Economic & Financial News

📘 CDS Current Affairs · CFC04 🎯 CDS Level : High Priority

The Economy chapter in CDS GK tests understanding of key economic terms, RBI policies, budget highlights, and India’s global economic rankings. Questions are direct but require understanding of why a policy was adopted — for example, why the repo rate was cut (inflation easing + growth support), not just what the rate is.

📌 CDS Pattern — Economy (2022–2025):
• RBI: Repo rate, CRR, SLR, MPC decisions | • Budget: defence allocation, fiscal deficit target
• Schemes: PLI, NMP, NARCL | • Rankings: GII, HDI, GHI
• UPI/Digital economy milestones | • Inflation: CPI vs WPI distinction

1. RBI Monetary Policy

🏭 Key RBI Terms & Recent Decisions

Repo Rate (Feb 2025): 6.25% (cut by 25 bps). First cut since May 2020 (when rate was reduced during COVID). Signal: inflation under control; shift to growth-supportive stance. Rate at which RBI lends to commercial banks overnight.
Reverse Repo Rate: 3.35% (unchanged since April 2020). Rate at which RBI borrows from commercial banks. Currently inactive as instrument since LAF corridor narrowed.
CRR (Cash Reserve Ratio): 4.0% (effective Dec 2024; cut from 4.5%). Portion of bank deposits held as cash reserve with RBI. CRR cut = releases liquidity; banks can lend more.
SLR (Statutory Liquidity Ratio): 18.0%. Proportion of deposits banks must hold in gold, government securities, or approved securities. Untouched in recent policy cycle.
MPC (Monetary Policy Committee): 6-member body. 3 RBI officials (Governor + 2 Deputy Governors); 3 External members appointed by Central Government. Meets every 2 months. Inflation target: 4% CPI (±2%). Governor: Sanjay Malhotra (appointed Dec 2024; replaced Shaktikanta Das).
Inflation (CPI vs WPI): CPI (Consumer Price Index) = measures retail inflation (basket of goods); targeted by RBI. WPI (Wholesale Price Index) = measures producer-level inflation; not RBI target. CPI food inflation remained elevated at 7–9% in 2024 due to vegetable prices.
LAF (Liquidity Adjustment Facility): Mechanism through which RBI manages short-term liquidity via repo and reverse repo operations. SDF (Standing Deposit Facility) = floor of LAF corridor (banks park excess cash with RBI at 6.0% when repo = 6.25%).

2. Union Budget Highlights

💳 Budget FY 2025–26 Key Numbers

Defence Allocation FY26

Rs 6.81 lakh crore

Highest ever; Rs 1.80 lakh crore capital (equipment, ships, aircraft); Rs 2.77 lakh crore revenue (salaries, maintenance)

Total Budget Outlay FY26

Rs 50.65 lakh crore

Capital Expenditure: Rs 11.21 lakh crore (largest ever infra push); 3.1% of GDP capex

Fiscal Deficit Target FY26

4.4% of GDP

Down from 4.9% in FY25; consolidation path toward 4% medium-term

Income Tax Relief (FY26 Budget): New tax regime: No tax on income up to Rs 12 lakh (Rs 12.75 lakh for salaried with Rs 75,000 standard deduction). Middle-class relief measure; promotes new tax regime over old regime.
Agriculture: PM Dhan-Dhanya Krishi Yojana — 100 low-productivity agricultural districts targeted. Kisan Credit Card limit raised. Focus on oilseed self-sufficiency.
Education: AI Centres of Excellence in IITs; National Centres of Excellence for Skilling; Broadband connectivity to all govt schools.
MSME: Enhanced credit guarantee cover; customised credit cards for micro enterprises (Rs 5 lakh limit).

3. Key Economic Initiatives

🎯 PLI, NMP & Digital Economy

PLI (Production Linked Incentive): 14 sectors; Rs 1.97 lakh crore outlay (FY22–FY27). Incentive = % of incremental sales above a base year. Success: Mobile phone exports crossed Rs 1 lakh crore in FY24 (Apple & Samsung manufacturing in India). Electronics overtook readymade garments in export value.
National Monetisation Pipeline (NMP): Rs 6 lakh crore over FY22–25. Monetises operational public assets (roads, railways, airports, pipelines, power, mines) WITHOUT transferring ownership. Distinction from privatisation: PPP model, not disinvestment.
NARCL (National Asset Reconstruction Company Ltd — “Bad Bank”): Set up 2021. Takes over stressed assets from banks. Pays 15% cash + 85% government-backed security receipts. Resolved multiple NPAs. RBI Governor approves operations.
CBDC (Digital Rupee): e₹. RBI launched retail pilot (e₹-R) in Dec 2022 in select cities; wholesale pilot (e₹-W) for interbank settlements. Blockchain/DLT based. Not cryptocurrency (government controlled).
UPI Milestones: 10+ billion transactions/month (2024). International: Singapore (PayNow linkage), UAE, France, Mauritius, Nepal, Bhutan, Sri Lanka, Fiji accept UPI. RuPay cards accepted in 200+ countries. India’s digital payments stack exported via NPCI International.
Startup India: 1.25 lakh+ DPIIT-recognised startups (India 3rd largest startup ecosystem globally). 100+ unicorns ($1 billion+ valued companies). Key sectors: fintech, edtech, healthtech.

📈 Global Rankings — India

Global Innovation Index 2024 (WIPO): Rank 39. Improvement: 81st (2015) → 39th (2024). Strength: IT services, patents, S&T publications, market sophistication.
Human Development Index 2023/24 (UNDP): Rank 134. Medium HDI category. Concerns: maternal mortality ratio, education access, income inequality.
Global Hunger Index 2024: Rank 105 (out of 127). India disputes methodology. Government calls GHI calculations “erroneous” (phone survey sample too small).
Corruption Perception Index 2023 (Transparency International): Rank 93 (score 39/100). Stagnant for 3–4 years.
GDP by PPP: India = world’s 3rd largest economy (PPP basis) after USA and China. By nominal GDP: 5th largest; target 3rd by 2030.
Global Competitiveness 2024 (WEF): Rank 40. Strong in market size, innovation, macroeconomic stability.

📝 TOPIC-WISE PYQ

Economy — CDS Pattern Questions with Detailed Explanations

Q1. What is the difference between Repo Rate and Reverse Repo Rate, and what change did RBI make in February 2025? (CDS I 2025 analytical)

(a) Repo = borrowing rate from banks; Reverse repo = lending rate; RBI raised both by 25 bps (b) Repo = RBI’s lending rate to banks; cut to 6.25% (first cut since May 2020) (c) Reverse repo = rate at which banks lend to public; lowered to 4% (d) Repo = rate between commercial banks; unchanged at 6.5%

Answer: (b) Repo Rate = rate at which RBI lends to commercial banks; cut to 6.25% (first since May 2020)
Repo Rate: RBI lends money overnight to commercial banks against government securities collateral. When repo falls, banks get cheaper funds → pass on as lower loan rates → stimulates economy. Reverse Repo: Rate at which banks park excess funds with RBI (RBI borrows from banks). Currently the SDF rate (6.0%) serves as the effective floor. Feb 2025 MPC cut = shift from inflation-fighting to growth-supportive mode, as CPI inflation moved toward 4% target. CDS loves: what rate + direction of change + economic implication.

Q2. National Monetisation Pipeline (NMP) differs from privatisation in what key way? (CDS II 2023 analytical)

(a) NMP transfers ownership to private sector; privatisation retains government ownership (b) NMP retains government ownership; private operators run assets for fixed period against fees (c) NMP applies only to railways; privatisation applies to all PSUs (d) Both NMP and privatisation involve selling government stakes

Answer: (b) NMP retains government ownership; private operators run assets for fixed period
NMP is a Public-Private Partnership (PPP) model. Government retains ownership of assets (roads, railway stations, airports, power lines, telecom towers, oil pipelines). Private party gets “operational rights” for a fixed period (say 25 years) against upfront payment or revenue share. At the end, assets revert to government. Privatisation = government sells its equity stake (e.g., BPCL, Air India). CDS distinction: NMP = monetise without losing ownership; privatisation = losing ownership permanently. Air India’s sale to Tata Group = privatisation. Toll roads under BOT = NMP-type.

Q3. Which index does RBI target for monetary policy, and what is the target? (CDS I 2024)

(a) WPI; target 6% (b) CPI; target 4% (±2%) (c) Both CPI and WPI; target 3% (d) Core inflation; target 2%

Answer: (b) CPI (Consumer Price Index); target 4% with tolerance band of ±2% (i.e., 2%–6%)
RBI uses CPI (Consumer Price Index) as the official inflation measure for monetary policy targeting since 2016 (Urjit Patel committee recommendation). WPI (Wholesale Price Index) = industrial/producer level; used by government for economic analysis, not monetary policy. If CPI breaches 6% for 3 consecutive quarters, RBI Governor must write to Finance Ministry explaining failure. CPI in India has 4 major sub-groups: food & beverages (largest weight ~46%), housing, fuel, miscellaneous. Food inflation drove CPI above 5% in 2024 despite rate holds.

Q4. The PLI scheme for mobile phones is considered a success. What evidence supports this claim? (CDS analytical)

(a) India’s mobile phone imports crossed USD 50 billion (b) Mobile phone exports crossed Rs 1 lakh crore in FY24, with Apple and Samsung manufacturing in India (c) India now manufactures its own processor chips for smartphones (d) Domestic mobile phone sales doubled in FY24

Answer: (b) Mobile phone exports crossed Rs 1 lakh crore (USD 12 billion) in FY24, with Apple (Foxconn + Tata) and Samsung manufacturing in India
India’s mobile phone PLI attracted Foxconn (makes iPhones for Apple), Samsung, Dixon Technologies. Exports of smartphones: Rs 90,000 crore+ in FY23; Rs 1.2 lakh crore in FY24. Electronics overtook readymade garments to become 3rd largest export category. Apple alone accounts for Rs 60,000+ crore of mobile phone exports from India. CDS links PLI scheme → specific sector success → export data — this requires connecting the scheme to measurable outcomes, not just naming the scheme.

📝 Rapid Revision Sheet — CFC04 Economic & Financial News

🏭 RBI Policy Numbers

Repo Rate: 6.25% (cut Feb 2025; first since May 2020)
CRR: 4.0% (cut from 4.5%; Dec 2024)
SLR: 18.0% (unchanged)
Inflation target: 4% CPI (±2%)
RBI Governor: Sanjay Malhotra (Dec 2024)

💳 Budget FY26

Total outlay: Rs 50.65 lakh crore
Defence: Rs 6.81 lakh crore (highest)
Capital Expenditure: Rs 11.21 lakh crore
Fiscal deficit target: 4.4% of GDP
No tax up to Rs 12 lakh (new regime)

📈 Rankings

GII 2024: Rank 39 (from 81 in 2015)
HDI 2024: Rank 134 (medium category)
GHI 2024: Rank 105 (India disputes)
GDP PPP: 3rd largest globally
Startup ecosystem: 3rd largest (1.25 lakh+)

🎯 Key Initiatives

PLI: 14 sectors; mobile phone success = Rs 1.2L cr exports
NMP: monetise WITHOUT ownership transfer
NARCL: “Bad Bank”; 15% cash + 85% SRs
CBDC: e-Rupee pilot since Dec 2022
UPI: 10B+ transactions/month; 7+ nations linked

⚡ Quick Booster — CFC04 Economy

🏭 RBI Quick

Repo → RBI lends to banks
Reverse repo → banks lend to RBI
CRR cut → releases liquidity
SLR → govt securities holding
CPI targeted; NOT WPI by RBI

💳 Budget Quick

Defence FY26: Rs 6.81L crore
Capital Expenditure: Rs 11.21L cr
Fiscal deficit: 4.4% GDP (FY26)
No tax: income ≤ Rs 12 lakh
PM Dhan-Dhanya = 100 agri districts

🔸 CDS Economic Traps

NMP ≠ privatisation (no ownership loss)
CBDC ≠ cryptocurrency (RBI controlled)
CPI = RBI target; WPI = NOT target
NARCL = bad bank (15% cash + 85% SRs)
Repo CUT (Feb 2025) = first since May 2020

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