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ECONOMY

1. India’s Economic Momentum: Resilience Amid Transition

Context: Recent discussions have raised concerns over whether changes in India’s Bilateral Investment Treaty (BIT) framework, declining net FDI, rupee depreciation, and slowing reforms indicate weakening investor confidence and loss of economic momentum.

India’s Economic Transformation

• India is undergoing a major economic transition while balancing high growth ambitions with global uncertainties such as geopolitical conflicts, supply-chain disruptions, high global interest rates, and trade fragmentation.
• Despite these challenges, India remains among the fastest-growing major economies.

Major Pillars of India’s Economic Transition

• Digital Economic Transformation

• Expansion of Digital Public Infrastructure (DPI), UPI-based payments, Jan Dhan–Aadhaar–Mobile (JAM) ecosystem, fintech growth, and digital commerce have improved financial inclusion and economic efficiency.
  • Manufacturing and Industrial Growth
• Initiatives like Make in India, Production Linked Incentive (PLI) Schemes, National Logistics Policy, and PM Gati Shakti aim to strengthen manufacturing capacity and competitiveness.
  • Infrastructure-Led Growth
• Large investments in railways, highways, ports, airports, and renewable energy infrastructure are improving connectivity, productivity, and reducing logistics costs.
  • Balanced Global Integration
• India is attracting foreign investment while maintaining policy flexibility through reforms in its Bilateral Investment Treaty (BIT) framework.

Strengths of India’s Economy

• Strong Growth Despite Global Challenges

• India has maintained economic growth despite shocks like the COVID-19 pandemic, Russia–Ukraine conflict, supply-chain disruptions, and global monetary tightening.
  • Large Domestic Market and Demographic Advantage
• A growing middle class, large consumer base, young workforce, and expanding digital economy continue to make India attractive for investors.
  • Strong Foreign Direct Investment (FDI)
• Despite changes in the BIT framework after 2015, India continues to attract investment, with gross FDI inflows reaching around $95 billion in 2025–26, reflecting long-term investor confidence.
  • Balanced BIT Reforms
• India’s Model BIT seeks to balance investor protection, government’s regulatory freedom, and reduction of unnecessary international disputes.

External Sector Stability

India has maintained strong external buffers:

• Foreign exchange reserves: around $682 billion (April 2026)
• Import cover: nearly 11 months
• Current Account Deficit (CAD): around 2% of GDP

These indicators strengthen India’s ability to manage external shocks.

Global Shift in Investment Treaties

• India’s revision of BITs is part of a global trend, as countries like Brazil, South Africa, Indonesia, Ecuador, and Bolivia have also modified investment treaties to protect policy independence.

Challenges Before India’s Economy

• Slow Private Investment Growth

• Government capital expenditure has increased, but private sector investment remains uneven, limiting long-term growth potential.
  • Employment Generation Challenge
• India needs more quality jobs, formal employment opportunities, and skill development to fully utilise its demographic dividend.
  • Manufacturing Competitiveness Issues
• Challenges remain in technology adoption, logistics efficiency, innovation, and integration with global value chains.
  • Fiscal Pressure
• High infrastructure spending must be balanced with debt sustainability, fiscal discipline, and efficient allocation of resources.
  • Exchange Rate Volatility
• Rupee depreciation due to global uncertainty, oil price fluctuations, and financial tightening can increase inflationary pressures.
  • Global Economic Risks
• Weak global demand, protectionism, trade conflicts, and supply-chain disruptions may affect India’s exports and investment inflows.

Way Forward

• Deepen Structural Reforms

• India should improve ease of doing business, reduce regulatory burden, simplify compliance, and strengthen contract enforcement.
  • Strengthen Manufacturing Sector
• Expansion of PLI sectors, better logistics infrastructure, technology adoption, and participation in global value chains are needed.
  • Develop Human Capital
• Investment in education, skill development, and Industry 4.0 capabilities will prepare India’s workforce for future economic needs.
  • Improve Financial Sector Efficiency
• Better credit availability for MSMEs, stronger banking systems, and deeper capital markets can support investment growth.
  • Maintain Macroeconomic Stability
• Inflation control, fiscal discipline, and strong foreign exchange reserves are necessary for economic resilience.
  • Balance Investment and Policy Freedom
• India should continue improving the BIT framework by ensuring investor confidence while protecting sovereign policy space.

Conclusion

India’s economy continues to show resilience despite global uncertainties, supported by reforms, digital transformation, infrastructure growth, and strong domestic demand.

The next phase of growth requires focus on manufacturing competitiveness, private investment, skilled workforce, and innovation-led development to achieve long-term economic transformation.

ECONOMY

2. Rise in India’s Fertiliser Subsidy Burden

Context: India’s fertiliser subsidy expenditure is expected to increase sharply to nearly ₹3.4 lakh crore in 2026–27, almost double the Budget Estimate of ₹1.71 lakh crore, due to rising global fertiliser prices, supply disruptions, and geopolitical tensions in West Asia.

What are Fertilisers?

• Fertilisers are concentrated sources of plant nutrients produced mainly from inorganic chemicals.
• Unlike organic manure, fertilisers contain nutrients in higher concentration and are used in smaller quantities to improve soil fertility and crop productivity.

Mechanism of Fertiliser Subsidy in India

• Subsidy on Sale Price

• The government provides financial assistance to fertiliser producers and importers so that farmers can purchase fertilisers at affordable prices.
  • Direct Benefit Transfer (DBT)
• The subsidy system uses DBT mechanisms to improve transparency, reduce leakages, and ensure better delivery of benefits.
  • Fixed Subsidy Mechanism
• For urea, the government controls the selling price and provides subsidy support, while for phosphatic and potassic (P&K) fertilisers, subsidy is provided based on nutrient content.

Reasons Behind Rising Fertiliser Subsidy

Global Supply Disruptions

• Geopolitical tensions in West Asia and disruption risks around the Strait of Hormuz have increased fertiliser and energy prices globally.
• Export restrictions by major suppliers like China have further affected global availability.

Sharp Increase in Import Prices

• India’s urea import prices increased to around $935–959 per tonne compared to $410–420 per tonne a year earlier.
• The actual cost of a fertiliser sack increased from nearly ₹3,000 after Covid to ₹4,500, while farmers continue to receive it at subsidised rates.

Heavy Import Dependence

• India remains highly dependent on imports for fertilisers and raw materials.
• Gulf countries including Oman, Qatar, Saudi Arabia, UAE, and Bahrain supply nearly 40% of India’s urea imports, increasing vulnerability to external shocks.

High Energy Costs

• Natural gas is a key input for urea production, and rising global energy prices increase production costs and subsidy requirements.

Imbalanced Fertiliser Use

• Excessive use of subsidised urea increases demand pressure and raises the government’s subsidy burden.

Government Initiatives in Fertiliser Sector

• PM PRANAM Scheme

• PM Programme for Restoration, Awareness Generation, Nourishment and Amelioration of Mother Earth (PM PRANAM) encourages States/UTs to promote alternative fertilisers and reduce excessive chemical fertiliser usage.
  • Neem-Coated Urea
• The government introduced 100% neem coating of subsidised agricultural urea to improve nutrient efficiency, enhance soil health, increase crop productivity, and prevent diversion for non-agricultural purposes.
  • Sulphur-Coated Urea (Urea Gold)
• Introduced to address sulphur deficiency in soil, improve fertiliser efficiency, and reduce farmers’ input costs.
  • Nutrient-Based Subsidy (NBS) Policy
• The policy promotes balanced fertiliser application by providing subsidies based on nutrients like nitrogen, phosphorus, potassium, and sulphur instead of the final fertiliser product.
  • Nano Urea
• Developed by IFFCO, Nano Urea is a liquid fertiliser alternative that aims to improve nutrient efficiency and reduce dependence on conventional urea.
  • Soil Health Card Scheme
• Provides farmers information about soil nutrient status and promotes balanced fertiliser use.

Challenges Due to Rising Subsidy Burden

• Fiscal Pressure

• Increasing fertiliser subsidies reduce government resources available for infrastructure, healthcare, and other development sectors.
  • Import Vulnerability
• Dependence on foreign suppliers exposes India to geopolitical risks and global price fluctuations.
  • Soil Degradation
• Overuse of subsidised urea leads to nutrient imbalance, declining soil fertility, and environmental concerns.
  • Inefficient Resource Use
• Large subsidies may encourage excessive consumption and reduce incentives for efficient fertiliser practices.

Way Forward

• Increase Domestic Production

• Faster development of domestic fertiliser plants under Atmanirbhar Bharat can reduce import dependence.
  • Promote Sustainable Alternatives
• Greater use of nano-urea, bio-fertilisers, organic farming practices, and soil health cards can reduce chemical fertiliser dependence.
  • Improve Supply Chain Security
• India should diversify import sources and create strategic fertiliser reserves to manage future global disruptions.
  • Encourage Biostimulants
• Biostimulants can improve nutrient absorption and plant growth, reducing the requirement for chemical fertilisers.
  • Rationalise Subsidies
• Better targeting through technology-based systems can reduce leakages while protecting farmers’ interests.

Conclusion

India’s rising fertiliser subsidy burden reflects the challenge of balancing farmer welfare, food security, and fiscal sustainability.

A shift towards efficient fertiliser use, domestic production, alternative nutrients, and sustainable agriculture practices is essential for long-term agricultural and economic resilience.

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