Asian Infrastructure
Investment Bank (AIIB) .How will the role of the two Banks be different? Discuss the significance of these two Banks for India.

[UPSC Mains 2014] Some of the International funding agencies have special terms for economic participation stipulating a substantial
component of the aid to be used for sourcing equipment from the leading countries. Discuss on merits of such terms and if, there exists
a strong case not to accept such conditions in the Indian context.

[UPSC Mains 2014] WTO is an important international institution where decisions taken affect countries in profound manner. What is the
mandate of WTO and how binding are their decisions? Critically analyse India’s stand on the latest round of talks on Food security.

[UPSC Mains 2014] The aim of Information Technology Agreements (ITAs) is to lower all taxes and tariffs on information technology prod-
ucts by signatories to zero. What impact should such agreements have on India’s interests?

[UPSC Mains 2016] The broader aims and objectives of WTO are to manage and promote international trade in the era of globalization.
But the Doha round of negotiations seem doomed due to differences between the developed and the developing countries. Discuss in
the Indian perspective.

[UPSC Mains 2018] What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in
mind the interest of India?

Context-
US President Donald Trump raised concerns over a $21-million grant for voter turnout in India, cancelled by the Department of Govern-
ment Efficiency (DOGE), saying that the funds may have been used to influence Indian elections.
In the last decade, India is said to have received around $1.5 billion from USAID (about 0.2 % to 0.4 % of USAID’s total global funding
(as per the foreign assistance website).

Key Functions and Objectives

1. Humanitarian Assistance: Provides disaster relief, food aid, and emer-
gency response during conflicts, natural disasters, and health crises.
2. Global Health Programs: Supports initiatives to combat diseases like HIV/
AIDS, malaria, tuberculosis, and COVID-19, along with improving maternal
and child health.
3. Economic Development: Promotes poverty reduction, job creation, and finan-
cial inclusion through investments in infrastructure, entrepreneurship, and trade.
4. Democracy and Governance: Strengthens democratic institutions, human
rights, free elections, and legal frameworks to promote political stability.
5. Education and Skill Development: Funds programs to increase literacy,
improve higher education, and provide vocational training, especially in
developing nations.
6. Climate and Environmental Protection: Supports sustainable devel-
opment, clean energy, climate resilience, and conservation projects to
combat global environmental challenges.

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Impacts on India
1. Disruption of Health and Education Initiatives: USAID has been instrumental in supporting various health and education projects
across India.
2. Impact on Non-Governmental Organizations (NGOs): Many NGOs in India rely on USAID grants to execute development projects.
3. Alteration of Bilateral Relations: The cessation of USAID assistance might prompt a reassessment of Indo-U.S. collaborative efforts
in development sectors.
4. Potential for Misinformation and Political Tensions: The suspension has sparked political debates and allegations of foreign inter-
ference in domestic affairs. For instance, claims regarding a $21 million USAID fund for voter turnout in India have led to controver-
sies.

India’s Policy on Aid Acceptance

Historical Context:
1. Post-Independence Era: Following its independence in 1947, India was a significant recipient of foreign aid, relying on external
assistance for development projects and economic stabilization.
2. Policy Shift in 2003: In a strategic move, India decided to limit bilateral aid acceptance to a select group of countries, including the
United Kingdom, the United States, Russia, Germany, Japan, and the European Union. This decision marked a transition towards
self-reliance and a reduced dependency on foreign assistance.

Current Stance:
1. Selective Acceptance: While India generally refrains from accepting bilateral aid, it remains open to assistance in specific circum-
stances, especially during significant natural disasters or emergencies.
2. Multilateral Engagements: India continues to engage with multilateral institutions like the World Bank and the International Mone-
tary Fund (IMF) for development projects and financial collaborations.
3. Transition to Donor Role: Over the past two decades, India’s Ministry of External Affairs has extended financial assistance ex-
ceeding $48 billion to over 65 countries. This aid encompasses grants, lines of credit, and capacity-building programs, underscoring
India’s emergence as a donor nation.

“I suggested that if WTO gives permission, India is ready to supply

food stocks to the world from tomorrow”.: PM Modi

“The WTO remains the most important forum for creating modern
trade rules, providing transparency for government actions that pro-
mote and hinder trade”.: World Trade Organization

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Mandate
1. Facilitating Global Trade: Ensures smooth, predictable, and free-flowing international trade by reducing trade barriers.
2. Enforcing Trade Agreements: Administers multilateral trade agreements to promote fair competition and prevent unfair trade prac-
tices.
3. Dispute Resolution: Provides a structured mechanism for resolving trade disputes between member countries, ensuring compliance
with global trade rules.
4. Ensuring Non-Discrimination: Upholds Most-Favored-Nation (MFN) and National Treatment principles, ensuring equal trade oppor-
tunities for all members.
5. Promoting Transparency: Mandates member nations to report trade policies, tariffs, and regulations to prevent hidden trade restric-
tions.
6. Supporting Developing Nations: Provides technical assistance and special provisions to help developing and least-developed coun-
tries integrate into global trade.
7. Monitoring Trade Policies: Regularly reviews national trade policies to ensure alignment with WTO rules and fair competition.
8. Encouraging Sustainable Trade: Integrates environmental and labor standards into trade policies to promote sustainable development.
9. Handling Trade Negotiations: Acts as a forum for multilateral trade negotiations, leading to agreements like GATT, TRIPS, and GATS.
10. Preventing Protectionism: Works against unjustified tariffs, quotas, and subsidies, ensuring an open and competitive global trade
environment.

Importance of WTO
1. The WTO’s creation marked a shift from diplomacy-based trade (GATT) to a rule-based system, with compulsory jurisdiction
and effective retaliation for non-compliance.
2. Reduction of Trade Barriers: The General Agreement on Tariffs and Trade (GATT) has been instrumental in reducing average tar-
iffs on industrial goods from 40% in 1947 to approximately 4% today.
3. Dispute Settlement Mechanism: The WTO offers a structured process for resolving trade conflicts. Since its inception, over 600
disputes have been brought to the WTO.
4. Most-Favored-Nation (MFN) Principle: This core WTO principle mandates that any favorable trading terms offered by one member
must be extended to all members, ensuring equality.
5. Surveillance of Trade Policies: Through mechanisms like the Trade Policy Review Mechanism (TPRM), the WTO monitors and
evaluates national trade policies, ensuring they align with multilateral agreements and do not distort global markets.
6. TRIPS Agreement: The Agreement on Trade-Related Aspects of Intellectual Property Rights sets minimum standards for IPR protec-
tion, balancing the interests of innovators and users, and facilitating technology transfer among nations.

Important Agreements
1. General Agreement on Tariffs and Trade (GATT): 1947 & 1994
2. General Agreement on Trade in Services (GATS): 1995
3. Agreement on Agriculture (AoA): 1995
4. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS): 1995
5. Anti-Dumping Agreement (ADA): 1995
6. Agreement on Sanitary and Phytosanitary Measures (SPS): 1995

Evolution of the World Trade Organization (WTO)

1. Formation (1995): The WTO was established in 1995, succeeding the General Agreement on Tariffs and Trade (GATT), which was
created after World War II.
2. Growth of Global Trade: Over the past 75 years, world trade has grown at an average rate of 6% annually, outpacing global economic
growth by 1.5 times. Exports in 2023 were 250 times higher than in 1948.
3. GATT Rounds: Early GATT rounds focused on tariff reductions. Later, issues like anti-dumping and non-tariff measures were ad-
dressed, with the Uruguay Round (1986-94) leading to the creation of the WTO.
4. Post-WTO Negotiations (1997): Key agreements included liberalizing telecommunications, tariff-free trade in IT products, and open-
ing up financial services.
5. Doha Development Agenda (2001): Launched at the 4th WTO Ministerial Conference, it introduced negotiations on agriculture,
services, non-agricultural tariffs, trade and the environment, anti-dumping, and challenges faced by developing economies.
6. Government Procurement Agreement (2011): A revised agreement expanded coverage by approximately US$ 100 billion annually.
7. Trade Facilitation Agreement (2013): The 9th Ministerial Conference in Bali resulted in an agreement to reduce border delays, cut
trade costs by over 14%, and boost global exports by up to US$ 1 trillion annually.
8. Information Technology Agreement (2015): The 10th Ministerial Conference in Nairobi expanded the IT Agreement, eliminating
tariffs on an additional 200 IT products, valued at over US$ 1.3 trillion.
9. Agricultural Export Subsidies (2015): The same conference abolished agricultural export subsidies, supporting the UN’s Sustain-
able Development Goals.
10. Intellectual Property Agreement (2017): An amendment eased access to affordable medicines for poorer economies.
11. Fisheries Subsidies Agreement (2022): The 12th Ministerial Conference adopted a historic fisheries subsidies agreement and
addressed global food crises and COVID-19 impacts.
12. MC13 Outcomes (2025): The 13th Ministerial Conference focused on improving trade opportunities for developing countries and
committed to WTO reforms.

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Doha Round Negotiations and Further Developments
1. Doha Development Agenda (Doha Round): 2001
• Launched: November 2001 at the 4th WTO Ministerial Conference in Doha, Qatar
• Objective: Focused on reducing global trade barriers with special emphasis on developing countries’ concerns.
• Key Issues:
• Agriculture: Reduction of farm subsidies and improved market access.
• Non-Agricultural Market Access (NAMA): Lowering tariffs on industrial goods.
• Services Trade (GATS): Liberalization in banking, IT, and telecom sectors.
• Intellectual Property (TRIPS): Addressing public health concerns, especially access to medicines.
• Special & Differential Treatment (S&DT): Protecting developing nations’ interests.

2. Stalemate and Challenges

• Major roadblocks emerged by 2008, mainly due to:
• Developed vs. Developing Nation Disputes: The US and EU demanded greater market access, while India and China resisted
changes that could harm their farmers.
• Agricultural Subsidies: Developed nations failed to agree on reducing high farm subsidies.
• Tariff Reductions: Disagreements over industrial tariffs and duty reductions.

3. Further Developments & Partial Agreements

• Bali Package (2013): First major success; included the Trade Facilitation Agreement (TFA) to simplify customs procedures and
boost global trade.
• Nairobi Ministerial (2015): Officially ended the Doha Round’s comprehensive approach, instead moving towards issue-based
negotiations.
• Recent WTO Meetings: Negotiations continue on agriculture, fisheries subsidies, and dispute resolution, but a full resolution of
the Doha Round remains unlikely.

4. Current Status
• Shift to Plurilateral Agreements: Instead of comprehensive deals, countries now negotiate specific issues (e.g., e-commerce, ser-
vices liberalization).
• Developing Countries’ Concerns: Still demand a fairer trade system, especially regarding food security, farm subsidies, and mar-
ket access.

Recent negotiations
1. Fisheries Subsidies Agreement: Building upon the historic agreement reached during the 12th Ministerial Conference (MC12) in
June 2022, which aimed to prohibit harmful fisheries subsidies contributing to overfishing, WTO members have been negotiating
additional provisions to enhance sustainability in the sector.
2. Agricultural Trade Negotiations: Agriculture remains a critical topic, with members addressing issues such as domestic support,
market access, and public stockholding for food security purposes.
3. 13th Ministerial Conference (MC13) in Abu Dhabi
a. Dispute Settlement System: The WTO members committed to ensuring a fully functional dispute settlement system by 2024.
b. Special and Differential Treatment (S&DT): The conference emphasized improving the use of S&DT provisions for developing and
least developed countries (LDCs).

Issues
1. Appellate Body Crisis: The U.S. blocked the appointment of Appellate Body members, rendering it non-functional since 2018.
2. Impact of China’s Rise: China’s accession to the WTO in 2001 did not lead to expected economic reforms, creating frustration,
especially in the U.S.
3. Shift in U.S. Stance: The U.S.’s stance on the Appellate Body reflects a bipartisan consensus, which further intensified under Presi-
dent Trump’s administration, and is expected to continue with potential “Trump 2.0”.
4. The WTO’s Existential Crisis: Beyond the Appellate Body issue, the WTO faces a broader existential crisis as it struggles to remain
relevant in global trade, especially with the rise of protectionist and nationalistic policies.
5. Regime Change in WTO: According to international lawyers, the WTO is undergoing a regime change, where countries are reclaiming
control that was previously ceded to the WTO.
6. No Precedent Rule: The WTO DSU, Article 3.2, stipulates no binding precedents, but allows AB rulings to ensure consistency in
interpreting WTO agreements without expanding or restricting member rights.
7. De-judicialisation of Trade Multilateralism: The US is pushing for the de-judicialisation of trade, reducing the power of international
trade courts and maintaining unilateral control over trade policies, particularly regarding the rising influence of China.

India’s Perspective
1. Food Security: India seeks a permanent solution for its public stockholding program and amendments to the WTO food subsidy cap.
2. Joint Support Initiatives (JSIs):: India opposes China-led proposals for investment facilitation, arguing they fall outside WTO’s mandate.
3. Agricultural Reforms: India aims to protect farmer livelihoods and oppose reductions in domestic support pushed by developed
nations.

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4. WTO Reforms: India advocates for inclusive reforms, retaining special treatment for developing nations and a fair dispute resolution system.
5. Fisheries Subsidies: India calls for limiting subsidies for overfishing and proposes differentiated responsibilities for developed and
developing nations.
6. E-commerce Moratorium: India pushes to end the 1998 moratorium on customs duties for digital transmissions, opposed by developed nations.
7. Barriers to Trade: India argues labor and environmental issues should be discussed outside the WTO and opposes trade barriers like
the EU’s carbon tax.

Reforms in WTO
1. Revival of Multilateral Trade Negotiations: The Doha Round has stalled since 2008, shifting focus to regional and bilateral trade
agreements. T
2. Regulation of Industrial and Agricultural Subsidies: Developed countries, particularly the U.S. and EU, continue to provide high
agricultural subsidies, distorting global trade.
3. Modernization of Trade Rules for Digital Economy: WTO rules do not adequately cover e-commerce, digital trade, and
cross-border data flows.
4. Transparency and Compliance Enforcement: Several countries, including China and India, have been criticized for lack of trade
policy transparency.
5. Reforming Fisheries Subsidies Agreement: WTO’s 2022 agreement on fisheries subsidies was a step forward, but further negoti-
ations are needed to eliminate harmful subsidies that contribute to overfishing and environmental degradation.
6. Handling Geopolitical Trade Disputes: The WTO must strengthen its role in preventing politically motivated trade sanctions
and tariff wars, such as the U.S.-China trade conflict and Russia-Ukraine-related restrictions.
7. Promoting Climate-Friendly Trade Policies: WTO should integrate climate policies into trade agreements, including carbon bor-
der taxes, green subsidies, and incentives for sustainable practices.
8. Reducing Dependence on Consensus-Based Decision Making: WTO’s consensus-based approach slows down decision-making.
Introducing majority-based voting for certain trade agreements could help expedite reforms and negotiations.

World Bank

“Those of us in this room are fortunate. We are custodians of an in-

stitution with a tremendous responsibility at a time of uncertainty
and great consequence”.: Ajay Banga, World Bank President :

Bretton Woods Agreement (1944)

The Bretton Woods Agreement, signed in July 1944 at the Bretton Woods Conference in New Hampshire, USA, established the
framework for the post-World War II international economic system.

Key Features:
1. Creation of Fixed Exchange Rate System: The U.S. dollar was pegged to gold ($35 per ounce), while other currencies were
pegged to the dollar, ensuring exchange rate stability.
2. Establishment of the International Monetary Fund (IMF): Provided financial assistance and monetary stability by offering short-
term loans to countries facing balance of payments crises.
3. Formation of the World Bank (IBRD): Aimed to finance post-war reconstruction and long-term development projects.
4. Trade and Economic Cooperation: Led to reduced trade barriers and laid the groundwork for future global trade institutions like
the General Agreement on Tariffs and Trade (GATT), which later became the WTO.

Key Activities and Projects in India :

1. Agriculture and Rural Development: Uttar Pradesh Agriculture Growth and Rural Enterprise Ecosystem Strengthening Project ap-
proved in December 2024 focuses on increasing farmers’ incomes by enhancing crop productivity, adopting digital technologies, and
implementing climate-resilient practices. It also aims to leverage $15 million in private finance to support these initiatives.
2. Urban Development: Amaravati Integrated Urban Development Program approved in December 2024 aims to develop the city of Am-
aravati with a funding of $800 million, focusing on sustainable urban infrastructure and services.
3. Education: Odisha Higher Education Program for Excellence and Equity (OHEPEE) aims to improve the quality and accessibility of
higher education in Odisha by enhancing governance and providing equitable access to selected institutions.
4. Climate Resilience and Environmental Sustainability: Mid-Himalayan Watershed Development Project project focuses on reversing
natural resource degradation and improving agricultural productivity in Himachal Pradesh, covering 222,951 hectares in the Mid-Hi-
malayan region.

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Comparison between IMF and World Bank

The International Monetary Fund (IMF) was established in 1944 at the Bretton Woods Conference to ensure global financial stability
and economic cooperation.

Functions & Characteristics:

1. Monetary Stability: Ensures exchange rate stability and facilitates international trade.
2. Balance of Payments Support: Provides financial assistance to countries facing economic crises.
3. Surveillance & Policy Advice: Monitors economic trends and advises nations on fiscal policies.
4. Capacity Building: Helps countries strengthen financial institutions and governance.
5. Lending Mechanisms: Offers different financial instruments like Stand-By Arrangements (SBA) and Extended Fund Facility (EFF).

2. Issues and Challenges with IMF

1. Strict Loan Conditions (Structural Adjustment Programs: SAPs): IMF loans often come with austerity measures, requiring bud-
get cuts, subsidy reductions, and privatization, which can hurt vulnerable populations.
2. Influence of Developed Nations: The U.S. and EU dominate decision-making, with voting power based on financial contributions.
3. Failure in Crisis Prevention: The IMF has been criticized for failing to predict major financial crises, such as the 2008 global
financial crisis.
4. One-Size-Fits-All Policy Approach: IMF-prescribed reforms often lack flexibility to suit specific country needs, particularly in devel-
oping economies.
5. Excessive Focus on Debt Repayment: Prioritizes loan repayment over economic growth, leading to debt dependency in developing
countries.

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3. Impact of IMF on India
Positive Impacts:
1. Economic Reforms of 1991: India’s 1991 Balance of Payments Crisis led to a $2.2 billion IMF bailout, prompting liberalization,
privatization, and globalization (LPG reforms).
2. Forex and Inflation Management: IMF policy guidance has helped stabilize the Indian rupee, manage inflation, and improve
fiscal discipline.
3. Financial Inclusion & Digital Growth: IMF-supported policies have encouraged banking sector reforms and fintech growth in India.
4. Global Financial Standing: India’s participation in IMF discussions enhances its global economic influence, especially as it pushes
for reforms in voting rights.

Negative Impacts:
1. Austerity Pressures: IMF conditions have led to reductions in subsidies and social spending, impacting welfare programs.
2. Exchange Rate Volatility: India has faced rupee depreciation concerns, influenced by IMF recommendations on exchange rate
adjustments.
3. Dependency on Foreign Capital: IMF-backed liberalization has led to greater reliance on foreign direct investment (FDI) and
external loans, increasing external vulnerabilities.

The Asian Development Bank (ADB) was established in 1966, headquartered in Manila, Philippines, with the objective of promoting
economic development and reducing poverty in the Asia-Pacific region.

Functions & Characteristics:

1. Infrastructure Financing: Provides long-term funding for transport, energy, and urban development projects.
2. Poverty Reduction & Social Development: Supports education, healthcare, and social security programs in developing nations.
3. Technical Assistance & Policy Advice: Helps countries design economic policies and governance reforms.
4. Climate Change & Sustainable Development Support: Funds renewable energy, water conservation, and disaster resilience projects.
5. Regional Cooperation & Connectivity: Strengthens trade and economic integration among Asian economies.

Impact of ADB on India

1. Largest Recipient of ADB Funds: India has received over $52 billion in ADB loans for infrastructure, health, and education projects.
2. Infrastructure Development: ADB has funded major projects like Delhi Metro, Mumbai Metro, Chennai Smart City Project, and
highway expansions.
3. Renewable Energy Support: ADB has invested in solar parks, wind energy projects, and rural electrification, helping India meet
its climate goals.
4. Disaster Management Aid: ADB has provided financial assistance for cyclone relief, flood rehabilitation, and COVID-19 emergency
response.
5. Urban Development & Smart Cities: Supports waste management, water supply, and affordable housing projects in major
Indian cities.

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The Asian Infrastructure Investment Bank (AIIB) was established in 2016, headquartered in Beijing, China, with the aim of financing
infrastructure and sustainable development projects across Asia and beyond.

Functions & Characteristics:

1. Infrastructure Development: Funds transport, energy, water, and urban development projects to bridge infrastructure gaps.
2. Sustainable & Green Financing: Focuses on climate resilience, renewable energy, and sustainable urbanization.
3. Regional Connectivity: Supports cross-border infrastructure, trade, and economic integration projects.
4. Flexible Financing & Partnerships: Collaborates with institutions like the World Bank, ADB, and national governments.
5. Lean & Efficient Structure: AIIB follows a fast, less bureaucratic approval process for projects compared to traditional multilateral banks.

Issues and Challenges with AIIB

1. China’s Dominance in Decision-Making: Despite having over 100 member countries, China holds 26.6% voting power, raising
concerns over governance bias.
2. Geopolitical Tensions: AIIB is sometimes viewed as an instrument of China’s Belt and Road Initiative (BRI), creating political
friction with countries like India.
3. Limited Focus on Social Development: Unlike the World Bank or ADB, AIIB primarily funds large-scale infrastructure with less
emphasis on poverty alleviation or human development.
4. Concerns Over Debt Sustainability: AIIB-funded projects may increase debt burdens for developing nations, similar to other multi-
lateral banks.
5. Environmental & Social Safeguards: Some AIIB-backed projects have faced criticism for environmental risks and lack of proper
safeguards for displaced communities.

Impact of AIIB on India

1. Major Borrower & Key Partner: India is the second-largest borrower from AIIB, having received $9.5 billion for infrastructure proj-
ects.
2. Transport & Urban Infrastructure: AIIB has funded Bangalore Metro, Chennai Metro, Mumbai Metro, and rural road connectivity
projects.
3. Renewable Energy Investment: AIIB has supported solar power plants, wind farms, and transmission networks, aiding India’s
clean energy transition.
4. Water & Sanitation Projects: AIIB finances water supply, waste management, and sanitation projects in urban areas.
5. COVID-19 Financial Assistance: During the pandemic, AIIB provided $1.5 billion in emergency funds to support India’s healthcare
response.

Context: 10 years of NDB in 2025.

The New Development Bank (NDB), formerly known as the BRICS Development Bank, was established in 2015 by Brazil, Russia,
India, China, and South Africa (BRICS). It is headquartered in Shanghai, China, with the aim of financing sustainable infrastructure
and development projects in emerging economies.

Functions & Characteristics:

1. Infrastructure & Sustainable Development Financing: Funds transport, water supply, energy, and digital infrastructure proj-
ects.
2. Alternative to Western-Dominated Institutions: Provides an alternative to the World Bank and IMF, focusing on emerging markets.
3. Equal Voting Rights Among BRICS Nations: Unlike the IMF or ADB, where voting power is based on financial contributions, NDB
follows an equal shareholding model among its founding members.
4. Local Currency Lending: Unlike other multilateral banks, NDB promotes lending in local currencies, reducing dependence on the US dollar.
5. Faster Loan Approvals: NDB follows a simplified, less bureaucratic approach, making project financing quicker and more efficient.

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Issues and Challenges with NDB
1. Limited Global Influence: Despite ambitious goals, NDB’s loan disbursements remain much lower than those of the World Bank or ADB.
2. Geopolitical Tensions Among BRICS Nations: Disagreements among India, China, and Russia sometimes slow decision-making.
3. Dependency on China: Although all founding BRICS members hold equal voting rights, China has greater financial leverage as
the world’s second-largest economy.
4. Financial Constraints & Credit Rating Challenges: NDB has struggled to mobilize funds at the scale of other multilateral banks,
impacting its ability to expand lending.
5. Limited Sectoral Diversification: Unlike the World Bank or AIIB, NDB primarily focuses on infrastructure projects, with fewer
investments in healthcare, education, or social sectors.

Impact of NDB on India

1. One of the Largest Borrowers: India has received over $8 billion in loans from NDB for infrastructure and urban development proj-
ects.
2. Support for Metro & Transportation Projects: NDB has funded metro rail systems in Mumbai, Delhi, and Bengaluru, improving
urban mobility.
3. Renewable Energy Expansion: NDB has financed solar parks, hydroelectric projects, and energy grid modernization in India.
4. Smart Cities & Urban Infrastructure: Supports water supply, sanitation, and road infrastructure projects under India’s Smart
Cities Mission.
5. Disaster Resilience & Health Sector Support: During COVID-19, NDB provided $1 billion in emergency funds to help India’s
health sector and economic recovery.

Difference Between AIIB and NDB

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Major Crops And
Cropping Patterns
Previous Year Questions (PYQs)
[UPSC mains 2024] Explain the role of millets in ensuring health and nutritional security in India.

[UPSC mains 2023] Explain the changes in cropping pattern in India in the context of changes in consumption pattern and marketing
conditions.

[UPSC mains 2022] What is an Integrated Farming System? How is it helpful to small and marginal farmers in India?

[UPSC mains 2021] What are the present challenges before crop diversification? How do emerging technologies provide an opportunity
for crop diversification?

[UPSC mains 2020] What are the major factors responsible for making the rice-wheat system a success? In spite of this success, how
has this system become bane in India?

[UPSC mains 2019] How far is Integrated Farming System (IFS) helpful in sustaining agricultural production?

[UPSC mains 2018] How has the emphasis on certain crops brought about changes in cropping patterns in the recent past?Elaborate
the emphasis on millet production and consumption.

[UPSC mains 2017] What are the major reasons for declining rice and wheat yield in the cropping system? How crop diversification is
helpful to stabilize the yield of the crop in the system?

Share of Agricul- 17.7% (Global avg: 6.4%)

ture in GDP Average Growth Rate (Last 5 Years): 4.2%
Growth Rate (2023-24): 1.4%
Agricultural Em- 45.5% (Periodic Labour Force Survey)
ployment share Agri census 2015-16
1. 80% of all economically active are women
33% as Agri-laborer
47% Agri-entrepreneur
2. Share of Agriculture workforce in Total workforce (approx.) = 45% (Industry: 25%, Services: 30%) [Periodic
Labour Force Survey].
3. 70% rural households still depend on agriculture for their livelihood.
4. Share of Landless laborers: 55% of the total agriculture workforce (More than that of farmers (cultivators)).
5. Share of Small & Marginal Farmers: 85% of all farmers.

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Area under Cultivation 1. Foodgrains of India (Cereals + Coarse Cereals = approx. 50% of Net Sown Area)
Cereals: 40% of Net Sown Area (Rice (25%), Wheat (15%))
Coarse Cereals/Nutri Cereals: 10% (Jowar, Bajra, Maize, Ragi, Barley)
2. Pulses: 15% (Tur/Pigeon Pea, Gram/Chickpea/Chana)
3. Oilseeds: 13-15% (Groundnut, Soyabean, Rape Seeds, Mustard, Sesame etc)
4. Sugarcane: 3%, Cotton: 7%
Operational Holdings 1. Small & marginal holdings (<2 hectares): >85% of the total land holdings.
[Agriculture Census, 2. Average size of operational holding: 1.08 hectares (consistently declining since 1970 Agri Census,
2015-16] indicating greater fragmentation of land).
3. Female land holders: Less than 15% (despite feminization of agriculture).
Distress in Agriculture 1. Impoverished farmers: Nearly 22.5% of the farmers live below the official poverty line.
Sector 2. Farmer Suicides: Nearly 30 people in the farming sector die by suicide daily.

World rankings 1. 1st: Pulses (25% of world Production)

2. 2nd: Rice
3. 2nd -Wheat
4. 1st– Cotton Production( 25% of World Production)-OECD FAO report- and India will dominate this position
till 2030
5. 1st: Milk Production
6. 2nd : Fruits and Vegetables
Horticulture 1. % of Net Sown Area = >15%
2. Total Contribution to Agriculture GDP = about 35%
3. Employment: supports 20% of the agriculture labour force.
Subsidies 1. Overall farm subsidies: about 1.5: 2% of GDP
2. Food subsidy: 2 lakh crore; Fertilizer Subsidy: 1.75 lakh cr
Farm mechanization in 1. About 40-45% as compared to about 60% in China, 75% in Brazil, 95% in the USA.
India 2. Reasons for low rate of mechanization: small holdings, poor access to power, high credit cost and
complex procedures, uninsured markets, and low awareness.
Impact of climate change 1. Decline in Agriculture growth: For emerging market economies like India a 1°C increase in temperature
on agriculture would reduce agricultural growth by 1.7%. (IMF)
2. Farmer income losses from climate change could be >15% (20-25 % in un-irrigated areas) (Eco Survey).
Organic cultivation India ranks 1st in number of organic farmers & 9 th in terms of area under organic farming.

Post Harvest Losses 1. Post-harvest losses amount to 40% of agricultural GDP.

(NITI AAYOG) 2. Costs farmers an annual loss of Rs.92,000 crores
Cold Storage

Food Wastage 1.3billion tonnes of food is being wasted annually (FAO)

Black Marketing in 40-60% (Shanta Kumar Committee)

PDS Procurement 60-80% of marketed surplus (Shanta Kumar Committee)
Investment in Research 1% of Agriculture GDP (NITI Aayog)
Ashok Dalwai Committee Recommendations
Targets
• Share of Farmers in Consumer Price: 15%
• Post Harvest Losses: 6-18%
• 15% of mandis have cold storage facility
• 50% of mandis have a weighing facility
• Average Procurement: Rice- 33%, Wheat- 25%

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CLASSIFICATION
Types of Crop Definition Major Crops

Food Crops Crops that are used for Rice, Wheat, Maize, Millets (Bajra, Jowar,
human consumption Ragi), Pulses (Gram, Lentil, Peas)
Cash Crops Crops grown for sale and profit; frequently Sugarcane, Cotton, Jute, Tobacco, Oilseeds
used as raw materials in industries.
Horticulture Crops Crops that include fruits, vegetables, and Mango, Banana, Citrus Fruits, Potato,
ornamental plants. Tomato, Onion, Flowers
Plantation Crops Crops grown on large estates, typically for Tea, Coffee, Rubber, Coconut, Spices
commercial purposes.
Fibre Crops Crops grown for their fiber, used in textiles Cotton, Jute, Hemp
and other industries.
Oil Seeds Crops grown for extracting oil from their Groundnut, Mustard, Sunflower, Soybean,
seeds. Sesame

CROPPING PATTERN
A cropping pattern is the distribution of various crops within a specific area at a given time. It represents the yearly sequence and spatial
arrangement of crops that grow in a given area.
1. Mono-cropping: It refers to growing only one crop on a specific piece of land during a given season. Mono-cropping is common in
areas with favorable soil and climate conditions for a particular crop.
2. Intercropping: It involves growing multiple crops on a single plot of land. Inter-cropping can boost land productivity by balancing
nutrient requirements, water usage, and pest management.
3. Crop Rotation: Crop rotation is the process of growing multiple crops in a specific area in a specific order over time. It improves soil
health and fertility by reducing diseases, pests, and weeds. It also helps farmers diversify their income and spread risk.
4. Relay Cropping: This involves growing multiple crops in a field during the same season, with one crop sown after the other has germi-
nated. Relay cropping can help farmers optimize their land and water resources.
5. Mixed Cropping: Mixed cropping refers to growing multiple crops on the same plot of land without following a specific sequence.
Mixed cropping can reduce risk and increase productivity by optimizing resource utilization through complementary crops.
6. Multiple-Cropping: Multiple cropping refers to growing two or more crops in the same field during the same season. Multiple crop-
ping can boost land productivity by allowing farmers to reuse resources throughout the year.

Factors Influencing Cropping Pattern

1. Climatic Factors: Temperature, rainfall, humidity, and frost influence crop selection. Eg- Wheat requires cool temperatures, while rice
needs high rainfall.
2. Soil Type & Fertility: Different soils support different crops. Eg- Black soil is ideal for cotton, alluvial soil for wheat and rice, and laterite
soil for cashew nuts.
3. Irrigation Availability: Eg- Punjab and Haryana cultivate rice, while rain-fed areas focus on drought-resistant crops like millet and
pulses.
4. Technological Factors: HYV seeds, mechanization, fertilizers, and pesticides. Eg- The Green Revolution increased wheat and rice
production in northern India.
5. Economic Factors: Market demand, price stability, input costs, and profitability drive crop choices. Eg- Farmers shift to sugarcane,
cotton, or oilseeds based on market trends.
6. Government Policies: MSP, subsidies, procurement policies, and crop insurance. Eg- Wheat and rice are preferred in Punjab and Haryana
due to assured procurement at MSP.
7. Cropping Intensity & Landholding: Small farmers maximize land use with multi-cropping or intercropping. Eg- Pulses are intercropped
with cereals to improve soil fertility.
8. Pest & Disease Resistance: Farmers avoid crops vulnerable to pest outbreaks. Eg- BT Cotton was adopted to counter bollworm infestation.
9. Socio-Cultural & Traditional Practices: Some crops have religious, cultural, or traditional significance. Eg- Millets are staple foods in
tribal diets, and turmeric is used in rituals.
10. Climate Change & Environmental Concerns: Rising temperatures, erratic rainfall, and water shortages affect crop selection. Eg-
Farmers are shifting to climate-resilient crops like millets and pulses instead of water-intensive crops like sugarcane.

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Changing Cropping Pattern
1. Shift from Food Crops to Commercial Crops: The area under
commercial crops increased from 30.4 million hectares in
2000-01 to 41.2 million hectares in 2022-23. Eg- Sugarcane
production rose from 285 million tonnes (2010-11) to 405
million tonnes (2022-23) .
2. Increase in Horticulture Crops due to export potential. India’s
horticulture production increased from 268 million tonnes
(2012-13) to 350 million tonnes (2022-23), surpassing food
grains. Eg- India is the second-largest producer of fruits and
vegetables. The export of fresh fruits and vegetables grew by
17% in 2023 (Source: APEDA).
3. Rise in Pulses & Coarse Grains: Pulses production rose from
14 million tonnes (2009-10) to 27.5 million tonnes (2022-
23). Eg- The government launched the “Millets Mission” to
boost production. India exported 1.5 million tonnes of millets
in 2023, a 50% rise from 2022.
4. Dominance of Rice & Wheat in Green Revolution Areas: Rice
and wheat together account for over 75% of the gross cropped
area in Punjab and Haryana (Source: Economic Survey of India
2023).
5. Expansion of Oilseeds Cultivation: Oilseeds production
increased from 25 million tonnes (2010-11) to 41 million
tonnes (2022-23). Eg-National Mission on Edible Oils. Palm oil
production is projected to triple by 2030.
6. Growth of Organic Farming: Organic farming is increasing due
to health awareness and export demand. India has 2.9 million
hectares under organic farming, the highest globally. Sikkim
became India’s first fully organic state. Organic food exports
grew by 39% in 2023, with top exports including organic spices
and cereals (Source: APEDA).
7. Impact of Climate Change: Farmers are shifting from water-in-
tensive crops to climate-resilient varieties. Eg- Sugarcane area
in Marathwada declined by 14% between 2015 and 2023.
8. Rise of Contract & Corporate Farming: The contract farming market in India is projected to grow at 10% CAGR over the next de-
cade (FICCI Report, 2023). Eg- PepsiCo’s contract farming model for potatoes in Punjab.
9. Technological Influence on Cropping Pattern: Precision farming, GM crops, and mechanization are changing crop choices. BT
Cotton now accounts for 95% of total cotton cultivation in India.
10. Promotion of Nutri-Cereals & Superfoods: Due to rising health consciousness, there is a shift towards nutrient-rich crops. Eg-
Increased cultivation of quinoa, chia seeds, and foxtail millet in Rajasthan and Karnataka, with quinoa exports growing by 120%
in the last five years.

Issues
1. Rice-Wheat Dominance: Rice area expanded from 30.8 Mha (1950-51) to 44.0 Mha (2011-12), wheat from 9.8 Mha to 29.8 Mha,
reducing crop diversity.
2. Regional Imbalance: Punjab, Haryana overproduce wheat-rice despite water scarcity, while pulses & oilseeds remain underproduced.
3. Low Crop Diversification: MSP-backed crops discourage diversification, leading to monocropping.
4. Small Landholdings: Average farm size <2 ha, leading to fragmentation, low productivity, and difficulty in diversification.
5. Poor Market Linkages: Farmers lack fair pricing for alternative crops. Eg- 92 MMT crop waste is burned annually, causing pollution.
6. Economic Issues
• Lack of Access to Long-Term Credit-Small farmers rely on high-interest informal credit sources
• Poor Functioning of PACS-PACS suffer from corruption and inefficiency
• Lack of Forward and Backward Linkages- Lack of cold storage leads to spoilage
7. Market Dynamics-Shift from Food Crops to Commercial Crops
8. Infrastructural Issues Eg-51% land rain-fed (Ministry of Agri), prone to droughts
9. Structural Issues
• Cereal Dominance in Food Crops Eg-82% area under cereals, limiting diversification
• Soil Health Eg-Punjab, Haryana: Soil degradation due to wheat-rice cycle
• Unsustainable Farm Practices Eg-Excessive nitrogen use affects soil health
10. Technological Issues
• Poor Agricultural Extension Services -Eg-Limited reach in remote areas, affecting knowledge transfer
• Lack of HYV Seeds-Eg-In Eastern India: Traditional seeds still widely used
11. Improper Marketing and Processing of Perishable Products. Eg: 30-40% fruits/vegetables wasted due to lack of cold storage

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Way Ahead
1. Agro-Ecological Approach: Advocated for cropping strategies tailored to specific agro-ecological regions to optimize resource use
and productivity. (Swaminathan Commission)
2. Committee on Doubling Farmers’ Income (DFI): Dalwai Committee (2016):
• Diversification into High-Value Sectors: Encouraged farmers to diversify into sectors such as horticulture, livestock, and fisheries to
boost income.
• Subsidy Rationalization: Suggested restructuring subsidies to favor sustainable and diversified cropping patterns.
• Infrastructure Development: Called for increased investment in infrastructure like irrigation, storage, and market facilities to support
diverse cropping systems.
3. Crop Diversification:
• Vertical Diversification: Eg-Integrated farming (crops + livestock + fisheries
• Horizontal Diversification: Eg- Intercropping (legumes + cereals)
4. Sustainable Agriculture:
• Organic Farming: Eg-Sikkim (100% organic).
• Climate-Resilient Practices: Eg-Drought-resistant crops in drought prone areas
5. Input Efficiency by using High-Yielding Varieties (HYV). Eg- Pusa Yashasvi wheat
6. Technical Advancement: use of GIS Techniques. Eg- Soil mapping in Karnataka.
7. Soil Health Improvement: Encourage organic farming, crop rotation, and balanced fertilizer use to restore soil fertility.
8. Efficient Water Management: Promote micro-irrigation (drip & sprinkler), rainwater harvesting, and crop planning based on
water availability. (Mihir Shah Committee)
9. Climate-Resilient Agriculture: Develop and distribute drought-resistant, flood-tolerant, and high-yield seeds to counter climate
risks.
10. Land Consolidation & Farmer Cooperatives: Encourage land pooling, cooperative farming, and FPOs to increase efficiency and
profitability.
11. Better Market Linkages: Strengthen APMC reforms, contract farming, e-NAM, and storage infrastructure to ensure fair prices.
12. Improved Agricultural Research & Extension: Expand Krishi Vigyan Kendras (KVKs) and provide localized advisory services to
farmers.
13. Reforming Subsidies & MSP: Rationalize subsidies to support sustainable crops, and introduce price incentives for climate-resil-
ient crops.

IFS is a comprehensive approach that combines crop production, livestock, aquaculture, agroforestry, and other activities to maximise
resource efficiency.It integrates various farming components to generate synergies and increase productivity.

Advantages of the Integrated Farming System (IFS)

1. Increased Income: Diversification reduces dependency on a single crop, Eg- combining dairy with crop farming.
2. It provides opportunities to integrate traditionally grown crops, with other commercial crops such as cereals, oilseeds, pulses,
vegetables, fruits in agrihorticulture, hortisilviculture, silvolericulture, silvofloriculture, silvimedicinal, agrihortisilviculture, aquaforestry,
silvipasture, hortipasture.
3. Efficient Resource Utilization: Waste from one component
(e.g., livestock manure) is used as input for another (e.g., organic
fertilizer for crops), minimizing waste.
4. Improved Soil Health: Crop rotation, organic manure, and agro-
forestry enhance soil fertility and microbial activity, reducing
dependency on chemical fertilizers.
5. Water Conservation: Integrates rainwater harvesting, micro-irri-
gation, and aquaculture, optimizing water use.
6. Reduced Pest & Disease Incidence: Crop-livestock integration
interrupts pest cycles, lowering the need for pesticides.
7. Risk Mitigation: Multiple enterprises reduce the risk of crop
failure or market fluctuations.
8. Employment Generation: Creates more jobs through diverse
activities.
9. Environmental Sustainability: Integration of crops, livestock, and trees promotes ecological balance.
10. Carbon Sequestration: Agroforestry and organic farming capture carbon.
11. Nutritional Security: Produces a diverse range of grains, fruits, vegetables, dairy, and fish, ensuring balanced nutrition for farm families.
12. Skill Development: Farmers learn new skills like fish farming or beekeeping.

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Challenges in Adopting the Integrated Farming System (IFS)
1. High Initial Cost: Setting up multiple enterprises requires significant investment.
2. Complex Management: Requires knowledge and skills to manage diverse activities.
3. Labor Intensive: Demands more manpower for daily operations.
4. Market Constraints: Limited access to stable markets for diverse IFS products like organic vegetables, dairy, and fish.
5. Landholding Limitations: Small and fragmented farms struggle to accommodate multiple farming systems effectively.
6. Risk of Market Fluctuations: Diverse products face different price fluctuations, making income unpredictable.
7. Lack of Technical Knowledge: Farmers need training in diverse activities like animal husbandry, fisheries, and organic farming.

Way Ahead
1. Financial Support & Incentives: Provide subsidies, low-interest loans, and tax benefits to encourage farmers to adopt IFS.
2. Skill Development & Training: Strengthen Krishi Vigyan Kendras (KVKs) and agricultural extension programs for technical training
in IFS practices.
3. Market Linkages & Value Addition: Strengthen supply chains, cold storage, and farmer-producer organizations (FPOs) to en-
sure fair prices for IFS products.
4. Land Consolidation & Cooperative Farming: Encourage land pooling and cooperative models to help small farmers integrate
various farming activities.
5. Pest & Disease Control Measures: Introduce biosecurity protocols, integrated pest management (IPM), and disease surveil-
lance to safeguard crops and livestock.
6. Policy Reforms & Institutional Support: Include IFS-specific policies in agricultural schemes like PM-KISAN, RKVY, and MGNRE-
GA for infrastructure development.
7. Community-Based Models: Promote self-help groups (SHGs) and rural cooperatives to facilitate knowledge sharing and risk
mitigation.
8. Climate-Resilient IFS Models: Develop region-specific IFS models focusing on drought-resistant crops, water-efficient livestock,
and sustainable fisheries.
9. Technology Integration.Use IoT, drones, AI for farm management.Eg- Digital Agriculture Mission.
10. Market Linkages:Ensure better access & fair pricing. Eg-e-NAM
11. Financial Support:Provide credit & insurance to IFS farmers.Eg-KCC offers affordable credit.
12. Promotion of High-Value Crops.Eg-Encourage horticultural crop integration. (Committee on Doubling Farmers’ Income (DFI))

Biologically Integrated Farming Systems (BIFS) in the USA: In California, BIFS programs encourage farmers to use biological and
cultural practices to reduce reliance on chemical pesticides and fertilizers. Techniques include crop rotation, cover cropping, and habitat
enhancement for natural pest predators, promoting environmental health and sustainability.

Crop diversification is a technique used to increase productivity on the same amount of arable land while growing a wider variety of
crops from dwindling land resources.
The traditional pattern of agriculture in India has wider crop diversity: Eg- In the Garhwal Himalayan region of India, Barahnaja is a crop
diversification system for cultivating 12 crops in a year.
India shows a moderate level of crop diversification with a national Crop Diversification Index (CDI) around 0.65.

Need for Crop Diversification in India

1. Soil Nutrient Deficiency: Continuous cropping depletes nutrients (Eg- nitrogen, phosphorus).
2. Decline in Soil Microfauna: Reduces beneficial organisms (Eg- earthworms, microbes).
3. Reduced Resource-Use Efficiency: High input costs with stagnant yields (Eg- plateauing productivity in Punjab).
4. Pest and Disease Vulnerability: Monocropping increases pest attacks (Eg- rice stem borers, wheat rust)
5. Climate Change Impact: Extreme weather events like droughts, floods, and heatwaves affect monoculture-based agriculture,
increasing crop failure risks.
6. Low Income & Market Uncertainty: Farmers cultivating staple grains face low profit margins, price volatility, and market gluts
due to procurement limitations.
7. Nutritional Deficiency: Overproduction of staples at the cost of pulses, oilseeds, and fruits has led to malnutrition and micronu-
trient deficiency in India.
8. Export Potential Unutilized: Demand for horticulture, spices, medicinal plants, and organic products remains underexploited due
to limited incentives for diversification.

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Benefits of Crop Diversification
1. Increased Farmers’ Income.Eg-Farmers in Punjab who shifted from rice to maize and vegetables are reaping more benefits.
2. Enhances Biodiversity and Productivity. Eg-Millets and pulses are being grown together in Karnataka for the benefit of the environment.
3. Reduces Risk of Crop Failure.Eg- Growing sorghum in dry areas maintains yields constant.
4. Ensures Food and Nutritional Security.Eg- Cultivation of quinoa in Rajasthan enhances local nutrition.
5. Provides Market Access.Eg-Turmeric is being exported from Tamil Nadu to other countries.
6. Promotes Environmental Conservation.Eg-Legumes introduced into rice-wheat cultivation in Uttar Pradesh enrich the soil.
7. Revives Soil Health.Eg-Cover crops like mustard in Haryana improve soil health.
8. Reduces Chemical Use.Eg-Organic farming in Sikkim minimizes pesticide use.

Steps Taken to Promote Crop Diversification

1. Technology Mission for Horticulture in NE Region:Connects
research, production, extension, post-harvest management, and mar-
keting for horticulture growth.
2. National Agriculture Insurance Scheme:Insures food crops, oilseeds,
and horticulture crops with a 50% subsidy for small and marginal farmers.
3. Technology Mission on Cotton:Emphasizes technology generation,
product support, and extension to increase cotton production.
4. Watershed Development Fund: Encourages rainfed land develop-
ment to increase agricultural productivity.
5. Pilot Program on Seed Crop Insurance (PSSCI):Insures seed crops
to reduce production risks.
6. Production Linked Incentive (PLI) Scheme:Provides INR 10,900 crores (2021-22 to 2026-27) to increase food processing and
Indian brands globally.
7. Millets Promotion:Emphasizes Seven Sutras: production, nutrition, value addition, entrepreneurship, awareness, international out-
reach, and policy interventions

Challenges Faced in Crop Diversification

1. MSP Bias Towards Staples: Government procurement focuses on wheat and rice, discouraging farmers from growing pulses, oil-
seeds, and millets.
2. Market & Price Volatility: Lack of assured markets and fluctuating prices for alternative crops make diversification financially risky.
3. Soil & Climatic Suitability: Some regions are naturally suited for certain crops (e.g., rice in Bengal, wheat in Punjab), limiting diversi-
fication options.
4. Water Resource Constraints: While water-intensive crops (rice, sugarcane) dominate, water-efficient crops like millets receive
less policy support.
5. Lack of Awareness & Technical Knowledge: Many farmers lack training in alternative crop cultivation, leading to reluctance in
adopting new crops.
6. Institutional Factors
• Defective Land Tenure System: Leads to land fallowing and underutilization of farmland.
• Poor Market & Processing Infrastructure: Inefficient marketing and storage of perishables like fruits & vegetables limits profitability.
7. Credit & Financial Constraints: Banks and financial institutions prioritize loans for traditional crops, making it harder for farmers
to invest in new crops.
8. Lack of Research & Extension Services: Limited research on high-value crops, organic farming, and sustainable diversification
methods hampers progress.
9. Consumer Preference & Demand Issues: Dietary habits favor rice and wheat, reducing market demand for diversified crops like
millets and legumes.

Way Ahead
1. Expand MSP & Procurement Beyond Staples: Include pulses, oilseeds, and millets under a structured procurement system to
encourage diversification.
2. Develop Efficient Market Infrastructure: Strengthen APMC reforms, cold storage, and food processing for perishable crops like
fruits & vegetables.
3. Improve Land Tenure Policies: Ensure secure land ownership and leasing reforms to prevent land fallowing and encourage diverse cropping.
4. Promote Water-Efficient Crops: Provide incentives for millets, pulses, and drought-resistant crops in water-scarce regions.
5. Enhance Research & Extension Services: Increase agro-climatic research and farmer training in alternative crops & sustainable practices.
6. Encourage Farmer Cooperatives & FPOs: Strengthen Farmer Producer Organizations (FPOs) to improve bargaining power and market access.
7. Improve Credit & Insurance Access: Provide low-interest loans and crop insurance tailored for non-traditional crops.
8. Develop Agro-Processing & Value Addition: Establish food processing zones for horticulture, oilseeds, and medicinal crops to
enhance profitability.
9. Adopt Digital & Precision Agriculture: Use AI, remote sensing, and weather forecasting to guide farmers on crop selection and
risk management.
10. Promote Consumer Awareness & Demand: Campaigns, PDS inclusion, and incentives to increase the consumption of diversi-
fied crops like millets and pulses.

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Zero Budget Natural Farming (ZBNF) is a chemical-free, low-cost farming method that aligns with nature. Promoted by Subhash Palekar,
it eliminates external inputs, reduces production costs, and enhances soil fertility, aiming to double farmers’ income sustainably.

As per NSSO data, more than 50% of all farmers are in debt due to increased cost of farm inputs like fertilizers and chemical pesticides. Zero
budget farming model brings down farm expenditure to a great extent and ends dependence on farm loans. It also reduces dependence on
purchased inputs as it encourages use of own seeds and locally available natural fertilizers and farming is done in synchronization with nature.

Principles of ZBNF
1. No External Inputs: Relies on natural resources (Eg- cow dung, urine).
2. Soil Cover: Crops cover soil year-round (Eg- mulching).
3. Minimal Soil Disturbance: Avoids tilling (Eg- no-till farming).
4. Indigenous Seeds: Uses native seeds (Eg- local rice varieties).
5. Mixed Cropping: Grows multiple crops together (Eg- legumes + cereals).
6. Water Conservation: Focuses on moisture retention (Eg- mulching).

Zero Budget Natural Farming: Models in India

A. Karnataka Model:
1. Initiated by Subhas Palekar and Karnataka Rajya Raitha Sangha (KRRS) as a
grassroots movement. Primarily involved middle and small landholding peasants.
2. Resulted in yield improvements, reduced input costs, and increased farm incomes.

B. Andhra Pradesh Model:

1. Led by Rythu Sadhikara Samstha (RySS) and supported by the Sustainable India
Finance Facility (SIFF). This initiative aims to make Andhra Pradesh India’s first
100% natural farming state.
2. The government aims to transition 6 million farms/farmers cultivating 8 million hectares to ZBNF by 2024.

Benefits of ZBNF
1. Increased farmer income: Natural Farming aims to make
farming viable and aspirational by increasing net incomes of
farmers on account of cost reduction, reduced risks, similar
yields, incomes from intercropping and increasing crop intensity
2. Minimise cost of production: As per the report of Centre for
Study of Science, Technology and Policy in Andhra Pradesh on
‘Life Cycle Assessment of Natural Farming (NF) and Non-NF’,
fertilizer’s contribution to materials cost is 10%–20% in NF viz-a-
viz 50%–70% in non-NF
3. Enhanced Health: Producing chemical-free food ensures bet-
ter health for consumers and reduces health risks associated
with agrochemical exposure.
4. Environmental Restoration: Natural farming contributes to the
restoration of soil fertility and environmental sustainability by
promoting biodiversity and reducing pollution.
5. Water Efficiency: As per Centre for study of Science, Technology and Policy, for paddy, NF requires 3,500 thousand liters, (average
per acre) less water than non-NF.
6. Climate Resilience: Mitigates drought impact (Eg- mulching).
7. Livestock sustainability: Cow dung and urine are the most essential components in Jivamrit and Beejamrit. A study by NAARM,
shows that the population of indigenous cows among Natural Farming cultivators is found to be highest compared to crossbred cows,
bullocks, and buffaloes in Karnataka, Maharashtra, and Andhra Pradesh.

Challenges of ZBNF
1. Yield Uncertainty: Initial transition to ZBNF may result in lower yields, causing financial risks for farmers.
2. Lack of Scientific Validation: Limited large-scale research and evidence to confirm long-term productivity and sustainability.
3. Soil Nutrient Deficiency: Sudden shift from chemical-based farming can lead to temporary soil nutrient imbalance.
4. Labour Intensive: Requires manual preparation of bio-inputs like Jeevamrut and mulching, increasing time and labor costs.
5. Market Challenges: Lack of organized markets and price premiums for ZBNF products limits farmer incentives.
6. Limited Awareness & Training: Farmers lack technical knowledge and structured training programs for adopting ZBNF effectively.
7. Resistance to Change: Traditional farmers accustomed to chemical inputs hesitate to transition due to risk perceptions.
8. Water Dependency: Though water-efficient, ZBNF requires moist soil conditions, which can be difficult in arid regions.

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9. Inadequate Policy Support: No comprehensive national policy ensuring financial aid and institutional backing for ZBNF adoption.
10. Scaling Difficulties: Challenges in large-scale implementation due to variations in regional soil, climate, and crop patterns.

Way Ahead
1. Government Initiatives: Promote ZBNF under PKVY and MOVCD-NER schemes.
2. Awareness Campaigns: Train farmers (Eg- Kerala’s workshops).
3. Institutional Support: Create mechanisms for scaling ZBNF (Eg- Andhra Pradesh model).
4. Financial Incentives: Provide subsidies for organic inputs (Eg- NMOOP, NFSM).
5. Market Linkages: Integrate ZBNF produce into e-NAM for better price realization.

The Rice-wheat cropping system is a traditional agricultural practice in South Asia which involves growing rice in the wet season (Kharif)
and wheat in the dry season (Rabi Season). It is the largest agricultural production cropping system in the world and is prominent in
north-western India.

The success of the Rice-Wheat Cropping System (RWCS):

1. Green Revolution Impact:

• HYVs boosted wheat production from 12.3 million tonnes (1964-65) to ~110 million tonnes (2022-23).
• Rice production also surged significantly. (21MT in 1951 to 132MT in FY22-23)
2. Access to Machinery:Tractors and combine harvesters improved efficiency.
3. Agro-Climatic Suitability:Rice (Kharif) and wheat (Rabi) thrive in diverse climates.Eg- Punjab, Haryana.
4. Nutrient Synergy:Rice (high nitrogen) and wheat (phosphorus/potassium) maintain soil fertility.Eg- rice straw mulch benefits wheat.
5. Irrigation Facilities:Canal and tube well networks ensure water supply (Eg- Punjab’s water infrastructure).
6. Assured MSP Procurement:MSP guarantees prices, reducing risks.Eg- FCI procured ~90 million tonnes of rice/wheat in 2022-23

Problems
1. Excess Use of Fertilizers leads to nutrient imbalances and soil degradation. Eg-Punjab uses 244 kg/ha of fertilizers vs the national
average of 140 kg/ha (Ministry of Agriculture, 2023).
2. Deteriorating Soil Health: Continuous RWCS depletes soil nutrients, causes soil structure destruction and compaction, and lacks
nitrogen-fixing crops like legumes.
3. Groundwater Depletion: Intensive irrigation demands have led to India extracting 25% of global groundwater.Eg- Punjab’s water table
dropping 50 cm annually; 1 kg of rice requires 5,000L of water (Central Ground Water Board).
4. Herbicide Resistance and Weed Issues: Overuse of herbicides has led to resistant weed species like Echinochloa, complicating
weed management.
5. Decreasing Productivity: Wheat yields have stagnated at 3.5-4 tonnes/ha due to resource depletion and climate change (ICAR,
2023).
6. Pollution from Residue Burning: Stubble burning contributes to severe air pollution and GHG emissions, with over 20 million
tonnes of paddy straw burned annually (SAFAR).
7. Increased Fiscal Burden: High MSP and fertilizer subsidies strain the budget, with fertilizer subsidies exceeding ₹2.5 lakh crore in
2022-23 (Union Budget).

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Way Ahead
1. Adopt High-Value Horticulture:
a. Promote Ultra High-Density Plantation (UHDP) for fruits like mangoes which increases yields and reduces water/fertilizer use.
b. Establish Agri-Export Zones (AEZs) for horticulture, similar to West Bengal’s vegetable-focused AEZ.
2. Promote Fisheries and Dairy:Develop inland fisheries (like Andhra Pradesh) and expand dairy value chains (Eg- cheese, chocolates)
for domestic and export markets.
3. Sustainable Farming Practices:Adopt conservation agriculture (zero-tillage, residue retention) and dry direct-seeded rice (DDSR) to
save water and reduce methane emissions. Eg-DDSR in Punjab saved 30% irrigation water and matured rice 7-10 days earlier.
4. Diversification to Millets, Pulses & Oilseeds: Reduce dependence on rice-wheat; promote nutri-cereals like bajra, ragi.
5. Efficient Water Management: Drip irrigation, System of Rice Intensification (SRI), and alternative crops in dry areas.
6. Soil Health Restoration: Use of organic fertilizers, bio-compost, and crop rotation to reduce degradation.
7. Stubble Management Alternatives: Promote Happy Seeder, bio-decomposers, and straw recycling to stop stubble burning.
8. Climate-Resilient Varieties: Develop and promote heat/drought-resistant wheat and flood-tolerant rice varieties.
9. Rational MSP & Subsidy Reforms: Link MSP to diversified crops to break the monoculture cycle.
10. Better Extension Services: Increase farmer training on alternative cropping patterns and organic methods.
11. Research & Development: Focus on sustainable intensification of RWCS with eco-friendly techniques.

Pulses are an important source of proteins, vitamins and minerals and are popularly known as “Poor man’s meat”. India is the world’s
largest producer of pulses with 23 million tonnes from an acreage of 30 million hectares. The country accounts for 35 percent of global
area and 27 per cent of global production.
During the last five years (2018-19 to 2022-23), total pulses production has increased by 18%. Based on the production estimates for
the year 2022-23, Madhya Pradesh, Maharashtra and Rajasthan are the top three pulses producing states in the country.

Production of Pulses in India

Top Pulses:
The top six pulses grown in India are chickpeas (chana), pigeon pea (arhar/tur dal), urad beans (urad dal), mung beans (moong), lentils
(masoor), and peas.

Advantages of Pulses:
1. Rich in Nutrients: Pulses are high in protein, fiber, vitamins, and minerals, essential for a balanced diet and combating malnutrition.
2. Improves Soil Fertility: Nitrogen-fixing properties enhance soil health, reducing the need for synthetic fertilizers.
3. Water-Efficient Crop: Requires 50% less water than cereals like rice and wheat, making it ideal for rainfed agriculture.
4. Suitability for Marginal Environments: Drought-resistant and deep-rooting pulse species can access groundwater, benefiting com-
panion crops when intercropped.
5. Low Food Wastage: Pulses have a long shelf life without significant nutritional loss, reducing food wastage.
6. Supports Sustainable Agriculture: Crop rotation with pulses prevents soil depletion and controls pests naturally.
7. Reduces Greenhouse Gas Emissions: Pulses require less synthetic fertilizer, reducing nitrous oxide emissions and carbon footprint.
8. Boosts Farmer Income: High market demand and government support under MSP encourage pulse cultivation.
9. Promotes Biodiversity: Growing pulses with other crops enhances agro-ecosystem stability and reduces monoculture risks.
10. Supports Livestock Feed & Byproducts: Pulse residues are used as nutritious fodder, ensuring better livestock health and farm
sustainability.

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Reasons for Decline in Per Capita Availability of Pulses in India:
1. Slow Growth in Cultivation: Between 1951 and 2008, pulse production grew by only 45%, compared to 320% for wheat and 230%
for rice. India has been import-dependent since 1981.
2. Agricultural Challenges: Low yields, improved irrigation favoring other crops, and damage from Blue Bulls reduce pulse productivity.
3. Inadequate MSP & Procurement: Unlike rice and wheat, MSP for pulses is poorly implemented, leading to price volatility and
farmer losses.
4. Declining Per Capita Land Availability: Rising population and fragmentation of landholdings reduce land allocation for pulses.
5. Low Consumer Preference & Changing Diets: Increased consumption of processed foods and animal proteins has reduced
pulse demand.
6. Limited R&D: Minimal global research on pulses, due to low consumption in Western countries, limits advancements in pulse cultiva-
tion and productivity.
7. Low Productivity: Pulses have an average yield of 700-800 kg/ha, much lower than cereals, making them less attractive to farmers.
8. High Post-Harvest Losses: Lack of storage, processing, and marketing infrastructure leads to wastage and supply chain ineffi-
ciencies.
9. Export Restrictions & Market Instability: Frequent export bans, import policies, and price fluctuations discourage farmers from
increasing pulse production.

Steps Taken to Increase Pulse Production:

1. From 2014 to 2023, ICAR approved 343 high-yielding pulse varieties and hybrids for commercial cultivation across India.
2. Special Kharif Strategy 2021:
a. Area Expansion and Productivity Enhancement: A comprehensive plan was developed to increase the cultivation and productivity
of Tur, Moong, and Urad.
b. Distribution of High Yielding Varieties (HYVs): All available HYV seeds from Central and State Seed Agencies are distributed free of
cost to promote intercropping and sole cropping.
c. Mini-Kits Distribution: A total of 20,27,318 mini-kits, worth Rs 82.01 crores, will be distributed. The Central Government will cover
the entire cost to boost the production of Tur, Moong, and Urad.
3. Other Past Initiatives:
a. Integrated Scheme for Oilseeds, Pulses, Oil Palm, and Maize (ISOPOM): Focuses on market intervention through the MSP regime
and effective pricing policies.
b. National Food Security Mission (NFSM): Aims to increase the production of rice, wheat, pulses, and coarse grains by 10 million
tonnes, 8 million tonnes, 4 million tonnes, and 3 million tonnes respectively during the 12th Five Year Plan.
c. Pradhan Mantri Annadata Aay Sanraksan Abhiyan (PM-AASHA): The Price Support Scheme (PSS) under PM-AASHA focuses on
increasing the purchase of pulses at the Minimum Support Price (MSP).
d. Technology Mission on Pulses (TMP): Focuses on high-yield seed varieties, pest management, and irrigation efficiency.
e. Rashtriya Krishi Vikas Yojana (RKVY): Provides states with funds to promote pulse production through infrastructure and re-
search.
f. Seed Hubs for Pulses: Established at ICAR & State Agricultural Universities (SAUs) to ensure availability of quality seeds.

Way Ahead
1. Expand MSP & Procurement: Strengthen pulse procurement under MSP to ensure fair prices and encourage cultivation.
2. Increase Seed Availability: Promote high-yielding, climate-resilient pulse varieties developed by ICAR for wider adoption.
3. Enhance Irrigation & Water Management: Implement drip irrigation, rainwater harvesting, and watershed programs for efficient
water use in pulse farming.
4. Promote Crop Diversification: Shift farmers from water-intensive rice & wheat to pulses through incentives and awareness pro-
grams.
5. Strengthen Post-Harvest Infrastructure: Develop cold storage, pulse processing units, and efficient supply chains to reduce
post-harvest losses.
6. Boost Research & Development: Invest in biotechnology and breeding programs for drought-tolerant and pest-resistant pulse
varieties.
7. Improve Credit & Insurance Access: Provide subsidized loans, crop insurance, and risk coverage for pulse farmers.
8. Encourage Farmer Cooperatives & FPOs: Support Farmer Producer Organizations (FPOs) for better market access and collective
bargaining power.
9. Leverage Digital & Precision Farming: Use AI, remote sensing, and digital advisory services to optimize pulse cultivation practices.
10. Stabilize Trade & Import Policies: Implement consistent trade policies to prevent import fluctuations and safeguard domestic
pulse production.

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• Millets are short-duration (3-4 months), small-grained, warm-weather cereals
belonging to the grass family.
• Millets can withstand drought and other harsh weather conditions and are
cultivated in less fertile areas.
• Millets are regarded as the foundation of dry-land agriculture and require little
to no purchased inputs.
• Millets are extremely nutrient-dense, drought-tolerant, and non-acid-forming foods.
• Millets have health-promoting and nutraceutical qualities, particularly because
of their high fibre content.

Advantages of Millets
1. Low Glycaemic Index: Helps control blood sugar levels, ideal for diabetics.
2. Nutrient-Rich: High in vitamins, minerals, and fibre, promoting balanced
nutrition.
3. Drought-Resistant: Requires less water, supporting sustainable agriculture.
4. Versatile: Can be used in traditional and modern dishes, adding dietary
diversity
5. Rich in Nutrients:Millets are packed with essential nutrients like iron, calci-
um, magnesium, and B vitamins (Eg- ragi is a great source of calcium).
6. High Fiber Content:Improves digestion and reduces the risk of lifestyle
diseases like obesity and heart disease
7. Affordable and Accessible:Cheaper than many cereals, making them
accessible to low-income groups.
8. Reduces Malnutrition:Addresses micronutrient deficiencies (Eg- iron in
bajra helps combat anemia).
9. Supports Sustainable Diets:Promotes diverse and eco-friendly food sys-
tems, aligning with global sustainability goals.

Data
1. India: Top Producer (42% as per USDA)
2. Production: 15.38Million MT
3. Area Under Cultivation:12.19Mha
4. Export Volume: 1.46LakhMT ($71M)
5. (Source: APEDA, FY 2024)

Constraints in Increasing Millet Production

1. Decline in Cultivation Area:Reduced from 35 to 15 million hectares (Eg- low yields, labor-intensive processing).
2. PDS Challenge:Replacing 20% rice/wheat requires 10.8 million tonnes of millets.
3. Low Productivity:Stagnant/reduced production (Eg- jowar, bajra, ragi).
4. Lack of Awareness:Low knowledge of health benefits.
5. High Cost:Pricier than rice/wheat (Eg- less accessible to low-income groups).
6. Limited Availability:Scarce in retail markets.
7. Perceived Taste:Bland/unpleasant taste discourages consumption.
8. Agricultural Challenges:Low yields and profitability deter farmers.
9. Competition from Rice/Wheat:Staples overshadow millets.
10. Lack of Government Support:Insufficient promotion and incentives.

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Government Initiatives
1. National Year of Millets in 2018 and International Year of Millets in 2023.
2. Sub-Mission on Nutri-Cereals:
• Part of NFSM in 28 states/UTs.
• Supports seeds, equipment, and training.
3. The interventions such as formation of Farmer Producer Organizations (FPOs) for Shree Anna, setting up Centers of Excellence (CoE)
and seed hubs for Shree Anna have also been supported under NFSM.
4. Ministry of Food Processing Industries (MoFPI) has implemented the Production Linked Incentive Scheme for Food Processing Indus-
try for Millet-based products (PLISMBP) during 2022-23 to 2026-27 with an outlay of Rs. 800 crores.
5. State-Level Millet Missions.Eg-Karnataka, Odisha, Rajasthan promote millets.
6. Inclusion in Welfare Schemes.Eg-Added to Poshan Abhiyan, TPDS, ICDS, Mid-Day Meals.
7. The Prime Minister has announced ICAR-Indian Institute of Millets Research (IIMR), Hyderabad as the “Global Centre on Excellence on Millets”
8. “Millet Challenge” for startups, to design and develop innovative models for the millets value chain, with a seed grant of Rs 1 crore
each to three winners.
9. Rs 25 crore funding by the NABARD under Rural Infrastructure Development Fund (RIDF) to University of Agricultural Sciences, Raichur, for
establishment of Millet Value Chain Park, incubation centre for processing, value addition, and capacity building for promotion of millets.

Way Ahead
A. Demand-Side Strategies
1. Consumer Awareness Campaigns: Promote millet consumption through initiatives like Eat Right India and simplify cooking meth-
ods.
2. Promote Startups: Support millet-based product startups. Eg-Slurrp Farm.
3. Gluten-Free Exports: Develop and export gluten-free millet products like pasta and flour.
B. Supply-Side Strategies
1. Revive Traditional Practices: Encourage mixed cropping systems like Barahnaja in Uttarakhand.
2. Enhanced MSP Procurement: Expand MSP coverage for millets.
3. Strengthen Market Linkages: Develop FPOs and cooperatives for better market access.
4. Special Agribusiness Zones (SABZ): Establish SABZs for region-specific millets (Eg- sorghum in Telangana, finger millet in Karnataka).
5. Explore Trade Opportunities: Educate farmers on quality standards for exports

Horticulture involves the cultivation, production, processing, and marketing of fruits, vegetables, flowers, and ornamental plants.
Major types include:
1. Pomology: Fruit cultivation, including Viticulture (grape cultivation).
2. Olericulture: Cultivation of vegetables.
3. Floriculture: Cultivation of flowers and ornamental plants.
4. Arboriculture: Cultivation of trees and shrubs.

Basic Data
1. Production: 355.48 million tonnes in 2022-23.
2. Area: ~13.1% of gross cropped area.
3. Contribution to Agri-GVA: ~33%.
4. Global Status:
a. 2nd largest producer of fruits and vegetables globally (after China).
b. Largest producer of onions, ginger, okra, bananas, mangoes, and papayas.
c. 2nd largest producer of potatoes, cauliflowers, brinjal, and cabbages.
d. Exports: Ranked 14th in vegetables and 23rd in fruits globally.

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Initiatives
1. Clean Plant Programme: with investment of Rs. 1,765.67 crore to address critical issues in horticulture by providing access to
high-quality, virus-free planting material.
a. Clean Plant Centers (CPCs) with State-of-the-Art Facilities: equipped with modern diagnostic and therapeutic facilities,
including tissue culture labs.
b. Regulatory Measures: A robust certification system under the Seeds Act of 1966, ensuring accountability and traceability in
the production and sale of planting material.
c. Enhanced Infrastructure: Large-scale nurseries will receive support for developing infrastructure to facilitate the efficient multi-
plication of clean planting material.
2. Mission for Integrated Development of Horticulture (MIDH):
a. Plantation Infrastructure Development: Establishing nurseries and tissue culture units to produce quality seed and planting material.
b. Area Expansion: Creating new orchards and gardens for various crops, with or without integration (e.g., drip irrigation).
c. Rejuvenation: Revitalizing old, unproductive orchards.
d. Protected Cultivation: Setting up poly-houses, greenhouses, shade net houses, and walk-in tunnels, along with micro irrigation facilities.
e. Promotion of Organic Farming: Encouraging organic practices, certification, and establishing vermi compost units.
f. Creation of Water Resources: Developing community tanks, on-farm ponds, and water harvesting systems.
g. Pollination Support through Beekeeping: Producing bee colonies, honey bee hives, and related equipment.
h. Horticulture Mechanization: Providing power tillers, tractors, and plant protection equipment.
i. Human Resource Development: Conducting awareness programs, farmer training, exposure visits, and study tours.
j. Post-Harvest Management (PHM) Infrastructure: Setting up cold storage, pack houses, ripening chambers, reefer vehicles,
processing units, and food processing facilities in North Eastern States.
k. Marketing Infrastructure: Developing static and mobile vending carts, retail outlets, rural markets, wholesale markets, and
direct market platforms.
3. Horticulture Cluster Development Programme: Focuses on cluster-based development with forward and backward linkages.
4. CHAMAN: Geoinformatics-based assessment for area and production estimation of horticulture crops.
5. Capital Investment Subsidy Scheme: Supports cold storage construction and modernization.
6. Commercial Cultivation: 347 varieties/hybrids of 44 crops released in 2022-23.

Benefits of Horticulture
1. Consumer Demand:High demand for nutritious crops. Eg- pomegranates, broccoli
2. Economic Benefits:Higher returns (Eg- Rs 80,000/ha more than cereals as par Dalwai committee).
3. Nutritional Security:Addresses deficiencies.Eg- oranges for Vitamin C, leafy greens for iron.
4. Employment Generation: The sector employs over 50 million people, with floriculture alone providing 2 million jobs, benefiting rural
farmers and women.
5. Climate Resilience: Orchards and agroforestry crops like mango, coconut, and areca nut improve carbon sequestration and thrive
in arid and semi-arid regions, reducing climate vulnerability.
6. Export Potential: India exported $5.9 billion worth of horticultural products in 2022-23, with key items like mangoes, bananas,
and spices reaching markets in UAE, EU, and USA.
7. Efficient Land Use: Vertical farming increases yield by 300% per unit area, and mushroom cultivation in Punjab & Odisha gener-
ates 4-5 times more income than wheat farming.
8. Biodiversity Conservation: Tea plantations in Assam & Darjeeling support diverse flora and fauna, while India cultivates over 800
medicinal plant species used in Ayurveda.
9. Wasteland Development:Improves marginal lands (Eg- by planting aloe vera, guava).
10. Urban Greening & Aesthetic Value: Parks, gardens, and rooftop horticulture improve urban air quality, reduce heat islands, and
promote mental well-being.
11. Medicinal & Industrial Uses: Many horticultural plants, like aloe vera, neem, and tulsi, have pharmaceutical applications, boosting
the herbal medicine industry.

Challenges
1. Low Export Share:
• India’s share in the global horticulture market is only 1%.
• Non-tariff barriers like Sanitary and Phytosanitary (SPS) measures hinder exports.
2. Infrastructure Deficit: Inequitable cold storage distribution (59% capacity in 4 states: UP, WB, Gujarat, Punjab).
3. Post-Harvest Losses: India loses 30-40% ofhorticultural produce due to inadequate cold storage, poor supply chains, and inefficient logistics.
4. Price Fluctuations & Market Volatility: Seasonal oversupply causes price crashes ( tomato prices dropping below ₹2/kg in peak
season), while off-season shortages lead to spikes.
5. Small & Fragmented Land Holdings: The average landholding size in India is 1.08 hectares, making commercial horticulture difficult
for small farmers.
6. High Initial Investment: Protected cultivation (polyhouses, greenhouses) and micro-irrigation require high setup costs (₹10-15 lakh
per acre for polyhouses).
7. Pest & Disease Management: High susceptibility to pests (fruit flies, aphids) and diseases (fungal infections in apples, citrus
greening) affects yield and quality.
8. Lack of Quality Planting Material: Shortage of high-yielding, disease-resistant varieties reduces productivity and increases input
costs for farmers.

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Way Ahead
1. Cold Storage & Supply Chain Development: Expand cold storage capacity, establish more packhouses and ripening chambers,
and improve rural roads for better logistics.
2. Processing & Value Addition: Promote food processing industries (juices, jams, dried fruits) to reduce wastage and ensure higher
farmer incomes.
3. Market Reforms & Price Stability: Implement e-NAM (electronic National Agriculture Market) integration, contract farming, and
minimum support prices (MSP) for perishables to stabilize farmer earnings.
4. Land Consolidation & FPOs: Encourage Farmer Producer Organizations (FPOs) and cooperative models to overcome land frag-
mentation and improve bargaining power.
5. Affordable Technology & Micro-Irrigation: Subsidize polyhouse farming, drip irrigation, and hydroponics to increase productivity
while optimizing water use.
6. Pest & Disease Control Measures: Strengthen biocontrol methods, integrated pest management (IPM), and promote disease-re-
sistant varieties for better yield.
7. Quality Planting Material & R&D Investment: Set up plant tissue culture labs and promote genetic research to develop
high-yielding, climate-resilient varieties.
8. Stronger Government Policy & Financial Support: Increase subsidies, easy credit access, and insurance schemes under MIDH,
PM-Kisan, and Agri-Infra Fund to boost investment in horticulture.

1. Cultivation Area:Increased from 10.7 million hectares (1950-51) to ~29

million hectares (2022-23).
2. Production:Rose to ~37 million tonnes (2022-23).
3. Edible Oil Imports:
a. India imports ~60% of its edible oil needs.
b. Largest importer and second-largest consumer globally.
c. Major Import Sources: Palm oil from Indonesia & Malaysia, soybean oil
from Brazil & Argentina, sunflower oil from Ukraine & Russia.
4. Key Oilseeds: Groundnut, mustard, coconut, sesamum (til), soybean, castor
seeds, cotton seeds, linseed, sunflower.
5. Latest Trends (2022-23):
a. Domestic production: ~11-12 million tonnes of edible oil.
b. Imports: ~14-15 million tonnes (mainly palm, soybean, and sunflower oil).

Reasonsfor LowOil Seeds Production in India:

1. Focus on Wheat/Rice:Green Revolution prioritized staples (Eg- MSP for wheat/rice).
2. Low Productivity per Hectare: India’s oilseed yield (1.2-1.3 tonnes/ha) is
much lower than global standards (2.5-3 tonnes/ha in countries like the USA
and Brazil).
3. Dependence on Rainfed Cultivation: Over 70% of oilseed cultivation relies on
monsoon rains, making production highly vulnerable to droughts and erratic rainfall.
4. Fragmented Land Holdings: Small and fragmented farms (average size 1.08
ha) reduce economies of scale and limit mechanization in oilseed farming.
5. Lack of Improved Seeds:Limited access to high-yield varieties (Eg- GM seeds
like DMH-11 not approved).
6. Inadequate Government Support: Unlike rice and wheat, oilseeds do not get
assured procurement under Minimum Support Price (MSP) mechanisms,
discouraging farmers.
7. Low Investment in R&D & Processing: Limited research on high-yielding
varieties and low investment in modern oil extraction units result in high
processing losses and lower output.
8. Import Dependence & Price Volatility: India imports 60-65% of its edible oil
(mainly palm oil from Indonesia and Malaysia), leading to price fluctuations
that discourage domestic production.

Increasing Domestic Availability of Edible Oils:

1. Rice Bran Oil Potential:Leverage rice production for RBO (world’s 2nd-largest rice producer).
2. Revive Oilseeds Mission:Use price bands and import duty adjustments to stabilize prices.
3. Promote Oil Palm:Expand cultivation under National Mission on Edible Oils NMEO-OP 5.
4. Better Seed Varieties:NFSM-Oilseeds promotes high-yielding seeds (Eg- 36 seed hubs established).

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Govt Initiatives to Boost Oilseeds & Oil Palm
1. National Food Security Mission-Oil Seed & Oil Palm (2018-19): Subsidies for seeds, bio-fertilizers, farm inputs, training .
2. National Mission on Edible Oils-Oil Palm (2021-22): Oil palm expansion to 10 lakh ha by 2025-26, focus on Northeast & Andaman.
3. Rashtriya Krishi Vikas Yojna-RAFTAAR: State-led funding for oilseed productivity (Eg- groundnut support in Rajasthan).
4. HYV Research & Tech Adoption: New mustard, soybean, sunflower varieties (Eg- DMH-11 mustard).
5. MSP & Market Linkages: Govt procures oilseeds ( NAFED buys soybean & mustard).
6. Irrigation & Mechanization: Subsidies for sprinklers, water pipes, farm tools.
7. Import Reduction & Yield Boost: Import dependence down to 57.3% (2022-23), domestic output up.
8. Training & Integrated Pest Management: Farmer education via Krishi VigyanKendras & Farmer Field School

Dalwai Panel Recommendations

Increasing Production:
1. High-Yielding Varieties:Adopt GM mustard and HYVs for higher yields.
2. Soil and Moisture Conservation:Use contour ploughing, mulching in rainfed areas.
3. Balanced Fertilizer Use:Implement Integrated Nutrient Management (INM).
4. Intercropping:Combine oilseeds with maize/pigeon pea for better land use.
5. Contract Farming:Link farmers with edible oil companies for assured markets.
6. Cooperatives and FPOs:Strengthen FPOs and cooperatives (Eg- Amul model)

Reducing Consumption and Imports:

1. Healthy Oil Campaigns:Promote traditional oils (Eg- mustard, groundnut).
2. Secondary Oil Sources:Scale up rice bran, coconut, cottonseed, and TBOs.
3. Coconut Oil Promotion:Encourage coconut oil use through marketing campaigns
Enhancing Processing:Capacity Utilization:Modernize oil extraction and refining technologies.

India is the world’s top producer of cotton, followed by China and the United States.India’s cotton production is dominated by the Cen-
tral Zone, which includes Gujarat, Maharashtra, and Madhya Pradesh.
1. Climate: Cotton thrives in hot, sunny environments with extended frost-free periods (at least 210 days). It requires high temperatures,
minimal rainfall or irrigation, and abundant sunlight.
2. Soil Type: It grows best in black cotton soil of the Deccan plateau, deep alluvial soils in northern India, black clayey soils in central
regions, and mixed black and red soils in southern zones.
3. Sensitivity: Although cotton can tolerate some salinity, it is highly susceptible to waterlogging.
4. Growth Cycle: As a Kharif crop, cotton takes 6 to 8 months to reach maturity.

Cotton production
1. Cotton production in India increased from 119 lakh bales in 1991-92 to 345 lakh in 2016-17, showing a growth of 190%. However, it
has seen a decline from 370 Lakh bales in 2017-18 to 295 Lakh bales in 2023-24.
2. Nearly two-thirds of India’s cotton production comes from Maharashtra, Gujarat, Andhra Pradesh, and Telangana, known as the Cot-
ton Basket of India.
3. Maharashtra has the highest area under cotton cultivation at 41.2 lakh hectares, followed by Gujarat at 27.1 lakh hectares and Telan-
gana at 17.9 lakh hectares.
4. These three states account for 72% of the total cotton acreage in India.
5. Approximately 62% of India’s cotton is produced in rainfed areas, with 38% on irrigated lands.
6. India grows all four known species of cultivated cotton.
7. Approximately 74% of the apparel exported from India is made of cotton.

Issues
1. Low Productivity: India’s cotton yield is around 450-500 kg/ha, much lower than China (1,750 kg/ha) and the USA (950 kg/ha),
reducing overall production.
2. Pest & Disease Infestation: Cotton is highly vulnerable to pink bollworm, whiteflies, and bacterial blight, causing yield losses of
20-30% annually.
3. Heavy Dependence on Rainfed Cultivation: 65% of India’s cotton cultivation is rainfed, making production highly dependent on
monsoon variability.
4. High Input Costs: Farmers face rising costs of BT cotton seeds, fertilizers, pesticides, and irrigation, increasing the cost of production.
5. Declining Soil Fertility: Continuous cotton cultivation without proper crop rotation leads to nutrient depletion, lower soil fertility,
and declining yields.

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6. Water-Intensive Crop in Water-Stressed Regions: Cotton requires 8,000-10,000 liters of water per kg, but major producing
states like Maharashtra and Gujarat face frequent droughts.
7. Poor Adoption of Mechanization: Small landholdings (average 1.08 ha) limit the use of mechanized picking and precision farm-
ing, leading to high labor costs and inefficiencies.
8. Low Quality & Contamination Issues: Manual picking results in fiber contamination, affecting the quality of Indian cotton in the
global textile market.
9. Increased demand for synthetic fibers and cheap cotton imports from the USA and Australia reduce domestic demand for
Indian cotton.

Government Initiatives
1. Cotton Development Program: Under the NFSM, to increase cotton production in 15 important states.
2. Cotton Corporation of India (CCI): Founded in 1970, CCI uses support measures to keep prices stable when market rates drop
below predetermined thresholds.
3. MSP Formula: To safeguard farmers, MSP is set at 1.5 times the cost of production.
4. The Textile Advisory Group (TAG): Brings stakeholders together to discuss branding, pricing, and productivity in the cotton value
chain.
5. Cott-Ally Mobile App: Offers farmers procurement centre details and MSP rates in an easy-to-use interface.
6. The Committee on Cotton Promotion and Consumption (COCPC) supports the textile industry’s expansion by guaranteeing a
consistent supply of cotton.
7. Launched Kasturi Cotton to establish a distinct brand identity and enhance the global recognition of Indian cotton.

Way Ahead
1. Pest Management:Implement natural controls, trap crops, and beneficial insects to reduce pest impact.
2. Branding & Global Market:Promote the Kasturi Cotton Bharat Initiative to create a unique identity for Indian cotton.
3. Modernization & Efficiency:Enhance textile infrastructure through the Technology Upgradation Fund Scheme (TUFS), Mega
Textile Parks (MITRA), and modern ginning, spinning, and weaving facilities.
4. Price & Market Stability:Strengthen procurement systems, establish price stabilization funds, introduce standardized cotton
grading mechanisms, and reduce middlemen exploitation.

1. After cotton, it is India’s second most important crop for fibre.

2. It is employed in the production of tarpaulins, carpets, rugs, ropes,
and gunny bags, among other items.
3. Because of its strength, softness, and low cost, this crop is in high
demand.
However, the demand for jute has decreased as a result of the introduction
of synthetic substitutes.

Key Highlights
1. Global Production:world’s top producer of jute, accounting for
about 70% of global production.
2. Employment: The jute industry employs about 370,000 people.
3. Production Volume: India produced roughly 1.26 million metric
tonnes of jute goods in the fiscal year 2023–2024, indicating a
steady production trend.
4. Exports: India exported roughly 177,270 metric tonnes of jute products in 2023, which represents a 56% increase in exports since 2019–20.
5. Imports: In 2023, India imported about 121,260 metric tonnes of raw jute from Bangladesh to help with the production of value-added
jute products.

Challenges
1. Declining Area Under Cultivation: Jute cultivation has decreased from 1.2 million hectares in the 1960s to around 0.7 million
hectares due to competition from other cash crops.
2. Low Productivity: India’s average jute yield is 2.5-2.7 tonnes/ha, lower than Bangladesh’s 3.5 tonnes/ha, due to outdated farming techniques.
3. Climate Sensitivity: Jute requires warm and humid conditions with adequate rainfall, making it vulnerable to erratic monsoons,
droughts, and floods.
4. High Labor Costs & Shortage: Jute is labor-intensive, especially during retting and fiber extraction, increasing production costs and
making it less attractive to farmers.

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5. Traditional Retting Methods: 90% of jute farmers still use traditional water retting methods, leading to inconsistent fiber quality
and high water pollution.
6. Poor Quality Seeds: Only 5-10% of jute farmers use certified seeds, leading to low germination rates and poor fiber quality.
7. Competition from Synthetic Alternatives: Plastic and synthetic substitutes are replacing jute products, reducing demand for
jute-based packaging materials.
8. Lack of Modern Processing & Infrastructure: Outdated jute mills, inefficient retting techniques, and limited mechanization
lower processing efficiency and increase wastage.
9. Low Domestic & Global Demand: Bangladesh dominates the global jute market due to superior fiber quality, while India’s domes-
tic consumption is restricted to government-mandated packaging orders.

Government Schemes
1. Export Market Development Assistance (EMDA):Promotes jute exports via international fairs .
2. Jute Packaging Materials Act 1987:Mandates jute packaging for 100% food grains, 20% sugar.
3. Jute Geotextiles (JGT):Supports civil engineering uses (Eg- soil erosion control).
4. Minimum Support Price (MSP):JCI procures raw jute at MSP to stabilize prices.
5. Jute SMART:E-platform for transparent jute sacking procurement.

Way Ahead
1. Increase Cultivation Area & Productivity: Promote high-yielding jute varieties and incentivize farmers to expand jute cultivation
through better MSP and subsidies.
2. Improved Seed Quality & Availability: Distribute certified high-germination jute seeds and encourage private-sector participation
in seed production.
3. Modern Retting Techniques: Promote biochemical retting and tank retting methods to improve fiber quality, reduce water pollu-
tion, and enhance efficiency.
4. Mechanization & Labor Reduction: Develop low-cost jute harvesting and fiber extraction machines to reduce labor dependency
and improve productivity.
5. Strengthening Jute Processing & Industry Infrastructure: Modernize jute mills, improve processing efficiency, and encourage
diversification into value-added products like carpets, textiles, and handicrafts.
6. Stable Pricing & Stronger MSP Support: Ensure timely procurement at fair MSP rates and develop farmer-centric price stabiliza-
tion mechanisms.
7. Reduce Dependence on Synthetic Substitutes: Expand eco-friendly jute packaging mandates beyond government sectors to
increase market demand.

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Irrigation In India
Previous Year Questions (PYQs)
[UPSC Mains 2024] What are the major challenges faced by the Indian irrigation system in recent times? State the measures taken by the
government for efficient irrigation management. 15

[UPSC Mains 2021] How and to what extent would micro-irrigation help in solving India’s water crisis? 10

[UPSC Mains 2020] Suggest measures to improve water storage and irrigation systems to make its judicious use under depleting scenari-
os. 15

[UPSC Mains 2020] What are the salient features of the Jal Shakti Abhiyan launched by the Government of India for water conservation
and water security? 10

[UPSC Mains 2019] Elaborate on the impact of the National Watershed Project in increasing agricultural production from water-stressed
areas. 10

Irrigation is the artificial supply of water through engineered systems to fulfill agricultural water needs.

Key Data
1. The agriculture sector utilizes approximately 78% of India’s total
usable water resources.
2. Irrigated land constitutes about 52% of India’s 140 million hect-
ares of agricultural area, while the remaining 48% relies on rainfall.
(NITI Ayog)
3. Agriculture accounts for 87% of the total groundwater extraction
for irrigation purposes. (PIB)
4. The average productivity of rainfed areas is approximately 1.1
tonnes per hectare, whereas irrigated regions achieve about 2.8
tonnes per hectare
5. Groundwater accounts for about 60% of the irrigated area, while
surface water sources like canals contribute 40%.
6. Between 2015-16 and 2023-24, about 8.35 million hectares
have been brought under micro-irrigation through the Per Drop
More Crop (PDMC) scheme.
7. The percentage of micro-irrigation in India is around 7.6% of the
net sown area, with the total area under micro-irrigation covering
approximately 10.25 million hectares.
8. India has the highest number of irrigation wells, at approximately
30 million, and pumps out twice as much water as the US and six
times that of the European Union.
9. India’s groundwater depleting at a rate of 0.3 metres annually.
Approximately one-sixth of India’s groundwater assessment units
fall under the “over-exploited” category, while 15.2 percent are
in a “semi-critical” state, and 3.9 percent are in a “critical” state.

According to the 2018 NABARD report:

1. The current irrigation efficiency for surface water is 30%, while for groundwater, it is 55%.
2. By 2025, the target is to increase irrigation efficiency to 60% for surface water and 75% for groundwater.
3. Three crops—wheat, rice, and sugarcane—consume over 75% of the total water used in the agriculture sector.
4. The total potential for micro-irrigation in India is approximately 69 million hectares. While conventional surface irrigation offers 60-
70% efficiency, sprinkler systems can achieve 70-80%, and drip irrigation systems can reach up to 90% efficiency.

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Sources of Irrigation
1. Groundwater (Wells & Tube Wells): Accounts for about 65% of the net irrigated area.
2. Canals: Contribute approximately 24% to the net irrigated area
3. Tanks: Represent around 3% of the net irrigated area.
4. Other Sources (e.g., rivers, lakes, ponds): Make up the remaining 8% of the net irrigated area.

Irrigation Methods
1. Canal Irrigation: Covers 24% of the net irrigated area; major in Punjab, Haryana, Uttar Pradesh, and Rajasthan. Eg- Indira Gand-
hi Canal (Rajasthan).
2. Wells & Tube Wells: Dominates with 65% share in total irrigation; prevalent in Uttar Pradesh, Punjab, Bihar, and Madhya Pradesh.
Eg- Deep Tube Wells in the Indo-Gangetic Plains.
3. Tank Irrigation: Covers 3% of irrigated land, primarily in Tamil Nadu, Karnataka, and Andhra Pradesh. Eg- Kaveripakkam Tank (Tamil Nadu).
4. Drip Irrigation: Saves 30-50% water by delivering water directly to the roots.
5. Sprinkler Irrigation: Reduces water wastage by 30-40%; suitable for semi-arid regions like Rajasthan, Haryana, and Madhya Pradesh.
6. Rainwater Harvesting & Check Dams: Eg- Johads in Rajasthan, Sujalam Sufalam Yojana (Gujarat).
7. Lift Irrigation: Uses pumps to lift water. Eg- Kaleshwaram Lift Irrigation Project (Telangana).
8. Flood Irrigation: Traditional method; inefficient with high water loss; common in paddy fields of West Bengal, Assam, and Bihar.
9. Furrow Irrigation: Reduces runoff by 30%; used for crops like sugarcane, cotton, and maize in Maharashtra, Karnataka, and Tamil Nadu.
10. Subsurface Irrigation: Advanced method using underground pipes; adopted in high-value horticulture farms in Andhra Pradesh, Kerala.
11. Center Pivot Irrigation: Rotating sprinkler system around a central pivot point, irrigating crops in a circular pattern.

Traditional Methods
Name Region Description
Johads Haryana, Uttar Pradesh, Earthen and stone barriers constructed along slopes to capture and store rainwater.
Rajasthan
Ahar Pyne Bihar Ahar is a three-sided embankment used for rainwater harvesting, while Pyne refers to the
irrigation channels distributing water for Rabi crops.
Apatani Arunachal Pradesh A wet rice farming and fish cultivation system used by the Apatani tribe, where rainwater
and surface water are collected using temporary mud walls to control flow and storage.
Phad Maharashtra A community-managed irrigation system where land receives water from a check dam
(bandhara) and distributes it through canals or channels.
Kuhls/Kuls Himachal Pradesh A method that diverts water from natural streams through temporary headwalls and
earthen outlets, ensuring surplus water returns via a closed-loop system.
Bamboo drip Meghalaya Water from springs and streams is transported using bamboo pipes to irrigate plantations,
irrigation particularly in rocky terrains where groundwater channels are not feasible.

Factors Determining Irrigation Systems

1. Topography: The slope and elevation of the land. Eg- Surface irrigation is ideal for flat or gently sloping areas, while sprinkler
systems are better for uneven terrains.
2. Soil Type: Soil properties like texture, structure, and permeability influence water retention and drainage. Eg- Sandy soils drain
quickly and are well-suited for drip irrigation, whereas clayey soils may require surface irrigation.
3. Climate & Rainfall Pattern: Low-rainfall areas rely on tube wells, tanks, and drip irrigation, while high-rainfall regions use rain-
fed and surface irrigation.
4. Temperature and Humidity: Climatic factors affect evaporation rates and crop water needs. Eg- Sprinkler systems are effective in
dry, windy regions to reduce water loss.
5. Surface Water Availability: the presence of rivers, lakes, and reservoirs determines the feasibility of canal and tank irrigation.Eg- The
Indo-Gangetic Plains extensively use canal irrigation.
6. Groundwater Availability: In areas with limited surface water, groundwater extraction through wells and tube wells is common.Eg-
Punjab and Haryana
7. Crop Type: High-value crops like fruits and vegetables often use drip or micro-irrigation for precise water delivery.
8. Cost of Installation and Maintenance: Eg- low adaptation of Drip and sprinkler systems due to higher costs compared to tradi-
tional surface irrigation.
9. Subsidies and Government Support: Financial incentives and schemes like the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY)
promote modern irrigation technologies.
10. Traditional Practices: Cultural and historical practices continue to influence irrigation methods. Eg- The Ahar-Pyne system in
Bihar and bamboo drip irrigation in Meghalaya.
11. Technological Advancements: Innovations like automated drip irrigation, soil moisture sensors, and remote monitoring systems
improve water efficiency and crop productivity thus affecting the choice of irrigation system.

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Need for Irrigation
1. Monsoon Dependency: With ~50% of net sown area rain-fed, irrigation is essential to mitigate rainfall variability and drought
risks. Eg- Frequent monsoon failures in Maharashtra.
2. Uneven Rainfall Distribution: While Northeast India receives over 2,500 mm of rainfall, areas like Rajasthan and Gujarat get
less than 500 mm, making irrigation crucial for agriculture.
3. Support for Multiple Cropping: Irrigation allows more than one crop per year, boosting productivity. Eg- Punjab’s wheat-paddy
rotation relies on canal and tube well irrigation.
4. Higher Agricultural Productivity: Irrigated land yields 2.5 tonnes per hectare, compared to 0.5 tonnes per hectare in rainfed areas.
5. Water Scarcity and Conservation: India has only 4% of the world’s water resources but supports 17% of the global population.
6. Food Security & Agricultural Growth: With a growing population (1.4 billion+), irrigation ensures stable food production and
minimizes supply shocks.
7. Mitigating Drought: Frequent droughts in Bundelkhand, Marathwada, and Telangana necessitate irrigation for crop survival. Eg-
Kaleshwaram Lift Irrigation Project (Telangana).
8. Torrential Rainfall: Heavy rainfall often leads to surface runoff, reducing water absorption. Irrigation systems help capture and utilize
rainwater effectively, especially in hilly regions.
9. Ending Monoculture Practices: Irrigation enables crop diversification, reducing dependence on monoculture and improving agricul-
tural sustainability.
10. Green Revolution: The Green Revolution introduced HYV seeds and chemical fertilizers, increasing the need for irrigation.
11. Boosting Farmer Incomes & Rural Economy: Reliable irrigation enhances yields, reduces crop losses, and ensures year-round
employment in rural India.
12. Climate Change Adaptation: Rising temperatures and erratic weather patterns increase water stress, making efficient irrigation
systems essential. Eg- Micro-irrigation in Gujarat & Rajasthan

Water Use Efficiency

Method Water Use Efficiency Suitable Crops
Surface Irrigation 40-60% Rice, Pastures, Grains, Alfalfa
Sprinkler Irrigation ~75% Vegetables, Cereals, Turf, Orchards
Drip Irrigation ~90% Row crops (e.g., vegetables), Orchards, Vineyards
Subsurface Irrigation Up to 90% High-value row crops, Orchards, Vineyards
Center Pivot and Lateral Move Irrigation 75-85% Corn, Wheat, Soybeans, Other large field crops

Water Use Efficiency Depends On:

1. Soil’s Capacity: The ability of soil to capture and store water effectively.
2. Crop’s Capacity: The crop’s ability to access soil moisture and utilize seasonal rainfall.
3. Biomass Conversion: The crop’s efficiency in converting water into plant biomass.
4. Harvest Index: The crop’s ability to convert biomass into grain or yield.
5. Irrigation Method & Technology: Drip and sprinkler irrigation improve WUE by 30-50%, while flood irrigation leads to high water loss.
6. Canal Efficiency: Unlined canals lead to seepage losses, while modernized irrigation networks improve WUE.

Increasing Water Use Efficiency (WUE):

1. Bureau of Water Use Efficiency (BWUE): Established by the Government of India to promote, regulate, and control water efficiency
across irrigation, industrial, and domestic sectors.
2. Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) promotes water-saving technologies like underground pipelines and micro-irriga-
tion (drip and sprinkler systems).
3. Bureau of Indian Standards (BIS): Developed Indian Standards for micro-irrigation and sanitary products to enhance water efficien-
cy.
4. Water Conservation Schemes: The government has launched Rain Harvesting, Catch the Rain, Jal Shakti Abhiyan, and Amrit
Sarovar to promote sustainable water use and conservation.

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Micro Irrigation
Micro irrigation is a water-efficient irrigation technique that delivers water directly to plant roots using drip or sprinkler systems,
reducing water wastage.

Types of Micro-Irrigation
Type of Micro-Irrigation Description Applications
Drip Irrigation Water is delivered directly to the plant’s Suitable for crops with wider spacing and horticultural crops.
root zone through valves, pipes, tubing, and Eg: Grapes, Pomegranates, Sugarcane, Tomatoes
emitters.
Sprinkler Irrigation Water is sprayed over the crops using Used in sandy or loamy soils, suitable for lawns, nurseries,
sprinklers, which can be fixed or portable. and horticultural crops. Eg: Tea, Coffee, Potatoes,
Groundnuts
Spray Irrigation Similar to sprinkler irrigation but uses smaller Ideal for small areas like nurseries and lawns. Eg: Flowers,
jets, foggers, or misters to apply water. Vegetables, Seedlings
Subsurface Irrigation Water is applied below the soil surface Effective in reducing evaporation, suitable for areas with high
through buried emitters or pipes. evaporation rates. Eg: Cotton, Orchards (Mango, Citrus),
Vegetables
Bubbler Irrigation Water is dispensed in small streams or Suitable for high water requirement areas and plants needing
fountains at the base of the plant. a substantial amount of water quickly. Eg: Bananas, Coconut,
Papaya, Areca nut

Advantages of Micro Irrigation

1. Water Saving: Micro-irrigation systems, such as drip and
sprinkler, achieve up to 90% water use efficiency, compared
to 35-40% in traditional methods.
2. Higher Yields: Eg- increases yields by 45% for wheat, 20% for
gram, and 40% for soybean.
3. Reduced Water Loss through evaporation, runoff, and deep
percolation, ensuring more water is available for crops.
4. Energy Efficiency: reduces the energy required for pumping
water, leading to lower electricity or diesel costs for farmers.
5. Lower Fertilizer Use: Through fertigation, fertilizers are
applied directly to the plant roots along with water, improving nutrient absorption.

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6. Weed and Disease Control: By limiting water application to the root zone, micro-irrigation reduces wetting of non-target areas, mini-
mizing weed growth and disease incidence.
7. Cost Savings: Farmers save on irrigation costs, including water, electricity, and fertilizers, making farming more economical in the long run.
8. Precision Farming: Micro-irrigation supports precision farming by using GPS-based systems and sensor networks to apply water
and agrochemicals precisely, optimizing resource use.
9. Adaptability to Various Terrains: Micro-irrigation is suitable for uneven terrains, slopes, and water-scarce regions, where tradi-
tional methods are ineffective.
10. Environmental Benefits: By reducing water and fertilizer runoff, micro-irrigation minimizes soil degradation and water pollution,
promoting sustainable agriculture.
11. Scalability: It can be scaled to suit small and large farms, making it accessible to a wide range of farmers, including smallholders.

Disadvantages of Micro-irrigation:
1. High Initial Cost: Installation costs for drip and sprinkler systems are expensive, making adoption difficult for small and marginal
farmers. Eg- Drip irrigation costs ₹50k-₹70k per hectare.
2. Maintenance Needs: Micro-irrigation systems need to be serviced regularly to avoid clogging of the emitters, leakage, and damage to
pipes, which is technically difficult for farmers.
3. Technical Knowledge Gap: Farmers do not possess the technical know-how to correctly install, operate, and maintain micro-irrigation systems.
4. Power Supply Problems: Micro-irrigation systems, especially sprinkler-based systems, often rely on electricity or diesel-driven
pumps, which can be unreliable in rural areas.
5. Limited Adoption in Small & Fragmented Landholdings: 85% of Indian farmers have small landholdings (<2 hectares), making
uniform micro-irrigation system installation difficult.
6. Emitter Clogging: Sediment, trash, or water quality may clog emitters, causing reduced system performance and high maintenance.
7. Subsidy Delays and Complications: lengthy delay periods and intricate application procedures deter farmers from installing micro-ir-
rigation systems.
8. Social and Cultural Barriers: Traditional farming practices and resistance to change impede the adoption of new irrigation practices.
9. Dependence on Electricity & Water Pressure: Drip and sprinkler systems need consistent water pressure, which is a challenge in
rural areas with erratic power supply.
10. Not Suitable for All Crops: Flood irrigation is still preferred for water-intensive crops like paddy, limiting the effectiveness of
micro-irrigation in rice cultivation.
11. Risk of Salinity Build-up in Soil: Drip irrigation leaves salt residues near plant roots due to low water percolation, reducing soil
fertility over time.

Government Initiatives
1. Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) (2015)– focuses on “Har Khet Ko Pani” (Water for Every Farm) and “Per Drop
More Crop”, promoting micro-irrigation through subsidies.
2. Micro-Irrigation Fund (MIF): Managed by NABARD, this fund provides ₹5,000 crore to states at concessional interest rates for
promoting micro-irrigation.
3. Per Drop More Crop (PDMC): Offers subsidies up to 55% for small and marginal farmers and 45% for other farmers for installing
drip and sprinkler systems.
4. National Mission on Sustainable Agriculture (NMSA): Provides financial support for water-efficient technologies.
5. State-Specific Schemes: Eg- Andhra Pradesh’s Andhra Pradesh Micro Irrigation Project (APMIP) and Gujarat’s Gujarat Green
Revolution Company (GGRC).
6. Bureau of Water Use Efficiency (BWUE): Established to promote, regulate, and control water efficiency, including micro-irrigation,
across irrigation, industrial, and domestic sectors.
7. Rainfed Area Development (RAD) Program: Part of NMSA, RAD promotes micro-irrigation in rainfed areas to enhance water avail-
ability and crop productivity.
8. Jal Shakti Abhiyan: A water conservation campaign that encourages the adoption of micro-irrigation to address water scarcity and
improve agricultural sustainability.
9. Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM): Promotes the use of solar-powered pumps for micro-irrigation, reducing
dependency on grid electricity and diesel.
10. Krishi Vigyan Kendras (KVKs) & ICAR Research Programs: Conducts training and awareness programs for farmers on the
benefits and operation of micro-irrigation systems.

Challenges Faced by Indian Irrigation

1. Groundwater Depletion: Over 65% of irrigation relies on groundwater, leading to rapid depletion. Eg- Punjab’s water table declines
by ~1 meter annually.
2. Inefficient Water Use & Low Water Use Efficiency (WUE): Flood irrigation dominates (~70%), causing excessive water loss
through evaporation, runoff, and seepage.
3. Uneven Irrigation Distribution: Northern & coastal regions have better irrigation, while central and western India suffer from
inadequate water supply.
4. Aging & Poorly Maintained Canal Systems: Unlined canals cause seepage losses (40-50%), reducing efficiency.
5. Small & Fragmented Landholdings: 85% of farmers have small landholdings (<2 ha), making large-scale irrigation infrastructure
economically unviable.
6. High Cost of Irrigation Infrastructure: Eg- Drip irrigation costs ₹50,000–₹70,000 per hectare, limiting its adoption.

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7. Salinity & Water Logging Issues: Poor drainage leads to salinization and reduced soil fertility, especially in canal-irrigated regions.
8. Climate Change Impact: Rising temperatures increase evaporation rates, affecting water availability. Eg- Glacial retreat in the
Himalayas threatens long-term river flows for irrigation.
9. Delayed & Inefficient Government Policies: Slow implementation of irrigation projects, bureaucratic delays, and corruption hinder
development.
10. Water-Logging: Approximately 2.46 million hectares of irrigated land suffer from water-logging, reducing soil fertility and crop yields.
11. Salinity: Intensive irrigation practices in states like Haryana and Punjab have caused salinity issues, affecting 3.30 million hectares
of irrigated land.
12. Declining Public Investment: Public investment in irrigation has declined since the 1980s, with a shift toward input subsidies rath-
er than capital investment. (Economic Survey)
13. Prioritization of Large-Scale Projects: Political support often favors large-scale projects that benefit influential farmers and
regions.
14. Inter-State Water Disputes such as the Cauvery Water Dispute and the Satluj Yamuna Link Canal, hinder efficient water distri-
bution and irrigation planning.
15. Fragmented Management: Responsibilities divided among state and central agencies lead to coordination issues and inefficiencies.
16. Weak Water Users Associations (WUAs): WUAs, intended to involve farmers in irrigation management, often lack capacity and
resources.

Way forward to Improve Irrigation In India

1. Modernize Irrigation Infrastructure: Upgrade canals and distribution networks to minimize water losses and improve efficiency. Eg-
The Kaleshwaram Lift Irrigation Project in Telangana.
2. Promote Rainwater Harvesting and Watershed Management: Restore water bodies and implement rainwater storage systems to
combat droughts. Eg- Mission Kakatiya in Telangana.
3. Rationalize Power Subsidies and Promote Solar Pumps: Reduce groundwater over-extraction by incentivizing energy-efficient
irrigation.
4. Boost Groundwater Recharge: Construct check dams and implement managed aquifer recharge (MAR) to replenish groundwater.
5. Improve Water Productivity: Maximize agricultural output per unit of water used through efficient practices and water pricing.
6. Address Financial and Technical Barriers: Provide subsidies and credit facilities for farmers to adopt advanced irrigation technolo-
gies.
7. Promote Community-Based Water Management: Empower local communities to manage water resources through decentralized
systems. Eg- Jalyukta Shivar Yojana (Maharashtra)
8. Promote Agroecology: Encourage farming practices that align with natural water cycles and reduce dependency on external inputs.
Eg- Sikkim’s organic farming
9. Expand Micro-Irrigation Coverage: Increase drip and sprinkler irrigation adoption through better subsidies and awareness.
Strengthen Per Drop More Crop (PDMC) under PMKSY.
10. Accelerate Canal Modernization & Lining: Reduce seepage losses by lining old canals and improving distribution networks.
11. Promote Watershed Development: Integrate irrigation with watershed management to improve water retention in arid regions.
12. Develop River Interlinking Projects: Expedite the Ken-Betwa Link Project and other river interlinking initiatives to balance
regional water distribution.
13. Encourage Solar-Powered Irrigation: Scale up the PM-KUSUM scheme to promote solar-powered irrigation pumps, reducing
diesel and electricity dependency.

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Best Practices in Water Management (NITI Aayog)
1. Irrigation Water Management
• Mission Kakatiya, Telangana: Restoration of 46,531 minor irrigation tanks, improving water retention,
groundwater recharge, and soil fertility.
• Narmada (Sanchore) Project, Rajasthan: Use of sprinkler and drip irrigation, formation of 2,236 Water Users
Associations (WUAs), and conjunctive use of surface & groundwater.
• Har Khet Ko Pani, Chittoor, Andhra Pradesh: Renovation of water structures under Neeru Pragathi program,
GIS-based monitoring, and solar pumping adoption.
• Waghad PIM, Maharashtra: Farmers’ participation in irrigation management, increasing water efficiency from 78%
to 93% and boosting farmer incomes.
• Bhungroo, Gujarat: Groundwater injection wells storing 2 crore liters of rainwater, enabling irrigation for seven
months during dry periods.
2. Drinking Water Management
• Community-Managed Drinking Water, Gujarat: Decentralized water supply model with 18,185 village-level Pani
Samitis, ensuring 24/7 clean water access.
• Jal Dal Initiative, Rajasthan: School students maintaining 40,000-liter water tanks, reducing dropout rates and
ensuring year-round water availability.
• Mazhapolima Rainwater Recharge, Kerala: Rooftop rainwater harvesting recharging 20,000 open wells,
benefiting 100,000 people.
• Adaptive Water Management, Mandli, Rajasthan: Community-led pond expansion using water pricing (₹100 per
4,000L tanker) for sustainable use.
• Gravity-Based Water Supply, Valsad, Gujarat: Collection tank near a 120m high natural spring providing
uninterrupted water supply to villages.
3. Urban Water Management
• Nagpur Orange City Water Project, Maharashtra: PPP model ensuring 24/7 water supply, identifying 100,000
unauthorized connections, and increasing water revenue.
• Surat NRW Reduction, Gujarat: Establishment of Non-Revenue Water (NRW) Cell, leakage mapping, and real-
time monitoring to reduce water losses.
• Birkha Bawri, Jodhpur, Rajasthan: Modern stepwell-based rainwater harvesting system storing 17.5 million
liters of rainwater annually.
• Bulk Metering System, Bangalore, Karnataka: IoT-based flow meters installed in water pipelines, reducing
wastage and ensuring equitable distribution.
4. Industrial Water Management
• TecTalis Process, Bajaj Auto, Aurangabad, Maharashtra: Nanotechnology-based zirconium oxide coating
replacing phosphating, saving 14,700 m³ of water annually.
• Steam Dumping System, UltraTech Cement, Kotputli, Rajasthan: Steam condensate recovery, reducing water
wastage by 48 KL per day.
• Poly Vinyl Alcohol & Hot Water Recovery, Trident Textiles, Punjab: Reducing organic load on Effluent
Treatment Plants (ETP) by 50%, improving water efficiency.
• Winter Air Cooling, Mahindra & Mahindra, Nashik, Maharashtra: Use of ambient winter air for cooling, cutting
water use from 846 KL to 643 KL per year.
• Cooling Tower Blade Optimization, Godrej & Boyce, Satara, Maharashtra: Adjusting fan angles to reduce 750
KL of annual evaporation losses.
5. Watershed Management
• Artificial Glaciers, Ladakh: Diverting glacial meltwater to shaded catchments for controlled freezing, ensuring
water availability in summer.
• Hiware Bazar Model, Ahmednagar, Maharashtra: Watershed development, grazing bans, and water
budgeting, restoring water levels and increasing crop yield.
• Dhara Vikas, Sikkim: Spring rejuvenation, 900 million liters of annual groundwater recharge, and reforestation
of seven hilltop forests.
• Project Bhujal, Bundelkhand: Watershed rejuvenation in drought-prone areas, improving soil moisture retention
and water conservation.

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Irrigation Water Pricing in India
1. Water pricing for irrigation is governed by state governments as water is a state subject under the Constitution.
2. Irrigation Acts & Water Regulatory Authorities (e.g., Maharashtra Water Resources Regulatory Authority, Andhra
Pradesh Water Resources Regulatory Commission) determine tariffs.
3. Participatory Irrigation Management (PIM) & Water Users Associations (WUAs): in states like Madhya Pradesh,
Maharashtra, and Gujarat, farmers pay service charges for maintenance through Water User Associations
(WUAs).
4. Waghad Model (Maharashtra): Farmers contribute funds for irrigation management, ensuring better water efficien-
cy.

Major Issues in Irrigation Water Pricing in India

1. Highly Subsidized and Unrecovered Costs: Irrigation water charges are too low to cover operation and mainte-
nance (O&M) costs, with recovery rates below 20% in most states.
2. Over-extraction of Groundwater Due to Free Electricity, leading to rapid groundwater depletion in states like
Punjab and Uttar Pradesh.
3. Unequal Pricing Structure: Water tariffs vary widely across states, with heavily subsidized water-intensive
crops (rice, sugarcane) getting preferential treatment.
4. Poor Implementation of Participatory Irrigation Management (PIM): Most Water User Associations (WUAs)
lack funds and decision-making power, leading to inefficient irrigation management.
5. Lack of Volumetric Water Pricing: Farmers are charged per acre instead of actual water use, causing overuse and
wastage due to the absence of metering systems.
6. Corruption and Illegal Water Extraction: Large farmers and industries illegally extract canal water, while irrigation
officials under-report actual water use in many states.
7. Political Resistance to Reform: Governments hesitate to increase water tariffs due to farmer protests and elector-
al concerns, delaying much-needed pricing reforms.
8. Lack of Private Sector Participation: PPP models (Public-Private Partnerships) in irrigation are rare, as private
investors see low returns due to highly subsidized water rates.

Way Forward for Irrigation Water Pricing in India

1. Implement Volumetric Water Pricing: Shift from per-acre pricing to charging based on actual water usage to
encourage efficient irrigation practices.
2. Adopt a Tiered Pricing Model: Charge lower rates for basic water use and higher rates for excessive use, ensur-
ing affordable access for small farmers while discouraging waste.
3. Introduce Tradable Water Rights: Allow farmers to buy, sell, or lease water rights, creating a market-driven ap-
proach to efficient water allocation.
4. Link Water Pricing to Crop Water Productivity: Charge lower rates for water-efficient crops (millets, pulses) and
higher rates for water-guzzling crops (rice, sugarcane).
5. Reduce Electricity Subsidies for Groundwater Irrigation: Replace flat-rate/free electricity with metered pricing
to discourage over-extraction of groundwater.
6. Strengthen Participatory Irrigation Management (PIM): Empower Water User Associations (WUAs) with finan-
cial autonomy and ensure equitable water distribution.
7. Promote Micro-Irrigation (Drip & Sprinkler Systems): Expand government subsidies for drip and sprinkler irriga-
tion, reducing water wastage in agriculture.
8. Invest in Smart Water Metering: Deploy IoT-based smart meters for canal and groundwater irrigation to enable
real-time monitoring and fair pricing.
9. Provide Cash Transfers Instead of Subsidized Water: Replace direct irrigation subsidies with Direct Benefit
Transfers (DBT), allowing farmers to use funds for efficient irrigation methods.
10. Enforce Differential Pricing Based on Source: Charge higher rates for groundwater and lower rates for canal
water to curb groundwater over-extraction.
11. Introduce Prepaid Water Cards: Deploy smart prepaid cards for irrigation water, where farmers pay in advance
based on usage estimates.

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Land Fragmentation refers to the division of agricultural land into
smaller, scattered, and often irregular plots over time, primarily due
to inheritance, population pressure, and lack of land consolidation.
This results in inefficient farming, increased costs, and reduced
productivity, posing challenges to mechanization, irrigation, and
overall agricultural sustainability.

Key Data
1. According to the Agriculture Census, over 85% of operational
landholdings are less than 2 hectares in size.
2. The average operational landholding size dropped from 2.28
hectares in 1970-71 to 1.08 hectares in 2015-16
3. 2010-11: 117.25 million small and marginal holdings increased
to 125 million in 2015-16 (Agri Survey)
4. More than 86% of farmers in India belong to the small and marginal category. Large handholding accounts for only 9% of the total
operational area.
5. Regional imbalance: States like Kerala, West Bengal, Bihar, and Eastern Uttar Pradesh have average land holdings of less than 1
hectare, whereas Punjab and Haryana have relatively larger land holdings but still face fragmentation challenges.
6. High population pressure and the division of land among heirs continue to increase the number of fragmented plots.

Causes of Land Fragmentation

1. Inheritance Laws: Division of land among multiple heirs under the Hindu Succession Act, 1956, and personal laws leads to continu-
ous subdivision of holdings.
2. Population Growth: The rising rural population increases pressure on land, forcing landowners to divide holdings into smaller plots.
3. Traditional Land Distribution Practices: Cultural and social customs dictate equal land division among family members, worsening
fragmentation.
4. Land Ceiling Laws: Restrictions on maximum landholding size prevent land aggregation, indirectly encouraging fragmentation over
time.
5. Economic Necessity: Farmers sell parts of their land during financial distress, leading to smaller and fragmented plots over genera-
tions.
6. Absence of Land Leasing Reforms: Rigid tenancy laws discourage consolidation and leasing, forcing small farmers to operate
fragmented holdings.
7. Disputes & Legal Complexity: Lengthy land disputes and unclear ownership records lead to forceful subdivisions and worsening
fragmentation. About 25% of all cases decided by the Supreme Court are centered around land disputes. Again, 66% of all civil cases
in India are related to land disputes.
8. Infrastructure Development: The construction of roads, canals, and industrial projects results in irregular land cuts, reducing the
size of cultivable land plots.

Impact of Land Fragmentation

1. Reduced Agricultural Productivity: Small plots hinder economies of scale, leading to low efficiency and increased costs.
2. Difficulties in Mechanization: Tractors, harvesters, and irrigation systems are harder to implement on small, irregular plots.
3. Increase in Wastage of Resources:
a. Time and labor losses occur due to scattered landholdings.
b. Wastage of water and soil due to poor irrigation planning.
4. Limits to Crop Diversification: Farmers are restricted in crop choices due to small plot sizes. Limited scope for a shift towards
high-value crops due to subsistence agriculture.
5. Higher Vulnerability to Climate Risks: Fragmented lands make climate adaptation (such as water conservation measures) more
difficult to implement.
6. Low Market Access and Profitability: Farmers with small landholdings struggle with storage, transport, and access to better markets.
7. Reduced Agricultural Productivity: Small and scattered landholdings make mechanized farming difficult, leading to low yields and
inefficiency.
8. Higher Cost of Cultivation: Fragmented plots increase input costs, including irrigation, labor, and fencing, making farming less profitable.
9. Disputes and Legal Conflicts: Fragmentation often leads to ownership disputes and litigation, delaying land transactions and
farming operations.
10. Decreased Land Value: Smaller, irregular land parcels have lower market value and reduced investment potential.
11. Challenges in Land Leasing and Consolidation: Fragmented land complicates leasing arrangements, making cooperative or
corporate farming less viable.
12. Encourages Land Abandonment: Unviable small plots often lead to land underutilization or abandonment, reducing the overall
cultivated area.

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 Way Forward
1. Promoting Contract Farming: Private sector investment can help smallholders access better seeds, technology, and markets.
2. Land Consolidation Programs: Implement large-scale land pooling and consolidation schemes to merge fragmented holdings, as
successfully done in Punjab and Haryana.
3. Legal Reforms in Inheritance Laws: Amend succession laws to promote collective ownership or incentivize cooperative farming
instead of dividing land.
4. Promotion of Cooperative and Contract Farming: Encourage Farmer Producer Organizations (FPOs) and group farming models
to ensure economies of scale.
5. Encouraging Land Leasing: Implement the Model Land Leasing Act, 2016, to facilitate secure leasing while allowing landowners to
retain ownership.
6. Digitalization of Land Records: Strengthen SVAMITVA and Digital India Land Records Modernization Programme (DILRMP) to
ensure clear land titles and avoid forced subdivisions due to disputes.
7. Financial Support for Small Farmers: Provide subsidies, credit, and insurance to prevent distress sales and unnecessary land
fragmentation. Eg- increasing the amount under PM KISAN
8. Modernization of Agricultural Practices: Encourage precision farming, mechanization, and drip irrigation, which work efficiently
even on small landholdings.
9. Land Market Reforms: Establish transparent land markets to facilitate the buying, selling, and leasing of agricultural land, ensur-
ing optimal land utilization.

Agricultural Credit
• As per the Economic Survey 2023-24, Agricultural credit
increased nearly 1.5 times, from Rs 13.3 lakh crore in FY21 to
Rs 20.7 lakh crore in FY24.
• Kisan Credit Cards- By the end of 2023, there were over 7.4
crore operative KCC accounts.
• 2024-25: The Government of India has set a target of ₹27.5
lakh crore for Ground Level Agriculture Credit (GLC).
• The government has set the target for the formation of Primary
Agricultural Credit Societies (PACS) in every village by 2027.
• In 2022, the ratio of institutional credit to agriculture out-
put was 1.28, which means that more than half of the total
agricultural output was funded by institutional credit. Informal
sources share 30.7% of the farmers’ total outstanding debts
• To ensure flow of credit to the agriculture sector, a share of
18% of net bank credit is targeted for lending to agriculture by
all commercial banks.

Types of Agricultural Credit

1. Short-Term Credit (Less than 15 months): Purchase of
seeds, fertilizers, pesticides, payment of wages
2. Medium-Term Credit (15 months to 5 years): Purchase of
agricultural equipment, cattle, irrigation systems
3. Long-Term Credit (More than 5 years): Buying additional
land, land reclamation, permanent infrastructure (wells, horti-
culture, farm buildings)

Sources
1. Institutional sources: Commercial banks, co-operative credit societies, and the National Bank for Agricultural and Rural Develop-
ment (NABARD)
2. Non-institutional sources: Moneylenders, traders, commission agents, relatives, and landlords

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Importance of Agricultural Credit in India
1. Ensures Timely Availability of Funds: Provides farmers with capital for seeds, fertilizers, machinery, and irrigation, reducing
dependence on moneylenders.
2. Supports Small and Marginal Farmers: Institutional credit helps 85% of India’s farmers access affordable loans, improving produc-
tivity and income.
3. Boosts Agricultural Productivity: Enables investment in modern farming techniques, high-yield seeds, mechanization, and
precision agriculture.
4. Encourages Rural Economic Growth: Strengthens agribusinesses, agro-processing industries, and rural employment, driving
overall economic development.
5. Reduces Farmers’ Debt Burden: Access to low-interest institutional loans prevents exploitation by informal lenders charging
excessive interest.
6. Enhances Food Security: Credit supports higher crop yields and diversification, ensuring stable food supply and price stability.
7. Facilitates Climate Resilient Farming: Helps farmers adopt drought-resistant crops, water-saving irrigation, and insurance
schemes for risk mitigation.
8. Encourages Investment in Long-Term Infrastructure: Supports warehouse construction, cold storage, irrigation systems, and
farm equipment.
9. Promotes Financial Inclusion: Schemes like Kisan Credit Card (KCC) integrate farmers into the formal banking system, improving
savings and credit access.

Issues
1. Small and Marginal Farmers’ Access: They receive only 47% of institutional credit, with high dependence on informal lenders.
2. Regional Disparities: Eastern and Northeastern states receive only 10-15% of total agricultural credit, while Punjab, Maharash-
tra, and Tamil Nadu dominate disbursements.
3. High Non-Performing Assets (NPAs) in Farm Loans: Agricultural loan NPAs exceed 12% in cooperative banks, reducing financial
institutions’ willingness to lend to small farmers.
4. Diversion of Agricultural Credit: Many loans meant for farming are diverted to non-farm activities, especially in states with surplus
credit, leading to misallocation.
5. Short-Term vs. Long-Term Credit Imbalance: Over 80% of agri-credit is for short-term crop loans, while long-term investment credit
for farm mechanization, irrigation, and infrastructure remains low.
6. Inefficiencies in Kisan Credit Card (KCC) Scheme: While 6 crore+ farmers have KCCs, many face bureaucratic delays, renewal
issues, and lack of awareness, limiting its effectiveness.
7. Loan Waiver Impact: Frequent state-led loan waivers weaken credit discipline, leading to higher NPAs in agricultural loans (over
12% in cooperative banks).
8. Collateral requirements is a significant challenge for small and marginal farmers who do not have sufficient assets to provide as col-
lateral.
9. Inadequate credit history: Many small farmers do not have a credit history, making it difficult for financial institutions to assess their
creditworthiness.
10. Exclusion of Tenant Farmers and Sharecroppers: Lack of formal land titles prevents tenant farmers from accessing institutional
credit, pushing them toward private moneylenders.
11. High Interest Rates for Non-Subsidized Loans: While short-term crop loans have 7% interest with subvention, term loans for
agri-infrastructure often have 12-15% rates, making them unaffordable.
12. Weak Credit Monitoring and Recovery Mechanisms: Poor enforcement of credit recovery laws and weak monitoring of end-use
lead to inefficiencies in the lending process.

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Government Schemes
1. RBI has increased limit for collateral-free agricultural loans, including loans for
allied activities, from ₹1.6 lakh to ₹2 lakh from January 01, 2025.
2 The Government of India provides interest subvention of 2% and Prompt Repay-
ment Incentive of 3% to the farmers, thus making the credit available at a very
subsidized rate of 4% per annum.
3. Union Budget 2025-26 increased the loan limit from ₹3 lakh to ₹5 lakh under Kisan
Credit Card (KCC) scheme and Modified Interest Subvention Scheme (MISS)
4. The Modified Interest Subvention Scheme (MISS) offers concessional Short-
term Agri-loans to farmers for crop and allied activities, providing a 7% inter-
est rate on loans up to ₹3.00 lakh, with an additional 3% subvention for timely
repayment, reducing the effective rate to 4%. MISS also includes post-harvest
loans against NWRs for small farmers with KCCs.
5. The Kisan Rin Portal (KRP), launched in September 2023, streamlines the
MISS-KCC scheme by digitizing Interest Subvention (IS) and Prompt Repay-
ment Incentive (PRI) claims.

Way Ahead
1. Reducing Dependence on Moneylenders :Encouraging farmer producer orga-
nizations (FPOs) and self-help groups (SHGs) to facilitate collective borrowing.
2. Expanding Digital Credit Platforms: Enhance Kisan Rin Portal (KRP) and
integrate with land records, Aadhaar, and digital banking for faster loan
processing.
3. Inclusive Credit Access for Small Farmers: Strengthen Kisan Credit Card (KCC)
coverage, ensuring tenant farmers and sharecroppers get institutional credit.
4. Boosting Long-Term Investment Credit: Shift focus from short-term crop loans
to long-term credit for farm mechanization, irrigation, and agri-infrastructure.
5. Strengthening Financial Discipline: Discourage loan waivers and promote
credit literacy to ensure responsible borrowing and repayment culture.
6. Regional Balance in Credit Allocation: Increase institutional credit flow to
Eastern and Northeastern states, where formal financing remains low.
7. Building Resilient Credit Frameworks: Develop weather-linked financing
models, supporting farmers in climate-affected regions.
8. Monitoring & Transparency in Credit Flow: Implement real-time tracking of
loan disbursal and end-use to prevent misuse and ensure funds reach genuine
beneficiaries.

Committees
1. RBI’s Expert Committee on Agricultural Credit (2024, M. K. Jain Committee)
• Digitization of land records for easier credit assessment.
• Expansion of Kisan Credit Card (KCC) coverage to all eligible farmers, including tenant and landless farmers.
2. Internal Working Group on Agriculture Credit (2019, RBI)
• Restrict interest subvention to short-term loans only to prevent diversion of funds to non-agricultural purposes.
• Develop a national-level database of agricultural borrowers for better credit monitoring.
3. NABARD’s Task Force on Rural Credit (2015)
• Enhance microfinance institutions’ role in providing credit to small farmers.
• Improve risk mitigation measures through better crop insurance mechanisms.
• Strengthen Primary Agricultural Credit Societies (PACS) for better last-mile delivery of credit.
4. Vyas Committee on Agricultural Credit (2004, RBI)
• Expand formal credit outreach to tenant farmers and oral lessees.
• Introduce flexible repayment options based on income cycles.
• Promote self-help groups (SHGs) and Joint Liability Groups (JLGs) for better credit access.
5. Malegam Committee on Microfinance (2011, RBI)
• Cap interest rates charged by microfinance institutions (MFIs) to prevent farmer exploitation.
• Promote responsible lending practices in rural credit markets.
6. Dr. Swaminathan Committee (2006, National Commission on Farmers): Establish a Farmers’ Risk Fund to
tackle loan defaults due to climate risks.
7. The Parliamentary Standing Committee on Agriculture, Animal Husbandry and Food Processing
• Increasing monetary support under the PM-KISAN Samman Nidhi scheme from Rs 6,000 per annum to Rs 12,000 per annum.
• Increasing budgetary allocation to agriculture: Despite higher absolute allocations from 2021-22 to 2024-25, the percentage share in
the total Central plan outlay declined from 3.53% in 2020-21 to 2.54% in 2024-25.
• Implementing compulsory universal crop insurance for smallholder farmers with landholdings of up to 2 acres, modelled after the
Pradhan Mantri Jan Arogya Yojana (PM-JAY) health insurance scheme.
• Establishing a National Commission for Minimum Living Wages for Farm Labourers to address their long-pending rights.

190
Fertilizer is a blend of nutrients like nitrogen, phosphorus, and potassium, applied to soil or plants to support growth and development.
1. India is the 2nd largest consumer and 3rd largest producer of fertilizers globally. Fertilizer production in FY24 was recorded at
45.2 million tonnes
2. The Indian fertilizer industry is expected to reach a market size of Rs 1.38 lakh crore by 2032, from Rs 94,210 crore in 2023,
with a Compound Annual Growth Rate (CAGR) of 4.2% (IMARC Group)
3. In 2022-2023, the government spent ₹2,25,222 crore on fertilizer subsidies. The Union Budget 2025-26 allocated ₹1.67 lakh
crore for fertilizer subsidies.
4. Major fertilizers include Urea, DAP (Di-Ammonium Phosphate), and MOP (Muriate of Potash).

Present Status
1. Production Capacity: India is the 3rd largest producer of fertilizers
globally, with an annual production of over 45 million metric tons
(MMT).
2. Fertilizer Consumption: Annual consumption is around 60 MMT,
with states like Uttar Pradesh, Maharashtra, and Andhra Pradesh
being the largest consumers.
3. Urea Dominance: Urea accounts for 60% of total fertilizer con-
sumption, with domestic production meeting 70-75% of demand.
4. India’s imports of fertilisers in 2023-24 fell nearly 10% due to a
boost in local production as the country. In FY24, urea imports
declined by 7 %, DAP by 22 %, and NPKs by 21 %.
5. Urea imports dropped 7% to 7.04 million tonnes due to a 20%
jump in domestic output to 31.4 million tonnes in 2023-24. Lower
imports of urea also came on the back of higher local production
of nano urea, a liquid form of the farm chemical, as well as a move
towards eco-friendly alternatives by farmers.
6. Direct Benefit Transfer (DBT): Subsidies are transferred directly to
fertilizer companies, reducing leakage and ensuring transparency.

Problems with Fertilizer Industry in India

1. High Import Dependency: India imports 25-30% of urea and 90% of
potash, making the industry vulnerable to global price fluctuations.
2. Inefficient Production: Aging plants and outdated technology lead
to higher production costs and energy inefficiency.
3. India’s Nutrient Use Efficiency (NUE) is low, with only 35-40% of fertilizers absorbed by crops, while the rest is lost, including nitro-
gen escaping as nitrous oxide, a greenhouse gas.
4. Fertilizer Subsidy Distortions: Heavily subsidized urea is cheaper than DAP and MOP, leading to nitrogen overuse and imbal-
anced nutrient application, harming soil health.
5. Environmental Impact: Excessive use of chemical fertilizers causes soil degradation, water pollution, and greenhouse gas emissions.
6. Imbalanced Fertilizer Use: Over-reliance on urea results in an imbalanced NPK ratio (currently 6.7:2.4:1 vs. the ideal 4:2:1). Eg- Pun-
jab overuses nitrogen by 61% while underutilizing potash by 89% and phosphate by 8%
7. Subsidy Burden: High subsidies strain government finances, with fertilizer subsidies exceeding ₹2.5 lakh crore in FY 2023-24.
8. Lack of Innovation: Limited investment in R&D for advanced fertilizers like nano-fertilizers or bio-fertilizers.
9. Diversion and Leakage: Subsidized fertilizers are often diverted to non-agricultural uses or smuggled to neighboring countries.
10. Infrastructure Gaps: Poor storage, transport inefficiencies, and high logistics costs lead to distribution challenges and fertilizer theft.
11. Raw Material Shortage: Limited domestic availability of natural gas, ammonia, and phosphoric acid increases import reliance and
price sensitivity.

Steps Taken
1. Urea subsidy: subsidized MRP of 45 kg bag of urea is Rs.242 per bag. The government subsidizes urea by covering the gap between
production/import costs and the retail price, paying the difference to manufacturers/importers.
2. The government has mandated 100% Neem coating on all subsidized agricultural grade urea to enhance nutrient efficiency, improve
crop yield, and maintain soil health, while also preventing the diversion of urea for non-agricultural purposes.
3. The Indian government aims to achieve self-sufficiency in urea production by 2025-26 through increased local production of nano urea.
4. Nutrient-Based Subsidy (NBS): Fertilizers are subsidized based on their nutrient content, including nitrogen, phosphate, potash,
and sulphur. Urea is excluded from the NBS scheme.
5. Soil Health Card Scheme: Encourages judicious fertilizer use by providing farmers with soil nutrient status and recommendations.
6. Revival of Closed Plants: Efforts to restart non-functional urea plants to reduce import dependency.
7. Investment in R&D: Focus on developing innovative fertilizers like nano-fertilizers and slow-release formulations.
8. Gas Pooling Policy: Uniform gas pricing for urea plants to reduce production costs and improve efficiency.

191
Way Ahead
1. Encourage Sustainable Practices: Shift towards organic and bio-fertilizers to reduce environmental impact and improve soil health.
2. Enhancing Nutrient Use Efficiency (NUE): Achieved through precision farming, advanced soil testing, and efficient fertilizer
application technologies.
3. Strengthen R&D: Invest in advanced technologies like nano-fertilizers, precision agriculture, and customized nutrient solutions.
4. Rationalize Subsidies: Transition to direct income support for farmers to reduce overuse and fiscal burden.
5. The government should include urea under the Nutrient-Based Subsidy (NBS) scheme to balance nitrogen, phosphate, and
potash prices, promoting balanced fertilizer use and reducing urea dependence.
6. Deregulating Fertilizer Prices: Letting market forces determine prices can eliminate distortions. Instead, farmers should get direct
income support via digital coupons or cash transfers for fertilizer purchases.
7. Promoting Circular Economy by using recycled waste material in making fertilizers. Closed-loop system should be created for
better nutrient recovery.
8. Management of Soil Health: Balanced Nutrient inputs through integrated soil fertility management. Promotion of conservation
agriculture and regenerative agriculture.
9. Supply Chain Optimization: Logistics and transport optimization for reducing fertilizer pilferage and leakage in the supply chain

It is estimated that the direct contribution of quality seed alone to the total production is about 15: 20% depending upon the crop and it
can be further raised up to 45% with efficient management of other inputs.
1. India is the 5th largest seed market globally. In 2022, the seed industry in India was valued at US\$6.3 billion and is expected to
reach US\$12.7 billion by 2028. (Seed World Report, 2023).
2. Industry leaders projected that India could achieve $1.4 billion (₹10,000 crore) of the $14 billion global seed market by 2028.

Present Status
1. Hybrid Seeds: Account for 25-30% of the market, with significant adoption in crops like maize, cotton, and vegetables.
2. GM Crops: Bt cotton is the only approved GM crop, covering 95% of cotton cultivation area.
3. Public and Private Sector: Both sectors contribute, with private companies holding 60-65% market share.
4. Exports: India exports seeds worth $300-400 million annually, mainly to Asia and Africa.
5. Government Support: Initiatives like National Seed Policy and Seed Village Program promote quality seed production.

Importance of the Seed Industry

1. Foundation of Agriculture
• Improved seed varieties contribute 20-25% to overall crop yield increases (ICAR, 2022).
• Hybrid rice adoption in India increased yield by 15-20% compared to traditional varieties.
2. Input Costs efficiency: The cost of seed typically constitutes around 3 to 6% of the total cost of production, but it can provide up to
a 15-20% yield advantage.
3. With quality seeds, the root system development becomes more efficient, which will help absorb nutrients effectively and
result in higher yields.
4. Food Security
• India’s wheat and rice production rose from 50 million tons (1950s) to over 285 million tons (2023), largely due to HYV (High
Yielding Varieties) introduced during the Green Revolution.
• Bt cotton adoption led to a 50% reduction in yield losses due to pests.
5. Genetic Improvement
• ICAR-developed Pusa-44 rice yields 7-8 tons per hectare, higher than traditional varieties.
• Drought-resistant wheat (HD 3226) and biofortified crops like iron-rich pearl millet (Dhanashakti) ensure resilience and nutrition.
6. Sustainability
• Hybrid seeds like Arka Rakshak (tomato) and Pusa Sona (mustard) reduce pesticide use by 40%, lowering environmental impact.
• Direct Seeded Rice (DSR) reduces water consumption by 30%.
7. Biodiversity Conservation
• Over 1,000 indigenous seed varieties are preserved under NBPGR (National Bureau of Plant Genetic Resources).
• Traditional seed banks, like Navdanya Movement, promote indigenous crop cultivation.
8. Technological Advancements
• India is the world’s largest producer of Bt cotton, covering 95% of total cotton acreage.
• Hybrid mustard DMH-11, developed by DU, aims to boost oilseed production.
9. Global Trade
• India exports seeds worth $320 million annually (APEDA, 2023), with major buyers in Africa and South Asia.
• Companies like Nuziveedu Seeds, Advanta, and Mahyco drive international seed trade.
10. Farmer Empowerment
• The National Seed Corporation (NSC) distributes high-quality seeds to over 30 lakh farmers annually.
• Farmers using hybrid vegetables like Tomato 1010 and Cauliflower Pusa Meghna report 2x higher profits.

192
Problems with Seed Industry
1. Counterfeit Seeds: Fake and low-quality seeds account for 20-25% of the market, affecting crop yields.
2. Farmer Awareness: Lack of awareness about high-yielding and disease-resistant seed varieties.
3. Unorganised sector: A large chunk of vegetable seed business is being handled by the unorganized seed sector, wherein seed trad-
ers directly purchase from growers and distribute with various trade names.
4. IPR Issues: Weak enforcement of intellectual property rights discourages private investment in seed development.
5. Monoculture Farming: Extensive Bt cotton cultivation reduces biodiversity and heightens pest vulnerability.
6. Seed Market Monopoly: Multinational firms (e.g., Bayer) dominate, restricting access to local seed varieties.
7. Low Seed Replacement Rate (SRR): Farmers reuse seeds, reducing productivity; SRR for wheat is 35-40%, and hybrid maize adop-
tion is below 50%.
8. Insufficient R&D Investment: Only 0.5-1% of agricultural GDP is spent on seed research, limiting the development of improved
varieties.
9. Regulatory Challenges: Outdated and complex seed laws, along with delayed approvals. Eg- maximum punishment under the 1966
Seeds Act is a Rs 500 fine. There is no mention of ‘bogus’ in any seed legislation
10. Dependence on Imported Seeds: India imports 40% of vegetable seeds, and crops like hybrid maize and oilseeds rely on foreign germplasm.
11. High Cost of Hybrid & GM Seeds: Hybrid seeds are 2-3 times costlier than traditional varieties, increasing input costs for farmers.
12. Limited Accessfor Small Farmers: Around 80% of small farmers depend on informal seed systems, restricting their access to high-yield seeds.
13. Climate Change Impact: Rising temperatures, erratic rainfall, and evolving pests reduce seed viability and adaptability.
14. Policy Uncertainty on GM Crops: Delayed approvals for GM seeds like DMH-11 mustard and unclear biotechnology regulations
slow innovation and investment.

Steps Taken
1. PPV&FR Act, 2001: Grants IPR protection to plant breeders and farmers while promoting conservation and sustainable use of
genetic resources.
2. Seeds Act, 1966 & Seeds Rules, 1968: Regulate seed quality, certification, testing, labeling, and marketing in India.
3. Fertiliser (Control) Amendment Order, 2021: Adds bio-stimulants to the 1985 Fertiliser Control Order, enabling their registra-
tion and use for improved plant growth.
4. National Seed Policy (2002): Aims to promote seed production, quality control, and farmer access to certified seeds.
5. Seed Village Program: Encourages local seed production to ensure availability and reduce dependency on external sources.
6. GM Crop Approvals: Efforts to fast-track approvals for new GM crops like Bt brinjal and GM mustard.
7. Seed Hubs: Establishment of seed hubs to produce and distribute quality seeds for rainfed and marginal areas.
8. National Seed Corporation (NSC): Established in 1963, it produces foundation and certified seeds for 600+ varieties across 60 crops.
9. National Seed Reserve: Ensures seed availability during climatic disruptions by maintaining reserves.

Way Ahead
1. Increase Seed Replacement Rate (SRR) & Adoption of High-Quality Seeds: Promote certified and hybrid seeds through aware-
ness programs and subsidies. Target 75% SRR for cereals and 50% for pulses and oilseeds (ICAR recommendation).
2. Strengthen Seed Quality Control & Certification: Establish more seed testing labs to ensure quality and germination standards.
3. Enhance Public & Private R&D Investment: Increase agri-R&D funding from 0.5% to at least 2% of agricultural GDP to develop
better seed varieties. Incentivize private players to invest in hybrids, biofortified crops, and genetically improved seeds.
4. Streamline Regulatory Framework & Faster Seed Approvals: Simplify Seed Bill & PPV&FR Act provisions to accelerate the
release of new varieties. Implement one-window clearance for biotech and hybrid seed approvals.
5. Promote Indigenous & Climate-Resilient Seed Varieties: Scale-up production of drought, flood, and pest-resistant seeds (e.g.,
HD-3226 wheat, Pusa-44 rice). Strengthen community seed banks to conserve traditional varieties and ensure diversity.
6. Expand Seed Storage & Distribution Infrastructure: Increase the number of cold storage facilities and rural seed banks to
reduce post-harvest seed losses.
7. Ensure Affordability & Accessibility of Hybrid & GM Seeds: Provide direct seed subsidies and financial incentives to small farmers.
8. Encourage Farmers’ Participation & Strengthen Cooperatives: Expand Seed Village Program to increase farmer-led seed produc-
tion. Strengthen cooperative seed enterprises to empower small-scale farmers.
9. Facilitate GM Crop Research & Policy Clarity: Expedite approvals for GM crops like DMH-11 mustard to enhance oilseed produc-
tion. Establish clear regulatory guidelines for safe adoption of biotech seeds.

Scope of Seed Technologies

1. Genetic Advancements: Enhancing seed traits for disease resistance, higher yield, and environmental adaptability.
2. Priming & Enhancement Protocols: Preparing seeds for stress tolerance and improved performance, independent of genetic traits.
3. Seed Treatments: Applying biological or chemical pesticides for early-stage protection against pests and diseases.
4. Bio-Stimulants & Nutrients: Integrating growth enhancers to improve germination, seedling vigor, and overall plant health.
5. Film Coating & Pelleting: Adding protective layers to facilitate precise planting, while carrying pesticides, nutrients, and growth
promoters.
6. AI-Responsive Seeds: Infusing sensors or responsive substances to adjust plant behavior to environmental stimuli.
7. Metabolic Cues & Molecules: Enriching seeds with biochemical signals to enhance metabolic efficiency and plant resilience.
8. Clean & Green Planting Materials: Developing sustainable, high-performing planting materials for eco-friendly cultivation.

193
Feminization of agriculture, in its simplest and broader term, refers to women’s increasing participation in the agricultural labor force,
whether as producers, as unpaid family workers, or as agricultural wage labor.

Key Data
1. Women’s Workforce Share: Women contribute around 80% of India’s farm work and make up over 42% of the agricultural workforce.
2. Rural Women in Agriculture: As per PLFS 2023-24, 76.95% of rural women are engaged in agriculture.
3. Land Ownership Disparity: The Agriculture Census 2015-16 reports that while 73% of rural women are agricultural workers, only
11.72% of the total operated land is managed by women.
4. Small & Marginal Holdings: Women’s landholdings are mostly small and marginal, reflecting historical gender inequities in land ownership.
5. Increasing Role in Agriculture: The National Commission on Farmers (2005) highlighted a rising trend of women undertaking land
management and agricultural tasks.
6. Women in Agri-Allied Activities: Besides farming, women play a significant role in livestock rearing, dairy, fisheries, and food
processing.
7. Limited Access to Credit & Inputs: Women farmers often lack access to institutional credit, technology, and extension services due
to patriarchal land inheritance laws.
8. Wage Gap in Agriculture: On average, women agricultural laborers earn 30-40% less than their male counterparts for similar work.
9. Migration Impact: With increasing male out migration from rural areas to cities, women are taking over farm responsibilities,
intensifying feminisation.

Causes Driving Feminization of Agriculture

1. Gender-Based Division of Labor: Women are more likely to engage in low-paid, irregular, and labor-intensive agricultural work, as
they are perceived as docile and hardworking.
2. Certain farm tasks, such as transplanting, weeding, and harvesting, are traditionally classified as women’s work.
3. Male Migration to Urban Areas: Due to better employment opportunities in cities, men migrate, leaving women to manage farms.
This is particularly common in rain-fed, low-income rural regions, where agriculture is seen as a less lucrative occupation.
4. Poverty and Economic Pressures: Financial constraints compel women to work as agricultural or domestic laborers to supple-
ment household income. Landless and marginal farming households rely heavily on female labor for sustenance.
5. Limited Educational and Skill Development Opportunities for Women: Due to gender disparities in education and skill training,
women remain concentrated in low-paying, informal farm work, lacking access to mechanized or commercial farming roles.
6. Land Ownership and Inheritance Patterns: In most rural communities, land ownership is male-dominated, forcing women to work
as unpaid family laborers or wage workers rather than independent farm owners.
7. Government Subsidies and Rural Employment Schemes: Programs like MGNREGA and self-help groups (SHGs) have empow-
ered rural women by providing economic opportunities in agriculture, indirectly increasing their participation in farming.
8. Declining Viability of Small-Scale Farming: Due to fragmented landholdings and low productivity, many male farmers shift to
non-agricultural jobs, while women take charge of agricultural activities.
9. Technological and Institutional Barriers: Limited access to modern farming equipment, credit, and market linkages forces wom-
en into traditional, labor-intensive agricultural roles, reinforcing the feminization of agriculture.
10. Climatic and Agrarian Distress: Climate variability, crop failures, and agrarian distress push men toward alternative livelihoods,
leaving women to manage farms under challenging economic and environmental conditions.

Impact of Feminisation of Agriculture

1. Increased Work Burden: With male out migration, women juggle agricultural labor, household chores, and caregiving, leading to
physical exhaustion and emotional stress.
2. Limited Recognition & Land Ownership: Despite managing farms and livestock, only 11.72% of operated land is held by women
(Agriculture Census 2015-16), limiting their control over resources.
3. Wage & Economic Disparity: Women agricultural laborers earn 30-40% less than men, restricting their financial independence and
economic security.
4. Limited Access to Resources: Women have less access to credit, farming technology, and training, reducing their productivity
and efficiency in agriculture.
5. Mental Health Struggles: Spousal separation, heavy workload, and social isolation contribute to stress, anxiety, and depres-
sion among female farmers.

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6. Socio-Cultural Challenges: Women taking on traditionally male farm roles often face community stigma and discrimination,
reinforcing gender biases.
7. Insufficient Time for Childcare: Increased agricultural responsibilities limit time for child-rearing, affecting children’s health, edu-
cation, and emotional well-being.
8. Greater Decision-Making Role: With men away, women gain autonomy in farm-related decisions, leading to gradual empower-
ment despite societal barriers.
9. Agricultural Sustainability: Women contribute significantly to organic farming, seed preservation, and biodiversity conserva-
tion, impacting long-term sustainable agriculture.

Way Forward
1. Strengthening Social Security for Women Farmers: A comprehensive social security framework is essential to support wom-
en in balancing household responsibilities, childcare, and agricultural work. Eg-maternity benefits, insurance, and pension
schemes for female agricultural workers.
2. Land ownership rights must be strengthened for women, as only 12.8% of rural women own land, despite 73.2% being engaged in
farming (Agricultural Census 2015-16).
3. Recognizing women as farmers rather than cultivators will enable them to access government schemes, credit, and subsidies.
4. Agricultural policies must formally acknowledge women’s role in farming to ensure equal access to resources, credit, and
extension services.
5. Training programs tailored to women farmers to help bridge gender disparities in skill development.
6. Gender budgeting should be incorporated in legislation, agricultural programs, and schemes to ensure equitable resource allocation.
7. Policies should be designed to reduce gender gaps in wages, land ownership, and access to credit.
8. Women farmers should be included in policy-making, developmental projects, and local governance. Their first-hand knowledge
of land topography, village geography, and farming practices can improve agricultural planning and ensure inclusivity.
9. Expanding financial literacy, microfinance access, and digital banking for women farmers can enhance their participation in
commercial farming.
10. Gender-inclusive agricultural technology and mechanization should be promoted to reduce labor-intensive work.
11. Targeted agricultural training, workshops, and self-help groups (SHGs) to empower women with modern farming techniques,
entrepreneurship skills, and better productivity methods.
12. Strengthening inheritance laws, land leasing rights, and women-centric farmer producer organizations (FPOs) to enhance
women’s agency in agriculture.
13. Mobile-based advisory services, AI-driven agricultural tools, and e-commerce platforms to help women farmers access re-
al-time weather data, market prices, and supply chains, improving their bargaining power and profitability.

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Land Reforms
Previous Year Questions (PYQs)
[UPSC mains 2023] State the objectives and measures of land reforms in India. Discuss how land ceiling policy on landholding can be
considered as an effective reform under economic criteria.

[UPSC mains 2021] How did land reforms in some parts of the country help to improve the socio-economic conditions of marginal and
small farmers?

[UPSC mains 2016] Discuss the role of land reforms in agricultural development. Identify the factors that were responsible for the
success of land reforms in India.

[UPSC mains 2013] Establish the relationship between land reform, agriculture productivity and elimination of poverty in the Indian
Economy. Discussion the difficulty in designing and implementation of the agriculture friendly land reforms in India.

• Land reforms are not just an economic necessity; they are a moral imperative: Dr. B.R. Ambedkar
• Our land is our heritage, and its rightful distribution is the cornerstone of a just and equitable society: Ex-VP M. Venkaiah Naidu
• “Democracy and socialism are means to an end, not the end itself. If democracy means the freedom of the individual, if it means free-
dom from poverty, then land reform is the touchstone of democracy.”: Jawaharlal Nehru.

Land reform refers to the systematic alteration of laws, regulations, and practices governing land ownership, distribution, and use
to achieve social and economic justice.

Land reforms before independence:

1. The Bengal Rent Act of 1859 was the first legislative attempt at defining tenants’ rights and protecting them against frequent en-
hancement of rent and arbitrary ejectment.
2. Tenancy and Rent Act, 1885: to conferring occupancy rights upon ryots who were in continuous possession of land for 12 years.
3. Bihar Tenancy Act of 1885 and Orissa Tenancy Act of 1914 granted occupancy rights to tenants.
4. The Agra Tenancy Act 1926 granted a statutory life tenancy to everyone formerly classified as tenant-at-will.
5. The Bombay Act of 1938 abolished ‘Begar’ and specified the grounds on which tenants could be ejected. It also allowed compensa-
tion for improvements made.

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The Bhoodan and Gramdan Movements
Vinoba Bhave, a disciple of Mahatma Gandhi, led the Bhoodan and Gramdan movements to initiate a “non-violent revolution” in India’s
land reform programme.

1. Bhoodan Movement (1951):

• Vinoba Bhave urged the landed classes to voluntarily donate part of their land (1/6th of their land) to the landless, known as the
Bhoodan Movement.
• Many state governments made legislation to facilitate donation and distribution of Bhoodan land.

Achievements:
• 4 million acres (16 lakh hectares) of land donated (official data by 1970).
• Social awareness increased about land inequality and rural poverty.
• Inspired land reform policies in West Bengal and Kerala.

Failures:
• Poor implementation: Only 20% of donated land was actually distributed.
• Many landlords donated infertile, unproductive land to avoid redistribution.
• Voluntary nature made it weak, as there was no legal enforcement.
• Resistance from landlords: Donations were often symbolic or forced under social pressure.

2. Gramdan Movement (1952):

• Expansion of Bhoodan, where an entire village community donates land for cooperative ownership, transferring the land to a
village association for egalitarian redistribution and joint cultivation.
• Village land was managed by a Gram Sabha, redistributing it among farmers.

Success & Achievements:

• More than 160,000 villages (20% of total villages) pledged Gramdan by 1970.
• Legislative support: Several states, such as Orissa, Bihar, Maharashtra, and Rajasthan, passed Gramdan laws.

Failures:
• Non-enforceable pledges: Many villages withdrew after initial declarations.
• Limited legal backing: Government policies did not fully integrate Gramdan into land laws.
• Lack of economic viability: Village-level land sharing was impractical in highly unequal regions.
• Declined after 1970s as government land reforms replaced voluntary efforts.

Positive Aspects of these movements

1. Raised national awareness about land inequality and influenced later land reforms.
2. Land Redistribution: Facilitated voluntary land donations, benefiting landless farmers and reducing inequality.
3. Non-Violent Social Reform: Promoted Gandhian principles of peaceful transformation without state intervention.
4. Community-Led Development: Encouraged collective ownership (Gramdan), strengthening self-sufficient villages.
5. Rural Upliftment: Improved agricultural productivity and livelihoods by granting land to the needy.
6. Reduced Land Disputes: Voluntary transfers helped settle ownership conflicts peacefully.
7. Social Harmony: Fostered cooperation between landlords and peasants, reducing class tensions.
8. Decentralized Governance: Strengthened Panchayati Raj institutions by promoting local land management.
9. Influence on Land Reforms: Inspired government policies on land ceiling and redistribution. Eg- Operation Barga (West Bengal) and
tenancy reforms in Kerala

Limitations of these movements:

1. Gramdan was unsustainable, as it required collective farming, which failed in many cases.
2. Lack of Legal Enforcement: Donations were voluntary, and many landowners later reclaimed donated land due to the absence of
binding laws.
3. Poor Land Quality: Much of the land donated was barren, uncultivable, or disputed, making it unusable for beneficiaries.
4. Inconsistent Implementation: The movement relied on individual will, leading to uneven participation across regions.
5. Failure to Achieve Mass Redistribution: Despite initial enthusiasm, only about 5 million acres were donated, far below expecta-
tions.
6. Resistance from Landowners: Many landlords opposed giving up land, limiting the movement’s effectiveness.
7. Lack of Beneficiary Support: Land recipients lacked resources (seeds, credit, irrigation), making land ownership ineffective.
8. Declining Public Interest: Enthusiasm waned over time, as the movement failed to bring systemic land reforms.

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The Land Reforms of the independent India
After independence, India undertook significant land reforms, under Directive Principles of State Policy (Article 39(b) & (c)), to ad-
dress feudal land ownership, tenant exploitation, and land inequality.

1. Phase 1: Abolition of Intermediaries (1950s-1960s)

• To eliminate the intermediary landowners (zamindars, jagirdars, inamdars) and establish direct contact between the state and cultiva-
tors.
• Zamindari Abolition Acts passed in various states abolished intermediary landlords.
• Land revenue collection rights were transferred to the government.
• Tenants gained ownership rights over the land they cultivated.
• Compensation was paid to zamindars, but no significant benefits were given to landless laborers.
• Total land transferred: 173 lakh hectares (17.3 million hectares)

• Number of beneficiaries: 2 crore tenants (Government of India, 1975).

• The abolition of zamindari did not eradicate landlordism or the tenancy and sharecropping systems, which persisted in many
regions. It merely eliminated the top layer of landlords in the multi-tiered agrarian structure.
• Evasion through Benami Transactions: Many zamindars transferred land to relatives to escape redistribution.
• Delay in Implementation: States like Bihar and Uttar Pradesh delayed enacting laws, leading to continued landlord dominance.
Eg- Despite the abolition of zamindari, Bihar had 8.5 lakh landless households by 2006 (NSSO report).
• Personal cultivation was loosely defined. In Uttar Pradesh, Bihar and Madras there was no limit on the size of the lands that
could be declared to be under the ‘personal cultivation’ of the zamindar.

2. Phase 2: Tenancy Reforms (1950s-1970s)

• Aimed at regulating rent, providing security of tenure, and granting ownership to tenants.
• It led to fixation of fair rent (usually one-fourth to one-sixth of the produce).
• Total tenants who got land rights: 12.5 million (Agricultural Census 1981).
• Land protected under tenancy laws: 7.8 million hectares
• Eg- West Bengal’s Operation Barga (1978) ensured security for sharecroppers.
• In most states, these laws were never implemented effectively. Many tenants were evicted before laws were enacted.
• Landlords found loopholes, converting tenants into wage laborers.
• The right of resumption and provision of ‘personal cultivation’ was used for eviction on a massive scale.
• Most tenancies were oral and informal and not recorded. Many states still prohibit or restrict land leasing, forcing tenants into
informal, unprotected agreements.
• Informal Tenancy Persisted: Eg- In Andhra Pradesh, over 30% of land was under informal tenancy in 2011 despite tenancy
reforms (NSSO).

3. Phase 3: Ceiling on Land Holdings (1960s-1980s)

• The ceilings on landholdings legally stipulated the maximum size of land that an individual farmer or farm household could own.
• This measure was intended to prevent the concentration of land ownership in the hands of a few, and redistribute it to landless
families and other specified categories, such as Scheduled Castes (SCs) and Scheduled Tribes (STs).
• In 1942, the Kumarappan Committee recommended the maximum land size a landlord could retain, set at three times the
economic holding.
• By 1961-62, all state governments had enacted land ceiling acts, although the ceiling limits varied from state to state. To
standardize these limits, a new land ceiling policy was introduced in 1971.
• Total surplus land declared: 75 lakh hectares (7.5 million hectares).
• Total land actually distributed: 56 lakh hectares (5.6 million hectares).
• Many landowners managed to circumvent the laws by dividing the land among relatives and others, including servants, through
so-called ‘benami transfers
• In some regions, wealthy farmers even resorted to divorcing their wives (while continuing to live with them) to exploit a provi-
sion in the Land Ceiling Act that granted a separate share to unmarried women but not to wives.
• Sukhomoy Chakravarty Committee (1985) highlighted how benami holdings and exemptions weakened land ceiling laws.

4. Phase 4: Land Consolidation and Bhoodan-Gramdan Movements (1950s-1990s)

• It aims at reorganizing and redistribution of fragmented agricultural landholdings into larger, more manageable units. Consolida-
tion involved merging scattered plots into a single, larger piece of land through purchase or exchange.
• Punjab and Haryana enforced compulsory consolidation, while other states allowed voluntary consolidation if the majority of land-
owners agreed.
• Total area consolidated: 47 million hectares
• Most successful in Punjab (95% success rate), Haryana (80% success rate).
• Lack of proper land records delayed implementation. Resistance from small farmers who were emotionally attached to their frag-
mented land.

5. Phase 5: Land Records Modernization & Land Leasing Reforms (2000s-Present)

• Digitize land records to prevent disputes and ensure transparency.
• Land records fully digitized in 92% of villages (as of 2023).
• States leading in digitization are Karnataka, Maharashtra, Andhra Pradesh.

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6. Forest Rights Act (2006)
• Slow Recognition of Tribal Rights: Bureaucratic delays in verifying claims led to rejections. Eg- As of 2022, only 20% of eligible
claims had been recognized (Ministry of Tribal Affairs).
• Opposition from Forest Bureaucracy: Officials viewed tribal land rights as a threat to conservation.
• Legal Challenges & Evictions: Many tribal claims were rejected due to lack of documents, leading to large-scale evictions. Eg-
In Madhya Pradesh, over 10,000 Adivasi families were evicted despite their legal claims.

Success of Each Reform (Official Data-Based)

Reform Total Land Affected Success Rate Key beneficiaries Most Effective States
(hectares)
Abolition of intermediaries 17.3 million 80% 2 crore tenants Kerala, West Bengal
Tenancy Reforms 7.8 million 60% 1.25 crore tenants West Bengal, Kerala
Land Ceiling Laws 7.5 million 50% 55 lakh families West Bengal, Karnataka
Land Consolidation 47 million 70% Farmers in consolidated Punjab, Haryana
lands
Land Digitisation 92% of villages digitised 70% Farmers and landowners Karnataka, Maharashtra

OBJECTIVES OF LAND REFORMS

1. Reduction in Land Inequality: As per Reserve Bank of India, the Gini coefficient for land distribution in India declined from 0.67
in the 1950s to 0.48 in the 1990s.
2. Promotion of Rural Credit: As per NABARD, the institutional credit provided to the agricultural sector increased from Rs. 133
crore in 1961-62 to Rs. 15,72,681 crore in 2019-20.
3. Promotion of Social Equality: The distribution of surplus land to the landless and the recognition of tenant rights: As per Centre
for Policy Research, the share of landless households in rural India declined from 45% in the 1960s to 28% in the 1990s.
4. Equitable Distribution of Land and Redistributive Justice: Reducing concentration of land ownership and promoting a more equita-
ble distribution of land among landless and marginalized.
5. Elimination of Feudal Land Ownership: To dismantle the exploitative zamindari system and transfer land ownership to actual cultivators.
6. Enhancing Agricultural Efficiency: To improve land utilization and productivity by restructuring landholding patterns.
7. Preventing Exploitation of Tenants: To ensure fair rent, security of tenure, and land rights for tenant farmers.
8. Encouraging Cooperative Farming: To promote collective farming methods for better resource utilization and economies of scale.
9. Mitigating Land Fragmentation: To consolidate land holdings and create viable agricultural units for modern farming.
10. Ensuring Social and Economic Justice: To address historical injustices in land ownership and provide opportunities for disadvan-
taged communities.
11. Prevention of Land Alienation: Protecting vulnerable sections of the society (Eg- tribals) from losing their land to more powerful
and influential groups. Eg- Forest Rights Act, 2006.
12. Social Justice: Providing land to the landless by ensuring Dalits, tribals, and poor farmers get land ownership.
13. Poverty Alleviation: Alleviating rural poverty by redistributing land and providing support to landless farmers, enabling them to
improve their standard of living.
14. Encouraging Cooperative & Collective Farming: Promote group-based farming to improve efficiency and bargaining power. Eg-
Gramdan Movement (1952)
15. Preventing Land Monopoly: To set land ceilings to prevent excessive accumulation of land by wealthy individuals or corporations.
16. Facilitating Rural Development: To integrate land reforms with irrigation, credit, and infrastructure development for holistic agricultural
growth.

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Recent Examples
1. Bhoomi Project in Karnataka: An initiative to digitize land records, making them easily accessible and reducing errors and fraud in
land transactions.
2. In the fiscal year 2024-25, the central government allocated ₹10,000 crore to encourage states to implement land-related re-
forms in both rural and urban areas. An additional ₹5,000 crore was earmarked for creating a comprehensive Farmers’ Registry.
These incentives aim to promote efficient land use and accurate record-keeping.
3. SVAMITVA Scheme: employ drone technology to map rural inhabited lands. The initiative provides villagers with property cards,
granting legal ownership titles. By December 2024, drone surveys have been completed in over 310,000 villages, with more than
1.12 million property cards distributed.
4. Unique Land Parcel Identification Number (ULPIN): Bhu-Aadhar: This initiative assigns a unique 14-digit identification number
to every land parcel in the country, akin to the Aadhaar system for individuals. By December 2024, ULPINs have been assigned to
230 million land parcels.
5. Andhra Pradesh government partnered with a Swedish firm to implement blockchain technology, aiming to prevent property fraud
by creating a secure and immutable digital ledger for land records.
6. Tamil Nadu’s Contract Farming Act: Tamil Nadu became the first state to pass the Contract Farming Act, following central guide-
lines. This act facilitates agreements between farmers and buyers before the production or rearing of farm produce.
7. Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013: This act ensures
fair compensation and transparency in the process of land acquisition, along with proper rehabilitation and resettlement of affected
individuals.
8. Model Agricultural Land Leasing Act, 2016: A model act proposed by the central government to allow and regulate the leasing of
agricultural land, providing a legal framework for leasing agreements to protect the rights of both landowners and tenants.
9. Draft Model Contract Farming Act, 2018: A draft act aimed at promoting contract farming, ensuring that agreements between
farmers and buyers are fair, transparent, and legally enforceable.
10. Digital India Land Records Modernization Programme (DILRMP): approximately 95% of villages have computerized Records of
Rights (RoRs), and about 68% of cadastral maps have been digitized.
11. National Generic Document Registration System (NGDRS): NGDRS is an e-registration system designed to standardize and
streamline the process of property registration by integrating land records with the registration process.
12. Pattaya Mission in Kerala: An initiative by the Kerala state government to address and resolve land record issues, ensuring that
land titles are clear and up-to-date.
13. Karnataka Land Reforms (Amendment) Bill 2020
a. Removal of Restrictions on Agricultural Land Ownership
b. Easing of Land Ceiling Limits: Increased the maximum limit of landholding from 10 units to 20 units
c. Facilitating Corporate and Industrial Investments by removing restrictions on agricultural land purchase
14. NITI Aayog’s Model Act and Rules for Land Titling provide a framework for states to establish a system of conclusive land titling,
ensuring clear and legally recognised ownership of land.

Data
Average size of operational holdings 1.08 hectare with consistent decline from 1970.
Small and marginal farmers in india As per agri census 2015-16, more than 85%
Landless laborers in india 55% of total agri workforce
Female land holders Less than 15% despite feminization of agriculture
India’s competitive advantage Largest arable land resource in the world with 156 million hectare

SIGNIFICANCEOFLANDREFORMSFORAGRICULTUREPRODUCTIVITY
1. Easier Access to Credit: Land ownership under tenancy law provides farmers with collateral, making it easier to access credit from
financial institutions.
2. Security for farmers and increased investment: Tenancy reforms give tenant farmers legal protection from eviction and allow them
to own land over time. This led to better agricultural investments.
3. Enhanced Agricultural Investments: Land reforms encourage investments in agriculture by ensuring secure land tenure.
4. Efficiency in farming: Consolidation of land holdings merge small and fragmented land parcels, made mechanisation easier and
reduced land wastage.
5. More equitable land distribution: Land ceiling laws enable setting limits on land holding, surplus land was redistributed to landless
farmers, increasing their participation in agriculture.
6. Economies of Scale through Corporate Farming and Cooperative Farming: Corporate farming can bring advanced technolo-
gy, better management practices, and higher efficiency, leading to increased agricultural output, whereas Cooperative farming
involves pooling resources and efforts among small farmers to achieve economies of scale.
7. Support for Small Farmers: Land reforms empowered small farmers, leading to higher per-acre productivity than large landlords.

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WAY FORWARD
1. Improving Tenancy Laws & Land Leasing:
a. NITI Aayog Model Land Leasing Act (2016) recommended formalizing lease agreements to protect tenants’ rights.
b. D. Bandyopadhyay Committee (2012) recommended giving legal recognition to sharecroppers and landless tenants.
c. Legalize verbal tenancy agreements with formal documentation.
2. Promoting Cooperative Farming on the AMUL Model: It can enhance farmers’ bargaining power, ensure better market access and
achieve economies of scale. (M.S. Swaminathan Committee (2006))
3. Private Sector Participation: Encouraging states to adopt Model Contract Farming Acts can attract private sector investment in
agriculture ensuring assured markets and prices for their produce.
4. Digitisation of Land Records: Implement blockchain technology to prevent tampering of land records. Eg- blockchain based land
registries
5. Strengthening Cooperative Societies and FPOs to Promote Economies of Scale as they provide collective access to markets,
credit, and technology, reducing costs, increasing productivity and improved livelihoods for farmers.
6. Ashok Dalwai Committee Recommended reforms in land leasing, land titling, and creating a national land use policy to ensure
sustainable agricultural practices and better land utilisation .
7. Implementing Effective Forest Rights Act (FRA): Xaxa Committee (2014) recommended simplifying the claim verification process
for tribals.
8. Fast-tracking Dispute Resolution & Land Tribunals: Implement Alternative Dispute Resolution (ADR) mechanisms, link land
dispute records to digital land databases to track cases efficiently. Law Commission Report (2017) suggested a dedicated Land
Adjudication Authority for quick resolution.

Contract farming is a system where farmers (producers) and buyers enter into an agreement regarding the production and marketing
of farm products. The agreement specifies the price, quantity, quality standards, and delivery date for the farmer’s produce before the
production process begins.

Major Contract Farming Models

1. Informal Model: Involves seasonal production contracts between small companies or entrepreneurs and farmers, often requiring
government credit and extension services. Lacks legal enforcement, posing high marketing risks. Most contracts in India follow
this model.
2. Intermediary Model: Companies or sponsors subcontract farmers through intermediaries, leading to reduced control over pro-
duction, pricing, and quality for sponsors.
3. Multipartite Model: A multi-stakeholder approach involving government bodies, private firms, and cooperatives, where different
entities manage production, processing, and logistics. Successful in Colombia, but failed in China.
4. Centralized Model: A vertically integrated system where a central processor or sponsor contracts multiple small farmers, used
for tea, dairy, poultry, and processed crops. Features quota allocation and strict quality control.
5. Nucleus Estate Model: A variation of the centralized model, where sponsors own large plantations alongside contracted farmers.
Common in tree crops and high-value agriculture, ensuring
input control and close supervision.

Advantages of Contract Farming

1. Assured Market & Price Stability: Farmers get a predeter-
mined price for their produce, reducing market risks. Eg- Pepsi-
Co’s potato contract farming in Punjab has benefited farmers
with stable prices.
2. Access to Quality Inputs & Technology: Companies provide
seeds, fertilizers, and technical guidance, improving productiv-
ity. Eg- Studies show contract farmers yield 15-20% more than
non-contract farmers (ICAR Report, 2021).
3. Efficient Supply Chain Management: It reduces wastage of
perishable ensuring fair pricing for producers and consumers.
4. Reduction in Post-Harvest Losses: Direct procurement eliminates middlemen, ensuring minimal wastage.
5. Doorstep exchange of produce, minimising the transportation and marketing costs.
6. Improved Credit Access: Companie provide credit & financial support, reducing dependence on moneylenders. Eg- Suguna Poultry
contracts in Tamil Nadu include input financing for farmers.
7. Better Quality & Export Potential: Contract farming ensures standardized quality, making Indian produce export-competitive. Eg-
Mahagrapes in Maharashtra are exported to Europe.
8. Encourages Crop Diversification: Helps shift farmers from low-value crops to high-value crops (Eg- organic vegetables, medicinal plants).
9. Risk Mitigation for Small Farmers: Reduces price fluctuations & climatic risks, ensuring steady income.

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10. Increased Income for Farmers: Contract farmers often earn higher incomes than non-contract farmers.
11. Food Safety Standards: Firms train farmers in food safety practices like using organic fertilizers and pesticide control, to meet
international standards like the Maximum Residue Level (MRL).
12. Better Price for Consumers: It cuts intermediaries, offering better prices for consumers and competitive rates for products
without middlemen markups.

Challenges of Contract Farming in India

1. Exploitation of Farmers: Companies dictate terms, leading to low bargaining power for small farmers.
2. Monocropping & Soil Degradation: Continuous production of specific crops may cause nutrient depletion in soil. Eg- Extensive
potato contract farming in Punjab has led to soil health deterioration.
3. Delayed Payments & Contract Breaches: Farmers often face payment delays or unfair rejection of produce.
4. Weak Contract Enforcement: Lack of legal awareness and ineffective dispute resolution mechanisms result in frequent contract
breaches.
5. Loss of Farmer Autonomy: Contracts often restrict farmers from growing non-contract crops, limiting their flexibility.
6. Lack of Legal Protection: Many contracts are made informally or verbally, and even written agreements provide minimal legal re-
course. Weak enforcement of such contracts leads to frequent breaches by either party.
7. Limited Coverage & Unequal Benefits: Mostly benefits large & medium farmers, while small farmers often struggle to meet quality
standards. Eg- A 2021 study by IFPRI found that only 10-12% of small farmers were part of contract farming arrangements.
8. Strict Quality Standards: Rejections due to high quality standards lead to wastage and financial losses for farmers.
9. Market Manipulation: Contract buyers can monopolize local markets, reducing alternative selling options for farmers.
10. Regulatory Uncertainty: Inconsistent policies across states create confusion and discourage long-term investments in contract farming.
11. Corporate Dominance & Exit Risks: Companies may withdraw contracts suddenly, leaving farmers stranded. Eg- PepsiCo exited
tomato contract farming in Karnataka, impacting farmers’ incomes.
12. Environmental Degradation: Intensive contract farming can harm the environment through excessive water use, monocrop-
ping-related infestations, and increased pesticide and fertilizer application.

Policy Status:
1. Today, contract farming is regulated under the Indian Contract Act, of 1872. It provides for the formation of contract, consequences
of contract breaching and domination.
2. Model APMR (Agricultural Produce Marketing Regulation) Act, 2003: It introduced compulsory registration for contracting firms,
dispute resolution,market fee exemptions, and protected farmers’ land ownership under contracts.
3. Model Agriculture Produce and Livestock Contract Farming Act, 2018: Key provisions included state-level authorities for contract
farming implementation, promotion of FPOs, insurance for contracted produce.
4. The Farmers’ Empowerment and Protection Agreement on Price Assurance and Farm Services Act, 2020, part of the three farm laws,
simplified contract farming regulations. It assured farmers of inputs, services, and a guaranteed price while transferring market risks
to firms.
5. The Model Contract Farming Act, 2018: It was introduced to regulate contract farming in India, ensuring transparency, fair agree-
ments, and farmer protection.

Key Features of the Model Contract Farming Act, 2018

1. Dedicated Framework for Contract Farming: Establishes a separate contract farming agreement distinct from land lease agree-
ments, preventing corporate land acquisition.
2. Formation of Contract Farming Authority: Mandates states to set up a Contract Farming (Promotion & Facilitation) Authority to
oversee contract enforcement.
3. Registration of Contracts: All farming contracts must be registered with a designated registering authority.
4. Buyer’s Obligation to Purchase Produce: Buyers are legally bound to procure the agreed quantity and quality at predetermined
prices.
5. Fair Pricing Mechanism: Contracts must specify minimum guaranteed prices, with provisions for bonus payments linked to market rates.
6. Pre-Agreed Input and Support: Buyers must provide seeds, fertilizers, technology, or extension services as per contract terms.
7. No Land Ownership Transfer: Buyers cannot claim ownership rights on farmers’ land, preventing land alienation.
8. Dispute Resolution Mechanism: Introduces a three-tier dispute resolution system:
a. Conciliation Board
b. Dispute Resolution Authority
c. Appellate Authority
9. Exemption from Essential Commodities Act: Contracted produce cannot be subject to stock limits or government procurement
restrictions under the Essential Commodities Act, 1955.
10. No Obligation on Farmers for Investments: Farmers are not required to make additional investments in technology or infrastructure
unless explicitly agreed upon in the contract.

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Advantages of the Model Contract Farming Act
1. Market Assurance & Price Stability: Provides pre-fixed prices, reducing risks of market price fluctuations. Eg- PepsiCo’s potato
contract farming in Punjab guarantees farmers stable prices.
2. Reduced Middlemen Dependency: Eliminates intermediaries, ensuring farmers get better profit margins. Data: Studies show con-
tract farmers earn 15-25% higher profits compared to non-contract farmers (ICAR, 2021).
3. Encourages Private Sector Investment: Attracts agribusiness firms, promoting technology transfer & better inputs. Eg- ITC’s
e-Choupal system has helped over 4 million farmers with direct market access.
4. Enhances Agricultural Productivity: A study in Maharashtra found a 22% increase in yields for contract farmers (ICRIER, 2022).
5. Improves Financial Security for Farmers: Reduces the need for loans by ensuring credit support from agribusiness firms. Eg-Su-
guna Poultry’s contract farming model provides input credit & financial assistance to small poultry farmers.
6. Boosts Crop Diversification: Encourages farmers to grow high-value crops, increasing profitability.
7. Export Promotion & Quality Assurance: Contracts enforce strict quality standards, making Indian produce export-ready. Eg- Maha-
grapes facilitated exports of grapes to Europe, improving farmer incomes.
8. Reduces Post-Harvest Losses: Ensures immediate procurement, minimizing storage & wastage costs. Eg- NABARD estimates a
10-15% reduction in post-harvest losses due to contract farming.
9. Empowers Farmer Producer Organizations (FPOs): Encourages FPOs to negotiate better contracts for small farmers. Eg- more
than 1,500 FPOs are currently engaged in contract farming with agribusiness firms.
10. Better Risk Mitigation for Farmers: Includes provisions for crop failure compensation, reducing farmer distress. Eg- Nestlé’s dairy
contract farming model in Karnataka ensures minimum loss coverage for dairy farmers.

Challenges of the Model Contract Farming Act

1. Low Adoption by State: Eg- Only a few states like Punjab & Maharashtra have actively promoted contract farming.
2. Exploitation by Agribusiness Corporations: Farmers lack bargaining power, leading to unfavorable contract terms. Eg- Poultry
contract farmers in Andhra Pradesh reported price manipulation by integrators.
3. Ineffective Dispute Resolution Mechanisms: A NABARD survey found that 40% of disputes remain unresolved due to bureaucratic
delays.
4. Price Volatility Risks: Even with contracts, some buyers refuse procurement if market prices crash. Eg- Tomato contract farmers in
Karnataka faced losses when companies terminated contracts due to oversupply.
5. Limited Reach to Small & Marginal Farmers: Large agribusinesses prefer medium & large farmers, excluding small farmers. Eg- A
2021 IFPRI study found that only 10-12% of small farmers participate in contract farming.
6. Monocropping & Soil Degradation: Eg- continuous potato farming under PepsiCo contracts has deteriorated soil health in Punjab.
7. Delayed Payments & Unfair Quality Rejections: Farmers often face payment delays & arbitrary quality rejections. Eg- a 2022 survey in
Maharashtra found 28% of contract farmers reported delayed payments.
8. Lack of Awareness & Capacity Building: Eg- Farmers in Bihar signed contracts without clear exit clauses, leading to disputes.
9. Risk of Corporate Withdrawal: Companies may suddenly exit contracts, leaving farmers vulnerable. Eg- PepsiCo ended tomato
contract farming in Karnataka, impacting 500+ farmers.
10. Political & Farmer Opposition: Fear that contract farming may lead to corporate control over agriculture. Eg- farmer protests in
Punjab and Haryana have opposed private sector involvement in contract farming.

Way Forward for Contract Farming in India

1. Ensuring Fair Pricing: Introduce price assurance mechanisms like minimum price guarantees to safeguard farmers from price
fluctuations.
2. Empowering Small Farmers: Promote Farmer Producer Organizations (FPOs) and cooperatives to enhance farmers’ bargaining
power in contract negotiations.
3. Timely Payment Assurance: Enforce strict payment timelines and penalties for delayed payments to ensure financial security for
farmers.
4. Increased Awareness & Training: Conduct awareness programs to educate farmers on contract terms, dispute resolution, and
negotiation strategies.
5. Strengthening Legal Framework: Implement the Model Contract Farming Act (2018) across all states to protect farmers.
6. Ensuring Fair Pricing & Payment Security: Price benchmarking and escrow accounts should be introduced to prevent payment
delays.
7. Promoting Farmer Producer Organizations (FPOs): FPOs can negotiate better contracts and reduce exploitation by companies.
8. Monitoring & Regulation by State Governments: Regular audits and compliance checks on contract terms and company practices.

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A Farmer Producer Organisation (FPO) is a collective of farmers who come together to improve their bargaining power, access
to markets, inputs, and financial resources. It is legally registered under Cooperative Societies Act, Companies Act, or Producer
Company Act and functions as a business entity managed by farmers.

Legal Structure of FPOs

1. Registered under Companies Act, 2013 (as Producer Companies). Can also be registered under Cooperative Societies Act or as Self-
Help Groups (SHGs).
2. Governed by Small Farmers Agribusiness Consortium (SFAC), NABARD, and state agriculture departments.

Essential features of a FPO

1. It is formed by a group of producers for either farm or non-farm
activities.
2. It is a registered body and a legal entity.
3. Producers are shareholders in the organization.
4. It deals with business activities related to the primary produce/
product.
5. It works for the benefit of the member producers.
6. A part of the profit is shared amongst the producers.
7. Rest of the surplus is added to its owned funds for business
expansion.

Advantages of FPOs
1. Better Market Access: FPOs enable small and marginal farmers (who constitute 86% of India’s farming population) to access larger
markets.
2. Reduced Input Costs: Bulk purchase of seeds, fertilizers, and machinery reduces costs by 15-20%. Eg- Timbaktu Collective (Andhra
Pradesh) provides organic inputs to its members at lower prices.
3. Value Addition & Processing: FPOs enable direct processing and branding, increasing farmers’ incomes by 30-50%. Eg- MASUTA
Producer Company (Jharkhand) processes and exports Tasar silk, benefiting tribal women.
4. Risk Mitigation: Collective action helps reduce market and climate risks. Eg- Chitrakoot FPO (UP) diversified into dairy and horticul-
ture, reducing dependence on a single crop.
5. Storage & Logistics Improvement: Eg- Dharmapuri FPO (Tamil Nadu) built a 1,000 MT storage facility using government grants,
reducing post-harvest losses.
6. Higher Income for Farmers: A study by SFAC found that farmers in well-functioning FPOs earn 10-15% more compared to non-FPO
members.
7. Better Bargaining Power: Enables small farmers to negotiate better prices for inputs and outputs by functioning as a collective.
8. Improved Market Access: Reduces dependence on middlemen by facilitating direct linkages with buyers, exporters, and agribusi-
nesses.
9. Lower Input Costs: Bulk purchasing of seeds, fertilizers, and machinery reduces costs, increasing farmers’ profitability.
10. Access to Credit & Subsidies: FPOs get priority in bank loans, government grants, and subsidies, improving financial stability.
11. Capacity Building & Skill Development: Provides training on modern farming techniques, business management, and financial
literacy.
12. Encourages Entrepreneurship: Empowers farmers to engage in agribusiness activities, contract farming, and e-commerce.
13. Improves Rural Livelihoods: Strengthens the rural economy by creating employment opportunities in processing, marketing, and
allied sectors.
14. Government Support & Policy Benefits: Eligible for schemes like PM Kisan Sampada Yojana, NABARD support, and tax exemp-
tions, making them financially viable.

Government Initiatives to Promote FPOs

1. Central Sector Scheme: Formation and Promotion of 10,000 FPOs: a target of 1100 additional FPOs, in cooperative sector through
strengthening of PACS, has been allocated to National Cooperative Development Corporation. Financial assistance upto Rs.33 lakh is
provided to each FPO.
a. ONDC platform: Almost 5 thousand out of 8,000 registered Farmer Producer Organizations (FPOs) have been registered on
Open Network for Digital Commerce (ONDC) portal for selling the produce online to consumers across the country.
b. A dedicated Credit Guarantee Fund (CGF): CGF provides credit guarantee cover to financial institutions for extending loans to
FPOs.
c. An MoU between CSC SPV (Common Services Centres Special Purpose Vehicle) and Ministry of Agriculture & Farmer’s
Welfare was signed to convert FPOs into CSCs and help them to deliver citizen-centric services.
2. Small Farmers Agribusiness Consortium (SFAC): Provides ₹15 lakh equity grants per FPO. It supports over 5,000 FPOs nationwide.
3. NABARD FPO Promotion Scheme: It provides financial & capacity-building support to FPOs. It assisted over 4,000 FPOs till 2023.

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4. e-NAM (National Agriculture Market): Enables FPOs to sell online; connected to 1,260 APMC mandis. Over 1,200 FPOs registered as
of 2023.
5. One District One Product (ODOP): Promotes branding & export of district-specific agri-products. Eg- Banana FPOs in Tamil Nadu have
expanded exports under ODOP.
6. Mission for Integrated Development of Horticulture (MIDH)- It is a centrally sponsored scheme that aims to encourage the aggre-
gation of farmers into groups such as FPOs to facilitate the economy of scale and scope.
7. Honey FPO Programme- Agriculture Ministry launched 5 FPOs for producing honey that would be set up with the help of National
Agriculture Cooperative Marketing Federation of India (NAFED).
8. Agriculture Infrastructure Fund- It will provide interest subvention of 3% for credit extended to develop post-harvest infrastructure
to FPOs.
9. The Department of Agriculture and Cooperation (DAC) is working with FCI to include FPOs as procurement agencies under the
Minimum Support Price (MSP) procurement policy.
10. State level: ‘Maharashtra Agri-Business Network Project (MAGNET)’ to support FPOs by providing financial assistance, training,
and market linkages.

Success Stories of Farmers Producer Organisations (FPOs) in India

1. Sahyadri Farms (Maharashtra): India’s largest FPO with 18,000+ farmers, exporting produce to 40+ countries and running process-
ing units for value addition.
2. Mulkanoor Women’s Cooperative (Telangana): A women-led FPO with its own bank, providing financial support and direct market
linkages for farmers.
3. Vaishali Area Small Farmers’ Association (Bihar): Specializes in organic farming, sells via e-commerce platforms, and has in-
creased farmers’ income by 30-40%.
4. Krushak Mitra Agro Services (Odisha): Focuses on seed production, training, and credit access, helping farmers improve produc-
tivity and earnings.
5. Madhya Pradesh Women Poultry Producers Company: A successful women-led poultry FPO with a ₹15 crore annual turnover,
creating sustainable rural livelihoods.

Challenges Faced by FPOs

1. Limited Capital & Credit Issues: Over 70% of FPOs lack sufficient working capital, making them dependent on government grants.
2. Lack of Market Linkages: Only 10% of FPOs have direct access to institutional buyers or e-markets. Eg- many FPOs fail to integrate with
e-NAM due to logistical issues.
3. Regulatory Burden: Compliance under the Companies Act, GST registration, and tax filings require legal expertise, which many FPOs
lack.
4. Poor Management & Governance: Only 30% of FPOs are professionally managed; most lack financial literacy and business planning
skills.
5. Storage & Infrastructure Gaps: 40% of India’s agricultural produce gets wasted due to inadequate cold storage and warehousing. Eg-
many onion-producing FPOs in Maharashtra suffer losses due to poor storage.
6. Limited Technology Adoption: Less than 5% of FPOs use digital marketing, blockchain, or AI-based price forecasting tools.
7. Price Fluctuations & Competition: FPOs face stiff competition from corporate agribusinesses and large wholesalers.

Way Forward for Strengthening Farmers Producer Organisations (FPOs)

1. Division of Work: An alternative approach is for the FPO to concentrate on farmer engagement and a separate FPO
Support Unit (FPOSU) for non-farming activities like marketing, finance, and logistics.

2. Relevant ministries and departments may be required to implement all farmer-centric schemes through FPOs to
ensure efficient service delivery and better outcomes.
3. Improving Access to Credit & Financial Support: Eg- Dalwai Committee (2018) advocated for FPO-Corporate partnerships
under CSR to scale up FPOs.
4. Strengthening Market Linkages & Direct Buyer Connect: Promote contract farming and direct tie-ups with retail chains like Reli-
ance Fresh, BigBasket, etc.
5. Enhancing Infrastructure & Storage Facilities: Eg- Dalwai Committee (2018) recommended 50% capital subsidy for FPOs to
establish storage, warehousing, and processing units.
6. Capacity Building & Skill Development: Set up regional FPO training centers with support from NABARD & Krishi Vigyan Kendras
(KVKs). Encourage women-led FPOs with specialized entrepreneurship programs.
7. Technological Adoption: Ramesh Chand Report on Agri-Tech (2020) suggested AI and blockchain-based price forecasting tools
for FPOs.
8. Enable Simplifying Legal & Regulatory Framework: Eg- provide tax incentives for FPOs, Create a single-window clearance system
for government support schemes.
9. Increasing Government & Private Sector Collaboration: Promote Agri-Startups & Incubation Centers for innovation in FPO
management.
10. Scaling Up the PM-Kisan FPO Scheme: Fast-track the formation of 10,000 FPOs by 2027 with increased funding. Ensure state-
wise monitoring and impact assessment of FPO performance.

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Cooperative Farming
Cooperative farming is a system where farmers voluntarily pool their resources, such as land, labor, and capital, to enhance productivity,
share risks, and improve market access while retaining individual ownership of land. It operates on collective decision-making and prof-
it-sharing principles, ensuring better bargaining power for small farmers.

Types of Cooperative Farming in India

1. Joint Farming Cooperatives: Farmers pool land and cultivate collectively (Eg- AMUL model for dairy).
2. Collective Farming: All farm activities, including inputs, production, and marketing, are done collectively.
3. Service Cooperatives: Farmers share resources like tractors, irrigation, and fertilizers but cultivate separately.
4. Tenancy Cooperatives: Members lease land collectively and share profits.

Advantages of Cooperative Farming

1. Economic Benefits: It helps in economies of scale. Eg- bulk procurement of inputs (seeds, fertilizers) reduces costs by 15-20%
(NABARD, 2022).
2. Increased Income: Farmers earn 25-40% more through collective marketing (SFAC Report, 2022).
3. Consolidation of Land holdings: It reduces fragmentation, enabling mechanized and scientific farming (Dalwai Committee, 2018).
4. Strengthening of infrastructure: Cooperatives invest in cold storage and food processing, reducing post-harvest losses.
5. Greater Market Access: Eliminates middlemen, enabling direct sales to consumers, retailers, or export markets for better price
realization. Eg- AMUL Dairy Cooperative (Gujarat) transformed small dairy farmers into global suppliers, reaching a ₹55,000 crore
turnover in 2023.
6. Better Bargaining Power: Farmers negotiate better prices for inputs and outputs through collective purchasing and selling.
7. Access to Credit & Subsidies: Cooperatives have easier access to institutional credit, government grants, and subsidies.
8. Risk Sharing: Losses due to natural calamities, market fluctuations, or pests are distributed among members, reducing individual
risks.
9. Value Addition & Processing: Cooperatives set up processing units, storage facilities, and direct marketing channels, ensuring
higher profits.
10. Enhanced Technology Adoption: Collective resources enable investment in modern farming techniques, irrigation systems, and
farm mechanization.
11. Employment Generation: Provides opportunities in farming, processing, and marketing, strengthening rural livelihoods.
12. Encourages Community Development: Strengthens rural cooperation, trust, and self-reliance, fostering sustainable agricultural
growth.

Challenges Facing Cooperative Farming:

1. Attachment to Land: Farmers are often unwilling to surrender land rights to the society due to strong personal attachment.
2. Limited Financial Resources: Cooperatives struggle with inadequate capital, leading to dependence on government subsidies and
loans.
3. Internal Conflicts: Disputes over resource allocation, decision-making, and profit-sharing create instability within cooperatives.
4. Illiteracy: Many farmers are illiterate and resistant to changes in cultivation methods.
5. Lack of Awareness: Many farmers lack knowledge about the benefits and functioning of cooperative farming.
6. Poor Management & Leadership: Cases of fund misappropriation and favoritism weaken trust and financial sustainability. Eg- failure
of Krishak Bharati Cooperative (KRIBHCO) in 1999
7. Slow Decision-Making: Eg- the delay in price-fixing by sugar cooperatives in Maharashtra often affects farmers, as private mills
offer quicker payments.
8. Marketing Barriers: Dependence on middlemen and limited e-commerce adoption.

Government Initiatives for Promoting Cooperative Farming in India

1. The Integrated Scheme on Agriculture Cooperation (ISAC) (Central Sector Scheme):
• Financial assistance for Marketing, Processing, Storage, Consumer, Computerization of PACS, District Central Cooperative
Banks (DCBs), State Cooperative Banks (SCBs)
• Assistance for cotton development including ginning and pressing and establishment of new and modernization/ expansion/
rehabilitation of existing cooperative spinning mills.
• Integrated Cooperative Development Projects in selected districts (ICDP):
2. Formation of 10,000 Farmer Producer Organizations (FPOs) (2020-2027)
3. Cooperative-FPO Convergence Model (2024): NCDC has facilitated 992 cooperative-led FPOs, ensuring farmers get direct mar-
ket access without intermediaries.
4. Strengthening Primary Agricultural Credit Societies (PACS) (2022): It aims to computerize 63,000 PACS, ensuring efficient cred-
it distribution and transparency in operations.

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5. National Multi-State Cooperative Societies (2023): Established three new national-level cooperative federations to promote
seeds, organic products, and agricultural exports.
a. Bharatiya Beej Sahakari Samiti (BBSSL): Focuses on quality seed distribution, with 11,714 PACS as members.
b. National Cooperative Organics Ltd. (NCOL): Promotes organic farming and exports, with 3,775 cooperatives enrolled.
c. National Cooperative Export Ltd. (NCEL): Helps FPOs enter global markets, with 7,700 cooperatives already exporting 8.15
lakh MT of produce.
6. World’s Largest Grain Storage Plan under Cooperatives (2023): NABARD and NCDC are providing low-interest loans, and the
government plans to convert 500 PACS into grain storage hubs.
7. Yuva Sahakar Scheme (NCDC) (2019): this scheme encourages young entrepreneurs to establish cooperatives in agriculture. Pro-
vides interest subvention of 2% on loans, making it easier for startups to invest in processing, storage, and marketing.
8. Credit Guarantee & Subsidized Loan Programs for Cooperatives: The government has set up a Credit Guarantee Fund to pro-
vide collateral-free loans to new cooperatives and FPOs. (Loans up to ₹2 crore)

Way Forward for Strengthening Cooperative Farming in India

1. Exclusive Agri-Financing for Cooperatives: Dalwai Committee (2018) suggested a special credit window for agri-cooperatives.
2. FPO-Corporate Tie-ups: NABARD (2022) recommends collaborations with agri-tech startups to improve capital flow.
3. Governance reforms and Amendment of Cooperative Laws: SFAC Report (2022) recommends simplifying the registration and
compliance process.
4. Formation of New-Age Cooperatives: Promote hybrid models where cooperatives work with private sector & FPOs.
5. Professional Management & Leadership Development: Encourage skilled professionals in cooperative management through
specialized training and cooperative leadership programs.
6. Technology Adoption & Digitalization: Promote the use of precision farming, e-market platforms (like e-NAM), and AI-based
farm management tools to increase efficiency.
7. Strengthening Governance & Transparency: Enforce strong auditing mechanisms, digitize transactions, and introduce account-
ability laws to prevent corruption.
8. Land Pooling & Legal Protection for Farmers: Implement land pooling models with clear legal frameworks ensuring that farmers
retain ownership rights while benefiting from collective farming.
9. Specialized Cooperatives for Different Crops & Products: Promote crop-specific and region-specific cooperatives (e.g., Sahy-
adri Farms for fruits, Amul for dairy) for better focus and expertise.

The Model Agricultural Land Leasing Act, 2016 was proposed by the NITI Aayog to enable legal leasing of agricultural land while pro-
tecting the rights of both landowners and tenant farmers. The Act aims to formalize land leasing, ensure security of tenure, and improve
agricultural productivity without compromising the ownership rights of landowners.
Key Features of the Model Land Leasing Act, 2016
1. Legal Recognition of Land Leasing: The Act legalizes agricultural land leasing across India, allowing farmers to lease their land with-
out fear of losing ownership.
2. No Adverse Possession for Tenants: The Act ensures that leasing land does not lead to tenants claiming ownership under tenancy
rights.
3. Flexibility in Lease Terms: Landowners and tenants can mutually decide the duration, rent, and other terms of the lease. Leases can
be short-term or long-term, depending on the agreement.
4. Tenant Farmers Get Access to Institutional Credit: The Act allows tenants with valid lease agreements to access bank loans, crop
insurance, and government subsidies.
5. Dispute Resolution Mechanism: The Act provides a dispute resolution mechanism through a “Special Land Tribunal” within the Civil Court.

Strengths of the Act

1. Boosts Agricultural Productivity: Legalizing leasing allows efficient farmers and agribusinesses to cultivate more land, leading to high-
er productivity. It helps bring fallow land back into cultivation.
2. Increases Landowners’ Willingness to Lease Land: since tenants cannot claim ownership, landowners feel safer leasing land rather
than leaving it idle.
3. Reduces land fragmentation and promotes large-scale farming.
4. Improves Tenants’ Financial Security: Tenant farmers can access bank credit, crop insurance, and government subsidies.
5. Reduces Rural Distress & Migration: Ensures fair rental agreements, preventing exploitation of tenants, reducing distress migration to
cities.
6. Encourages Investment in Agriculture: It helps in agri-tech adoption, contract farming, and private sector participation.
7. Ensures Efficient Use of Land Resources: India has over 25% of agricultural land lying fallow due to fear of tenancy laws. The Act
allows better land use by formalizing land leasing agreements.

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Challenges in the Act
1. Lack of Enforcement by States: Land is a State Subject, and many states have not implemented the Act due to political opposition.
2. Diversion of Agricultural Land: The Model Leasing Act may lead to the diversion of agricultural land from crop cultivation to com-
mercial uses, such as plantation crops, animal husbandry, and dairy.
3. No Provision for Tenant Eviction Protection: While the Act prevents tenants from claiming ownership, it does not provide strong
protections against forced eviction.
4. Excludes Informal Leasing Practices: Eg- many leases in India are verbal agreements, especially among small farmers.
5. Challenges in Institutional Credit Access: Banks require land ownership or formal lease records for loans, but many tenants still
lack legal agreements.
6. Resistance from Political & Landowning Communities: Large landowners and political groups oppose tenancy reforms, fearing
long-term legal disputes.
7. Absence of Proper Land Records: Poor land record management and outdated land surveys make it difficult to verify ownership,
leading to disputes and reluctance in formal leasing.

Way Forward
1. Need for State-Level Adoption: States should actively adopt and customize the Model Act for regional needs.
2. Awareness & Legal Aid for Farmers: Campaigns to educate both landowners and tenants about their rights under the Act.
3. Digitization of Land Leasing Records: Using technology like blockchain and land registries to track legal leases.
4. Stronger Protections for Tenant Farmers: Ensuring tenants are not unfairly evicted and have access to credit and subsidies.
5. Promotion of Long-Term Leasing: Encouraging 5-10 year leases for greater investment in land productivity.

Key Aspects of Land Record Modernization in India:

1. Digitization of land records for online access.
2. Integration of textual (ownership details) and spatial (maps) records.
3. Use of Geographic Information Systems (GIS) for accurate mapping.
4. Online land mutation, title verification, and mortgage registration.
5. Blockchain technology to prevent tampering and fraud.

Government Initiatives for Land Record Modernization in India

1. Digital India Land Records Modernization Programme (DILRMP) (2008): Aims to digitize land records and integrate all land re-
cords into a single digital database.
a. 94% of land records digitized across states.
b. 75% of cadastral maps scanned and linked to records.
2. SVAMITVA Scheme (2020): Uses drone technology to map rural land ownership. It provides property cards to rural landowners for
legal ownership proof. Over 60 lakh property cards issued in villages.
3. National Generic Document Registration System (NGDRS): It enables online land registration across states. 12 states have ad-
opted NGDRS for e-registration.

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Digital India Land Records Modernization Programme (DILRMP)
The Digital India Land Records Modernization Programme (DILRMP), initiated in 2008 and restructured in 2016, aims to digitize and
modernize land records across India.

Need for Digitization of the Land Record Management System

1. High Land Disputes & Litigation: 66% of all civil cases in India are land-related (NITI Aayog, 2021).
2. Unclear Land Ownership & Title Ambiguities: Over 90 million land parcels in India lack clear ownership records (World Bank, 2022).
3. Land Encroachment & Illegal Possession: 25% of government land is illegally encroached (Ministry of Rural Development, 2022).
4. Low Credit Access for Farmers & Tenants: Only 60% of farmers have access to institutional credit, mainly due to lack of land owner-
ship proof (NABARD, 2022).
5. Corruption & Bribery in Land Transactions: Over ₹20,000 crore is lost annually due to bribes in land registration and mutations
(Transparency International, 2023).
6. Inefficient Land Acquisition for Infrastructure & Development: Eg- Mumbai-Ahmedabad Bullet Train Project was delayed by 3
years due to unclear land ownership records.
7. Difficulty in Implementing Welfare Schemes: PM-Kisan scheme had a 25% rejection rate due to ownership mismatches in land records.
8. Infrastructure Development: Unclear land titles cause project delays, legal disputes, and black-market transactions, hindering
economic growth.
9. Livelihood and Social Justice: Secure land ownership is crucial for poor, marginal farmers, and tribal communities, ensuring liveli-
hood security and access to welfare schemes.
10. Outdated Land Mapping: Mismatch between land records and ground realities causes ownership conflicts and encroachments.
11. Exclusion from Welfare Schemes: Inaccurate land records result in exclusion from rural development schemes like PM-KISAN,
affecting targeted service delivery.
12. Revenue Generation: Strengthening land titling and property tax collection can enhance local government revenues and finan-
cial sustainability.

Status and Achievements: As of October 2024, DILRMP has made

significant progress:
1. Digitization of Land Records: Approximately 95% of rural land records have been digitized, covering over 626,000 villages.
2. Digitization of Cadastral Maps: Around 68% of cadastral maps have been digitized nationwide.
3. Integration of Sub-Registrar Offices (SROs): 87% of SROs have been integrated with land records, facilitating seamless property
transactions.
4. Implementation of ULPIN: The Unique Land Parcel Identification Number has been introduced to uniquely identify land parcels,
aiding in reducing disputes and ensuring clear titles.

Key Initiatives under DILRMP

1. Unique Land Parcel Identification Number (ULPIN): It provides a 14-digit alphanumeric code for each land parcel, based on its
geo-coordinates.
2. National Generic Document Registration System (NGDRS): It provides a uniform process for document registration across the
country, allowing online entry, payments, appointments, and document searches.
3. e-Court Integration: It aims to provide authentic land information to the judiciary, aiding in faster case resolution and reducing land
disputes.
4. Transliteration of Land Records: To overcome language barriers in accessing land records, the program is transliterating land docu-
ments into any of the 22 languages listed in Schedule VIII of the Constitution.
5. Bhoomi Samman: 168 districts across 16 States have achieved “Platinum Grading” for completing over 99% of the program’s core
components, including land record computerization and map digitization.

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Benefits of land records modernization:
1. Reduction in Land Disputes: Digitized and transparent records minimize ambiguities, leading to fewer legal conflicts.
2. Enhanced Accessibility: Landowners and potential buyers can easily access records online, streamlining verification processes.
3. Improved Governance: A centralized digital system aids in efficient land management and policy formulation. Eg- Karnataka’s
‘Bhoomi’ Project computerized over 20 million land records, providing farmers with online access to their land details.
4. Economic Empowerment: Clear land titles enable owners to leverage their property for loans and other financial benefits.
5. Land Use Planning: GIS-based mapping helps prevent land fragmentation and improve planning.
6. Enhances Farmer Security & Credit Access: Landowners can use digital property titles as collateral for bank loans.
7. Improves Governance & Tax Collection: Increases property tax compliance, benefiting municipal revenues.
8. Boosts Ease of Doing Business: Foreign and domestic investors get clear land titles, reducing legal risks. Speeds up land acquisition
for industries and infrastructure projects.

Challenges:
1. Presumptive Land Titling: Under the Transfer of Property Act, 1882, land transfers require registration of sale deeds, not land
titles. This means ownership is not always guaranteed, as past transactions can be legally challenged.
2. Land ownership is established through multiple documents maintained by different departments, making it cumbersome to access
them. Eg- sale deeds are stored in the registration department, maps are stored in the survey department, and property tax receipts
are with the revenue department.
3. Land is a state subject, and the implementation of DILRMP depends on the willingness and cooperation of state governments.
4. Data Discrepancies: Inconsistencies in legacy records pose hurdles in accurate digitization.
5. Legal and Administrative Complexities: Multiplicity of laws and regulations governing land records can cause delays and confusion.
6. Issues with Land Ownership Clarity: Multiple ownership claims, missing records, and inheritance disputes slow down digitization.
80% of rural landowners lack clear land titles (NITI Aayog).
7. Resistance from Bureaucracy: Local land officers and intermediaries fear losing power due to digitization.
8. Corruption: Bribery in manual land transactions remains an issue.
9. Challenges Highlighted by N-LRSI Study:
a. Skilled Manpower: Lack of skilled personnel in land record departments hampers regular updates.
b. Interdepartmental Cooperation: Poor cooperation among departments handling textual records (Revenue), spatial records (Sur-
vey and Settlement), and transaction registration (Registration).

Way Forward:
1. Standardization of Processes: Establishing uniform protocols for data entry, verification, and updating to ensure consistency across regions.
2. Legal Reforms: Updating laws to enable property title registration, timely record updates, and better land governance.
3. Strengthen State-Level Implementation: Ensure all states digitize land records and integrate cadastral maps.
4. State-Guaranteed Ownership: Transitioning to conclusive land titling will enhance transparency and accuracy in land records.
5. Model Act on Conclusive Land Titling (2020): NITI Aayog’s framework can guide state-level legal reforms for secure land ownership.
6. Technological Integration: Enhancing GIS-based geo-referencing, cadastral mapping, and NGDRS for efficient land record
management.
7. Improve Legal & Ownership Clarity: Conduct land surveys with drone technology to update records. Launch a nationwide land
title verification drive for accuracy.
8. Increase Public Awareness: Provide helplines and online portals in local languages for easy land record access. Train local offi-
cials and citizens on using e-land services.

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Agriculture Technology
And Marketing
Previous Year Questions (PYQs)
[2024] Elucidate the importance of buffer stocks for stabilizing agricultural prices in India. What are the challenges associated with the
storage of buffer stock? Discuss.

[2015] How can Digital India Programme help farmers to improve farm productivity and income?What steps has the government taken in
this regard?

[2014] There is also a viewpoint that APMC set up under the State Acts have not only impeded the development of agriculture but also
have been the cause of food inflation in India. Critically Examine.

Storage is a crucial marketing function that involves holding

and preserving goods from the time of production until they are
required for consumption.

Storage Capacity in India:

1. India’s food grain storage capacity stands at 145 million metric
tonnes (MMT), while its total food production is 311 MMT.
This results in a shortfall of 166 MMT. (Ministry of Commerce)
2. India’s existing storage capacity can accommodate only 47%
of its total food grain production.
3. According to the Food and Agriculture Organization (FAO), over
40% of food produced in India is wasted due to inadequate
cold storage facilities and insufficient storage infrastructure.
4. India loses 74 million tonnes of food annually, comprising 22%
of foodgrain output or 10% of total foodgrain and horticulture
production in 2022-23 (ICAR).

Need for Storage and Warehousing

1. Population Pressure: With a population of 1.4 billion, India
needs robust storage infrastructure to ensure food security
for its growing population, which is projected to reach 1.64
billion by 2047.
2. Food Security: India runs the world’s largest food programme
under the NFSA, 2013, covering 81 crore people. Adequate
storage is essential to meet the food needs of such a large
population.
3. Post-Harvest Losses: India loses 1.53 trillion rupees (USD 18.5 billion) annually (4-6% for cereals, 6% for pulses, and 6-15% for
fruits). Improved storage can reduce these losses to as low as 1-2%.
4. Economic Support to Farmers: Proper storage infrastructure can prevent distress sales by farmers, ensuring better prices for their
produce and improving their income.
5. Emergency Preparedness: Resilient storage systems are crucial for managing food supply during natural calamities (floods,
droughts) and pandemics like COVID-19.

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6. Employment Generation: The construction and operation of storage facilities can generate local rural employment, boosting rural
economies and supporting livelihoods.
7. Global Comparison: Countries like China have storage capacities exceeding their food production (660 MMT against 615 MMT),
while India has a deficit of 166 MMT
8. Regional Disparities: some southern states have over 90% capacity, while northern states like UP and Bihar have less than 50%.
Addressing these disparities is crucial for equitable food distribution.
9. Sustainable Development Goals (SDGs): Improved storage infrastructure aligns with SDG 2 (Zero Hunger) by ensuring food security
and reducing hunger and malnutrition.
10. Preventing Open Storage: Around 30 million tonnes of food grains are stored in the open, making them vulnerable to damage.
11. Market Stability: Poor storage facilities lead to hoarding and market volatility. Enhanced storage infrastructure can help stabilize
the market and control inflation.

Challenges in Agricultural Storage:

1. Inadequate Farm-Level Storage: Lack of proper storage facilities at the farm level leads to significant post-harvest losses due to
pest and insect damage.
2. Overdependence on Traditional Storage: Farmers rely on kutcha godowns, open storage, and household granaries, leading to
pest infestations and spoilage.
3. Lack of Private Investment: High costs and low profitability deter private sector participation in modern warehousing. Eg- Delays
in PPP-based storage projects under the Gramin Bhandaran Yojana.
4. APMC Monopoly and Storage Issues: APMC-regulated warehouses are inadequate and inefficient, leading to hoarding and
artificial price inflation.
5. Poor Warehouse Management & Technology Use: Lack of scientific storage, fumigation, and temperature control leads to grain spoilage.
6. Inadequate Transportation & Logistics: Poor connectivity between farms and warehouses results in delays and damage during transit.
7. Policy & Implementation Gaps: Eg- Delays in implementing Private Entrepreneurs Guarantee (PEG) Scheme for storage expansion.
8. Poor Infrastructure Quality: Many warehouses and godowns lack the necessary conditions, such as proper temperature and mois-
ture control, leading to spoilage and degradation of stored goods.
9. Under-Utilization of Existing Facilities: India has 8,653 cold stores with a capacity of 394.17 lakh MT, but only 60% of this ca-
pacity is utilized, indicating inefficiencies in the system.
10. Geographical and Logistical Challenges: summer temperatures reaching 45-50°C, causing damage to temperature-sensitive
products during transport due to inadequate cold chain systems.
11. High Costs: The high cost of building and operating cold storage facilities, with fuel costs constituting 45% of operating expenses,
makes it difficult for startups and small businesses to enter the industry.
12. Fragmented and Uneven Distribution: 60% Cold storage capacity is concentrated in just four states (UP, Gujarat, West Bengal,
and Punjab), leaving other regions underserved. (CAG Report)
13. Technological Lag: lag in adopting advanced technologies like AI, Machine Learning, and the Internet of Things, which are crucial
for optimizing cold chain operations and reducing losses.
14. Inefficient Cooperative Systems: Primary Agricultural Credit Societies (PACS) and agricultural cooperatives are inefficient, with
only about 63,000 out of 1 lakh PACS currently operational.
15. Inadequate Space-Saving Storage: During procurement seasons, lack of adequate Cover and Plinth (CAP) storage facilities
forces storage of grains in open spaces, exposing it to environmental damage.
16. Lack of Awareness: Farmers, food processors, and logistics experts often lack awareness about the benefits of cold storage and
cold chain systems, leading to underutilization and poor adoption.

Issues Related to Procurement and Storage by FCI

1. Open-ended Procurement: This lead to overstocking, creating challenges in management and storage. It also encourages a cul-
ture of inefficiency and dependency among producers.
2. Market Distortion: The procurement practices distort market prices, creating an artificial environment that impacts the natural
supply-demand balance.
3. Imbalances in Storage Facilities: There is often a mismatch between the locations of surplus production and storage facilities, lead-
ing to logistical challenges and increased costs.
4. Inadequate Storage Facilities: Many storage facilities are not sufficient in terms of capacity and condition, leading to wastage and
spoilage of food grains.
5. Lack of Scientific Storage Mechanisms: The storage techniques employed are often outdated and lack scientific basis, resulting in
significant losses due to poor preservation practices.
6. Poor Pest Management: Ineffective pest control measures lead to significant spoilage and loss of food grains during storage.
7. Non-adherence to First In, First Out (FIFO) Principle: There is often a failure to follow the FIFO principle, causing older stocks to
deteriorate while newer stocks are used first.
8. Transit Losses: Significant losses occur during the transportation of food grains, due to poor handling, pilferage, and inadequate packaging.

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Steps Taken by the Government to Improve Storage Infrastructure:
1. Negotiable Warehouse Receipt (NWR) System: The Warehousing Development and Regulatory Authority (WDRA) ensures the
implementation of the NWR system.
2. World’s Largest Grain Storage Plan in Cooperative Sector: The plan involves creating decentralized godowns, custom hiring
centers, processing units, and Fair Price Shops at the Primary Agricultural Credit Societies (PACS) level by integrating various
existing Government schemes across ministries.
3. Priority Sector Lending (PSL): Loans for constructing storage facilities, including warehouses, market yards, godowns, and silos, are
included under PSL norms.
4. Private Entrepreneurs Guarantee Scheme: This scheme incentivizes private players to construct godowns.
5. Subsidies: The government provides subsidies for the construction of cold storage facilities.
6. Under Pradhan Mantri Kisan Sampada Yojana (PMKSY) storage and cold chain facilities are created.
7. Mission for Integrated Development of Horticulture (MIDH): Provides financial assistance for the construction, expansion, and mod-
ernization of cold storages (up to 5000 MT capacity) under the Capital Investment Subsidy Scheme for horticulture product storage.
8. ‘Village Storage Scheme’ announced in Budget 2020: To be run by women SHGs.
9. The essential commodities act(ECA) has been amended to relax stocking limits and thus encourage private and foreign investments
in storage.
10. National Policy on Handling, Storage, and Transportation of Food Grains (2000): This policy encourages private sector participation
in developing warehouse and storage infrastructure.

Way Forward:
1. Shanta Kumar Committee (2015):
• Phasing Out CAP Storage: replacing covered and plinth storage with silo technology
• Containerized Grain Movement: Recommended containerizing grain transport to minimize transit losses and expedite delivery.
• Private Sector Engagement: Suggested converting outdated Food Corporation of India (FCI) storage facilities into modern silos
through private sector collaboration.
• FCI should outsource its stocking operations to agencies like Central Warehousing Corporation, State Warehousing Corporations,
the private sector under the Private Entrepreneur Guarantee (PEG) scheme
2. Ashok Dalwai Committee (2017):
• Decentralized Storage Planning: Emphasized state-specific storage strategies tailored to local agricultural practices.
• Village-Level Aggregation Units: Build small and medium warehouses in rural areas to reduce transport losses. Promote
Farmer Producer Organizations (FPOs) for community-based storage.
• Integrated Agri-Logistics Systems: Advocated for seamless farm-to-consumer supply chains to enhance storage and distribution
efficiency.
3. Boosting the Warehouse Receipt System (WRS): Expand the electronic Negotiable Warehouse Receipt (e-NWR) system to
enable credit access for farmers.
4. Strengthen Traditional Storage: Enhance traditional storage methods with modern, low-cost solutions like storage bins to minimize losses.
5. Scientific Storage Protocols: Develop protocols for safe storage, including proper site selection, structure design, cleaning, fumigation,
aeration, and regular stock inspections.
6. Technological Integration: Utilize GPS tracking and remote sensing to monitor food grain storage facilities and prevent losses.
7. Boost R&D: Focus research on biotic/abiotic factors affecting storage, spoilage detection, safe fumigants, and uniform fumigation techniques.
8. Rationalization of Buffer Stocks: Maintain only the required minimum levels of buffer stocks by reducing excess inventory.
9. FIFO Policy: Strictly implement the First-in-First-Out policy to prevent stock wastage and damage.

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The FCI transports approximately 40 million tonnes of food grains annually across India, primarily relying on railways (over 85%),
with the remainder moved by roads and waterways.

Issues and Constraints

1. Poor Road Infrastructure: Inadequate road networks, poor road conditions, and lack of maintenance cause delays, leading to spoil-
age, quality loss, and reduced profits.
2. Inadequate Storage and Packaging: Lack of proper storage and packaging facilities damages produce during transit, resulting in
spoilage and loss of value.
3. Inefficient Logistics Systems: Poorly organized logistics lead to delays, affecting the freshness and quality of perishable agricultural products.
4. Lack of Temperature Control: Many agricultural products require controlled temperatures during transit. The absence of cold chain
facilities leads to spoilage and quality degradation.
5. Seasonal Variations: Fluctuating demand and supply due to seasonal production create challenges in maintaining consistent trans-
portation and pricing.
6. Overdependence on Railways: While railways handle over 85% of food grain transport, inefficiencies and delays in rail networks
impact timely delivery.
7. Security Concerns: Theft, vandalism, and attacks on transportation vehicles result in product losses and financial setbacks.
8. High Transportation Costs: Rising fuel prices and inefficient route planning increase the cost of moving agricultural produce, reducing
farmers’ margins.
9. Limited Use of Waterways: Underutilization of waterways for transporting agricultural goods, despite their cost-effectiveness, adds
pressure on road and rail networks.

Government Schemes:
1. Kisan Rails: Introduction of multi-commodity trains with chilled carriages for quick and efficient transportation of perishable goods
like fruits and vegetables across the country.
2. Krishi Udan Scheme: Focuses on improving air transportation for agricultural goods, enhancing value realization, especially in tribal
and northeastern regions.
3. Transport and Marketing Assistance (TMA): Provides support for international freight and marketing of agricultural products to
boost exports.
4. Operation Green Subsidy: Offers up to 50% subsidy on the transportation of fruits and vegetables to stabilize prices and reduce
post-harvest losses.
5. Kisan Rath Mobile App: Facilitates the transportation of food grains and perishables by connecting farmers with transporters for
seamless logistics.

Way Ahead
1. Strengthen Cold Chain Networks: Expand cold storage and refrigerated transport facilities to preserve perishable goods like fruits,
vegetables, and dairy products.
2. Promote Multi-Modal Transport: Encourage the use of railways, waterways, and air transport alongside roads to reduce costs and
improve efficiency.
3. Adopt Technology-Driven Logistics including GPS tracking, real-time monitoring, and digital platforms like the Kisan Rath App, to
optimize transportation routes and reduce delays.
4. Financial Support for Farmers and Transporters: Provide subsidies, low-interest loans, and incentives to farmers and transporters
for investing in transportation infrastructure and storage facilities.
5. Scale up initiatives like Kisan Rails and Krishi Udan to ensure quick and cost-effective transportation of perishable goods across the
country and to international markets.
6. Focus on Regional Connectivity: Develop transportation hubs in rural and remote areas, especially in the northeastern and tribal
regions, to ensure equitable access to markets.

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Agricultural marketing involves the buying and selling of farm products, encompassing all activities, agencies, and policies related to
farmers’ procurement of inputs and the movement of produce from farms to consumers. As per Indian Council of Agricultural Research,
marketing involves three key functions: Assembling, Processing and Distribution.

Agricultural marketing is a state subject under the Seventh Schedule of the Constitution of India. It is listed under Entry 28 of List-II
(State List).

Key Data
1. There are approximately 6,639 Agricultural Produce Market Committees (APMCs) in India. 1,466 APMC markets are currently con-
nected to the National Agriculture Market (eNAM) platform
2. Market Network: ~22,505 rural primary markets (RPMs) and ~7,190 wholesale markets operate under state marketing laws.
3. Mandi Sales: Less than 50% of paddy and wheat harvests are sold in mandis, with a significant portion sold outside..
4. NSSO 2019 Report:
• 63% of 93 million agricultural households sell crops.
• 76% sell to local markets, while only 7.2% use APMC markets.
• Just 5.4% sell to private processors and 0.37% to contract farming companies.

Types of Agricultural Marketing in India

1. Primary Markets: Known as Hatts or Shandies, these are temporary markets held weekly near villages.
2. Regulated Markets (APMC Markets)- ensure fair trade and price regulation. Eg- Mandi system in states like Punjab and Maharashtra.
3. Unregulated Markets (Private Trade & Local Markets): Farmers sell directly to traders, retailers, or middlemen without government
regulation.
4. Cooperative Marketing E- g- Amul Dairy Cooperative and Nafed (National Agricultural Cooperative Marketing Federation).
5. Government Procurement (MSP System): The government procures crops like wheat, rice, and pulses at Minimum Support Pric-
es (MSP) through agencies like FCI, Nafed, and State Cooperatives.
6. Contract Farming: Farmers enter agreements with companies for assured buyback at predetermined prices. Eg- PepsiCo’s contract
farming for potatoes in Punjab.
7. Online and e-NAM Platforms: Digital marketplaces allow farmers to sell produce acrossstates, ensuring price transparency. Eg- e-NAM
and AgriBazaar.
8. Direct Marketing (Farmers’ Markets): Farmers sell produce directly to consumers, bypassing middlemen. Eg- Rythu Bazaars
(Andhra Pradesh, Telangana), Apni Mandi (Punjab, Haryana).
9. Corporate & Retail Market Chains: Eg- Reliance Fresh, BigBasket, ITC e-Choupal.
10. Export Markets: Indian agricultural exports include rice, spices, tea, and fruits, supported by APEDA and export incentives.
11. Futures and Commodity Markets: Eg- NCDEX (National Commodity and Derivatives Exchange), MCX (Multi Commodity
Exchange).
12. Terminal Markets: Located in cities or ports, these markets deliver goods to consumers, final buyers, or processing units, often
operating statewide.
13. Fairs: Organized annually during religious occasions at pilgrimage centers, these fairs serve as important platforms for selling agricultural
produce.

Significance of Agricultural Marketing:

1. Monetizing Farm Produce: Helps farmers get better prices by reducing middlemen exploitation. Eg- MSP (Minimum Support Price)
for wheat and rice stabilizes farm incomes.
2. Better Price Realization: Promotes competitive trade, ensuring fair prices. Eg- eNAM helping Maharashtra soybean farmers connect
with pan-India buyers.
3. Strengthens Supply Chains & Food Security: Ensures efficient food distribution, reducing shortages in remote areas. Eg- Public
Distribution System (PDS).
4. Market Information and Price Signals: Provides data on demand and quality. Eg- farmers using Agmarknet for real-time price updates.
5. Reducing Role of Intermediaries: Streamlines supply chains, increasing profits. Eg-FPOs enabling direct sales without middlemen.
6. Reduces Post-Harvest Losses: Quick market access minimizes wastage and spoilage of perishable crops. Eg- Cold storage networks
for fruits and vegetables reduce losses.
7. Promote Crop Diversification: Better market opportunities promote high-value crops over traditional cereals. Eg- Rising demand
for organic and horticultural crops in domestic and export markets.
8. Enhances Rural Income & Employment: Generates jobs in storage, transport, and agro-processing sectors. Eg- Amul transforming
rural Gujarat through cooperative dairy marketing.
9. Boosts Agricultural Exports: Eg- India’s Basmati rice, spices, and tea are in high global demand.
10. Promotes Value Addition & Agro-Processing: Strengthens food processing industries, increasing farm profitability. Eg- Bihar’s
Makhana processing industry
11. Encourages Private Investment in Agriculture: Eg- Reliance Fresh and ITC e-Choupal connect farmers to organized retail markets.
12. Supports Sustainable Agriculture & Climate Resilience: Encourages eco-friendly farming through premium pricing for sustainable
produce. Eg- Sikkim’s organic farming has higher export value.

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Issues Pertaining to Agriculture Markets in India
1. Licensing Barriers: Mandatory shop/godown ownership for traders creates monopolies, cartelization, and restricts competition in APMCs.
2. High Market Charges: APMCs levy fees (0.5%-2% of sale value) and additional charges (Eg- purchase tax, weighment fees), totaling
up to 15% in some states, increasing costs for farmers
3. Fragmented and Inefficient Market System: Multiple intermediaries reduce farmers’ profits and increase consumer prices. Eg-
Farmers receive only 30-40% of the final price, with traders and commission agents taking a major share.
4. Price Volatility and Lack of MSP Coverage: Farmers suffer from frequent price crashes due to overproduction and global fluctua-
tions. Eg- Onion and tomato prices fluctuate drastically due to seasonal overproduction.
5. Lack of Grading Mechanisms: Absence of standardized grading prevents farmers from getting prices commensurate with produce quality.
6. Insufficient Public Investment: Only 4-5% of agricultural spending is on marketing, with less than 1% allocated to infrastructure
development.
7. Poor Market Infrastructure: Only two-thirds of markets have auction platforms, one-fourth have drying yards, and less than one-
tenth have cold storage or grading facilities.
8. Low Economic Viability: Long gestation periods and seasonality of agricultural projects deter investments in marketing infrastructure.
9. Delayed Demand Signals: Lack of real-time information forces farmers to rely on outdated price trends, leading to mismatched
supply and demand.
10. Lack of Awareness and Market Linkages: Small farmers lack knowledge of online platforms, e-NAM, and export opportunities.
11. No National Integrated Market: Despite APMCs, the absence of a barrier-free national market and uniform regulations hinders
seamless trade.

Agricultural Produce Market Committee[APMC]

The Agricultural Produce Market Committee (APMC) is a statutory body established by state governments under the APMC Act to regu-
late the trade of notified agricultural, horticultural, and livestock products, ensuring organized and fair marketing practices.

Objectives of APMC
1. Price Stabilization: By regulating trade practices and preventing price fluctuations, they help farmers avoid distress sales and
secure better returns.
2. Protection against Exploitation by intermediaries, traders, and creditors by providing a regulated market environment that prevents
coercion and protects farmers’ interests.
3. APMCs provide farmers with access to organized and efficient marketplaces, allowing them to sell their produce to a broader
range of buyers and reducing dependence on local intermediaries.
4. Market Infrastructure, including storage facilities, auction platforms, and quality testing labs, to enhance the efficiency and
reliability of agricultural trade.
5. Quality Assurance: APMCs implement quality standards and grading systems to ensure that agricultural produce meets defined
quality benchmarks, enhancing the value of farmers’ produce.
6. Reduce Market Charges: APMCs regulate market fees and charges imposed on traders and commission agents, ensuring that these
charges are reasonable and do not burden farmers.
7. Market Diversification: APMCs provide farmers with opportunities to access diverse markets and buyers, including retailers, processors,
and exporters, expanding farmers’ marketing options.
8. Consumer Protection: By ensuring quality standards and fair pricing, APMCs contribute to consumer protection by offering reliable
and safe agricultural products.

Major Issues in the Functioning of APMCs

1. Restricted Direct Purchases: APMC regulations prevent exporters and processors from buying directly from farmers, discouraging
agri-processing and exports, and creating a monopsony.
2. Dominance of Middlemen and Cartelization: Licensed traders and commission agents control prices, exploit farmers, and en-
gage in hoarding.
3. Over-Regulation and Corruption: Excessive regulations foster corruption and exploitation of farmers.
4. Fragmented Markets: Multiple license fees, limited licenses, delayed payments, and lack of amenities (Eg- grading, storage) hinder
farmers’ interests.
5. [Dalwai Committee] APMCs: Require 30,000+ markets, but only ~6,000 exist, and even these face significant challenges.
6. Delay in Market Interventions: The Market Intervention Scheme (MIS) process is slow; states must approach the centre, which
then forms a committee to fix prices.
7. Long Supply Chains with Many Intermediaries: As per the Ashok Dalwai Committee, farmers receive only 15%-40% of the final
consumer price due to lengthy supply chains.
8. Low Adoption of Contract Farming: Only 15 states have notified rules for contract farming, and there is no independent authority to
regulate it.
9. Uneven Spread of Mandis: Huge variation in market density; e.g., Punjab has one market per 118 sq. km, while Meghalaya has one
per 11,214 sq. km.
10. Restricted Private Investment: Only state governments can establish markets, blocking private sector investment in marketing
infrastructure.
11. Conflict of Interest: APMCs act as both regulators and market operators, with members and chairpersons often being traders,
leading to biased decisions favoring vested interests.

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12. Lack of Infrastructure and Storage Facilities: APMCs lack proper warehouses, cold storage, and grading facilities, causing
post-harvest losses.
13. Underutilization of e-NAM (Electronic National Agricultural Market): APMCs resist online trading, limiting price discovery and
competition.
14. Political Interference and Corruption: APMC committees are politically controlled, leading to nepotism and unfair trade practic-
es. Eg- Market licenses are often given to politically connected traders, creating entry barriers for new buyers.
15. Lack of Uniformity in APMC Regulations: Different states have different APMC rules, leading to market inefficiencies. Eg- Pun-
jab has high mandi fees, while Bihar abolished APMCs.

Reforms Required for Efficient Working of APMCs

1. Emphasize Sample-based Sales: Establish grading and sorting facilities near farm gates to save time and costs, and eliminate
the need for double transportation to APMCs.
2. Enhance Transparency in Trading: Conduct APMC trades through open auctions involving multiple bidders to facilitate direct trade
between buyers and sellers.
3. Reduce Distress Sales: Provide storage facilities and loans against warehouse receipts near APMCs to help farmers avoid distress
sales
4. Implement Uniform Mandi Fees: Impose a standardized fee of 0.25% or 0.50% for food grains, oilseeds, and fruits & vegetables to
compensate for APMC losses.
5. Expand Agricultural Markets: Establish “mini-markets” like GRAMs to increase the number of agricultural markets, as recom-
mended by the Ashok Dalwai Committee.
6. Lift Restrictions on Essential Commodities Act: Remove pricing, stockholding, and technology adoption restrictions imposed by
the ECA to facilitate agricultural trade.
7. Abolish Inter-State Trade Restrictions: Remove restrictions on the inter-state trade of agricultural commodities outside APMC
mandis to free up trade.
8. Improve Information Dissemination: Share timely and accurate information about market prices and demand to help farmers secure
better prices for their produce.

Model Agricultural Produce and Livestock Marketing(Promotion Fa-

cilitation)Act, 2017
1. Legal persons, growers and local authorities are permitted to apply for the establishment of new markets for agricultural produce in
any area. Under the existing law, markets are setup at the initiative of State Governments alone.
2. Single Market Fee for Intra-State Trade: Farmers and traders pay a single fee for intra-state trade, reducing transaction costs.
3. Separate Regulatory Authority: Establishes an independent authority to regulate all agricultural markets, including APMCs, and
issue trading licenses.
4. Separate provision is made for notification of ‘Special Markets’ or ‘Special Commodities Markets’ in any market area for specified
agricultural commodities to be operated in addition to existing markets.
5. A new Chapter on ‘Contract Farming’ added to provide for compulsory registration of all contract farming sponsors, recording of
contract farming agreements, resolution of disputes, if any, arising out of such agreement, exemption from levy of market fee on
produce covered by contract farming agreements and to provide for indemnity to producers’ title/ possession over his land from any
claim arising out of the agreement
6. Selling Perishables Outside Mandis: Allows traders to sell perishable goods like fruits and vegetables outside traditional mandis,
providing more flexibility.
7. Capping Market Charges: Caps market fees and commission charges paid by farmers, ensuring fairer pricing and reducing exploitation.
8. Warehouses and Cold Storages as Regulated Markets: Recognizes warehouses and cold storages as regulated markets, enabling
efficient storage and sale of produce.
9. The State Agricultural Marketing Board made specifically responsible for:
a. setting up of a separate marketing extension cell in the Board to provide market-led extension services to farmers;
b. promoting grading, standardization and quality certification of notified agricultural produce and for the purpose to set up a sepa-
rate Agricultural Produce Marketing Standards Bureau.
10. Direct Selling to Buyers: Permits farmers to sell directly to bulk buyers, processors, and exporters, bypassing intermediaries for
better price realization.

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Government Initiatives for Agricultural Marketing Reforms
1. Integrated Scheme for Agricultural Marketing (ISAM): Provides capital for creating agricultural infrastructure under the sub-
scheme Agricultural Marketing Infrastructure (AMI).
2. Market linkage approach based “Formation and Promotion of 10,000 Farmer Producer Organizations (FPOs) scheme.
3. Agriculture Infrastructure Fund (AIF) of Rs. 1,00,000 Crore to provide a medium-long term loan facility for investment in viable proj-
ects for post-harvest market infrastructure including warehousing facility and community farming assets through interest subvention
and financial support.
4. Agricultural Marketing Infrastructure (AMI), a sub-scheme of Integrated Scheme for Agricultural Marketing (ISAM): Government
provides subsidy at the rate of 25% and 33.33% on capital cost for post-harvest market infrastructure including warehousing facility
and community farming assets.
5. Model Contract Farming Act, 2018:
• Removes contract farming from the jurisdiction of Agricultural Produce Marketing Committees (APMCs).
• Establishes a Registering and Agreement Recording Committee for registering all contracts.
• Includes provisions for dispute resolution, such as negotiation, reconciliation, and referral to a dispute settlement officer.
6. Grameen Agricultural Markets (GrAMs): Establishes rural markets outside the regulation of APMCs.
7. SAMPADA (Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters): Aims to modernize the food
processing sector. Creates linkages between farmers and food processing industries.
8. Operation Greens: Focuses on stabilizing the supply of Tomato, Onion, and Potato (TOP) crops. Reduce price volatility of these crops.
9. Electronic-National Agricultural Market (e-NAM): Unifies mandis across India into a single national market through electronic
trading. Enables buyers anywhere in India to place orders in any mandi.
10. Agri-Market Infrastructure Fund (AMIF): Created with NABARD (Rs. 2000 crores) to develop and upgrade agricultural marketing
infrastructure in Gramin Agricultural Markets and Regulated Wholesale Markets.
11. Agri-Udaan: Mentors selected agricultural startups to scale up their operations in the agri-value chain for effective improvements in
agriculture.

Way Forward
1. Enforce APLM Act: Replace the existing APMC Act with the APLM Act to enable farmers to directly connect with buyers and discov-
er optimal prices for their produce.
2. Density of Markets: Ensure regulated markets are available within a 5 km radius (approximately 80 sq. km), as recommended by the
National Farmers Commission (2004).
3. Increase in Number: Implement the 2017 government committee recommendation to establish at least 10,130 mandis across India.
4. Single License: Replace separate licenses for each market with a single, hassle-free, and online license valid for the entire state.

Ashok Dalwai Committee Recommendations on Reforms in Agricul-

tural Marketing
1. Mini-Market Concept: Introduce mini-markets to bridge the gap between farmers and markets.
2. One India Market: Place agricultural marketing in the Concurrent List to facilitate the creation of a unified One India Market.
3. PRAMS (Primary Rural Agricultural Markets): Upgrade over 20,000 rural periodical markets to meet the demand for rural retail markets.
4. eNWRS (Electronic Negotiable Warehouse Receipt System): Develop comprehensive guidelines to promote warehouse-based
post-harvest loans and eNWR-based trading.
5. Farmer Producer Organizations (FPOs/VPOs): Establish and strengthen Farmer Producer Organizations and Village Producer
Organizations to empower farmers collectively.

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E-agriculture involves the design, development, and application of innovative information and communication technologies (ICTs) to
enhance agriculture, food production, fisheries, forestry, and livestock management.
A fully developed agritech ecosystem has the potential to boost Indian farmers’ incomes by 25 to 35% and contribute $95 billion to
the Indian economy. (Mckinsey and Company)

Need For Technology Integration in Agriculture

1. Higher Crop Productivity: Precision agriculture techniques reduce waste, enhance operational efficiency and increase yields. Eg-
Drones and sensors to optimize planting and irrigation.
2. AI and Big Data for Crop Monitoring: AI-driven analytics help predict pest attacks, soil health, and yield estimation. Eg- Startups
like CropIn and AgNext use AI to analyze crop conditions.
3. Agriculture Sensors: Sensors provide real-time data on soil moisture, nutrient levels, and crop health, enabling informed decision-making.
4. Blockchain for Transparent Supply Chains: Ensures traceability, fair trade, and reduced fraud in agricultural transactions.
5. IoT-Based Smart Irrigation: IoT-enabled systems monitor soil moisture and automate irrigation, saving water. Eg- IoT-based drip
irrigation reduce water wastage by 30%.
6. Drones for Crop Health and Pesticide Spraying: Drones provide real-time imaging for disease detection and precise pesticide
application.
7. Smart Warehousing and Cold Chain Logistics: Automated storage systems and IoT sensors prevent post-harvest losses. Eg-
FPO-managed cold storage units for onion farmers in Nashik.
8. Financial Inclusion through Agri-Fintech: Digital platforms enable instant credit, crop insurance, and direct benefit transfers.
Eg- Kisan Credit Cards (KCC) linked with mobile apps for easy loan access.
9. Biotechnology for Enhanced Crop Varieties: GM crops, bio-fertilizers, and disease-resistant seeds increase yield and reduce
dependency on chemicals. Eg- Bt cotton.
10. Efficient Agricultural Marketing: Digital platforms connect farmers directly to buyers, improving price realization and reducing
waste. Eg- e-NAM

Challenges in Technology Adoption

1. Unequal Distribution of Digital Dividends: Access to technology is uneven, with small and marginal farmers often left behind due to
high costs and lack of infrastructure.
2. Triple Divide:
• Digital Divide: Limited internet and smartphone access in rural areas.
• Rural-Urban Divide: Urban areas have better access to agritech compared to rural regions.
• Gender Divide: Women are 21% less likely to own mobile phones, limiting their access to digital tools (Broadband Commission).
3. Fragmented Land Holdings: The average farm size in India is approximately 1.08 hectares, limiting farmers’ ability to invest in expen-
sive technologies.
4. Limited Access to Credit and Financing: Small farmers lack access to loans for purchasing modern equipment and smart farming
tools. Eg- Kisan Credit Cards (KCCs) are underutilized
5. Complexity of Data Analysis: Eg- Soil health data from sensors often requires expert interpretation, which small farmers cannot afford.
6. High Initial Costs: The upfront investment required for agritech adoption is often prohibitive for small farmers.
7. Resistance to Change: Traditional farming practices and skepticism about new technologies slow down adoption. Eg- opposition
to GM Mustard

Government Initiatives
1. e-NAM (National Agriculture Market): An online trading platform for agricultural produce, enabling farmers, traders, and buyers to
trade seamlessly and achieve better prices.
2. Warehouse-Based Trading in e-NAM: Facilitates trade from warehouses using e-NWR (Electronic Negotiable Warehouse Receipts).
3. Agrisnet: A comprehensive web portal providing farmers with information on input quality, government schemes, and services
through ICT.
4. AGMARKNET (Agricultural Marketing Information Network): Broadcasts information to accelerate the agricultural marketing
system.
5. Digital Agriculture Mission (2021-2025): Launched by the Ministry of Agriculture, this mission integrates AI, remote sensing,
and blockchain to improve farm output, predict weather patterns, and streamline agricultural credit disbursement.
6. IFFCO Kisan Sanchar Ltd (IFFCO Kisan): Delivers customized voice messages on mobile phones to provide farmers with relevant
information and solutions.
7. MoU for AI-Driven Agriculture: An agreement between the National Farmers’ Welfare Programme Implementation Society,
IndiaAI (Digital India Corporation), and Wadhwani Foundation aims to establish India as a leader in AI-driven digital agriculture.
8. Kisan e-Mitra: An AI-powered chatbot designed to assist farmers by addressing queries related to government schemes like PM-Ki-
san Samman Nidhi, ensuring better awareness and accessibility.
9. SMS Portal/m-Kisan Portal: Sends SMS-based advisories and updates to farmers on weather, prices, and best practices.
10. Kisan Call Centers (KCCs): Provides farmers with instant access to agricultural experts for resolving queries.
11. Village Knowledge Centers (VKCs): Offers localized information and resources to farmers in rural areas.

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Way Forward
1. Bridge the Digital Divide in Rural Areas: Invest in improving connectivity and infrastructure in rural regions to ensure farmers have
access to reliable internet and digital tools.
2. Promote Public-Private Partnerships: Collaborate with private companies, academic institutions, and NGOs to develop and deploy
affordable, scalable, and sustainable ICT solutions for agriculture.
3. Promote Affordable and Accessible Technologies: Develop low-cost, user-friendly ICT tools and platforms that are accessible to
smallholder farmers, including mobile-based applications.
4. Enhance Digital Literacy and Training: Provide training programs to farmers and agricultural stakeholders to improve their digital
skills and enable effective use of ICT tools.
5. Focus on Climate-Resilient Solutions: Integrate ICT tools with climate-smart agricultural practices to help farmers adapt to changing
environmental conditions and improve resilience.

Application of Nanotechnology in Agriculture

1. Nano-Fertilizers: Nano-sized nutrients and fertilizers enhance nutrient uptake efficiency in plants while minimizing leaching and
environmental pollution.
2. Precision Agriculture: Nano-scale devices and sensors help collect real-time data on soil and crops, enabling targeted farming practices,
reducing resource wastage, and improving productivity.
3. Slow-Release Mechanisms: Nano-porous zeolites enable controlled nutrient release, enhancing fertilizer efficiency. Nano-sensors
optimize herbicide application by ensuring precise delivery.
4. Nano-Pesticides: Nano-encapsulated pesticides protect active ingredients from environmental degradation, ensuring prolonged
effectiveness with reduced chemical use.
5. Nano-Coatings for Storage: Edible nano-coatings on fruits and vegetables slow down oxygen and moisture penetration, delaying
ripening and reducing spoilage.
6. Nanotechnology in Gene Sequencing: Advanced nano-tools aid in gene sequencing, allowing precise identification and utilization of
beneficial plant traits for crop improvement.
7. Nano-Barcodes & Quality Monitoring: Nano-barcodes and nano-processing techniques enhance agricultural produce tracking and
quality assessment.
8. Soil Remediation: Nanoparticles, such as zero-valent iron (nZVI), help remove heavy metals and pollutants from contaminated soils,
improving soil health.
9. Nano-Biosensors for Disease Detection: These sensors can identify plant diseases at an early stage through biomarker detection,
enabling timely intervention and disease prevention.
10. Food Processing Innovations: Nano-based food additives, anti-caking agents, and fillers improve the mechanical strength and
stability of packaging materials, extending food shelf life.

Challenges
1. Regulation & Safety Concerns: Potential risks of nanoparticles to human health and ecosystems require robust regulatory frameworks
for safe usage.
2. Ethical Considerations: Long-term effects of nanotechnology on biodiversity, soil microorganisms, and traditional farming practices
remain debatable.
3. High Cost & Accessibility: Development and production of nano-based agricultural products are expensive, making them less
affordable for small-scale farmers.
4. Uncertain Environmental Impact: The long-term effects of nanoparticle accumulation in soil and water systems are not fully understood,
raising sustainability concerns.
5. Nanoparticle Behavior & Persistence: Unlike conventional agrochemicals, nanoparticles may exhibit unpredictable interactions
with soil, water, and crops, affecting their effectiveness and bioaccumulation risks.
6. Resistance Development: Pests and pathogens may develop resistance to nano-based pesticides and fungicides over time, reducing
their efficacy.
7. Knowledge & Awareness Gaps: Educating farmers, researchers, and policymakers about nanotechnology’s benefits and safe application
is crucial for widespread adoption.
8. Supply Chain & Infrastructure Constraints: Lack of infrastructure for large-scale nano-fertilizer and nano-pesticide production
limits their commercial availability.
9. Legal & Ethical Barriers: Intellectual property rights and patenting issues may restrict access to nano-based agricultural innovations
for small farmers.
10. Limited Field Trials & Research: More long-term research and large-scale field studies are needed to validate nanotechnology’s
effectiveness under diverse agro-climatic conditions.

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Government Initiatives
1. Nano Science & Technology Mission (NSTM): A national program aimed at promoting R&D in nanotechnology across various sec-
tors, including agriculture.
2. Nano Mission: Allocated ₹1,000 crores for five years to boost nanotechnology research and innovation in India.
3. Centers of Excellence in Nanoscience & Nanotechnology: Established under DST’s Nano Mission to train PG students and re-
searchers in key areas of nanotechnology.
4. IFFCO’s Nano Urea & Nano DAP Production: India became the first country to commercialize Nano Urea and Nano DAP, enhancing
fertilizer efficiency and reducing soil degradation.
5. Regulatory Framework Development: Efforts are underway to create guidelines for the safe and ethical use of nanotechnology in
Indian agriculture to prevent environmental risks

Biotechnology in Agriculture
India’s bio-economy market size is currently estimated at around $151 billion as of the end of 2023, with projections to reach $300
billion by 2030. As one of the top 12 biotechnology destinations globally and the third-largest in the Asia-Pacific region, India is a
key player in the biotech sector. .

Applications of Biotechnology in Agriculture

1. Genetically Modified Organisms (GMO):
• Enhanced tolerance to abiotic stresses such as drought, heat, salt, and cold.
• Reduced dependence on chemical pesticides through pest-resistant crops.
• Improved nutrient uptake efficiency, preventing early soil fertility exhaustion.
2. Nutrient-Enriched Crops:
• Biotechnology aids in developing biofortified crops to combat malnutrition.
• Eg- Golden Rice: rich in Vitamin A.
• Other biofortified crops include Iron-rich wheat, Zinc-enriched rice, and Beta-carotene-rich maize.
3. Genetically Modified Biopesticides: The Bt toxin gene, derived from bacteria, has been inserted into plants to provide natural
resistance against insect pests, reducing the need for synthetic insecticides. Eg- Bt Cotton, Bt Corn, Bt Tomato, Bt Potato, and Bt
Soybean.
4. Microbial Biotechnology for Soil Health: Application of effective microorganisms (EM) to enhance soil microbial diversity, leading to
improved crop yields and soil structure
5. Pest-Resistant Plants:
• Many plants and animals suffer from nematode infestations, which significantly reduce agricultural yields.
• Eg- Meloidogyne incognita, a nematode that infects tobacco plant roots, causing severe crop losses.
• A breakthrough RNA Interference (RNAi) technique was developed to block the nematode’s gene expression, preventing its
infestation without chemical pesticides.

Challenges
1. Ownership & Equitable Access: Biotechnology advancements rely on patents that grant exclusive rights to corporations. This can
limit accessibility for small farmers in developing nations.
2. Ethical Concerns: The ability to alter DNA sequences and patent genetically modified organisms raises ethical questions about
profit-driven genetic manipulation..
3. Uncertainty & Risks: New genomic techniques bring potential risks that are not fully understood, making their large-scale adoption
uncertain.
4. Environmental & Ecological Impact: Widespread genetic modification could disrupt ecosystem balance by affecting non-target
organisms. The development of pest- and virus-resistant crops may inadvertently lead to superweeds or resistant pests.
5. Gene Flow & Cross-Pollination Risks:GM crops may cross-pollinate with wild or native plant species, leading to unintended genetic
modifications and biodiversity loss.
6. Public Perception & Consumer Resistance: Lack of public awareness and misinformation limit acceptance of biotech-enhanced
crops.
7. Regulatory Challenges:
• India lacks comprehensive GMO regulations, leading to delays in approval and commercialization of biotech crops.
• Strict biosafety laws make it difficult for researchers and private firms to conduct large-scale field trials.
8. Impact on Pollinators: Certain genetically modified crops can negatively impact pollinators like bees and butterflies, disrupting
natural pollination cycles.Eg-studies suggest Bt crops may alter nectar composition, affecting pollinator behavior.
9. Resistance Development in Pests: Overuse of Bt cotton and Bt maize has led to some pests developing resistance, reducing
their effectiveness and necessitating new pest control strategies.
10. Low R&D Investments: Government funding for biotech research remains lower compared to developed nations, limiting break-
throughs in climate-resilient and disease-resistant crops

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Government Initiatives
1. Biotech KISAN:
a. Launched by DBT in 2017, this program bridges the gap between scientific research and farm-level implementation. It aims
to understand the problems of water, soil, seed and market faced by the farmers and provide simple solutions.
b. The programme has been scaled up and expanded in 115 Aspirational Districts. 52 Biotech-KISAN Hubs have been established
in collaboration with ICAR covering all 15 agro-climatic zones across the country. Over 200 entrepreneurships have also been
developed in rural areas.
2. Crop Biofortification & Quality Improvement Program: Focuses on enhancing the nutritional quality of staple crops through
genetic modification and breeding techniques.
3. National Plant Gene Repository Program: Establishes a gene bank for the preservation of valuable plant genetic resources to sup-
port future bio-technological advancements.
4. DMH-11 (Dhara Mustard Hybrid-11): A genetically engineered high-yielding mustard variety developed using hybridization and
genetic engineering to improve productivity.
5. GM Food Crop Research & Trials: The government has initiated field trials for GM brinjal and GM maize, aiming to boost resis-
tance against pests while ensuring environmental safety.
6. National Agricultural Biotechnology Policy: Provides a regulatory framework for safe and ethical use of biotechnology in agriculture.
7. Partnerships with ICAR & ICRISAT: Collaborative research with Indian Council of Agricultural Research (ICAR) and International
Crops Research Institute for the Semi-Arid Tropics (ICRISAT) to promote biotechnological innovations.
8. Biotech Parks & Incubation Centers: Established across various states to promote research, commercialization, and startups in
agricultural biotechnology.
9. Promotion of Neem-Coated Urea: Mandated urea manufacturers to produce neem-coated urea, which slows the release of nitrogen,
improving its uptake by plants and reducing the need for additional fertilizers.

Drone Technology
According to the World Economic Forum (WEF), leveraging drones as a central tool in this transformation could boost India’s GDP by
1-1.5% and create at least five lakh jobs in the coming years.

Significance of Drones in Agriculture

1. Drone-Based Chemical Spraying:
• Drones can cover one acre in 8-10 minutes, significantly reducing the time and water required (only 10 liters per acre) for spraying.
• Reduces physical strain and labor compared to manual spraying, with a 20% cost reduction and lower health risks, as per
World Economic Forum (WEF).
2. Crop Monitoring & Early Detection:High-resolution and multispectral imaging enable the early identification of diseases, pests,
and nutrient deficiencies, allowing timely interventions.
3. Support for Emerging Technologies:Drones facilitate the implementation of yield estimation models and improve efficiency in
crop insurance processes.
4. Real-Time Soil & Crop Health Monitoring:Equipped with advanced sensors, drones provide real-time insights on soil moisture,
nutrient levels, and crop health, improving farm management decisions.
5. AI & Data-Driven Precision Agriculture:Data collected by drones enhances AI-driven analytics, enabling precision agriculture
solutions such as automated crop health assessments.
6. Disaster Management & Risk Assessment:Drones assist in post-disaster assessments, helping evaluate damage due to floods,
droughts, or pest infestations for quicker recovery planning.
7. Seed Sowing & Irrigation Management:Specialized drones can be used for aerial seed dropping in difficult terrains and for assessing
irrigation needs to optimize water usage.

Challenges & Limitations

1. High Cost of Entry:Basic agricultural drones start at ₹50,000, with more advanced models equipped with specialized sensors being
significantly more expensive.
2. Battery Limitations:A standard drone can cover only six acres per battery charge (lasting 25 minutes), requiring frequent recharges or
additional battery investments.
3. Limited Suitability for Certain Crops:Drones struggle with spraying on crops like grapes, where dense leaf canopies block effective
pesticide or fertilizer penetration.
4. Regulatory & Licensing Challenges:Strict drone operation regulations, airspace restrictions, and licensing requirements limit
widespread adoption, especially in small-scale farms.

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5. Dependence on Weather Conditions:Drones may be ineffective during heavy rainfall, strong winds, or extreme weather, affecting
their reliability for time-sensitive agricultural operations.
6. Data Privacy & Security Risks:AI-driven drones collect large amounts of farm data, raising concerns about data ownership, security,
and misuse by third parties.
7. Initial Investment vs. Return on Investment (ROI):Small farmers find it difficult to afford drones, as the initial investment is high,
and ROI depends on factors like farm size, maintenance, and operational costs

Steps Taken by the Government

1. NAMO Didi Drone Scheme: Provides drones to 15,000 women-led Self-Help Groups (SHGs) for rental services to farmers, focus-
ing on fertilizer and pesticide application.
2. Kisan Drone Subsidy Program: Offers 50% (up to ₹5 lakh) subsidy for SC/ST, small & marginal, women, and northeastern farmers
to buy drones; 40% (up to ₹4 lakh) subsidy for other farmers.
3. ICAR’s Centre for Precision & Farming Technologies: Established by Indian Council of Agricultural Research (ICAR) to promote
precision agriculture, including drone technology integration.
4. Andhra Pradesh’s Rythu Bharosa Kendra Initiative: Plans to deploy 10,000 agricultural drones in a phased manner for improving
efficiency in farming operations.
5. Drone Certification & Training Centers: The government has initiated training programs for drone pilots to ensure skilled opera-
tors and effective drone usage in agriculture.
6. Use of Drones in PM Fasal Bima Yojana (PMFBY): Drones are being integrated into crop loss assessment surveys, ensuring accu-
rate insurance claims and compensation for farmers.

Precision Farming
Precision farming is a modern agricultural approach that utilizes
GPS, sensors, AI, and data analytics to optimize resource use,
enhance crop yields, and minimize input wastage. It enables
site-specific management of water, fertilizers, and pesticides,
improving efficiency, sustainability, and profitability in farming.
Indian smart agriculture market is expected to grow at CAGR of
13.38% and a projected market value of $886.21 million by 2028.

Benefits of Precision Farming

1. Enhanced Agricultural Productivity: Sensor-driven precision farming
ensures scientific input application, leading to higher crop yields.
2. Reduced Chemical Use in Crop Production: Drones and automated
sprayers allow targeted chemical applications, minimizing waste and
excessive pesticide use.
3. Soil Health Preservation: By avoiding excessive chemical
applications, precision farming prevents soil degradation and
leaching of harmful chemicals, ensuring long-term soil fertility.
4. Efficient Water Resource Utilization: Techniques like fertiga-
tion (applying fertilizers via irrigation systems) optimize water
use, reducing overall consumption while enhancing crop nutrition.
5. Increased Farm Incomes: Higher productivity, reduced input
costs, and lower wastage lead to improved farm profitability,
benefiting farmers economically.
6. Employment Generation: Precision farming creates specialized
job opportunities in drone operations, AI-driven farm analytics, and precision machinery maintenance.
7. Empowering Rural Youth: Training rural youth in drone piloting and precision farming technologies provides employment opportunities in
modern agriculture.
8. Promoting Sustainable & Climate-Resilient Farming: Precision farming methods reduce carbon footprints, optimize resource
use, and support sustainable agricultural practices.
9. Integration with Agri-Insurance & Credit Systems: Precision farming data assists in yield forecasting and insurance claims,
making financial support for farmers more efficient.

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Challenges
1. High Initial Investment & Capital Requirements: GPS, drones, and sensors are cost-intensive technologies, requiring significant
initial investment, making adoption difficult for small farmers.
2. Lack of Technical Expertise & Awareness: Many farmers lack knowledge of advanced farming technologies, creating a barrier to
widespread implementation.
3. Limited Suitability for Small Landholdings: Precision farming is more effective in large mechanized farms, whereas small farms
struggle to justify the high costs of technology adoption.
4. Cybersecurity Threats: Digital farming technologies are vulnerable to cyberattacks, which can disrupt food supply chains.
5. Dependence on Reliable Internet & Infrastructure: Precision farming requires stable internet connectivity, cloud computing, and
digital literacy, which are often lacking in rural areas.
6. Data Privacy & Ownership Issues: The large-scale collection of farm data raises concerns about who controls and benefits from
the data, leading to policy and ethical challenges.
7. Regulatory Gaps & Policy Support: The absence of clear policies on drone use, AI-driven decision-making, and data governance
limits large-scale adoption.
8. Environmental Impact of E-Waste: The disposal of obsolete electronic sensors, GPS systems, and AI hardware from precision
farming raises concerns over electronic waste management.

Government Initiatives
1. Sub-Mission on Agricultural Mechanization (SMAM): Provides subsidies for precision farming equipment like GPS-enabled tractors,
drones, and automated irrigation systems.
2. Kisan Drones Initiative: Offers 50% subsidy (up to ₹5 lakh) for SC/ST, small, marginal, women, and northeastern farmers to adopt
drone-based precision farming for spraying pesticides and fertilizers.
3. Digital Agriculture Mission (2021-2025): Integrates AI, IoT, and remote sensing to support precision farming, improve productivity,
and enhance decision-making for farmers.
4. ICAR Initiatives: Established Precision Farming Development Centres (PFDCs) to conduct research and train farmers in sen-
sor-based irrigation, fertigation, and soil health monitoring.
5. Soil Health Card Scheme: Provides farmers with soil test-based recommendations for precise fertilizer and nutrient management,
reducing overuse and improving yield.
6. Pradhan Mantri Krishi Sinchayee Yojana (PMKSY): Encourages micro-irrigation technologies like drip and sprinkler irrigation to
optimize water use in precision agriculture.
7. National E-Governance Plan for Agriculture (NeGPA): Promotes AI, remote sensing, and drone technology for real-time data
collection and smart farm management..
8. National Agricultural Market (e-NAM) Integration: Uses AI and Big Data analytics to help farmers make informed selling deci-
sions based on market trends and demand forecasts.
9. Agri-Stack Initiative: A digital database that integrates land records, crop patterns, and AI-driven analytics to help farmers adopt
precision farming techniques.

Agricultural extension services refer to the comprehensive network of organizations that assist and empower farmers with vital informa-
tion, new skills, and innovative technologies to enhance their livelihoods, productivity, and overall well-being.

Key Data
1. Low Utilization of Public Extension Services: Only about 6% of farmers in India actively use information provided by public agricul-
tural extension agencies.
2. Minimal Spending on Agri-R&D and Extension: India allocates approximately 0.7% of its agricultural GDP to agricultural Research
and Education, as well as Extension and Training combined.
3. Imbalanced Allocation of Funds:
• Out of the total spending, 0.54% of agricultural GDP is dedicated to Research and Education.
• Only 0.16% of agricultural GDP is allocated to Extension and Training services.

Types of Extension Services

1. Advisory Services: Skilled workers or agents provide farmers with expert advice to enhance crop production and farming practices.
2. Technology Services: Farmers benefit from access to appropriate technologies and training on how to effectively use them to improve productivity.
3. Facilitation Services: These services help farmers identify specific areas for improvement to achieve better agricultural outcomes

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Challenges
1. Overemphasis on Production, Neglecting Market Linkages:Extension services in India have traditionally focused on production
aspects, while farmers increasingly require market-related information and support to improve profitability.
2. Dual System of Service Delivery:Public extension provides advisory services, but input supply is dominated by the private sector.
This creates confusion, as farmers often purchase inappropriate inputs influenced by aggressive marketing by private dealers.
3. Regional Disparities in Funding:Dry regions (60% of agricultural land), receive only 23% of extension funding, while irrigated regions,
covering 24% of agricultural land, receive 35% of the budget.
4. Limited Access to Information: Smallholder and socially backward farmers primarily rely on local, informal networks, which may
not provide accurate or timely information.
5. Low Literacy Rates Among Farmers:Around 30% of Indian farmers are illiterate, making it challenging for them to adopt and utilize
modern agricultural technologies and practices effectively.
6. Inadequate Use of Digital Tools:Despite the growth of ICT in agriculture, many farmers lack access to or awareness of digital tools
and platforms that could enhance decision-making and productivity.
7. Weak Linkages Between Research and Extension, leading to delayed or ineffective dissemination of innovations to farmers.
8. Gender Disparities in Access to Services:Women farmers face barriers in accessing extension services due to socio-cultural norms
and limited outreach efforts targeting them.
9. Insufficient Funding for Extension Services:India spends only 0.16% of its agricultural GDP on extension and training, which is
inadequate to meet the diverse and growing needs of farmers.

Government Initiatives for Agricultural Extension Services

1. Krishi Vigyan Kendras (KVKs): A network of over 700 KVKs across India that provide on-field demonstrations, training, and advisory
services to farmers on modern agricultural practices.
2. National Mission on Agricultural Extension and Technology (NMAET): Aims to strengthen extension services through farmer
training, demonstrations, and ICT-based advisory systems.
3. Agricultural Technology Management Agency (ATMA): promotes farmer-centric extension services by integrating research institu-
tions, NGOs, and private sector participation.
4. M-Kisan Portal: A mobile-based advisory service where farmers receive SMS updates on weather, market prices, and farming techniques.
5. Kisan Call Centers (KCCs): Toll-free helplines that provide expert guidance on crop cultivation, disease management, and govern-
ment schemes in multiple languages.
6. e-NAM (National Agriculture Market): A digital platform that integrates APMC markets to provide farmers with real-time price infor-
mation and better market access.
7. Soil Health Card Scheme: Provides farmers with soil health reports and nutrient recommendations to optimize fertilizer use and
improve productivity.
8. Rashtriya Krishi Vikas Yojana (RKVY): Supports states in strengthening agricultural extension activities, including skill development and infrastructure.
9. Farm Machinery Training and Testing Institutes (FMTTIs): Government-supported centers that provide training in the use and
maintenance of modern farm equipment.
10. Government platforms like AgriStack, Kisan Suvidha, and PM Kisan App offer digital extension services, providing weather up-
dates, pest control measures, and subsidy details directly to farmers.

Way Forward
1. Strengthening Digital Extension Services: Expand the use of mobile apps, AI-driven advisories, and SMS-based alerts to provide
real-time weather updates, market prices, and pest management solution. Eg- AgriStack and M-Kisan Portal.
2. Enhancing Public-Private Partnerships (PPP): collaboration with agritech startups, NGOs, and private companies to deliver innova-
tive extension services and improve outreach. Eg- ITC e-Choupal model.
3. Localized & Farmer-Centric Approach: Develop region-specific extension models tailored to local soil, climate, and cropping pat-
terns to ensure more effective advisories.
4. Skill Development & Capacity Building: Train agricultural extension officers and farmers on modern techniques, precision farming,
and climate-smart agriculture to enhance productivity.
5. Leveraging Artificial Intelligence & Big Data: Use AI and data analytics to offer predictive insights on disease outbreaks, weather
patterns, and optimal sowing periods for better decision-making.
6. Expanding E-Trading platforms like e-NAM to provide farmers with direct access to buyers, reducing dependence on intermediaries
and improving price realization.
7. Decentralization & Community-Led Models: Empower farmer producer organizations (FPOs), self-help groups, and cooperatives to
take an active role in knowledge dissemination and input distribution.
8. Promoting Sustainable & Climate-Resilient Practices: Integrate organic farming, agroforestry, and regenerative agriculture into
extension services to improve long-term farm sustainability.
9. Improving Infrastructure & Last-Mile Connectivity: Enhance physical infrastructure, such as rural knowledge centers, mobile ex-
tension units, and demonstration farms, to ensure services reach even the remotest farmers.
10. Ensuring Policy Support & Financial Incentives: Strengthen government funding for extension services and incentivize agri-
preneurs to provide localized advisory services through innovative business models.

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Food Processing
Industries
Previous Year Questions (PYQs)
[UPSC Mains 2022] Elaborate the scope and significance of the food processing industry in India.

[UPSC Mains 2020] What are the challenges and opportunities of the food processing sector in the country? How can the income of the
farmers be substantially increased by encouraging food processing?

[UPSC Mains 2019] Elaborate on the policy taken by the government of India to meet the challenges of the food processing sector.

[UPSC Mains 2018] Examine the role of supermarkets in the supply chain management of fruits, vegetables, and food items. How do they
eliminate the number of intermediaries?

[UPSC Mains 2017] What are the reasons for the poor acceptance of cost-effective small processing units? How will the food processing
unit be helpful to uplift the socio-economic status of poor farmers?

[UPSC Mains 2015] What are the impediments in marketing and supply chain management in industry in India? Can e-commerce help in
overcoming these bottlenecks?

[UPSC Mains 2013] India needs to strengthen measures to promote the pink revolution in the food industry for better nutrition and
health. Critically elucidate the statement.

Food Processing refers to transforming raw agricultural products into consumable food items, adding value and extending shelf life.
The food processing sector has been recognized as a ‘sunrise sector‘ and a key priority industry under the ‘Make in India’ initiative.

Type of Food Processing

The can be categorized into primary and secondary products.
1. Primary products are made from processed raw materials, like fruits and vegetables.
2. Secondary products are created by processing primary food items into new products, such as jams, sauces, and butter.

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Key Drivers for the Growth of India’s Food Processor Industries
1. Huge Production base: India ranks 1st in the production of
Milk, Ginger, spices, Bananas, and Mangoes and 2nd in the
production of Rice, Wheat, and other vegetables and fruits.
a. The second largest producer of fruits and vegetables,
ranking second only to China.
b. India is the second-largest producer of marine prod-
ucts, meat, and poultry, signifying a strong presence in
these sectors.
c. World’s largest milk producer: Milk production has
increased by 51.05% over the past 8 years from 146.3
million tonnes during 2014-15 to 221.06 million tonnes
during 2021-22.
d. Largest Livestock Population: India’s livestock popula-
tion is the world’s largest, with over 512 million animals.
This includes a significant dairy industry with 119 million
milch animals.
2. Geographical advantage: Diverse agro-climatic zones, soil
types, and the largest arable land in the world provide favorable
conditions for the growth of the sector.
3. Increased demand for processed food due to the socio-economic transition i.e. rising disposable income, changing demographic
patterns, rise in nuclear families, working women, etc. Eg- The Indian food and beverage packaged industry is projected to increase
from US$ 33.7 billion in 2023 to US$ 46.3 billion by 2028.
4. Rapid growth in Organised retail: Ensuring productivity gains across the supply chain through disintermediation and superior technology.
Eg- the emergence of tier 1 & 2 cities and “shopping mall culture”.
5. The exponential growth of the Online food delivery industry: Eg- Zomato, Swiggy, FoodPanda, etc.
6. Favorable Government Policies and incentives: Eg- Relaxation of FDI limits, tax breaks, etc.

Data
1. The food processing sector grew at an average annual rate of
7.3% (2015-2022), contributing 10.54% to Manufacturing GVA
and 11.57% to Agriculture GVA (2020-21).
2. GVA in Food Processing sector has increased from Rs. 1.61 lakh
crore (US$ 24.60 billion) in 2015-16 to Rs. 1.92 lakh crore (US$
24.43 billion) in 2022-23
3. The growing food consumption is expected to reach US$ 1.2
trillion by 2025-26, owing to urbanization and changing consumption
patterns.
4. According to the Viksit Bharat@2047 report, India’s food pro-
cessing sector will grow significantly, reaching US$ 1,100 billion
by FY35, US$ 1,500 billion by FY40, US$ 1,900 billion by FY45,
and US$ 2,150 billion by FY47.
5. The food processing industry has received US$ 12.81 billion in
FDI equity inflows from April 2000 to June 2024.
6. The food processing industry in India is still in its early stages,
contributing less than 10% to the total food output. According to
a Deloitte study, processing levels were at 2.7% for vegetables,
4.5% for fruits, 15.4% for fishery, 21.1% for milk, and 34.2% for
meat in 2020-21.
7. The employment in Food Processing Industries has increased
from 17.73 lakh in 2014-15 to 20.68 lakh in 2021-22 as per the
latest Annual Survey of Industries (ASI) report.
8. The food and grocery market in India is the sixth largest in the
world. The food processing industry contributes 32% to this food
market, 13% to total exports, and 6% to industrial investment.
9. India’s food and beverage (F&B) exports reached a record US$
48.6 billion in Fiscal Year 2022-23, up from US$ 33.4 billion in
2019-20.
10. The share of Processed Food in Agri-Food Exports increased
from 13.7% in 2014-15 to 23.4% in 2023-24

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Supply Chain of the Food Processing Sector
A supply chain is a network that connects suppliers (farmers) of raw materials, food processing companies, and the distribution network
responsible for marketing the finished products.

Upstream and Downstream:

Upstream Downstream
1. It refers to the stages in the supply chain where materials 1. It refers to the stages in the supply chain where finished products flow
flow into the organization. from the organization to the customers.
2. Includes activities such as searching for and extracting 2. Involves processing the materials collected during the upstream stage
raw materials. into finished products.
3. Does not involve processing the material itself; it focuses 3. Includes the sale of the finished product to other businesses,
on locating and obtaining the raw materials. governments, or private individuals.
Upstream requirements: Downstream requirements:
1. Accessibility to raw materials. 1. Latest processing techniques.
2. Modern extraction techniques. 2. Advanced processing machinery.
3. Strong linkages with farmers. 3. Quality testing facilities.
4. Storage facilities for raw materials such as grains, meat, 4. Organized retail stores for efficient distribution.
and fish. 5. Workforce.
5. Quality testing facilities.
6. Transport facilities.

Role of Supply Chain Management in the Food Processing Industry

1. Ensures Steady Raw Material Supply: Facilitates continuous availability of high-quality agricultural produce to prevent production
disruptions. Eg- PepsiCo’s contract farming model ensures a reliable supply of potatoes for its chips.
2. Reduces Post-Harvest Losses: Efficient logistics, cold storage, and warehousing help minimize food wastage.
3. Enhances Production Efficiency: Streamlines procurement, inventory management, and manufacturing, reducing operational costs.
4. Improves Quality & Food Safety: Ensures adherence to FSSAI, HACCP, and global food standards through proper handling and traceability.
5. Optimizes Logistics & Distribution: Reduces transit time and ensures timely delivery to retailers, supermarkets, and consumers. Eg-
Amul’s cold chain logistics.
6. Supports Market Demand & Forecasting: Uses AI and big data analytics to predict consumer trends and optimize inventory.
7. Facilitates Cost Efficiency: Reduces transportation, warehousing, and procurement costs, making food products more affordable.
8. Enables Export Growth: Ensures compliance with global food safety norms for expanding into international markets.
9. Boosts Profitability & Competitiveness: Strengthens the farm-to-fork ecosystem, leading to higher profits and global competitiveness.

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Backward and Forward Linkages
Backward Linkage: It refers to the connection between
food processing industries (FPIs) and their sources of
raw material supply. Eg- The supply of tomatoes to a
ketchup manufacturer.
Forward Linkage: It refers to the connection between FPIs and
markets through a distribution network that includes physical infra-
structure such as storage facilities, roads, and railways.
Sideways Linkage: Involves the use of by-products and waste
products from the primary industrial activity. Eg- Food processing
industries produce waste that can be further utilized to produce
fuel, bio-fuels, paper pulp, and fertilizer.

Significance of Linkages:
1. Backward Linkages (Agriculture & Raw Material Supply)
• Ensure steady raw material supply from farmers.
• Improve farm productivity & quality through contract farming.
• Reduce post-harvest losses via better storage & logistics.
• Promote rural employment & income stability.
2. Forward Linkages (Market & Distribution)
• Facilitate value addition & product diversification.
• Expand domestic & global market access for processed foods.
• Strengthen supply chains & retail networks.
• Boost exports & foreign exchange earnings.
3. Economic Impact
• Increases GDP contribution & employment.
• Enhances income for farmers & small businesses.
• Encourages infrastructure development in rural areas.
4. Consumer Benefits
• Ensures better quality & safer food.
• Reduces seasonal price fluctuations.
• Provides convenience & diverse food options.
5. Government & Policy Impact
• Strengthens Make in India & Atmanirbhar Bharat initiatives.
• Encourages FDI & investment in cold storage, and logistics.
• Supports food security & rural industrialization.

Challenges in Establishing Robust Linkages:

1. Fragmented Supply Chain: 86% of Indian farmers are small and marginal (Agri Census 2015-16), leading to inconsistent raw
material supply.
2. Inadequate Infrastructure: Post-harvest losses in India account for 16% of fruits & vegetables due to poor cold storage (ICAR, 2021).
Only 11% of perishable produce moves through cold storage in India, compared to 80% in developed countries (NCCD Report).
3. Quality & Standardization Issues: Less than 30% of Indian food exports meet global standards, reducing export potential (FSSAI,
2022). Eg-The EU has frequently banned Indian seafood exports using Sanitary and phytosanitary measures.
4. Limited Access to Finance: Eg- Setting up a cold storage unit costs ₹8-10 crore, making it unaffordable without subsidies.
5. Technology Gaps: Only 10% of food processing units in India use automation, compared to 70% in China (ASSOCHAM, 2022).
Eg- Outdated rice milling techniques cause 30% wastage.
6. Weak Farmer-Processor Coordination: Less than 5% of Indian farmers participate in contract farming, reducing direct sourcing
efficiency (NITI Aayog, 2021).
7. Limited R&D & Innovation: India invests only 0.3% of its agricultural GDP in R&D, compared to 3% in developed nations (World
Bank, 2022).

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Potential/Significance for Food Processing Sector in India
1. Increased Contribution to GDP: Eg- the sector has an average annual growth rate of 7.3% from 2015 to 2022.
2. An abundance of Natural Resources: India’s diverse agro-climatic conditions allow for abundant production of cereals, pulses, fruits,
and vegetables, making it a leading producer of various foods.
3. Rising Demand for Processed food: The changing lifestyles and preferences of the Indian population have increased demand for
convenient and ready-to-eat food products.
4. Focus on health and organic products among consumers: The organic
food market in India is projected to reach Rs. 75,000 crore (US$ 9 billion)
by 2025, growing at a CAGR of 20% (according to the Indian Organic Market
Report 2022). A survey indicated that 60% of Indian consumers are willing to
pay a premium for organic products.
5. Rising urbanization and changing consumption patterns, with demand for
ready-to-eat and packaged foods expected to reach Rs. 12 lakh crore (ap-
proximately US$ 150 billion) by 2025 (according to ResearchAndMarkets).
6. Employment generation employment in Food Processing Industries has
increased from 17.73 lakh in 2014-15 to 20.68 lakh in 2021-22 as per the
latest Annual Survey of Industries (ASI) report.
7. Large FDI inflow and market size: FDI equity inflows into the food processing
sector reached $3.28 billion between 2019-2022. It is the fifth largest sector of the country’s economy.
8. Reduces Food Wastage: In India, around 25-35% of food is wasted due to inadequate handling, storage, and logistical issues. Only
6% of perishable food is processed.
9. Curbing Food Inflation: Processing increases the shelf life of the food thus keeping supplies in tune with the demand thereby con-
trolling food inflation. Eg- Frozen Safal Peas.
10. Women entrepreneurship- The sector provides employment opportunities to rural women in India and also serves as a platform for
entrepreneurship. Eg-Lijjat papad venture.
11. Nutritional Improvement- Processed foods can be fortified with essential vitamins and minerals, thereby addressing malnutrition
and improving public health outcomes.
12. Crop-Diversification: Food processing will require different types of inputs thus creating an incentive for the farmer to grow and
diversify crops, improving overall agricultural productivity and sustainability.
13. Food processing increases both forward and backward linkages in the agricultural value chain. It creates business-farmer linkages
by providing a market for farmers’ produce and supplying raw materials for processing.

Region-wise Potential of Food Processing Industries in India

1. North India: Dairy & Cereal Processing: Punjab, Haryana, and Uttar Pradesh have high potential for milk, wheat, and rice-based
processing due to large-scale production. Eg- Amul and Mother Dairy have major milk processing units in this region.
2. Western India: Oilseeds & Marine Processing: Gujarat, Rajasthan, and Maharashtra are major producers of groundnut, soybean,
and fisheries, supporting edible oil extraction and seafood processing. Eg- Gujarat is India’s largest groundnut-producing state.
3. Eastern India: Rice & Jute-Based Processing: West Bengal, Odisha, and Bihar have rich resources for rice milling, jute processing,
and fishery-based industries.
4. Northeast India: Organic & Horticulture-Based Processing: Assam, Meghalaya, and Arunachal Pradesh have high potential for
organic farming, spices, and fruit-based industries. Eg- Assam is India’s largest tea producer, with a thriving tea processing industry.
5. Southern India: Spices & Seafood Processing: Kerala, Tamil Nadu, Karnataka, and Andhra Pradesh excel in spice processing, marine
products, and coconut-based industries. Eg- Kerala leads in spice exports, with major black pepper and cardamom processing units.
6. Central India: Pulses & Soy Processing: Madhya Pradesh and Chhattisgarh have a strong base for dal milling, soybean, and maize-
based industries.
7. Himalayan Region: Medicinal & Herbal Processing: Jammu & Kashmir, Himachal Pradesh, and Uttarakhand have immense potential
in herbal, medicinal plants, and fruit processing. Eg- Patanjali in Uttarakhand
8. Coastal Regions: Marine & Fish Processing: Coastal states like Andhra Pradesh, Tamil Nadu, and Goa have high potential for sea-
food processing and export industries. Eg- Visakhapatnam is a major hub for seafood exports.
9. Desert Region: Date & Arid Crop Processing: Rajasthan and Gujarat have opportunities in date palm processing, dehydration of arid
crops, and camel milk-based industries.
10. Union Territories: Beverage & Specialty Processing: Goa, Puducherry, and Andaman & Nicobar Islands offer potential in alcoholic
beverage production, coconut-based products, and exotic fruit processing. Eg- Goa has a thriving liquor and cashew-based feni
industry.

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Role and Scope of AI in the Food Industry
1. Quality Control & Food Safety: AI-powered computer vision detects contaminants and defects in food products. Eg- Nestlé uses AI
to analyze food samples and ensure quality compliance.
2. Supply Chain Optimization: AI enhances demand forecasting, inventory management, and logistics to reduce inefficiencies. Eg-
Walmart uses AI to predict product demand and minimize food waste.
3. Smart Agriculture & Precision Farming: AI enables automated pest detection, soil analysis, and precision irrigation for better crop
yields. Eg- John Deere’s AI-powered tractors optimize fertilizer and pesticide use.
4. Predictive Maintenance in Food Processing: AI predicts equipment failures, reducing downtime and maintenance costs in manufac-
turing plants. Eg- Coca-Cola uses AI-driven predictive maintenance for its bottling operations.
5. Personalized Nutrition & Product Development: AI analyzes consumer preferences and health data to develop customized food
products. Eg- IBM’s Watson AI helps food companies create new flavors based on market insights.
6. Food Waste Reduction: AI predicts expiration dates and redistributes surplus food to minimize wastage. Eg- Too Good To Go uses AI
to connect consumers with unsold food at discounted prices.
7. Automated Food Processing & Packaging: AI-powered robots improve efficiency and accuracy in food production and packaging.
Eg- Tyson Foods uses AI-driven robotic arms for automated meat processing.
8. Enhanced Customer Experience: AI-driven chatbots and voice assistants provide meal recommendations, personalized shopping,
and online order assistance. Eg- Domino’s AI chatbot “Dom” handles customer orders through voice recognition.
9. Regulatory Compliance & Traceability: AI ensures food safety compliance by tracking ingredients and monitoring supply chains in
real-time. Eg- Walmart integrates AI with blockchain to trace food origins within seconds.
10. Alternative Protein & Lab-Grown Food Innovation: AI accelerates research in plant-based and lab-grown food alternatives to meet
sustainability goals. Eg- Beyond Meat uses AI to enhance plant-based meat texture and flavor.

Challenges in the Development of Food Processing Industries in India

1. Despite rising demand for processed and ready-to-eat food, the sector’s GVA share remains low at 1.88% (2020-21) compared to
manufacturing (17.86%) and agriculture (16.26%).
2. Supply Chain Inefficiencies: Fragmented supply chains lead to high wastage of fruits and vegetables (16% of total production). Eg-
India loses ₹92,651 crore worth of food annually due to poor storage and transit infrastructure (FAO).
3. Infrastructure Bottlenecks: Inadequate cold storage facilities, transportation systems, and processing infrastructure, etc. Eg- There
is a cold storage deficit with only 11% of perishable produce is stored in cold chains, compared to 85% in developed countries (NAB-
ARD).
4. Post-harvest losses: It exceeds 30% of produce. The NITI Aayog estimates annual post-harvest losses close to Rs 90,000 crore.
5. Export challenges: Indian processed food faces SPS (Sanitary and Phytosanitary) restrictions in developed markets due to quali-
ty issues. Eg- EU.
6. Lack of Processing Infrastructure: The food processing level in India is only 10%, compared to 65% in the USA and 23% in China.
7. Inadequate mega food parks: Only 22 out of 42 approved food parks are operational under the Mega Food Park Scheme (2023).
8. High Compliance Burden & Bureaucratic Delays: Multiple regulations are required as businesses need clearances from FSSAI,
MoFPI, APEDA, BIS, and state food safety departments.
9. Limited Access to Finance: MSMEs dominate the sector (85% of food processing units are small-scale), but only 8% of them get
institutional credit. High capital costs discourage investment in modern food processing units.
10. Low Value Addition: India’s value addition in food processing is just 12%, compared to 23% in the USA.
11. Inconsistent Quality & Safety Standards: India has faced rejections from the EU & USA for spices, rice, and dairy due to pesticide
and antibiotic residues.
12. Food adulteration: 13.7% of food samples tested by FSSAI in 2022 were found adulterated.
13. Low Domestic Demand for Processed Foods: Only 7% of Indian households regularly consume processed food.
14. Seasonal & Perishable Nature of Raw Materials: Milk, fruits, vegetables, and seafood have short shelf lives, making continuous
supply difficult. Eg- Price fluctuations (tomato prices surged 300% in 2023) disrupt production planning.
15. Technological Gaps: Limited adoption of automation and AI-based quality control affects efficiency.
16. Low R&D Investment: India’s food processing sector spends only 0.3% of revenue on R&D, compared to 1.5% in developed econo-
mies.
17. Lack of skilled manpower: Lack of trained manpower in food safety and quality control. Also, there is a lack of skilled workforce for
modern processing techniques.

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Government Initiatives
• Food processing units qualify for complete profit exemption in the first five years and 100% FDI is permitted in the food processing
sector.
• Pradhan Mantri Kisan Sampada Yojana (PMKSY): : The scheme aims to establish modern infrastructure and streamline supply chain
management from farm to retail, fostering growth in the food processing sector. Till now, 1,646 food processing projects (including
food testing labs and R&D projects) have been sanctioned under various sub-schemes of PM Kisan Sampada Yojana.

Components of PMKSY
1. The Mega Food Park (MFP) Scheme: A ‘cluster’ strategy and focus on the
development of cutting-edge support infrastructure in a well-defined agri/
horticultural zone for the establishment of modern food processing units
in the park’s industrial plots with well-established supply chains. Under the
MFP scheme 41 projects were approved, of which 24 are operational as of
December 2023.
2. Integrated Cold Chain and Value Addition Infrastructure, including
pre-cooling, storage, and distribution. It encompasses various tempera-
ture-controlled storage, packing, and transportation facilities for diverse
products like horticulture, dairy, and meat.
3. Creation/ Expansion of Food Processing/ Preservation Capacities
(Unit Scheme)
4. Infrastructure for Agro-processing Clusters
5. Creation of Backward and Forward Linkages
6. Food Safety and Quality Assurance Infrastructure
7. Human Resources and Institutions

• Pradhan Mantri Formalisation of the Micro Food Processing Enter-

prises (PMFME) Scheme:
1. With an outlay of ₹10,000 crore, the PMFME scheme aims to
organize the unorganized micro food processing units, providing
financial, technical, and business support. It adopts a cluster-based approach, promoting One District One Product (ODOP) to
leverage local potential. Eg- Mango processing clusters in Uttar Pradesh under ODOP.
2. Since January 2024, a total of 46,643 loans have been sanctioned under the credit-linked subsidy component of the PMFME
scheme.

• Production-Linked Incentive Scheme for Food Processing Industry (PLISFPI):

1. PLISFPI supports food manufacturing entities with stipulated minimum sales and willing to make the necessary investments for
capacity expansion.
2. With a total budget of INR 10,900 crore, the government has already invested INR 4,900 crore in the sector through the PLI plan.
The scheme will create employment opportunities for nearly 2.5 lakh people by 2026-27.
3. Food Product Segments covered in the scheme are:
a. Ready to Cook/ Ready to Eat (RTC/ RTE) food including Millet based Products
b. Processed Fruits & Vegetables
c. Marine Products
d. Mozzarella Cheese
e. Innovative/Organic Products of SMEs including Free Range Eggs, Poultry Meat, Egg Products

• Operation Greens:
1. Launched to stabilize the supply and prices of tomato, onion, and potato (TOP) crops.
2. The scheme aims to promote Farmer Producers Organizations (FPOs) and develop infrastructure for Tomato, Onion, and Potato
(TOP) products.
3. It has now been expanded to include 22 perishable products to enhance value addition and agricultural exports.

• Budgetary Support and Policy Measures: In the Union Budget for the fiscal year 2025-26, the Government of India
has allocated ₹4,364.22 crore to the Ministry of Food Processing Industries (MoFPI).
• Pradhan Mantri Matsya Sampada Yojna: It was initiated to increase fish production to 22 million MT by 2024-25 and triple fisheries
exports to INR 1,00,000 crores (USD 13.25 billion) by 2024-25.
• Nivesh Bandhu: It is a dedicated investment portal, established as a resource base for outlining land availability, fiscal incentives, and
governmental regulations, as well as disseminating information about agricultural reforms.
• In 2022, a Special Food Processing Fund of US$ 263 million (Rs. 2,000 crore) was set up with NABARD to provide affordable credit for
setting up units under Mega Food Parks (MFP) and Designated Food Parks (DFP).

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• Warehouse Corpus Fund with a corpus of Rs. 5000 crore to support State governments, State-owned agencies, and corporations for
the creation of scientific warehouse capacity.
• FSSAI has issued the Food Safety and Standards (Food Product Standards and Food Additives) Regulations, 2011, and the Food
Safety and Standards (Contaminants, Toxins, and Residues) Regulations, 2011 which prescribe the quality and safety standards for
food products.
• Farm to Factory Gate (Procurement at Village Level): upgrading of 22,000 rural haats into Gramin Agriculture Markets (GrAMS).

WAY FORWARD
1. Smart Food Processing Hubs: It should be equipped with advanced technologies like the Internet of Things (IoT), artificial intelli-
gence (AI), and blockchain to monitor the entire food supply chain and ensure quality and efficiency.
2. Promoting Village-Level Procurement: The NITI Aayog, in the Strategy for New India @75 document, recommended village-level
procurement centers for perishables such as fruits, vegetables, and dairy.
3. Strengthening Cold Chain Infrastructure: Expansion of cold storage, refrigerated transport, and warehousing to reduce
post-harvest losses.
4. Easing Regulatory Framework: Eg- Reducing clearance time for new processing units from 6 months to 2 months through a
single-window system.
5. Boosting Financial Support & Incentives: Providing low-interest credit, tax benefits, and subsidies to encourage MSMEs and
startups in food processing. Eg- Expanding PLI Scheme (₹10,900 crore) to cover more processed food segments.
6. Enhancing R&D & Innovation in Processing: Eg- Promoting research in plant-based proteins and functional foods for
health-conscious consumers.
7. Promoting Agro-Processing Clusters: Developing Mega Food Parks, Special Economic Zones (SEZs), and Agri-Export Zones
to create industry hubs.
8. Expanding Global Market Access: Eg- Enhancing APEDA’s role in certifying and promoting Indian processed food products globally.
9. Encouraging Sustainable & Organic Processing: Eg- Expanding Jaivik Bharat (Organic India) certification to boost organic
food exports.
10. Adopt Zero-Waste Processing: Eg- converting food waste into biofuels or using food byproducts to create new products like
bio-plastics or animal feed.
11. Leverage E-Commerce & Digital Platforms: Encourage B2C platforms for direct sales (Amazon, Flipkart growing 25% YoY in food).
12. Adopt Global Best Practices: Eg- New Zealand: the food sector accounts for 45% of all goods exported by New Zealand.
13. Public Private Partnership (PPP): Supply chains like washing, waxing, grading, sorting, packing, pre-cooling, handling facilities,
insurance, finance, transport, and processing facilities would add value to supply chain functioning.
14. Streamlining the regulatory structure:
a. Single window clearance: Simplify the approval process by consolidating multiple departments and laws into a single window
system. This approach will clarify roles and streamline operational and service delivery channels.
b. Uniform APMC Act implementation: enacting Model APMC Acts by states

About Food Safety and Standards Authority of India (FSSAI)

•. The FSSAI is an autonomous body established under the Ministry of Health & Family Welfare, Government of India.
•. It was established under the Food Safety and Standards Act, of 2006
•. FSSAI is responsible for protecting and promoting public health through the regulation and supervision of food safety.

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1. Setting Standards: FSSAI sets standards for food products and regulates their manufacture, storage, distribution, sale, and import,
to ensure that food items are safe for consumption.
2. Licensing and Registration: FSSAI grants licenses and registrations to food businesses based on their compliance with food safety
standards and regulations.
3. Inspections and Monitoring: FSSAI conducts inspections, surveillance, and monitoring of food products and food businesses to
ensure compliance with food safety standards.
4. Awareness and Education: It provides information and education programs to promote safe food handling practices.
5. Research and Development: FSSAI undertakes research and development activities related to food safety and standards.

Health Awareness Initiatives by FSSAI

1. “Heart Attack Rewind”: This is FSSAI’s inaugural mass media campaign, designed to support its goal of eliminating trans-fat from
India by 2022.
2. FSSAI-CHIFSS Collaboration on Food Safety Sciences to foster collaborations between industry, the scientific community, and
academia to enhance food safety.
3. State Food Safety Index (SFSI) evaluates states’ performance on five key parameters of food safety: Human Resources and Institu-
tional Data, Compliance, Food Testing Infrastructure and Surveillance, Training & Capacity Building, and Consumer Empowerment.
4. Eat Right India Movement: to ensure safe, healthy, and sustainable food for all citizens.
5. Eat Right Station Certification to railway stations that meet the benchmarks outlined in the Food Safety and Standards Act, 2006.

Major Issues in the Functioning of FSSAI

1. Regulatory Delays: Lengthy approval processes for food products lead to delays in market entry. Eg- Approval of proprietary food
formulations takes 6-12 months.
2. Inadequate Infrastructure for Testing: Limited food testing laboratories (261 notified labs) cause delays in sample analysis.
3. Weak Enforcement & Compliance: Poor monitoring leads to rampant food adulteration and violations. Eg- Reports of synthetic
milk and spurious honey.
4. Shortage of Trained Manpower: FSSAI lacks adequate food safety officers (FSOs) and inspectors, affecting field-level enforce-
ment.
5. Challenges in Food Labeling Regulations: Eg- The introduction of Front-of-Pack labeling for high sugar, salt, and fat faced resis-
tance from industry stakeholders.
6. Coordination Issues with State Authorities: Food safety enforcement is a state subject, leading to inconsistent implementation
across states.
7. Limited Consumer Awareness on FSSAI certification and food safety standards. Eg- Unregulated street food vendors operate
without FSSAI compliance.
8. Slow Response to Emerging Food Safety Risks: Eg- delay in regulating ultra-processed foods and artificial sweeteners affects
public health.
9. Need for Better Technology Integration: FSSAI lacks AI-driven surveillance, blockchain-based traceability, and digital inspec-
tions, reducing efficiency.

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