Current Affairs 1 February 2025

Daily Current Affairs Quiz
1 February, 2025

International Affairs

1. India-Middle East-Europe Economic Corridor (IMEC) 

Context:

With a third round of hostage and prisoner exchanges completed and signs that the Israel-Gaza ceasefire is still holding, reviving talks on the India-Middle East-Europe Economic Corridor (IMEC) is back on the agenda in India’s diplomatic outreach to the region. 

India-Middle East-Europe Economic Corridor (IMEC)

National Affairs

1. Union Budget 2025

About

• On February 1, 2025, Finance Minister Nirmala Sitharaman presented India’s Union Budget for the fiscal year 2025-26, outlining the government’s financial plan to stimulate economic growth, provide tax relief, and invest in key sectors.

Introduction and Key Objectives

The Union Budget 2025 aims to:

• Boost economic growth while maintaining fiscal prudence.
• Provide relief to taxpayers to stimulate consumption.
• Strengthen infrastructure and capital expenditure.
• Support farmers and rural employment.
• Promote green energy and sustainable development.
• Encourage investments in key industries like AI, semiconductor manufacturing, and digital infrastructure.

The budget follows the Amrit Kaal vision and India’s long-term economic strategy for Viksit Bharat 2047, focusing on self-reliance, sustainability, and digital transformation.

Taxation & Fiscal Policy

Personal Income Tax Changes

• New Tax Exemption Limit:
  • Income up to ₹8 lakh per annum is now tax-free.
• Standard Deduction Increased:
  • From ₹50,000 to ₹75,000, benefiting salaried individuals.
• Revised Tax Slabs under New Regime:
  • ₹0 – ₹8 lakh: 0% (No Tax)
  • ₹8 lakh – ₹12 lakh: 10%
  • ₹12 lakh – ₹20 lakh: 15%
  • ₹20 lakh – ₹35 lakh: 25%
  • Above ₹35 lakh: 30%
• Senior Citizens’ Tax Benefits:
  • Higher exemptions and rebates on healthcare expenses.

Corporate Taxation

• No change in corporate tax rates (remains at 22% for domestic companies).
• Incentives for Startups:
  • Tax holiday extended till March 2027.
• Special tax exemptions for semiconductor, AI, and renewable energy firms.

GST & Indirect Taxes

• Rationalization of GST slabs to simplify compliance.
• Reduction of customs duties on key imported goods such as semiconductors, electric vehicles, and green hydrogen equipment.

Fiscal Deficit and Government Borrowing

• Fiscal Deficit Target: 4.4% of GDP (down from 4.8% in FY24).
• Gross Borrowing:
  • ₹14.82 lakh crore.
• Plan to reduce national debt:
  • Aim to bring debt-to-GDP below 50% by 2031.

Capital Expenditure & Infrastructure Development

The government continues its aggressive infra push, though with a slightly lower growth rate than previous years.

• Capital Expenditure Allocation:
  • ₹11.21 lakh crore.
• Key projects:
  • Expansion of National Highways & Expressways.
  • New high-speed rail corridors connecting major cities.
  • Modernization of Indian Railways, including 100 new Vande Bharat trains.
  • Airport expansion to boost aviation connectivity.
  • ₹50,000 crore allocated for Smart Cities & Urban Development.

Rural & Agricultural Development

• Total Rural Welfare Spending:
  • ₹4.57 lakh crore.
• MGNREGA Allocation:
  • ₹86,000 crore to support rural employment.
• Fertilizer Subsidy:
  • ₹1.67 lakh crore (slightly reduced).
• Introduction of a High-Yield Crop Program benefiting 17 million farmers.
• Interest-Free Loans for small and marginal farmers.

Social Welfare & Healthcare

Healthcare Sector

• Increase in Health Budget:
  • ₹2.5 lakh crore.
• Strengthening of Ayushman Bharat:
  • Free medical insurance for more citizens.
• Special focus on mental health programs.

Education & Skill Development

• ₹1.3 lakh crore allocated to education.
• 50,000 new schools to be upgraded with digital classrooms.
• Expansion of AI & IT training programs.

Women & Child Development

• ₹1.2 lakh crore for Women Empowerment Programs.
• Increased maternity leave benefits & childcare support.

Energy & Sustainability Initiatives

• India’s First Nuclear Energy Mission Launched with a target of 100 GW nuclear power by 2047.
• Green Hydrogen Push:
  • ₹19,000 crore allocated.
• Solar Energy Expansion:
  • Subsidies for rooftop solar panels.

Digital Economy & Tech Innovations

• ₹1 lakh crore fund for AI, Quantum Computing & Semiconductor Industry.
• 5G Expansion:
  • Rural areas to be covered with 5G towers.
• Boost to Digital Payments & Blockchain adoption in banking.

Market Reactions & Economic Impact

• Stock Market Response:
  • Mixed reactions due to tax cuts and lower capital spending.
• Consumer Stocks Surge (Maruti Suzuki, Britannia).
• Infra Stocks Decline (Larsen & Toubro).

Conclusion

• The Union Budget 2025 is balanced and forward-looking, aiming for economic growth with fiscal responsibility.
• The government’s focus on tax relief, digital economy, infrastructure, and green energy will shape India’s economic trajectory in the coming years.

2. Economic Survey 2024-25

Context:

The Economic Survey 2024-25 presented to the Parliament on the eve of the Union Budget highlights top economic priorities focused on deregulation business reforms and resilience at a time of global uncertainty.

Key Highlights:

• Deregulation as Catalyst for Growth
  • Support reducing regulatory hurdles particularly on the states level in order to spur capital formation create jobs and enhance economic performance.
  • Calls on the government to take a step back and let companies focus on innovation and competitiveness. It feels that costs for doing business are the only element that can sustain a high growth level.

Economic Growth Outlook

• 6.3-6.8 GDP expected in FY26 similar to the 6.4 estimate for FY25.
• Lags behind the 8% growth required to meet the Viksit Bharat vision by 2047.
• Global agency projections
  • IMF Fitch Ratings: 6.5%
  • World Bank: 6.7%
  • ADB: 7.0%

Real GDP Growth

• Growth Now
  • Indian real GDP growth for FY25 is expected to be at 6.4%, in line with the decadal average.
• Future
  • It is likely to be steady as FY26 is projected in the range of 6.3% to 6.8%.

FDI Inflows

• Slowing FDI
  • Net FDI inflows slow down during the first eight months of FY25 mainly because of the rise in repatriation and disinvestment.
• Year-over-Year Comparison
  • Overall, FDI decreased in FY24 as compared to the previous years and shows deceleration of foreign investments.

Inflation

• Food Inflation
  • Food inflation based on CFPI increased from 7.5% in FY24 to 8.4% in FY25 (April-December) as a result of increased price of vegetables and pulses.
• Retail Inflation
  • CPI-based retail inflation has been arriving at 5.4% above the comfort level of the RBI at 4%. Items like onions and tomatoes have moved up at an incredible rate, and it also crossed 8%.

Manufacturing PMI

• Sector Revival
  • The manufacturing sector is reviving but remains a little shy of pre-pandemic times due to a global demand slowdown and supply chain disruptions.

Foreign Exchange Reserves

• Holdings Position
  • Reserves of the foreign exchange stand at $640.3 billion as of December 2024, which works out to covering 90% of India’s external debt amounting to $711.8 billion as of September 2024.

Labour Market Indicators

• Labour Market Growth
  • Growth in the labour market has also been due to post-pandemic recovery and formalisation. The unemployment rate decreased from 6% during 2017-18 to 3.2% in 2023-24.

Trade Performance

• Export and Import Trends
  • In FY24, exports and imports declined by 0.1% and 2.3%, respectively. However, in FY25 (April to December), exports increased by 6.6% and imports by 3%.

UPI Payments

• Exponential Growth
  • UPI payments have seen a significant growth rate, with a total value of nearly ₹2 lakh billion in FY24 and ₹1.9 lakh billion from April to December in FY25.

Global Trade Economic Uncertainty

• Increasing protectionism and trade disruptions are a challenge to India’s economic path.
• These steps include active policy measures to address external vulnerabilities and sustain competitiveness in global trade.

Ease of Doing Business 2.0

• The third wave of the report is also known as Ease of doing business 2.0 which proposes another wave of business reforms in simplifying rules and attracting investment. The enhancement of India’s business environment reduces bureaucratic inefficiency and focuses support on entrepreneurs and MSMEs through streamlined procedures.

AI’s Impact on Jobs

• Warns of Artificial Intelligence
  • AI disrupting labor markets and urges responsible adoption.
  • Suggests that irresponsible AI deployment could lead to policy interventions taxation.
  • Recommends worker protection measures to cushion the impact of automation.

Structural Reforms Inclusive Growth

• Stresses the need for labor reforms to drive sustainable job creation.
• Warns against excessive financialization which can destabilize the real economy. PM Modi hints at some new welfare measures for women the poor and the middle class in the upcoming budget.

Source: The Hindu

3. Economic Survey 2024-25: Social Sector Expenditure (SSE)

Context:

The Economic Survey 2024-25 presents a positive side to the fact that greater social sector expenditure has resulted in reduced healthcare expenditure increased education enrollment and achievement of health standards at par with the global ones.

Social Sector includes expenditure on General Education, Technical Education, Sports and Youth Services, Arts and Culture, Medical and Public Health, Family Welfare, Water Supply and Sanitation, Housing, Urban Development, Information & Publicity, Broadcasting, Welfare of SC, ST and OBC, Labour and Employment etc.

Growth in Social Sector Expenditure (SSE)

• SSE as a percentage of total expenditure (TE) increased from 23.3% in FY21 to 26.2% in FY25 (Budget Estimates).
• SSE has grown at a CAGR of 15%, reflecting a strong commitment to welfare.
• Health expenditure: Grew from ₹3.2 trillion in FY21 to ₹6.1 trillion in FY25BE (CAGR: 18%).
• Education expenditure: Increased from ₹5.8 trillion in FY21 to ₹9.2 trillion in FY25BE (CAGR: 12%).

Out of Pocket Spending (OOPE) on Healthcare Has Declined

• Investments in health insurance and infrastructure have brought down financial burdens on families.
• The survey highlights India’s progress toward the WHO standard of 1 doctor per 1,000 people by 2030, with 50,000 doctors licensed annually. Current ratio 1 doctor for every 1,263 people (138 million doctors available).
• Problem: Urban-rural inequality in the access to health care a 3.8:1 urban-to-rural doctor ratio.

Higher School Enrolments Lower Dropout Rates

• Education spending is up as is the Gross Enrolment Ratio (GER) aiming to reach 100% GER by 2030 as per the National Education Policy (NEP).
• Current GER levels
  • Primary: 93% (near universal).
  • Secondary: 77.4% (efforts underway to bridge gaps).
  • Higher Secondary: 56.2% (significant room for improvement).
• Dropout rates are declining
  • Primary level: 1.9%.
  • Upper Primary: 5.2%.
  • Secondary: 14.1%.

Policy Recommendations for Balanced Growth

• Calls for equitable and sustainable medical education policy that redresses urbanrural imbalances of the availability of doctors.
• On continuing investments in education to address gaps at the secondary and higher secondary levels.

4. Economic Survey 2024-25: Strategy for Climate Action and Fossil Fuel Investments

Context:

The Economic Survey 202425 advocates a dual strategy of climate action along with continued fossil fuel investments for achieving energy security warns against overreliance on China for renewable energy components while calling for indigenous clean energy development and public transport over private EVs.

Fossil Fuels Necessary for Energy Security

• The Survey opposes the early retirement of coalfired power plants, arguing that a secure energy supply should be ensured before fossil fuel consumption is reduced. It leans on the difficulties that developed nations faced when they abandoned thermal power sources without adequate alternative supply.
• The suggested critical investments are
  • Ultra supercritical power plants, more efficient coal technology, and battery storage solutions for reliability in renewable energy.
  • Carbon capture utilization and storage (CCUS) to attain lower emissions.

India Should Avoid Dependence on China for Transitioning to Low Carbon

• Indian energy transition is heavily dependent on China’s solar module supplies which constitute over 80 percent of the global supply chains.
• Chinese dominance as it brings down the cost in solar PVs brings with it the risks that may be brought about by the supply chains.
• The Survey asks India to develop its own clean energy technology to avoid geopolitical vulnerabilities.

India’s Climate Commitments Financial Challenges

• The Survey again reminds India of its Panchamrit climate commitments at COP26 with a focus on a low carbon growth path.
• It observes that global financial support for developing nations climate efforts is declining and thus self reliance in green technology is critical.

Public Transport Over Private EVs

• The Survey suggests incentivizing public transport rather than private EV production as Indias import dependency for EV components is high particularly from China.

Evolution of Challenges in Adoption

• India imported most of its oil and thus EVs have a lot to offer.
• EV production still is highly import intensive.
• Limited land availability and the need to make public transport, an efficient alternative for sustainable mobility call for gradual indigenising of EV technology and sourcing raw materials to diminish reliance on importation.

5. India’s Services Sector Growth and Transformation

Context:

India’s services sector has emerged as the backbone of the economy and significantly contributes to the overall gross value added (GVA). The Economic Survey 2024-25 spells out strategies for boosting the sector.

Contribution to Economic Output

• Share of Services in GVA rose from 50.6% in FY14 to around 55% in FY25.
• Workforce Employment
  • About 30 percent of the workforce is employed in services.
• Servicification of Manufacture
  • There has been more and more blurring of services with the process of manufacture. Especially, it is happening primarily during the production to post-production cycle.

Sectoral Trends and Challenges

• Global Trends
  • Economic transformations across the world are also changing the service demand pattern. Geopolitics brings in new challenges to IT and professional services across the globe.
• Geo-economic Fragmentation
  • It is altering global supply chains and, in that sense, is posing a threat to India’s staying power of moving on the path of structural reforms and deregulation to maintain its global competitiveness.
• Service Categories for Concentration
  • The Survey classifies four service sectors with plans for each sector : Defend: IT and business services. Accelerate: Transport, trade, education, and financial services.
• Transform
  • Travel, health, cultural services, and personal services. – Untapped: Insurance, telecommunications and postal services.

Value-added by Skilled Manpower

• AI Integration
  • As AI penetration into all kinds of sectors grows deeper, demand for a strong digital and technical workforce is increasing manifold.
• Skill Development
  • This Survey identifies that there exists an imperative necessity for Government, Private sector, and the skilling ecosystem to partner each other more strongly to expedite talent in new sectors.

Regulatory Reforms

• Process Simplification
  • The Survey had suggested more streamlined rules in the grassroots sectors to also foster growth both in manufacturing as well as service sectors.
• Facilitating innovation
  • Improvement of bureaucracy could therefore be viewed in terms of aspects that help support innovation in main industries, particularly to promote quicker overall economic development.

Growing role of Global Capability Centres (GCCs)

• GCCs Growth in GCCs
  • India experienced tremendous growth in the setting up of GCCs. The figure has risen from 1,430 in FY19 to more than 1,700 in FY24 .The growth is because of a highly skilled workforce in markets such as banking, healthcare, and automotive.

Share of India in Global Services Exports

• Growth has also been steady and continuous in terms of India’s share in the global services exports and has helped overcome the volatility seen in merchandise exports.
• Global Rank
  • India currently ranks 7th globally, accounting for a 4.3% share of global services exports.

6. Economic Survey 2024-25: Public-Private Partnerships in Infrastructure Projects

Context:

In infrastructure projects the Economic Survey 2024-25 underlines the requirement of full acceptance of publicprivate partnerships (PPPs) in infrastructure projects to address unmet demands and push forward development in crucial sectors.

Requirement for Enhanced Private Sector Involvement

• The Survey calls for the strengthening of private participation in infrastructure through improved risk and revenue sharing mechanisms contract management and better project closure processes.
• The private sector confidence must be enhanced to increase higher involvement in the infrastructure space as it is currently less than what is expected.

Coordinated Approach to Infrastructure Development

• The necessary coordinated effort from all the stakeholders to really improve conceptualization and execution of infrastructure projects should come from a combined effort by governments players in the financial market experts in project management and the private sector.
• Problematic areas call for enhancement in sector specific strategies, risk management and contract management and conflict resolution.

Developing Infrastructure Investment

• The Survey reports that the capital expenditure on infrastructures is increasing but major unfulfilled demand persists in sectors like ports railways civil aviation and roads.
• As of November 2024 from the Survey data the percent capital expenditure spent compared to the budgeted are:
  • Ports & Shipping: 76%
  • Civil Aviation: 69%
  • Railways: 67%
  • Water & Sanitation: 57%
  • Power: 54%
  • Roads: 54%
  • Housing & Urban Affairs: 49%
  • Rural Development: 52%

Public Sector Limitations

• While the government undertakes initiatives, public sector investment cannot fully serve the infrastructure needs because of budgetary constraints on different levels of government.
• The Survey advocates for the intensification of private sector involvement in infrastructure projects particularly concerning financing construction and monetization.

Problems in PPPs and Infrastructure Development

• PPPs have been successful only in some sectors so far and private enterprise uptake is still limited in many core infrastructure sectors.
• Even after the National Infrastructure Pipeline and PM Gati Shakti private participation has been slow due to various challenges including political cycles and electoral pressures.

7. Reviving Export Competitiveness of India

Context:

The economic body in Economic Survey 2024-25 demands a “new strategic trade roadmap” to revive the export competitiveness of India in this scenario of turbulence across the global front, new protectionism emerging everywhere, and the dynamics of trade changing quite dramatically.

Challenges to export competitiveness:

• Increasing Protectionism and Uncertainty
  • The global trading protectionism along with the recently witnessed Russia-Ukraine conflict is on the increase.
• Non-Tariff Measures
  • While tariffs have declined, other non-tariff policy measures, those that are health- and environment-related, for example, continue to proliferate. NTMs, supposedly directed at issues of public security, raise the compliance cost of exporters.
  • For example, the newest ones that have been introduced lately but for which implementation begins soon are both the CBAM under the EU and the EU Deforestation Regulation (EUDR) of the EU.
  • These headwinds can constrain India’s exports, particularly to the EU, and increase the current account deficit.

Quality and Efficiency.

• Even amidst these headwinds, India can still enhance its share in world markets by enhancing quality and efficiency.
• Survey asks India to remain competitive, reduce trade costs, and enhance global supply chain participation.

FDI Trends

• Net FDI declined:
  • The net FDI during the survey went down mainly because of the following head/heads exit of the successful foreign investment, other attractions to their investments in countries within the geographical borders; interest rate increase outside; still, the gross inflow of foreign direct investment posted the growth of 17.9 per cent and its year over year value reached US $55.6 bn.

Dependency on China

• The China Domination process and energy transformation system is exposed in the manufacturing chain. For instance, disruption, price level volatility, as well as fluctuations in exchange rates, may happen to India since many Indian industries rely on the Chinese value chains for acquiring solar equipment.
• This is yet another area wherein China’s energy and manufacturing industries, like their counterpart in India, face the headache of being critical minerals-dependent.
• China is now producing an alarming percent of the world production of nickel, cobalt, lithium, and rare earth minerals.

Evolution of India’s Tariff Policies

• Lowered Tariffs: The import tariff rates of India are reduced from 48.9% in 2000 to 17.3% in 2024, a step towards free trade and global integration.
• The Survey underlines the balance of domestic protection and the need of global economic integration so that tariffs become rationalized to benefit the key sectors without inverted duty structures.

8. AI and Its Impact on the Workforce

Context:

The Economic Survey 2024-25 emphasizes the threat of Artificial Intelligence (AI) in the workplace and calls for proactive measures to prepare workers for the social and economic impacts of job automation. Both the government and private sector must collaborate to introduce AI efficiently.

Role of the Government and the Private Sector in AI Adoption

• Balanced Introduction of AI
  • It emphasizes that both sectors must adopt AI in a balanced manner in order to limit job losses and the social fallout of automation.
• Safety Nets by Governments
  • The role of governments in such an event will be to establish safety nets for workers if private companies are not able to deal with the issue at hand without causing economic harm through overregulation.

Teamwork for Inclusive Transformation

• Intersectoral Cooperation
  • The government private sector and academia could collaborate to ensure AI related innovation is aligned with societal objectives for a sustainable inclusive transformation.
• Institutional Quality
  • Better quality institutions can prepare workers for AI by providing upskilling training and mentorship in preparation for the shift in the job landscape.

AI related Job Losses

• Approximate loss of jobs
  • 75 million jobs at risk globally due to automation. (International Labour Organization)
  • 300 million jobs will be susceptible to AI-driven automation. (Goldman Sachs)
  • 30% of today’s available work hours could be automated by generative AI by 2030. (McKinsey)
• Reduction of Risks
  • The Survey asks for cautious application of AI keeping worker flexibility intact and having prepared new jobs and roles.

Social Acceptability and Transparency

• Transparency and Accountability
  • Policymakers should focus on transparency and accountability for AI technology to check biases and ensure it is socially acceptable.
• Stewarding Innovation
  • Stewarding AI doesn’t mean impeding innovation instead it ensures it is guided to improve society without adverse side effects.

Narrowing the Gender Gap with Digital Economy

• Prospects for Women
  • The digital economy provides a possibility for the seamless integration of gender gaps so that women can bridge the gaps such as lack of equal access to education, fewer job opportunities and cultural biases.
• Empowerment through Remote Work
  • Being flexible remote work and digital jobs empower women from developing countries especially with regard to financial independence and increased empowerment.

Challenges and Opportunities

• Institution Building to Support the Workforce
  • India has time to build the right institutions to support the workforce through AI adoption focusing on overcoming barriers like investment shifts changes in education and the quality of labor.
• AI at the Edge RealWorld
  • Applicability of AI Even though AI models like large language models can be excellent performers in benchmarks their real world applicability leaves much to be desired particularly in industries such as self driving cars where efficiency must come at a lower social cost.

9. Mukhyamantri Maiya Samman Yojana

Context:

The Mukhyamantri Maiya Samman Yojana, the flagship scheme of the Jharkhand Mukti Morcha (JMM)-led coalition government in the State that provides monthly aid to women in the 18 to 50 age group, has run into rough weather with 11,200 fake applications being detected in Bokaro district.

Scheme Overview

• Launch and Purpose
  • The Mukhyamantri Maiya Samman Yojana is a flagship initiative by the Jharkhand Mukti Morcha (JMM)-led coalition government, Launched in August 2024, aimed at providing monthly aid to women aged 18 to 50 in the state.
• Aid Structure
  • Initially, the scheme offered ₹1,000 per month but was increased to ₹2,500 starting December 2024.

10. India’s Tiger Population

Context:

A study published in Science, led by Yadvendradev Jhala and colleagues, found that India’s tiger population has grown by 30% over the past two decades.

Key Findings

• Population Growth
  • India’s tiger population has increased by 30% over the last 20 years, demonstrating success in conservation efforts.
• Balance of Strategies
  • The recovery was made possible through a combination of scientific strategies and a careful balance of land-sharing and land-sparing approaches.
• Coexistence with Humans
  • Tigers now coexist with over 66 million people, showing that such coexistence is feasible despite challenges.

Conservation Strategies

• Protected Areas
  • The study highlights the importance of protected areas with no human habitation, which sustain 85% of breeding populations.
• Corridors and Land-Use Practices
  • Tiger populations have been able to disperse and expand into multi-use forests thanks to corridors and sustainable land-use practices.
• Success Despite Global Decline
  • India’s success contrasts with the global decline of wildlife populations, which have dropped by 73%.

Legislative and Socio-Economic Influences

• Strong Legal Framework
  • India’s tiger recovery is strengthened by strong legislation such as the Wildlife Protection Act, Forest Conservation Act, and the National Tiger Conservation Authority.
• Socio-Economic Impact
  • Regions with lower dependence on forest resources and better socio-economic conditions saw higher tiger recolonization rates.
• Challenges in Vulnerable Areas
  • Areas with high poverty or armed conflict (such as in Chhattisgarh and Jharkhand) have faced tiger population declines.

Challenges and Unexplored Habitats

• Habitat Degradation
  • Despite progress, there are still 157,000 sq km of potential tiger habitats that are unoccupied, mainly due to socio-political instability and habitat degradation.

Government Data and Tiger Numbers

• Current Population: According to government data (July 2024), India is home to 70% of the world’s wild tiger population.
• Population Growth:
  • 2006: 1,411 tigers
  • 2010: 1,706 tigers
  • 2018: 2,967 tigers
  • 2024: 2,226 tigers

Economy

1. India’s Fiscal Deficit

Context:

The fiscal deficit the gap between government expenditure and revenue—stood at ₹9.14 lakh crore at the end of December 2024, 56.7% of the full-year target. This is slightly higher than 55% in the same period last year.

Fiscal Deficit Trends

• Current fiscal deficit (Apr–Dec 2024-25)
  • ₹9.14 lakh crore.
• Percentage of annual target
  • 56.7% of the Budget Estimates (BE) for 2024-25.
• Comparison to last year
  • 55% of BE in Apr–Dec 2023-24.
• Full-year target
  • Government aims to reduce fiscal deficit to 4.9% of GDP in 2024-25, down from 5.6% in 2023-24.
• Absolute fiscal deficit target
  • ₹16.13 lakh crore for FY 2024-25.

Revenue and Expenditure Performance

Tax Revenue (Net)

• ₹18.43 trillion collected (Apr–Dec 2024).
• 71.3% of BE achieved, slightly lower than 74.2% in the same period last year.

Total Expenditure

• ₹32.32 trillion spent, which is 67% of BE.
• Slightly lower than 67.8% last year.
• Breakdown:
  • Revenue expenditure: ₹25.46 trillion (68.7% of BE).
  • Capital expenditure: ₹6.85 trillion (61.7% of BE).

Fiscal Management Strategy

• Targeted fiscal consolidation
  • Government aims to limit borrowing needs while maintaining economic growth.
• Spending efficiency
  • Focus on capital expenditure for infrastructure while keeping revenue spending in check.
• Revenue mobilization
  • Continued push on tax collection efficiency and non-tax revenues.

2. Financialisation

Context:

Excessive Financialisation and Its Risks to Indias Economy: The Economic Survey 202425 throws up a red flag on financialisation and risks it poses for the economy against the backdrop of the changes going on in the Indian financial sector.

What is Financialisation

• Financialisation refers to the phenomenon wherein financial markets increasingly dictate policy and macroeconomic outcomes.
• This has led to unprecedented levels of public and private sector debt in developed economies, thus posing risks to economic stability.
• The Survey advises India to balance financial sector development and growth without falling into the trap of excessive financialisation as the nation aims at aligning its financial system with its long-term economic goals for 2047 2 Transformative Shifts in India’s Financial Sector.

New Developments

• Emerging Trends
  • The financial sector is undergoing significant changes, with a rise in consumer credit and increasing reliance on non-bank financing options.
• Declining Role of Banks
  • Traditional bank dominance in providing credit is shrinking. Banks’ share of total credit has fallen from 77% in FY11 to 58% in FY22, while consumer credit has risen from 18.3% to 32.4% between FY14 and FY24.

Credit-to-GDP Ratio and Bank Credit Growth

• Credit to GDP Ratio
  • Despite high growth rates of bank credit since 2022, the credit-to-GDP ratio is still below the trend line that suggests recent credit growth is sustainable and does not presage overheating.
  • It is an important indicator of the health and growth trajectory of the economy.

Risks from Artificial Intelligence (AI) in Banking

• Transparency Issues
  • The Survey questions the use of AI in the banking system raising risks such as lack of transparency, trust issues, and problems in auditing AI driven decisions.
• Other Risks
  • Increased use of AI also poses risks to human resources, cybersecurity, and third-party service providers which may damage the integrity and reliability of the financial system.

Reforms Needed for Growth and Stability

• Insolvency and Bankruptcy Code (IBC)
  • To maintain a 7-8% growth rate over the next decade, India needs to reform and improve the IBC to enhance operational efficiency and speed up resolution processes, particularly for MSMEs, which face significant legal costs.
• Corporate Bond Market
  • The corporate bond market saw significant growth in 2024, with issuances totaling ₹7.3 trillion. However, most issuances occurred through private placements, limiting the participation of retail investors. The Survey emphasizes the need for greater access and transparency in this market.

Foreign Direct Investment (FDI) in Services

• Insurance Sector Dominance
  • The insurance sector received the highest share of FDI equity inflows in the services sector during the first half of FY25, with 62% of the $5.7 billion in equity inflows.
• FDI Policy Evolution
  • The FDI limit in the insurance sector was gradually raised from 26% in 2000 to 74% in 2021, reflecting the sector’s growing importance and attractiveness to foreign investors.

3. RBI’s Green Bond Auction and USD-INR Swap

Context:

The Reserve Bank of India (RBI) partially auctioned the 10 year sovereign green bonds worth 3,945 crore to primary dealers with an objective to get a greenium or premium pricing for green bonds. The 5 billion USD-INR swap auction however witnessed five times the bids as there is still a huge demand for dollar liquidity.

10-Year Green Bond Auction Partial Devolution

• Auction result
  • RBI accepted only 1,054 crore of the notified amount of 5,000 crore.
• Premium pricing attempt
  • RBI sought a greenium but bidding remained at market levels.
• Definition of greenium
  • The premium investors pay for green bonds due to their sustainability impact.

USD-INR Swap Auction Strong Demand

• Size of the auction
  • RBI carried out a $5 billion six month USD-INR buy sell swap
• Oversubscription
  • The swap saw bids worth $25 billion (5 times the notified amount).
• Cut off for premium
  • Marginally below market levels under a tight liquidity scenario.
• Reason for doing the swap
  • Part of RBI’s measures to inject durable liquidity amid a ₹2.2 trillion banking system deficit.

Rupee and Bond Market Action

• Rupee Depreciation
  • The INR fell to 86.66 during the day, closing flat at 86.62 per USD.
• Fall in Forward premium
  • The 1 year forward premium on the USD-INR went off by 2.24% from 2.27%.
• Bond market steadiness
  • No fresh inflows into the Bloomberg Index, with the benchmark G-Sec yield stable at 6.69%.
• Market sentiment
  • Treasury heads kept a month end dollar demand and caution ahead of the Union Budget.

4. Labour Reforms and Employment in India

Context:

Recent labor laws reforms in India look forward to the better proportioning of economic growth and their provision for a healthy workforce protection. These changes have resulted in the formation of a ” virtuous cycle of job creation.” In support, it helps develop sustainable employment and ensures growth besides inclusive growth: Economic Survey 2024-25.

Compliance Simplification And Increasing flexibility

This Survey highlights how deregulation and relief from compliance burdens can reduce business costs and enhance employment opportunities.

• Ancient Labour Laws
  • The outdated Labour Laws, including the Factories Act, 1948, are choking regulations that extend to what kind of material to use for toilet paper and even dictate designs for toilet rooms. Such excessive micromanagements discourage efficiency in conducting business.
• New Labour Codes
  • The new labour codes seek to make compliance easier, thereby increasing the flexibility of labour with the intent not to lose any protection given to workers while increasing the chances for job generation.

Overtime and Worker Welfare

• Overtime Hours
  • India is compared on its overtime provisions against other countries in the Survey.
• The Factories Act, 1948 in India has limited overtime to a mere 75 hours per quarter, while other countries have set higher overtime hours such as Germany (351 hours) or Malaysia (312 hours).
• In a move to increase workers’ earnings, seven Indian states increased overtime hours to a maximum of 144 hours per quarter as part of labor law amendments.

Women’s Employment and Gender Inclusivity

• Labour Reforms for Women
  • The new labour codes will address the following barriers to women’s employment.
• Safety protocols for the employment of women in night shifts.
• Expanding 26 weeks of maternity leave for gig and informal workers.
• Mandating crèche facilities in workplaces employing more than 50 employees.
• Providing for equal pay for equal work without any form of gender discrimination in recruitment.
• Women should be allowed to work in all sectors, including hazardous roles, with adequate safeguards.

Employment Growth and Economic Recovery

The Survey reports strong post-pandemic recovery in India’s labour market and increased formalisation of the economy, showing positive trends in creating jobs and economic inclusion.

Wages and Employment Trends

• Wage Trends: Real wages of both salaried and self-employed workers have declined from levels in 2017-18:
• Male self-employed wages went down by 9.1%.
• Female self-employed wages decreased by 3.2%.
• Male salaried employees wages dropped by 6.4%.
• Female salaried employees’ wages dropped by 12.5%.
• Male casual workers increased to 19.2%.
• Female casual workers increase by 24%.

5. Viksit Bharat

Context:

For actualizing its economic dreams, India needs to progress steadily towards turning into a ” Viksit Bharat” by 2047. In support of this mission, the prime and secondary zones that will ensure achievement of this objective have been identified in Economic Survey 2024-25.

Growth Target of 8%

• Average Growth Requirement
  • This calls for India to achieve the average growth rate of 8% at constant prices over the next decade or so to achieve the economic targets for 2047.
• Key Areas of Growth
  • This growth should come with higher levels of investment, particularly in the manufacturing sector and emerging technologies such as AI, robotics, and biotechnology.

Investment Pick-up

• Investment to GDP Ratio
  • India’s investment rate has to rise from the present 31% of GDP to about 35%.
• Investment in Technology
  • Spending in emerging technologies is crucial to continued long term growth.

Employment Generation

• Tatkal of Non-Farm Sector Jobs
  • For India to continue on a growth path, 7.85 million new non-farm jobs have to be added every year till 2030.
• Education Focus
  • 100% literacy as well as improved quality of the educational institutions shall complement this growth.

4. Infrastructure Development

• Future-Ready Infrastructure
  • India shall need to have high-quality infrastructure that can grow rapidly in proportion to economic growth.

Growth Projections

• NITI Aayog Review
  • India needs growth of 7-10% for 20-30 years to move out of the middle-income trap and become the third-largest economy in the World with per capita income of $18,000 by 2047.
• Economic Survey Estimate for FY26
  • According to Economic Survey, it expects India’s growth rate would be in the range of 6.3% to 6.8% for FY26.

Strengthening Domestic Growth Drivers

• Rural Area Demand Revival
  • Growth in demand in the rural segment will drive consumption.
• Investment Activity
  • Increased public sector capital expenditure and increased business expectations will trigger investment activity.

Structural Reforms and Deregulation

• Increasing Competitiveness
  • Grassroot-level structural reforms and deregulation are necessary for India to enhance its global competitiveness.
• Economic Freedom
  • Deleting licensing, inspection, and compliance burdens would help empower individuals and small enterprises to indulge in innovation and other aspects of economic activity.
• Deregulation Agenda
  • The overall deregulation agenda undertaken in the previous decade would have to be taken forward for the free expression of the economy.

Small and Medium Enterprises

• Reforming Regulations
  • Regulations need to be kept minimal and effective for the growth of small and medium enterprises (SMEs).
• Direct Efficiency
  • Policies should ensure streamlined processes so that SMEs can operate efficiently to be competitive in the market.

Agriculture

1. Economic Survey 2024-25: Sustainable Agriculture

Context:

Economic Survey 2024-25: Sustainable Agriculture for a Sustainable Farm Sector in India Fostering agricultural growth climate resilience and policy reforms.

Steady Farm Growth

• The projection here is to maintain 5% annual growth in agriculture over the foreseeable future with the agriculture sector retaining its 20% GVA share which will absorb surplus labor by increasing output per worker and per hectare.

Agriculture CAGR in Value Output 2011-2022

• Fisheries: 8.7%
• Meat & eggs: 7.5%
• Livestock & milk: 5.8%
• Pulses: 5.0%
• Cereals & oilseeds: ~2.0%

Policy Reforms for Balanced Crop Production

• Calls for promoting noncereal outputs particularly to discourage the overproduction of cereals and promote the production of pulses and edible oils.
• Seeks to turn Indian agriculture free empowered and emboldened by moving away from water intensive crops and investing more in irrigation and R&D.
• Highlights that agricultural income has grown at 5.23% annually over the past decade, compared to 6.24% in non-agricultural sectors.

Climate Change Agricultural Productivity Risks

• Studies have shown that droughts and heatwaves are more severely damaging to farm productivity than floods and cold waves.
• A 2°C temperature rise and 7% increase in rainfall by 2099 could reduce Indian agricultural productivity by 8-12%.
• Draws attention to lower tail dependence which implies that there is a trend of high association between extreme water deficit rainfall events and massive crop damage.

4. Irrigation & Water Efficiency Solutions

• Drip irrigation has proven effective, with a Tamil Nadu study showing:
  • Water savings: 39-55% compared to flood irrigation.
  • Yield increase: 33-41% due to targeted water delivery.
  • Profit boost: 52.92-114.50%, varying by crop (e.g., brinjal, mango).
• Calls for greater adoption of micro-irrigation to improve water efficiency and climate adaptation.

Extreme Weather Food Inflation

• Climate related disturbances are directly now connected with inflationary forces in the markets of agriculture.
• Between 2022-2024, India experienced heatwaves on 18% of days, compared to 5% in 2020-2021, highlighting escalating climate risks.

Investment in ClimateResilient Agriculture

• Stresses the need for higher R&D investments in:
• Climate-resistant crop varieties.
• Advanced farming techniques for sustainability.
• Diversification into high-yield, climate-resilient crops.
• Micro-irrigation expansion to mitigate water stress.

2. Private Consumption Trends: Rural Demand Boosts, Urban Growth Slows

Context:

The Economic Survey 2024-25 throws up contrasting trends in private consumption expenditure with rural demand showing robust growth while urban demand presents mixed signals.

Growth in Rural Consumption

• Private Final Consumption Expenditure (PFCE) grew by 6.7% YoY in the first half of FY25, with rural demand significantly contributing to this rise.
• Sales of two-wheelers, three-wheelers, and tractors point to an uptick in rural consumption, reflecting an increase in rural household expenditure.
• According to Nabard’s Rural Economic Conditions and Sentiments Survey, 78.5% of rural households reported increased consumption expenditure in 2024.
• The momentum from rural demand is expected to continue in the second half of the year due to bumper kharif crops and higher MSPs for rabi crops.

Mixed Signals from Urban Demand

• Urban consumption shows slower growth in some sectors:
  • Passenger vehicle sales grew by just 4.2% from April-November 2024, down from 9.2% in the previous year.
  • FMCG sales in urban areas recorded moderate growth in FY25’s first half.
  • Air passenger traffic showed a steady growth rate of 7.7% during the same period, hinting at resilience in travel.
• Urban growth is moderating, with financial pressure particularly felt in the middle-income households in urban centers.

Narrowing Urban-Rural Consumption Gap

• The Household Consumption Expenditure Survey 2023-24 reveals a declining gap in consumption expenditure between urban and rural areas:
  • The average monthly per capita expenditure (MPCE) for rural India stood at ₹4,122, while for urban India, it was ₹6,996.
  • Adjusting for social welfare benefits, rural MPCE rises to ₹4,247, and urban MPCE to ₹7,078.
• The urban-rural consumption gap has decreased from 84% in 2011-12 to 70% in 2023-24, reflecting sustained consumption growth in rural areas.

Growth Projections for FY25

• Private final consumption expenditure (at constant prices) is projected to grow by 7.3% in FY25, with rural demand playing a central role.
• PFCE’s share of GDP is expected to increase from 60.3% in FY24 to 61.8% in FY25, marking the highest share since FY03.

Investment and Economic Outlook

• The Economic Survey indicates that the slowdown in investment is temporary, with early signs of recovery already visible.
• Capital formation is expected to rise, with the Union government’s capital expenditure up by 8.2% between July and November 2024.
• Private sector investment commitments increased to ₹2.45 trillion for FY25, up from ₹1.6 trillion in FY24.

Facts To Remember

1. ‘India, U.S. working on early visit of Modi to White House’

India on Friday said it is working with the U.S. on an ‘early’ visit to Washington by Prime Minister Narendra Modi to further deepen the comprehensive global strategic partnership between the two countries.

2. Union Budget 2025 focuses on Agriculture, MSME, Investment, Export: JP Nadda

Health Minister JP Nadda welcomed the Union Budget 2025 saying that it is a visionary roadmap that embodies the aspirations and dreams of 140 crore Indians, lighting the way towards the vision of Viksit Bharat.

3. Cotton Productivity Mission in Union Budget 2025 aims to boost both cotton productivity and quality: Shivraj Singh Chouhan

Agriculture and Farmers Welfare Minister Shivraj Singh Chouhan today said that the Cotton Productivity Mission announced in the Union Budget 2025 intends to increase not only the productivity of cotton but also its quality.

4. Budget 2025: Nil Tax Slab Raised to ₹12 Lakh

Finance Minister Nirmala Sitharaman today presented the first full-fledged budget of the third term of the NDA government. Presenting the budget in Lok Sabha, the finance minister announced that the Nil Tax Slab is now extended up to 12 lakh rupees income. 

5.India’s Forex Reserves Rise by $5.57 Billion to $629.55 Billion

India’s foreign exchange reserves increased by 5.57 billion dollars to 629.55 billion dollars in the week ending January 24, according to the latest data released by the Reserve Bank of India (RBI).