Why in News?

• As the Finance Minister prepares to present her ninth consecutive Union Budget, India’s fiscal framework is poised for a structural transition.
• From FY 2026–27, the Centre will operationally shift its fiscal consolidation target from the fiscal deficit to the debt-to-GDP ratio, aligning India’s approach with global best practices.
• This Budget will, for the first time, spell out the fine print of this new fiscal anchor for a full financial year.

What’s in Today’s Article?

• Expected Changes
• Key Projections and Targets (Debt Trajectory)
• Fiscal Deficit Implications
• Role of Growth and Borrowings
• Economic Survey 2025–26 - Validation of the Strategy
• General Government Debt and States’ Role
• Finance Commission and Federal Fiscal Architecture
• RBI’s Concerns on State Finances
• Rising State Borrowings
• Centre’s Fiscal Position Going Ahead
• Challenges and Way Forward
• Conclusion 

Expected Changes:

• Shift: From earlier anchor of annual fiscal deficit target to the new anchor of medium-term debt-to-GDP ratio.
• Rationale: It provides greater flexibility to respond to economic shocks, enables gradual fiscal consolidation, and creates space for growth- and development-enhancing expenditure.

Key Projections and Targets (Debt Trajectory):

• The Centre has projected the debt-to-GDP ratio to decline to 50±1% by March 2031 from an estimated 56.1% in March 2026.
• Most economists estimate the Centre to peg it at 55% of the GDP for FY27 in the Budget.
• Achieving this trajectory implies a steady annual reduction of ~1 percentage point in the debt ratio.

Fiscal Deficit Implications:

• A one percentage point reduction in the ratio every year would translate into a fiscal deficit of 4.2% of GDP in FY27.
• Even at this level, gross borrowings remain high due to -
  • Large repayment obligations.
  • Future liabilities such as implementation of the 8th Pay Commission.

Role of Growth and Borrowings:

• Determinants of Debt-to-GDP ratio:
  • Nominal GDP growth (denominator effect)
  • Government borrowing and repayment profile
  • Interest costs (likely to ease with softer monetary conditions)
• Debt sustainability: Improves faster with higher nominal growth even if fiscal deficits remain moderate.

Economic Survey 2025–26 - Validation of the Strategy:

• India has reduced general government debt by around 7.1 percentage points since 2020.
• This is achieved while sustaining high public capital expenditure.
• The Survey endorses 50 ± 1% debt-to-GDP as a credible medium-term policy anchor.

General Government Debt and States’ Role:

• Why States matter?
  • General government debt, which refers to the debt of both states and the Centre, is the metric observed by global rating agencies to assess the fiscal health of the country.
  • While the Centre will detail its fiscal numbers linked to the debt-to-GDP ratio, the role of states in managing their public finances is seen facing greater scrutiny, as they account for a large share of total public debt.
• Emerging view:
  • States may need explicit, medium-term debt-to-GSDP glide paths.
  • Focus should shift from annual deficit targets to scenario-based debt trajectories.

Finance Commission and Federal Fiscal Architecture:

• While the 16th Finance Commission recommendations (FY 2026–27 to 2030–31) are awaited, it will clarify -
  • Tax devolution
  • Revenue-sharing mechanisms
  • Possible fiscal parameters for states
• CEA V Anantha Nageswaran emphasised:
  • Need for empirical work and scenario analysis.
  • Avoid premature decisions on a uniform fiscal metric for states.

RBI’s Concerns on State Finances:

• RBI warns that high debt crowds out investment and growth.
• For example, while the debt of all states put together had declined to 28.1% of GDP by March 2024 from a peak of 31% as of March 2021, the figure is expected to rise to 29.2% by the end of the current fiscal.
• RBI urges highly leveraged states to adopt clear debt consolidation glide paths.

Rising State Borrowings:

• States’ borrowings have risen significantly in the last two decades.
• For example, in the first half of the current fiscal, states borrowed 21% more compared to the same period of 2024-25 and are slated to borrow Rs 5 lakh crore in the current quarter that ends on March 31.
• Historical context: Debt surge during 2015–20 partly due to UDAY power sector reforms, where states absorbed DISCOM debt.

Centre’s Fiscal Position Going Ahead:

• On the other hand, the Centre is set to meet its commitment to keep the fiscal deficit below 4.5% of the GDP by FY26 despite tax cuts.
• Going ahead, while the government will get some fiscal breather with the debt-to-GDP ratio, the headwinds from the recent reductions in income tax and the Goods and Services Tax may weigh on the deficit projection.
• FY27 expectations: Debt target (~55% of GDP) and fiscal deficit (4.3–4.4% of GDP).

Challenges and Way Forward:

• Managing borrowings: For example, high gross borrowings despite lower deficit targets. Institutionalise debt-to-GDP ratio as the primary fiscal anchor.
• Ensuring states’ fiscal discipline: Without undermining cooperative federalism. Align state fiscal strategies with medium-term debt sustainability.
• Balancing: Development expenditure with long-term debt sustainability. Use scenario-based fiscal planning rather than rigid annual targets.
• Uncertainty: From future liabilities (Pay Commissions, welfare commitments). Leverage higher nominal GDP growth and lower interest costs to rebuild buffers. Strengthen Centre–State coordination post 16th Finance Commission.

Conclusion:

• India’s shift from a fiscal deficit-centric framework to a debt-to-GDP-based fiscal anchor marks a maturation of its fiscal policy architecture.
• By prioritising long-term debt sustainability while preserving flexibility for growth-oriented spending, the new framework seeks to balance macroeconomic stability with developmental aspirations.
• However, its success will hinge on robust nominal growth, prudent borrowing, and active participation by states, making cooperative fiscal federalism more critical than ever.

Why in the News?

• The Economic Survey 2025-26 has assessed India’s space sector amid a flat budget trajectory and growing expectations from the private industry.

What’s in Today’s Article?

• India’s Space Sector (Evolution, Policy Shift, Budgetary Trends, Structural Concerns, Role of NSIL, Challenges, Way Forward)

India’s Space Sector: Evolution and Policy Shift

• India’s space programme has undergone a significant transition over the past decade, moving from a state-dominated model to a more open and commercially oriented ecosystem.
• Landmark achievements such as successful lunar missions and a high launch success rate positioned India as a reliable spacefaring nation.
• A major policy shift occurred in 2020, when reforms opened the space sector to private participation.
• The creation of IN-SPACe as a regulatory and facilitative body and the encouragement of private launch vehicle and satellite start-ups marked the beginning of India’s “NewSpace” phase.
• However, this transition has coincided with operational and fiscal challenges within the Department of Space (DoS).

Budgetary Trends in the Space Sector

• The Economic Survey 2025-26 points out that the Department of Space has experienced near-stagnant budget growth over the last four years. When adjusted for inflation, the overall allocation has effectively declined.
• Capital expenditure, crucial for new launch infrastructure, spacecraft development, and R&D, has fallen steadily.
• In contrast, revenue expenditure, such as salaries and routine operational costs, has increased.
• This shift has resulted in a growing share of the budget being consumed by maintenance rather than innovation, raising concerns about long-term technological competitiveness.
• Additionally, the Department has repeatedly failed to fully utilise its allocated funds, leading to downward revisions during the Revised Estimates stage.
• This weak absorption capacity has further constrained the case for a substantial budgetary increase.

Export Performance and Structural Concerns

• Despite budgetary stress, the Survey highlights strong export performance.
• Between 2015 and 2024, India launched nearly 400 foreign satellites for over 30 countries, generating substantial commercial revenue.
• However, the Survey cautions that export earnings may be masking deeper structural issues.
• Recent launch failures and near-misses have exposed vulnerabilities in manufacturing quality and supply chains.
• The push for higher launch cadence, driven by commercial demand, has placed additional strain on an ecosystem still adapting from a protected state monopoly to a competitive market environment.

Role of NSIL in the Emerging Model

• NewSpace India Limited (NSIL), ISRO’s commercial arm, has emerged as a key pillar in the government’s evolving strategy.
• According to the Survey, NSIL’s revenues increased sharply within a few years, signalling the government’s intent to rely more on commercial income rather than tax-funded capital investment.
• The implicit policy shift is towards commerce-led growth, where NSIL monetises launch services, satellite missions, and downstream applications.
• However, this raises questions about whether commercial revenues can adequately substitute for sustained public investment in core R&D and critical infrastructure.

Industry Expectations and Policy Demands

• Industry associations have expressed dissatisfaction with current funding levels.
• They argue that India’s space budget remains a very small fraction of GDP compared to leading space powers.
• Proposals include scaling up allocations, expanding launch infrastructure, and introducing targeted production-linked incentives for space components.
• Private players have also advocated for a procurement-driven model, where the government acts as an anchor customer by purchasing services and data from domestic companies rather than owning all assets.
• This approach mirrors international practices and could provide predictable demand, encouraging private investment.

Challenges Highlighted by the Economic Survey

• The Survey underlines a widening gap between what the industry seeks and what the Department of Space can realistically deliver.
• While private firms demand rapid expansion and assured procurement, the Department faces constraints related to quality control, spending efficiency, and operational reliability.
• The Survey also notes that different space programmes, such as human spaceflight, satellite launches, and strategic missions, compete for limited resources, complicating prioritisation and long-term planning.

Way Forward

• The Economic Survey suggests a phased and balanced transition.
• Strengthening quality assurance systems, fixing supply-chain weaknesses, and improving fund utilisation are essential first steps.
• Large infrastructure projects, such as new spaceports, must progress without repeated delays.
• Equally important is a clear roadmap identifying which missions will gradually shift from government-built assets to industry-provided services.
• Enhancing institutional capacity to manage complex, long-term service contracts will be crucial for building investor confidence.

Why in news?

Negotiations on the India–European Union Free Trade Agreement (FTA) formally concluded on January 27, ending nearly two decades of on-and-off talks.

Often described by leaders on both sides as the “mother of all deals,” the agreement balances ambition with pragmatism—delivering mutual economic benefits by securing key concessions while steering clear of the most politically sensitive and intractable issues.

What’s in Today’s Article?

• Why the India–EU FTA Is Called the ‘Mother of All Deals’?
• What India Gains from the India–EU Free Trade Agreement?
• Sectors Set to Gain Most from the India–EU FTA
• What India Has Offered the EU Under the FTA?
• Which Sectors Are Excluded from the India–EU FTA?
• Key Concerns Around the India–EU FTA

Why the India–EU FTA Is Called the ‘Mother of All Deals’?

• The India–EU FTA earns this tag due to the sheer scale of the economies and trade involved.
• It links the world’s second (EU) - and fourth-largest (India) customs blocs/economy, covering a combined market of about $24 trillion.
• While India’s eight recent FTAs together accounted for around 16% of its trade in 2024–25, the EU alone made up nearly 12%.
• Bilateral merchandise trade reached $136.5 billion, with Indian exports at $75.9 billion, and services trade touched $83.1 billion in 2024—underscoring the deal’s outsized significance.

What India Gains from the India–EU Free Trade Agreement?

• Major Tariff Elimination on Indian Exports - Under the deal, the EU will immediately remove duties on 70.4% of tariff lines, covering about 90.7% of India’s export value once the FTA comes into force.
• Phased Tariff Cuts on Sensitive Products - Another 20.3% of tariff lines—covering 2.9% of exports—will see tariffs eliminated over 3–5 years, including selected marine products, processed foods, and arms and ammunition.
• Partial Reductions and Quota-Based Access - Around 6.1% of tariff lines, accounting for 6% of exports, will see reduced (but not zero) tariffs or quota-based concessions. These apply to items such as poultry, preserved vegetables, bakery products, automobiles, steel, shrimp, and prawns.
• Near-Complete Coverage of Indian Exports - Taken together, EU tariff concessions apply to over 99% of the total value of India’s exports to the bloc, making it one of the most comprehensive market-access packages India has secured.
• Improved Access for Services - Beyond goods, the EU has offered broader and deeper commitments in services across 144 sub-sectors, including IT/ITeS, professional services, education, and other business services.

Sectors Set to Gain Most from the India–EU FTA

• Big Wins for Labour-Intensive Manufacturing - The FTA’s potential gains for labour-intensive sectors are about $35 bn, with $33.5 bn moving to zero duty on Day 1.
  • Beneficiaries include textiles and apparel, marine products, leather and footwear, chemicals, plastics/rubber, sports goods, toys, and gems and jewellery—sectors that currently face 4–26% EU tariffs.
• Relief Amid US Tariff Pressures - These gains are especially significant as many of the same labour-intensive sectors have been hit by high U.S. tariffs on Indian imports, making preferential access to the EU market a timely offset.
• Agriculture and Processed Foods Get Preferential Access - The government said tea, coffee, spices, grapes, gherkins and cucumbers, dried onion, fresh fruits and vegetables, and processed food products will receive preferential access, improving their competitiveness in the EU.
• Opportunities for Traditional Medicine (AYUSH) - The FTA is also expected to benefit AYUSH services. In EU countries without specific regulations, AYUSH practitioners can offer services using qualifications earned in India, expanding professional opportunities abroad.

What India Has Offered the EU Under the FTA?

• Wide-Ranging Tariff Liberalisation - India has agreed to immediately eliminate duties on 49.6% of tariff lines, covering 30.6% of trade value, once the FTA takes effect.
  • A further 39.5% of tariff lines—covering 63.1% of trade value—will see tariffs phased out over 5, 7, or 10 years. Overall, India’s offer spans 92.1% of tariff lines and 97.5% of trade value.
• Cheaper European Goods for Indian Consumers - Many European products will become cheaper in India, with wine and automobiles being the most prominent consumer-facing categories affected by the deal.
• Wine: Phased Cuts with Safeguards - Duties on European wine—currently around 150%—will be reduced over seven years to 30% for wine priced €2.5–€10 and 20% for wine priced above €10.
  • Cheap wine is excluded to protect domestic producers. All concessions apply within quotas; imports beyond quotas face non-FTA tariffs.
• Automobiles: Gradual Cuts, Quota-Based - Tariffs on motor vehicles will be gradually reduced from 110% to 10%, but strictly under a quota system.
  • Cars below ₹25 lakh (the bulk of India’s market) are excluded.
  • Vehicles above this threshold are split into three quota brackets, with smaller quotas where Indian manufacturers compete and larger quotas in the ultra-luxury segment where European makers face little domestic competition.
• Balancing Access and Protection - India’s concessions aim to open markets while protecting sensitive domestic sectors, using phased reductions and quotas to manage competitive pressures.

Which Sectors Are Excluded from the India–EU FTA?

• India kept several sensitive agricultural sectors out of the deal, including beef, poultry, dairy, fish and seafood, cereals (especially rice and wheat), fruits and vegetables, nuts, edible oils, tea, coffee, spices, and tobacco.
• EU’s Exclusions and Limited Quotas
  • The EU, for its part, excluded beef, sugar, rice, chicken meat, milk powder, honey, bananas, soft wheat, garlic, and ethanol.
  • It offered quota-based access (not full liberalisation) for sheep and goat meat, sweetcorn, grapes, cucumbers, dried onions, and rum made from molasses and starches.

Key Concerns Around the India–EU FTA

• One major unresolved issue is the Carbon Border Adjustment Mechanism (CBAM), the EU’s carbon-linked tariff framework.
• The EU argued CBAM applies uniformly to all countries, leaving little room for country-specific concessions.
• However, India secured a most-favoured treatment assurance—any CBAM concession granted to another country would automatically extend to India.
• Investment Climate Pressures
  • Another concern is investment readiness.
  • To capitalise on the tariff-free access to Europe and attract firms relocating supply chains, India will need to accelerate domestic reforms to improve ease of doing business, regulatory certainty, and infrastructure.
• The Bottom Line
  • While the FTA delivers broad market access, CBAM-related costs and the pace of domestic reforms will shape how fully India can convert the agreement into sustained trade and investment gains.

Why in news?

India’s ₹18,100 crore Advanced Chemistry Cell (ACC) Production Linked Incentive scheme, aimed at building domestic battery manufacturing for electric vehicles, has made limited progress.

Against a target of 50 GWh capacity by 2025, only 1.4 GWh has been installed, with 8.6 GWh delayed and 20 GWh seeing no movement. The scheme has also delivered just 1,118 jobs—a fraction of the projected employment—and attracted only about a quarter of the intended investment, raising concerns over its effectiveness.

What’s in Today’s Article?

• About Advanced Chemistry Cells (ACC)
• ACC PLI Scheme: Big Ambitions, Limited Outcomes So Far
• How the ACC PLI Scheme Was Designed to Work?
• Why the ACC PLI Scheme Has Struggled?
• Recommended Fixes for Reviving the ACC PLI Scheme

About Advanced Chemistry Cells (ACC)

• Advanced Chemistry Cells are next-generation energy storage technologies that store electricity in chemical form and release it when needed.
• Lithium-ion batteries are the most widely used ACCs today, but India’s ACC scheme is technology-agnostic, allowing alternatives such as nickel manganese cobalt, lithium iron phosphate, and sodium-ion batteries.

ACC PLI Scheme: Big Ambitions, Limited Outcomes So Far

• Launched in October 2021, the Advanced Chemistry Cell (ACC) PLI scheme aimed to build a domestic battery manufacturing ecosystem and cut India’s heavy dependence on Chinese imports.
• However, various studies by experts show that progress has been minimal.
• As of October 2025, only 2.8% of the targeted 50 GWh capacity has been commissioned—1.4 GWh, all from Ola Electric.
• Despite a planned incentive payout of ₹2,900 crore by this stage, no funds have been disbursed, as none of the beneficiaries have met the required milestones.

How the ACC PLI Scheme Was Designed to Work?

• The ACC PLI scheme aimed to build domestic battery manufacturing capacity by incentivising private players to set up production of key components such as cathodes, anodes, and electrolytes.
• Companies were selected through an auction process, required to commit to at least 5 GWh capacity, meet minimum net worth criteria, and manufacture batteries domestically.
• In return, firms could claim subsidies of up to ₹2,000 per kWh for batteries sold.
• To ensure localisation, the scheme mandated 25% Domestic Value Addition within two years and 60% by the fifth year, with the broader goal of reducing battery costs and accelerating the adoption of electric vehicles and energy storage systems.
• In the first auction round of the Advanced Chemistry Cell (ACC) PLI scheme, three companies were selected: Ola Electric (20 GWh), Reliance New Energy (15 GWh initially, plus 10 GWh in the second round), and Rajesh Exports (5 GWh).

Why the ACC PLI Scheme Has Struggled?

• Unrealistic Timelines for Gigafactories - The scheme requires beneficiaries to commission facilities within a two-year gestation period, which experts consider impractical for setting up complex battery gigafactories from scratch in a nascent ecosystem.
• Challenging Domestic Value Addition (DVA) Norms - Meeting 25% DVA in two years and 60% in five years has been difficult because India lacks adequate processing capacity for key minerals like lithium, nickel, and cobalt.
• Selection Criteria Favoured New Entrants - The evaluation prioritised DVA and subsidy benchmarks over proven manufacturing experience. As a result, established battery makers such as Exide Industries and Amara Raja did not qualify, leaving the programme largely with relatively inexperienced players.
• Dependence on China for Inputs and Know-How - India’s heavy reliance on China for raw materials, technology, and expertise has slowed progress. Delays in visas for Chinese technical specialists—amid a shortage of domestic skilled labour for cell manufacturing—have become a major bottleneck.
• Foundational Capability Gaps - Many beneficiaries are still building basic technical and operational capabilities, further delaying commissioning and preventing the scheme from meeting its ambitious capacity, investment, and employment targets.

Recommended Fixes for Reviving the ACC PLI Scheme

• The report calls for immediate measures such as fast-tracking visas for technical experts and extending project timelines by at least one year to avoid penalising delayed facilities.
• For the long term, it recommends building domestic capabilities through schemes for critical mineral refining and component manufacturing, along with sustained investment in R&D and skill development to strengthen India’s battery ecosystem.

About Diplocentrum papillosum:

• It is a new species of orchid.
• It was discovered in the Idukki district, Kerala.
• Belonging to the Diplocentrum genus, which is found only in the southern ranges of the Western Ghats, the plant has been scientifically named Diplocentrum papillosum, distinguished by the unique characteristics of its flower
• This orchid thrives on rocks and tree branches, with strong roots that help it withstand powerful winds.
• The specific epithet ‘papillosum’ refers to the papillose character of the flower, which is unique to the Diplocentrum species.

About Exercise Agni Pariksha:

• It is a joint training exercise involving personnel from the Indian Army and the Indo-Tibetan Border Police (ITBP).
• Location: Arunachal Pradesh
• This first-of-its-kind initiative aimed to enhance inter-force combat synergy and operational integration.
• The primary objective of the exercise was to familiarise non-artillery personnel with artillery procedures, coordination mechanisms, and the execution of firing missions, thereby improving their understanding of firepower integration in dynamic combat scenarios.

About Zapotec Civilization:

• The Zapotec civilization thrived in the Valley of Oaxaca, Mexico, characterized by its high elevation and reliance on irrigation from the Atoyac River and its tributaries.
• Emerging from hunter-gatherer societies, the Zapotecs transitioned to agriculture, developing skills in weaving, pottery, and stone masonry.
• By the Classic period (200 BCE-100 CE), they established a highly centralized state, with Monte Albán as their capital, featuring impressive public architecture and a distinct social hierarchy separating nobles from commoners.
• This society was marked by a professional priesthood and a state religion, where rituals included human sacrifice and complex ceremonies.
• The Zapotecs also innovated in calendar systems and writing, contributing to Mesoamerican culture.
• The Zapotec state was one of the earliest examples of centralized government in Mesoamerica. 

About Cytoplasm:

• Cytoplasm is a thick solution that fills each cell and is enclosed by the cell membrane.
• It is mainly composed of water, salts and proteins.
• In eukaryotic cells (i.e., cells having a nucleus), the cytoplasm includes all of the material inside the cell but outside the nucleus, which contains its own watery substance called nucleoplasm.
• All of the organelles in eukaryotic cells are located in the cytoplasm. The cytoplasm helps to keep them in place.
  • Among such organelles are the mitochondria, which are the sites of energy production through ATP (adenosine triphosphate) synthesis;
  • the endoplasmic reticulum, the site of lipid and protein synthesis;
  • the Golgi apparatus, the site where proteins are modified, packaged, and sorted in preparation for transport to their cellular destinations;
  • lysosomes and peroxisomes, sacs of digestive enzymes that carry out the intracellular digestion of macromolecules such as lipids and proteins;
• The portion of the cytoplasm surrounding organelles is called cytosol, which is the liquid part of the cytoplasm.
• Cytoplasm is also the site of most metabolic activities in the cell, and it allows materials to pass easily throughout the cell.
• Although cytoplasm may appear to have no form or structure, it is actually highly organized.
  • A framework of protein scaffolds called the cytoskeleton provides the cytoplasm and the cell with their structure.
• Though prokaryotic cells do not have organelles (they do have ribosomes), they still have cytoplasm.