Fiscal Deficit Target Achieved by India for FY25

 Introduction and Definition of Fiscal Deficit

  • Fiscal Deficit refers to the difference between a government's total expenditure and its total income (excluding borrowings) within a given fiscal year. 
  • To understand its impact on the overall economy, Fiscal Deficit is usually expressed as a percentage of the GDP.
  • It indicates the amount the government requires to borrow to cover expenditure when income is inadequate.

 

 Why in the News?

  • India's Government has successfully met its fiscal deficit target of 4.8% of GDP for the fiscal year of 2024-25. 
  • The provisional data related to this achievement was released by the Controller General of Accounts (CGA).
  • CGA, under the Department of Expenditure of the Ministry of Finance, is the Principal Accounting Adviser to the Government of India.

 

 Implications and Fiscal Deficit of India 

  • A manageable fiscal deficit helps to ensure overall macroeconomic stability. However, an elevated fiscal deficit can lead to a rise in borrowing needs and may spark inflationary pressures.
  • For FY 2024-25, India's fiscal deficit reached Rs 15.77 lakh crore, which equals 4.8% of the GDP.

 

 Fiscal Receipts and Expenditure 

  • Total revenue receipts, including tax, non-tax, and capital revenues, totalled Rs30.78 lakh crore for FY 2024–25.
  • Total expenditure for the same fiscal year stood at Rs 46.55 lakh crore.

 

Types of Deficit 

  • There are various types of deficits, including Revenue Deficit, Effective Revenue Deficit, and Primary Deficit. 
  • Twin Deficits refers to a situation where a country simultaneously experiences a fiscal deficit and a current account deficit.

 

 Influencing Factors of Fiscal Deficit

  • Factors affecting the fiscal deficit include Fiscal Policy, Economic Cycles, Unexpected Events, Inefficient Tax Collection, and Global Factors.

 

 Indian Efforts for Fiscal Consolidation

  • India has taken several measures to achieve fiscal consolidation, including the Fiscal Responsibility and Budget Management Act, 2003; amendment of FRBM Act in 2018; adopting a "glide path" approach for fiscal deficit reduction; and increasing Capital Expenditure. 
  • Efforts have also been made to enhance revenue collection, such as introducing the Goods and Services Tax and digitizing the tax system. 
  • State-level fiscal responsibility has also been promoted to complement central government efforts.

 

Fiscal Consolidation 

  • Fiscal Consolidation refers to the responsible management of government finances.
  • It aims to balance revenue with expenditure, minimizing fiscal deficits and maintaining sustainable public debt. It is crucial for long-term economic stability.

 

World Economic Situation and Prospects Report 2025

 Overview

  • The World Economic Situation and Prospects (WESP) report provides global and regional economic outlooks and growth projections for the following years.
  • This report is aimed to support equitable growth plans which are focused on Sustainable Development Goals (SDGs).
  • It is a collective effort of the United Nations Department of Economic and Social Affairs in partnership with UNCTAD and five regional commissions of the UN.

 

India's Economic Forecast

  • India's GDP growth forecast for 2025 has been revised to 6.3% from the earlier estimate of 6.6%.
  • Despite this downgrade, India still holds the top position among major global economies. The growth rate is projected to reach 6.4% in 2026. 
  • Inflation in India is expected to scale down from 4.9% in 2024 to 4.3% in 2025, indicating efficient monetary management.
  • Joblessness seems mostly constant, although disparity persists in labour force participation between genders.

 

 Major Factors Behind India's Growth

  • India's manufacturing growth has hit a record value of Rs 27.5 lakh crore (2023-24), and total exports figure reached USD 824.9 billion in 2024-25.
  • The nation's growing defence production and export to nearly 100 countries underscores the global faith in Indian defence competencies.

 

 Global Economic Viewpoint

  • Global GDP growth is expected to contract to 2.4% in 2025 (from 2.9% in 2024), and 2.5% in 2026. 
  • This includes both advanced and emerging economies, with the USA projected to witness a decline owing to tariffs and policy uncertainty.
  • Economies such as Brazil, Mexico and South Africa are experiencing downgrades caused by lukewarm trade, falling investment, and commodity price instability. 

 

 Predominant Global Economic Concerns

  • Rising food inflation, which is driven by various factors like climate changes, currency devaluation, trade protectionism, and disruptions in supply chains, is a significant worry.
  • At present, around 343 million people worldwide face severe food insecurity, with 1.9 million at risk of famine in conflict regions.
  • Rising trade and global risks are escalating due to increased tariffs by the US, causing global trade costs to soar.

 

About UN Department of Economic and Social Affairs (UNDESA)

  • Established in 1948, UNDESA plays a central role in the UN Secretariat and guides nations in implementing the 2030 Agenda for Sustainable Development and attaining the Sustainable Development Goals (SDGs).
  • Operating under the UN Secretary-General, UNDESA equips its members with data, analysis, and policy guidance on economic, social, and environmental concerns.
  • Key functions include coordinating worldwide efforts in poverty eradication, fostering inclusive growth, environmental conservation, and promoting good governance.

 

Leading Economic Report Publishers 

Several international entities, including the World Bank, International Monetary Fund (IMF), World Economic Forum (WEF), UN Conference on Trade and Development (UNCTAD), release vital economic reports that guide policy formulation across the globe.

 

Flipkart's Acquisition of NBFC Licence 

 Introduction and About 

  • Flipkart, a renowned Indian e-commerce company, has recently been granted a Non-Banking Financial Company (NBFC) license from the Reserve Bank of India (RBI). 
  • This marks their first-of-its-kind recognition as an Indian e-commerce business to receive such a license. 
  • This license facilitates Flipkart to directly lend funds to its sellers and customers, defying the need for an intermediary financial institution. 



What's New 

The essential news underscores Flipkart's achievement of obtaining the NBFC licence by RBI, allowing them to provide loans to their customers and sellers directly, thereby bolstering their financial services. 

 

 Specific Requirements for Obtaining NBFC Licence

  • To be eligible for a Non-Banking Financial Company licence, one has to register under the RBI Act, 1934. 
  • Such a company must be incorporated following the provisions of either the Companies Act, 1956 or 2013. 
  • Additionally, the company must maintain a minimum Net Owned Fund (NOF) of Rs 10 crore. 

 

 Understanding NBFC  

  • An NBFC is a company incorporated under the Companies Act, 1956 or 2013, focusing primarily on activities such as lending, investing in securities, and engaging in leasing or hire-purchases.  
  • Notably, the companies focusing mostly on domains like agriculture, trades in goods/services, industry, or real estate aren't considered as NBFCs. 
  • Companies primarily drawing deposits through various schemes or arrangements, irrespective of whether as lump sums or installments, fall under the category of Residuary Non-Banking Financial Companies (Residuary NBFCs). 

 

 Difference between NBFCs and Banks

  • Unlike banks, Non-Banking Financial Companies are not permitted to accept demand deposits.   
  • NBFCs do not form part of the existing payment and settlement systems; hence they cannot issue cheques. 
  • Furthermore, depositors under NBFCs are not safeguarded by the Deposit Insurance and Credit Guarantee Corporation (DICGC), unlike banking customers. 

 

 Importance of NBFC Licence for Flipkart

  • By ensuring direct lending to its customers and sellers, Flipkart can enhance customer satisfaction and loyalty. 
  • They can also reduce the time and complexity of transactions, thereby contributing to an improved customer experience.
  • The move further strengthens Flipkart's position in India's e-commerce market.

 

IREDA Earns ‘Excellent’ Ratings from DPE

 Introduction to IREDA's Achievement 

  • The Indian Renewable Energy Development Agency Ltd. (IREDA) has recently been acknowledged with an 'Excellent' rating for the fourth consecutive year.
  • This rating is in recognition of the agency's commendable performance in the Power and Non-Banking Financial Companies (NBFC) sectors. 
  • The Department of Public Enterprises (DPE) has bestowed this honour upon IREDA.
  • IREDA’s achievement underlines its leadership in the field of green finance and demonstrates its commitment to promoting sustainable energy solutions for national development.

 

 About IREDA

  • Established in 1987, IREDA is a 'Navratna' public sector company managed under the Ministry of New and Renewable Energy (MNRE).
  • As a Non-Banking Financial Institution, it stands as the largest green financing NBFC in India.
  • The company's principal focus is on promoting, developing, and supporting renewable energy and energy efficiency projects.
  • Also, IREDA encourages banks and other financial institutions to adopt lending practices supporting the renewable sector. 

 

 The Role of DPE Ratings

  • The DPE operates under the Ministry of Finance in India and is responsible for devising policies around Central Public Sector Enterprises' (CPSEs) performance, autonomy, and finances.
  • It publishes an annual Public Enterprises Survey to monitor the financial and operational performance of CPSEs.
  • On a yearly basis, DPE Ratings assess the performance of CPSEs on Memorandum of Understanding (MoU) targets such as profitability and efficiency.
  • These assessments range from 'Poor' to 'Excellent', promoting accountability and transparency within the public sector.

 

 India's Renewable Energy Initiatives

  • To further the country's renewable energy initiatives, several schemes and alliances have been set in motion. 
  • These include the PM-KUSUM scheme and the Production Linked Incentive (PLI) scheme for Solar PV manufacturing.
  • India is also part of the International Solar Alliance, reflecting the country's commitment to promoting the worldwide use of solar energy.

 

Reforming Special Economic Zones in India

 Introducing Changes in SEZ Rules

  • The Ministry of Commerce & Industry introduced amendments to the SEZ Rules for semiconductor and electronics component manufacturing.
  • These changes aim at encouraging capital investment and streamlining operations, thereby facilitating high-tech sector growth. 
  • Post amendments, Micron and Aequs Group will develop semiconductor and electronics component SEZs in Gujarat and Karnataka respectively.

 

 Details of the Key Changes 

  • The minimum land requirement for SEZs in this sector has been reduced from 50 Ha to 10 Ha.
  • The rules around encumbrance-free land have been relaxed. Boards can now approve if the land is mortgaged/leased to the government or its agencies.
  • Free-of-cost goods can now be included in Net Foreign Exchange (NFE) calculations.
  • SEZ units can supply to the Domestic Tariff Area (DTA) after paying duties.

 

 About Special Economic Zones (SEZ)

  • SEZ is a duty-free enclave treated as foreign territory for the purposes of trade, tariffs, and operations.
  • Replacing Export Processing Zones (EPZs), SEZs were introduced in India in 2000.
  • Regulated by the SEZ Act, 2005 and SEZ Rules, 2006, operations range from Export Processing Zones (EPZ) to Free Ports, Urban Enterprise Zones and more.
  • The Development of Enterprise and Service Hubs (DESH) Bill, 2022 aims to transform SEZs into more flexible and inclusive Development Hubs.

 

 Objectives and Incentives of SEZs

  • SEZs aim to generate economic activity, boost exports, create employment, attract investment, and develop infrastructure.
  • Incentives include duty-free import/domestic procurement of goods, exemption from certain taxes, single-window clearance, and External Commercial Borrowing (ECB) allowance.

 

Challenges Faced by SEZs in India

  • Challenges include declining cost competitiveness due to rising input costs and OECD tax norms, issues in land acquisition, infrastructure problems, regulatory burdens, limited domestic market access, underutilisation of SEZs, and environmental concerns.

 

Recommendations by Baba Kalyani Committee

  • Proposed measures include renaming SEZs as 3Es – Employment and Economic Enclaves, delinking from Net Foreign Exchange (NFE) Performance, incentivising based on investment and job creation, creating separate frameworks for manufacturing and service SEZs, and infrastructure development.

 

Measures to Strengthen SEZs in India

  • Proposed policy and regulatory reforms, infrastructure, and connectivity upgrades, measures to enhance competitiveness, skill development, and the adoption of global best practices.

 

Other Key Government Initiatives 

These are National Investment and Manufacturing Zones (NIMZs), Industrial Parks and the National Industrial Corridor Development Programme (NICDP) developed under India’s National Manufacturing Policy (NMP), 2011. These initiatives aim to boost manufacturing, create jobs, and enhance global competitiveness.

 

Revision of GDP Base Year to 2022-23 

 Introduction and About 

  • The Ministry of Statistics and Programme Implementation (MoSPI) declared that the GDP base year would be revised. It's set to change from 2011-12 to 2022-23, and the revised data will be released on 27th February 2026. 
  • In addition to the GDP revision, the Indices for both Industrial Production (IIP) and Consumer Price Index will be updated to 2022-23 and 2023-24, respectively. 

 

 Understanding GDP Base Year 

  • The term "base year" for GDP refers to the year used as a benchmark for calculating economic growth. It currently stands at 2011-12, meaning this year's GDP acts as a benchmark for the years that follow. 
  • Proper choice of the base year ensures the inclusion of new industries and eradication of defunct ones. It also fosters the adoption of fresh and more accurate data sources and methods. 
  • The base year is expected to register normal economic activities free from events like pandemics, droughts, and floods. The base year should be updated every 5 to 10 years, which ensures that national accounts reflect the most recent data accurately.

 

 Frequency and History of GDP Base Year Revision 

  • The upcoming 2026 revision will be the eighth of its kind. We've previously seen seven updates, with the first effective from 1948-49 to 1960-61 in August 1967, and the most recent on 30th January 2015, transitioning from 2004-05 to 2011-12. 
  • The inaugural national income estimates for India were compiled by the National Income Committee in 1949, chaired by P.C. Mahalanobis. 
  • Plans to revise the base year to 2017-18 were scrapped due to issues highlighted by the Periodic Labour Force Survey, which revealed a 45-year high unemployment rate, the Consumer Expenditure Survey's indication of increasing poverty, and as the introduction of GST and demonetisation and the COVID-19 pandemic had made the years following 2017 abnormal for economic assessment.

 

 Rationalising GDP Base Year Revision 

  • The revision to the GDP base year is necessary to reflect the structural changes that the Indian economy has undergone. It ensures that sectors such as digital services, the gig economy, and renewable energy that are picking up pace are factored in, while industries in decline receive appropriate reassessment or removal.
  • To ensure GDP growth rates remain comparable over time, a new base year applies updated price weights that separate real growth from inflation effects.
  • Accurate GDP data is important for policy and investment decisions as it guides fiscal policies on taxation and expenditure and offers businesses insights into GDP trends for expansion plans. 
  • A rectified GDP base year will correct anomalies caused by earlier revisions and reflect COVID-19 impacts and policy changes like GST formalisation and Production Linked Initiative schemes.

 

 Challenges in the GDP Base Year Revision

  • As many registered companies don't file audited balance sheets, the 2015 GDP base year revision led to under-reporting and issues like overstating big companies' profits while missing smaller enterprises.  
  • Data discrepancies, credibility, and the technical complexity of revising historical GDP data that aligns with the new base year pose significant challenges to GDP base year revisions. 
  • Improving India's GDP Base Year Revision 

 

To make the process robust, a balanced approach is needed, combining MCA-21 with indices such as ASI, IIP and surveys like NSSO. 

  • - The implementation of double deflation and consistently aligning GDP estimation with UN System of National Accounts standards will help in maintaining accuracy during GDP revision.
  • - Regular revisions should be institutionalised, and AI-driven GDP tracking should be invested in for timely and accurate estimates. Accuracy of GDP estimation can also be improved by properly weighting emerging areas like digital services and startups while recalibrating traditional industries.

 

RBI’s Monetary Policy and Its Tools

Introduction to RBI’s Monetary Policy

  • The Reserve Bank of India (RBI) uses monetary policy to regulate the economy’s money supply.
  • Its main objective is price stability, primarily focused on inflation targeting.
  • Other aims include promoting growth, generating employment, and maintaining exchange rate stability.

 

The June 2025 Monetary Policy Committee (MPC) Meeting

  • In June 2025, the MPC met and highlighted the fragility of the global economy.
  • Despite 100 bps rate cuts from February 2025, the governor noted that monetary policy has a limited scope to support growth.
  • Due to slow inflation reduction and external uncertainties, it was deemed right to shift from an accommodative to a neutral stance.

 

 Accommodative and Neutral Stance

  • An accommodative stance means the RBI lowers or keeps low policy rates to encourage growth and investment during slow growth or low inflation periods.
  • A neutral stance allows the RBI flexibility to increase or decrease rates based on evolving inflation or growth risks, aiming for a balanced policy approach.

 

 Tools of Monetary Policy 

  • Quantitative Tools include Reserve Ratios, Open Market Operations, Repo & Reverse Repo Rate, Bank Rate, Marginal Standing Facility, Liquidity Adjustment Facility, and Market Stabilisation Scheme.
  • Qualitative Tools include Margin Requirement, Consumer Credit Control, Rationing of credit, Moral Suasion, and Direct Action.

 

 Understanding Monetary Policy Tools

  • Reserve Ratios include the Cash Reserve Ratio and the Statutory Liquidity Ratio.
  • Repo & Reverse Repo rates concern the rate at which the RBI offers and absorbs overnight liquidity to and from banks.
  • Bank Rate is the rate at which the RBI lends long-term funds to banks without any collateral.
  • The Marginal Standing Facility allows commercial banks to borrow overnight funds using their SLR portfolio, at a penal interest rate.
  • Liquidity Adjustment Facility includes overnight as well as term repo auctions.
  • The Market Stabilisation Scheme includes special bonds issued by the RBI on behalf of the government to absorb excess liquidity.
  • Qualitative tools such as Margin Requirement, Consumer Credit Control, and Rationing help control speculative lending and regulate credit.
  • Moral Suasion and Direct Action are measures taken by the RBI urging commercial banks to follow certain measures, and actions against banks failing to meet specified conditions respectively.