Preliminary Examination: Economic and Social Development – Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.

Mains Examination: General Studies-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.

What’s the ongoing story: AS WIDELY expected, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) unanimously decided to reduce the repo rate — the interest rate at which it lends to banks — by 25 basis points (bps) to 6.25 per cent amid easing inflation and worries over slowing growth due to global uncertainties.

Key Points to Ponder:

• What is the Repo rate?

• What are the various instruments used by the RBI to control inflation?

• What is the role and function of the MPC?

• What is the impact of increasing and decreasing the Repo rate on the overall economy?

• What is the Fiscal Responsibility and Budget Management Act?

• What is the Consumer Price Index (CPI)?

• Understand the impact of the rate cut on the increase in public consumption leading to the job creation and employment.

Key Takeaways:

• The six-member rate-setting panel has projected the real gross domestic product (GDP) at 6.7 per cent and the retail inflation at 4.2 per cent for the fiscal 2025-26.

• The cut in the key policy rate — the first in nearly five years — will provide relief to home, vehicle, and other consumer loan borrowers as all interest rates linked to the repo rate will come down by 25 basis points (bps) immediately. One basis point (bps) is one-hundredth of a percentage point.

• Under the flexible inflation targeting (FIT) regime, the government has mandated the RBI to keep consumer price index (CPI) inflation in the 2-6 per cent band. It has been targeting to keep CPI at 4 per cent on a durable basis.

• The MPC, however, decided to continue with a neutral stance which will provide it the flexibility to respond to the evolving macroeconomic environment.

Explained: Push for spending and investment

• The main reason behind the repo rate cut is to stimulate economic growth by making borrowing cheaper for individuals and businesses, leading to increased spending and investment. As inflation is within the RBI’s target range, a rate cut can help maintain price stability while supporting growth.

• The rate cut can help banks reduce their lending rates, making credit more accessible and affordable for borrowers. Further, lower interest rates can lead to increased borrowing, spending and investment, ultimately supporting job creation and employment.

• All external benchmark lending rates (EBLR) — lending rates set by the banks based on external benchmarks such as the repo rate — will come down by 25 bps, giving relief to borrowers as their equated monthly instalments (EMIs) will also fall.

• However, a lower repo rate can lead to higher inflation, as increased money supply and lower interest rates can drive up prices. It can reduce the interest earned on savings, making it less attractive for individuals to save.

• Malhotra said the RBI will use flexible inflation targeting to make the best macro decisions. In the December 2024 monetary policy, the RBI slashed the GDP growth estimate to 6.6 per cent for FY2025, from an earlier projection of 7.2 per cent.

Do You Know:

• Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee (MPC) to determine the policy interest rate required to achieve the inflation target. The first such MPC was constituted on September 29, 2016.

• Section 45ZB lays down that “the Monetary Policy Committee shall determine the Policy Rate required to achieve the inflation target”, and that “the decision of the Monetary Policy Committee shall be binding on the Bank”.

• Section 45ZB says the MPC shall consist of the RBI Governor as its ex officio chairperson, the Deputy Governor in charge of monetary policy, an officer of the Bank to be nominated by the Central Board and three persons to be appointed by the central government. The last category of appointments must be from “persons of ability, integrity, and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy”. (Section 45ZC)

Other Important Articles Covering the same topic:

📍Knowledge nugget of the day: RBI’s Monetary Policy Committee (MPC)

📍RBI policy: Why is the MPC likely to cut the repo rate?

Previous year UPSC Prelims Question Covering similar theme:

(1) If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? (UPSC CSE 2020)

1. Cut and optimize the Statutory Liquidity Ratio

2. Increase the Marginal Standing Facility Rate

3. Cut the Bank Rate and Repo Rate

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Previous year UPSC Mains Question Covering similar theme:

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 CSE 2017)

 

IN PARLIAMENT

National Commission for Safai Karamcharis gets 3-yr extension

Syllabus:

Preliminary Examination: Indian Polity and Governance – Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues

Mains Examination: General Studies-II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

What’s the ongoing story: The Union Cabinet on Friday approved the extension of the tenure of the National Commission for Safai Karamcharis (NCSK) for a period of three years up to March 2028. The financial implication for the extension would be around Rs 51 crore, a government note said.

Key Points to Ponder:

• What is the National Commission for Safai Karamcharis (NCSK)?

• What is manual scavenging?

• What are the steps taken by the government to curb manual scavenging?

• What are the reasons for the continued prevalence of manual scavenging in India?

• What is the difference between a statutory body and a constitutional body?

Key Takeaways:

• The Commission was set up as a statutory body in 1994 under the National Commission for Safai Karamcharis Act, 1993. After the lapsing of the Act in 2024, the Commission is non-statutory, however, its scope expanded after the enactment of The Prohibition of Employment as Manual Scavengers and Their Rehabilitation Act, 2013.

• Its key mandate includes, among other things, recommending to the Centre specific programmes of action towards elimination of inequities in status, facilities and opportunities for safai karamcharis, study and evaluate implementation of programmes and schemes relating to social and economic rehabilitation of safai karamcharis, and scavengers in particular.

• Further, it also has the mandate to investigate the non-implementation programmes and schemes for safai karamcharis, and provisions of any laws in its application to safai karamcharis and take up such matters with the relevant authorities.

Do You Know:

• Over the past 15 years, a total of 94 people have died while cleaning sewers in Delhi. However, among the 75 cases for which records are available, only one has led to a conviction in court, as revealed by an investigation conducted by The Indian Express using data obtained under the Right to Information (RTI) Act.

• Manual scavenging is the practice of removing human excreta by hand from sewers or septic tanks. India banned the practice under the Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013 (PEMSR). The Act bans the use of any individual for manually cleaning, carrying, disposing of or otherwise handling in any manner, human excreta till its disposal.

• In 2013, the definition of manual scavengers was also broadened to include people employed to clean septic tanks, ditches, or railway tracks. The Act recognizes manual scavenging as a “dehumanizing practice,” and cites a need to “correct the historical injustice and indignity suffered by the manual scavengers.”

• The lack of enforcement of the Act and exploitation of unskilled labourers are the reasons why the practice is still prevalent in India. The Mumbai civic body charges anywhere between Rs 20,000 and Rs 30,000 to clean septic tanks. The unskilled labourers, meanwhile, are much cheaper to hire and contractors illegally employ them at a daily wage of Rs 300-500.

Other Important Articles Covering the same topic:

📍Explained: What is manual scavenging, and why is it still prevalent in India?

📍UPSC Issue at a Glance | Manual Scavenging in India: 4 Key Questions You Must Know for Prelims and Mains

Previous year UPSC Prelims Question Covering similar theme:

(2) ‘Rashtriya Garima Abhiyaan’ is a national campaign to (UPSC CSE 2016)

(a) rehabilitate the homeless and destitute persons and provide them with suitable sources of livelihood

(b) release the sex workers from their practice and provide them with alternative sources of livelihood

(c) eradicate the practice of manual scavenging and rehabilitate the manual scavengers

(d) release the bonded labourers from their bondage and rehabilitate them

Previous year UPSC Mains Question Covering similar theme:

What are the areas of prohibitive labour that can be sustainably managed by robots? Discuss the initiatives that can propel the research in premier research institutes for substantive and gainful innovation. (UPSC CSE 2015)

 

EXPRESS NETWORK

From gender equity, biofuels, big cats, India taking lead at global high table

Syllabus:

Preliminary Examination: Current events of national and international importance

Mains Examination: General Studies-II: Important International institutions, agencies and fora- their structure, mandate

What’s the ongoing story: At the World Economic Forum in Davos recently, former Union Minister Smriti Irani spoke about the business imperative of gender parity. At various meetings and seminars, she contended that gender equity is an economic necessity, capable of unlocking trillions in global GDP.

Key Points to Ponder:

• What is the objective of the Alliance for Global Good Gender Equity and Equality?

• What is the International Big Cat Alliance?

• How is India leading the global high table with various initiatives?

• Read about: the International Solar Alliance (ISA), Global Biofuels Alliance (GBA), and the Coalition for Disaster Resilient Infrastructure (CDRI).

Key Takeaways:

• Supported by WEF, CII, Bill and Melinda Gates Foundation, and over 10,000 industry partners, the Alliance for Global Good Gender Equity and Equality  — reflecting PM Narendra Modi’s agenda of women-led development — the initiative aims to foster global collaboration on women’s health, education and enterprise.

• At Davos 2025, they expanded the global footprint through two partnerships: Commonwealth Secretariat Partnership, focussing on empowering women and girls across 56 Commonwealth nations, including 21 countries from Africa and eight from Asia; and South Asia Women in Energy (SAWIE) Partnership, which seeks to enhance women’s leadership in South Asia.

• Around the same time as Davos was being held, the International Big Cat Alliance (IBCA) — officially mooted by the Union government two years ago — was ratified as an international legal entity.

• Over the last few years, India has spearheaded several global initiatives, securing its key place at the international high table – including the International Solar Alliance (ISA), Global Biofuels Alliance (GBA), and the Coalition for Disaster Resilient Infrastructure (CDRI), besides IBCA.

• Last year, an Indian delegation, headed by Principal Secretary to the PM, P K Mishra, participated in the G20 Disaster Risk Reduction Working Group Ministerial Meeting in Brazil.

• The CDRI recently announced a $2.5 million fund to support cities to improve awareness, enhance planning, build financial resources, and integrate resilience into infrastructure operations to mark its 5th foundation day.

• Cities in 30 low and middle-income countries, including India, will be eligible for funding under this programme.

• The GBA was also launched by Modi along with leaders of the US, Brazil, Italy, Argentina, Singapore, Bangladesh, Mauritius and the UAE on September 9, 2023, on the sidelines of the G20 Summit in New Delhi, as Chair’s initiative.

• GBA is a multi-stakeholder alliance of governments, international organisations and industries, bringing together the biggest consumers and producers of biofuels. Since its launch, GBA has garnered enormous support globally. Its current membership has expanded to 24 member countries and 12 International organisations.

• The ISA is a global initiative launched in 2015 by India and France at the COP21 Paris summit to promote solar energy as a sustainable solution for energy access and climate change. Headquartered in India, the ISA is the first international organisation established in the country.

• India, among other countries, has also proposed newer connectivity initiatives like the India Middle East Europe Economic Corridor — a proposed route from India to Europe through the UAE, Saudi Arabia, Israel and Greece. It is being recognised as a game-changer in building resilient supply chains once it is completed.

Do You Know:

• The International Big Cat Alliance is an initiative launched by Prime Minister Narendra Modi in April 2023 in Mysuru commemorating the 50th anniversary of Project Tiger. The objective of the IBCA is to ensure cooperation for the conservation of seven big cats: lion, tiger, leopard, cheetah, snow leopard, jaguar, and puma, and enhance knowledge exchange and threats associated with them.

Other Important Articles Covering the same topic:

📍Importance of the International Big Cat Alliance for UPSC Exam

Previous year UPSC Prelims Question Covering similar theme:

(3) Consider the following statements: (2016)

1. The International Solar Alliance was launched at the United Nations Climate Change Conference in 2015.

2. The Alliance includes all the member countries of the United Nations.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

SC: Failure to inform grounds of arrest will make it illegal

Syllabus:

Preliminary Examination: Indian Polity and Governance – Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues

Mains Examination: General Studies-II: Constitution of India —historical underpinnings, evolution, features, amendments, significant provisions and basic structure.

What’s the ongoing story: The requirement under Article 22(1) of the Constitution to inform an arrested person about the grounds of arrest is not a formality but a mandatory constitutional requirement, and failure to do so will render the arrest illegal, the Supreme Court ruled on Friday.

Key Points to Ponder:

• What is Article 22 of the constitution?

• Why are Fundamental Rights?

• What is preventive detention?

• How is the failure to inform the ground of arrests a violation of Article 21?

Key Takeaways:

• It is the fundamental right of every person arrested and detained in custody to be informed of the grounds of arrest as soon as possible. If the grounds of arrest are not informed as soon as may be after the arrest, it would amount to a violation of the fundamental right of the arrestee guaranteed under Article 22(1). It will also amount to depriving the arrestee of his liberty.”

• Justice Oka said, “the reason is that, as provided in Article 21, no person can be deprived of his liberty except in accordance with the procedure established by law. The procedure established by law also includes what is provided in Article 22(1). Therefore, when a person is arrested without a warrant, and the grounds of arrest are not informed to him, as soon as may be, after the arrest, it will amount to a violation of his fundamental right guaranteed under Article 21 as well.

• The judgment said that “when an arrested person is produced before a Judicial Magistrate for remand, it is the duty of the Magistrate to ascertain whether compliance with Article 22(1) has been made…

• Explaining why the grounds of arrest must be communicated to the friends or relatives or persons nominated by the arrested person, Justice Singh said it “is to ensure that they would be able to take immediate and prompt actions to secure the release of the arrested person as permissible under the law.

Do You Know:

• Article 22 prescribes protection against arrest and detention but has a major exception. It says in Article 22 (3) (b) that none of those safeguards apply “to any person who is arrested or detained under any law providing for preventive detention.” The remaining clauses — Article 22(4)-(7) — deal with how preventive detention operationalises.

• First, the state, which would be the district magistrate, would issue an order to detain a person when it is necessary to maintain “public order.” The state can delegate this power to the police as well.

• If the detention ordered is for more than three months, under Article 22(4), such a detention requires the approval of an Advisory Board. These Boards are set up by states and normally consist of retired judges and bureaucrats. A detainee is generally not allowed legal representation before the Board. If the Board confirms the detention, the detainee can move Court challenging the detention order.

Other Important Articles Covering the same topic:

📍Telangana’s law under scanner: How preventive detention works

Previous year UPSC Prelims Question Covering similar theme:

(4) Right to Privacy is protected as an intrinsic part of Right to Life and Personal Liberty. Which of the following in the Constitution of India correctly and appropriately imply the above statement? (UPSC CSE 2018)

(a) Article 14 and the provisions under the 42nd Amendment to the Constitution

(b) Article 17 and the Directive Principles of State Policy in Part IV

(c) Article 21 and the freedoms guaranteed in Part III

(d) Article 24 and the provisions under the 44th Amendment to the Constitution

 

EDITORIAL

The H-1B paradox

Syllabus:

Preliminary Examination: Current events of national and international importance

Mains Examination: General Studies-I: Salient features of Indian Society, Diversity of India

General Studies-II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation

What’s the ongoing story: Ruchi Gupta writes: As India’s growth flounders, the lack of a coherent national development strategy is becoming more acute. India’s aspirations of becoming a global power rest on increasingly shaky ground, seemingly based more on our size than our achievements in science, technology, art or other innovation. Nowhere is this strategic vacuum more evident than in the discourse around H-1B visas.

Key Points to Ponder:

• What are the issues related to immigration from India?

• What are the push factors for immigration?

• What is ‘brain drain’?

• How does India’s brain drain affect its economy?

• How can India balance its aspiration to become a global power with addressing domestic challenges?

• What is the H-1B visa program, and how does it relate to India?

• What are the main arguments against India’s current approach to H-1B visas?

• True “atmanirbharta” (self-reliance) cannot be achieved without universal access to opportunities that enable every Indian to achieve their potential within the country’s borders. Analyse.

Key Takeaways:

• The Indian government’s efforts to preserve the status of H-1B visas for skilled migrants in the United States are framed as a matter of national interest. While the personal anxieties of Indians on H-1B visas are understandable.

• In the US, the H-1B debate is entangled with broader immigration policies, often coloured by economic and racial anxieties that sometimes manifest as bigotry.

• For India, however, the focus from a national development perspective should not be on preserving the H-1B pipeline but on questioning why a country capable of producing globally competitive talent fails to provide opportunities for this talent at home, such that 75 per cent of H-1B visa holders are Indians.

• The H-1B system represents a clear case of brain drain, with costs borne disproportionately by India. While it may appear advantageous on the surface — generating remittances, building global networks, and enhancing India’s soft power — a closer examination reveals a troubling imbalance.

• India invests heavily in selecting and nurturing talent through publicly-funded institutions like the IITs without reaping direct benefits from this training, while the US gets to cherry-pick top Indian talent without bearing the cost of training it. Moreover, those Indians who go abroad must trade-off political rights for economic prosperity.

• The H-1B narrative has become fundamentally a story of class privilege. Celebrating individual success stories obscures systemic barriers and perpetuates the myth that talent naturally finds its way to success. In reality, structural advantages — access to elite institutions, networks, and resources — play a decisive role in determining who gets ahead.

• Proponents argue that lucrative opportunities abroad through H-1B visas spur education domestically and that brain drain is overstated. While the connection between overseas opportunities and educational aspirations is valid, this argument is incomplete.

• While opportunity abroad may spark widespread aspiration, access to quality education remains severely limited, as evident from the intense competition, exam paper leaks, corruption and suicides among our youth. Consequently, only a small percentage benefits while the vast majority — particularly in rural and underprivileged communities — are left behind.

• The true cost of this talent exodus extends beyond the immediate brain drain. It perpetuates an outward focus that weakens the urgency for domestic reform, allowing the state to neglect its responsibility to create equitable opportunities and an environment conducive to growth and innovation.

• Consider why India, with its abundant talent pool, has produced relatively few globally competitive companies or Nobel laureates. The issue isn’t individual capability but the absence of robust institutional frameworks: Stable governance, transparent regulations, accessible capital, and consistent rule of law.

• India’s real challenge is to transform its aspirational energy into a movement for systemic reform. Over-indexing on the diaspora for remittances, investments, and prestige risks undermining the development of domestic institutions. Instead of celebrating the exodus of its brightest minds, India must focus on creating conditions that make staying more attractive than leaving.

• This requires a fundamental shift in priorities. Improving the quality of education, expanding access to infrastructure, streamlining governance, and fostering an environment conducive to innovation are critical. True “atmanirbharta” (self-reliance) cannot be achieved without universal access to opportunities that enable every Indian to achieve their potential within the country’s borders.

• National progress is not measured by how many citizens succeed abroad or by how many billionaires India has but by how many can fulfill their aspirations at home.

Do You Know:

• The International Organisation for Migration (IOM) has released the biennial World Migration Report 2024. According to the report, India received over USD 111 billion in remittances in 2022, the largest in the world, becoming the first country to reach and even surpass the USD 100 billion mark. India is also the origin of the largest number of international migrants in the world, with large diasporas living in countries such as the United Arab Emirates, the United States and Saudi Arabia.

• The H-1B visa program allows American employers to hire immigrant workers in occupations that require “a high level of skill” and “at least a bachelor’s degree”, according to the US Department of Labour.

• The program was started in 1990, with the intention of helping “employers who cannot otherwise obtain needed business skills and abilities from the US workforce by authorising the temporary employment of qualified individuals who are not otherwise authorised to work in the United States”.

Other Important Articles Covering the same topic:

📍Knowledge Nugget: Why ‘Dunki Routes’ used by deported immigrants from US matter for UPSC exam

📍Best of both sides: The H-1B visa system is designed to exploit foreign talent

Previous year UPSC Mains Question Covering similar theme:

Discuss the changes in the trends of labour migration within and outside India in the last four decades. (2015)

 

THE IDEAS PAGE

AI race: What India should do

Syllabus:

Preliminary Examination: Current events of national and international importance

Mains Examination: General Studies-III: Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.

What’s the ongoing story: Amitabh Kant writes: Just a fortnight back, the US committed billions to semiconductor investments with the Stargate initiative, laying the groundwork for its technological future. The aim was to create 1,00,000 jobs and secure pole position for the US in AI. In another part of the world, an open-source AI model emerged in DeepSeek, shaking the foundations of proprietary systems with its unmatched cost-efficiency and performance.

Key Points to Ponder:

• What is the Stargate initiative?

• What are the initiatives taken by India to promote AI?

• What are the challenges of AI for a developing country like India?

• What is the role of Digital Public Infrastructure (DPI) in AI?

Key Takeaways:

• OpenAI CEO Sam Altman, who previously called India’s efforts to develop its own AI models “totally hopeless”, has made a complete about-turn and said that India should take a leadership role in the AI space. The global AI race has begun.

• With its young population and a well-established Digital Public Infrastructure (DPI), India needs to rapidly develop capabilities to lead the next phase of the AI revolution.

• The government’s commitment is unequivocal; its IndiaAI Mission is a clear declaration of intent. Our developer community is the second largest in the world, behind only the US. India has 240-plus Gen AI startups, of which 70 per cent cater to industry-specific challenges in sectors such as healthcare, education, BFSI, and agriculture.

• For instance, Sarvam AI is working on building a foundational model with Indian languages. Niramai is a health-tech startup using AI to detect early signs of breast cancer in women. With such a vibrant ecosystem of innovation, we have the necessary foundation to catalyse both the pace and scale of a new wave of digital transformation.

• First, look at what we have achieved in financial inclusion — we took bank-account penetration from 30 per cent to over 80 per cent in just seven years. econd, examine the scale of digital payments — $568 billion in monthly UPI transactions, with India handling 49 per cent of global real-time payments.

• India must take decisive steps to build and fortify the hardware backbone powering AI systems, ensuring that they deliver unmatched efficiency, reliability, and scalability.

• Investments in AI hardware will create jobs and attract significant capital, while also sparking a ripple effect of innovation across industries. By developing robust hardware ecosystems, India can position itself as an indispensable partner in global supply chains, amplifying its influence on the international stage.

• To maintain our sovereignty in technological advancement and lead from the front, we must not allow ourselves to become a technological colony of the US and China.

• This requires us to do the following. One, India must innovate in a nimble, less energy-consuming, cost-effective manner. We must do more for less like ISRO. Two, open source is the way forward, but we must create an environment that encourages brilliant and clever engineering.

• Three, we must build sovereign frontier models that are based on our data sets and do not have any inherent biases. Four, since India has 22 recognised official languages and a vast number of local dialects, we must build multilingual and multimodal foundational models.

• Five, as a Quad partner, India should secure its position among Tier-I countries in the realm of AI diffusion, and not be subjected to any restrictions or controls. Six, there must be a sense of great urgency and a mission-driven approach.

Do You Know:

• DeepSeek’s technological achievement has stunned the world, from Silicon Valley to the global AI stage. However, China’s growing dominance in AI raises critical questions about India’s position, especially given the lack of an AI lab or startup that rivals the capabilities of OpenAI or DeepSeek.

• Amid questions over India’s place in the global AI race, the government said that the country will develop its own Graphics Processing Unit (GPU) in the next three to five years, and a domestic foundational AI platform can be expected in the next 10 months.

• Last year, the Union Cabinet approved the IndiaAI Mission with an outlay of Rs 10,372 crore for the next five years, under which the government will allocate funds towards subsidising private companies looking to set up AI computing capacity in the country, among other things.

Other Important Articles Covering the same topic:

📍UPSC Issue at a Glance | DeepSeek breakthrough: 4 Key Questions You Must Know for Prelims and Mains

📍India’s AI strategy

UPSC Prelims Question Covering similar theme:

(5) With the present state of development, Artificial Intelligence can effectively do which of the following?

1. Bring down electricity consumption in industrial units

2. Create meaningful short stories and songs

3. Disease diagnosis

4. Text-to-Speech Conversion

5. Wireless transmission of electrical energy

Select the correct answer using the code given below:

(a) 1, 2, 3 and 5 only

(b) 1, 3 and 4 only

(c) 2, 4 and 5 only

(d) 1, 2, 3, 4 and 5

 

EXPLAINED

Budget, beyond the tax break

Syllabus:

Preliminary Examination: Economic and Social Development – Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc

Mains Examination: General Studies-III: Government Budgeting.

What’s the ongoing story: The Union Budget for 2025-26 was presented last Saturday (February 1) and it provided a whopping Rs 1 lakh crore (that is, Rs 1 trillion) tax relief to income taxpayers of the country. The hope is that this hefty amount of money left in the pockets of the taxpayers will boost consumption demand and thus push up India’s economic (that is, GDP) growth rate above the 6% level.

Key Points to Ponder:

• How is the GDP calculated in India?

• What were the changes brought in GDP calculations after 2015?

• What are the challenges of using GDP in calculating the progress of the economy?

• What are the various components of the Budget?

Key Takeaways:

• Governments can influence the overall GDP growth through their taxation and expenditure policies, together clubbed as “fiscal policy”. Taxing less leaves consumers with more money to spend and thus trigger economic activity.

• Similarly, spending more on creating productive assets (called capital expenditure) relative to spending on everyday expenses such as salaries (also called current or revenue expenditure) also helps overall GDP growth.

• India’s annual GDP has grown at the rate of 10% in nominal terms (that is, inclusive of inflation). In comparison, the per capita GDP (or the average income of an Indian) has grown only at the rate of 8.9%.

• The size of the Union Budget or the rate at which government spending expanded (11.8%) is higher than the rate of nominal GDP growth rate. It is for this reason that the Budget as a percentage of GDP was only 13.31% in FY15 and expanded to 15.65% in FY25.

• Budget expenditures on Health and Family Welfare is even lower than education. While the allocation has grown at a rate almost in sync with the overall size of the Budget, the fact is that despite this increase, the allocation is just 1.7% of the total government expenditure.

Do You Know:

• Gross Domestic Product (GDP) is an important macroeconomic indicator that measures the economic growth of a country. It is also an easy parameter for comparing the growth of a country with that of other countries in the world.

• The disadvantage of this measure is that it is an average numerical indicator that does not capture inequalities, unemployment, the rural-urban divide, or income percentiles. Despite these drawbacks, GDP remains a frequently used metric because of the way it is measured.

• GDP is the sum of the market value of all the final goods and services produced within the geographical boundaries of a country each year.

Other Important Articles Covering the same topic:

📍Why is GDP considered a key measure of economic growth?

Previous year UPSC Prelims Question Covering similar theme:

(6) A decrease in tax to GDP ratio of a country indicates which of the following? (2015)

1. Slowing economic growth rate

2. Less equitable distribution of national income

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Previous year UPSC Mains Question Covering similar theme:

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

 

PRELIMS ANSWER KEY

1. (b)  2. (c)  3. (a)   4. (c)  5. (d)  6. (a)

 

🚨New Year Special: Click Here to read the January 2025 issue of the UPSC Essentials monthly magazine. Share your views and suggestions in the comment box or at manas.srivastava@indianexpress.com🚨

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