Fiscal Federalism, Industrial Incentives, and Welfare Dynamics: UPSC Current Affairs Analysis & Study Strategy

In-Depth Analysis

The Big Picture

The 2025-2026 fiscal landscape is defined by a 'Tug-of-War' between the Union’s drive for centralized industrial steering (PLI 2.0) and the States' demand for fiscal restoration (16th Finance Commission). As the 16th FC under Arvind Panagariya begins its deliberations, the focus has shifted from mere tax shares to 'performance-linked federalism' and the technical transition from 'Minimum Wage' to 'Living Wage' standards. This period marks the end of pandemic-era borrowing leniency and the start of a strict Article 293(3) regime, where the Center uses borrowing caps to enforce fiscal discipline on states like Kerala and Punjab, while simultaneously pushing global manufacturing ambitions.

Cross-Theme Insight

The synthesis of these threads reveals 'Regulatory Federalism'—a model where the Union government increasingly conditions financial support on structural alignments. For instance, the synchronization of PM-POSHAN cost norms with CPI-Rural Labourers and the indexing of industrial incentives to 'value addition' rather than just volume, shows a move toward data-driven governance. However, this creates a friction point with states like Tamil Nadu, who view centralized wage setting (Code on Wages) and specific grant conditions as an encroachment on the state list, leading to a legal and political 'autonomy campaign' that tests the 'Basic Structure' of fiscal federalism.

Textbook vs Reality Gap

Standard texts like Laxmikanth (Ch 46) define the Finance Commission as a 'quasi-judicial body' primarily focused on vertical/horizontal devolution. Current dynamics, however, show the 16th FC being tasked with reviewing the 'Disaster Management Act' funding and 'State-level debt sustainability'—roles that extend far beyond traditional tax-sharing. Similarly, while Ramesh Singh describes Sovereign Gold Bonds (SGB) as a high-yield tax-exempt instrument, the 2024-25 Budget has significantly altered the landscape by reducing gold import duties (impacting SGB returns) and removing indexation benefits, making the 'static' advice of 'SGB as a perfect hedge' partially outdated.

How This Theme Is Evolving

We have moved from 'Fiscal Stimulus' (2020-22) to 'Fiscal Consolidation' (2023-24) and now to 'Institutional Realignment' (2025-26). The 16th FC is no longer just balancing population vs. area; it is grappling with 'demographic divergence' between aging Southern states and youthful Northern states. Industrial policy has evolved from 'Make in India' (sloganeering) to 'PLI Sectoral Depth' (targeted subsidies), while welfare has shifted from 'Direct Benefit' to 'Indexed Entitlement' (e.g., PM-POSHAN indexed to inflation).

UPSC Exam Intelligence

Previous Year Question Pattern

UPSC increasingly tests the 'criteria weights' of the Finance Commission (e.g., Forest & Ecology at 10% in 15th FC - CAPF 2024). There is a consistent focus on the 'purposes' of schemes like SGB and Gold Monetization (IAS 2016). Recent questions (IAS 2023, 2025) have moved toward 'Statement-Reason' formats for the PLI scheme, requiring an understanding of both its domestic manufacturing goals and its global export impact.

Preparation Strategy

Key Connections

Sub-Themes and News Coverage (14 themes, 53 news items)

The Finance Commission & Local Body Fiscal Devolution

Focus: Items tracking the execution of 15th Finance Commission grants and the formulation of the 16th Finance Commission framework, specifically focusing on tax devolution to states and local bodies.

UPSC Value: Critical for understanding the constitutional mechanism of resource distribution (Article 280) and the shift in fiscal federalism towards empowering local governments.

7 news items in this theme:

• 2026-02-14 [Economy] — Increased Fiscal Transfers to Panchayats Under 16th Finance Commission
  Direct fiscal transfers to panchayats have increased from around ₹2.36 lakh crore under the 15th Finance Commission (2021-2026) to nearly ₹4.35 lakh crore under the 16th Finance Commission (2026-2031), supporting decentralization and community-led development.
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  UPSC Angle: Increased fiscal transfers to Panchayats under 16th Finance Commission.

  Key Facts:

  • Fiscal transfers to panchayats
  • ₹2.36 lakh crore (15th Finance Commission, 2021-2026)
  • ₹4.35 lakh crore (16th Finance Commission, 2026-2031)
  • 73rd Constitutional Amendment (1992)
• 2026-02-13 [Polity & Governance] — 16th Finance Commission Recommendations
  The 16th Finance Commission, chaired by Arvind Panagariya, has submitted its recommendations for the award period 2026–31, and the Union government has accepted them. A key issue is whether the recommendations have enhanced the fiscal space and autonomy of States within India's federal framework.
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  UPSC Angle: 16th Finance Commission submitted recommendations for 2026-31.

  Key Facts:

  • 16th Finance Commission Chairman: Arvind Panagariya
  • Award period: 2026–31
• 2026-02-03 [Polity & Governance] — 16th Finance Commission & Urban Grants
  The 16th Finance Commission (FC) report tabled in Lok Sabha sets the tax devolution and local body grants framework, signaling stronger fiscal recognition of urbanization, municipal finance needs, and decentralized service delivery. The commission recommended ₹3.5 lakh crore for Urban Local Governments (ULGs) over five years, reflecting an unprecedented scale-up in urban fiscal support amid rapid urbanization and infrastructure stress.
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  UPSC Angle: 16th FC signals stronger fiscal recognition of urbanization.

  Key Facts:

  • Recommended ₹3.5 lakh crore for Urban Local Governments (ULGs) over five years
  • Marks 230% increase over the 15th FC allocation of ₹1.5 lakh crore (2021–26)
  • 45% share of local body grants to ULGs
  • ₹10,000 crore urbanization premium
• 2025-11-06 [Schemes & Programs] — Centre Releases Funds to Odisha's Rural Local Bodies
  The Union Government has released over ₹444 crore to Rural Local Bodies (RLBs) in Odisha under the Fifteenth Finance Commission (XV FC) Grants for FY 2025–26. This includes ₹342.59 crore as Untied Grants and ₹101.78 crore representing the withheld portion of the first installment.
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  UPSC Angle: Centre releases funds to Odisha's Rural Local Bodies under XV FC.

  Key Facts:

  • Fifteenth Finance Commission (XV FC) Grants
  • ₹444 crore to Rural Local Bodies (RLBs) in Odisha
  • ₹342.59 crore as Untied Grants
  • ₹101.78 crore as withheld portion of the first installment
• 2025-10-22 [Polity & Governance] — Haryana Receives Grant for Local Bodies
  Haryana received its first installment of ₹195.13 crore for local bodies. The grants, recommended by the Ministry of Panchayati Raj and Ministry of Jal Shakti, empower Panchayati Raj Institutions to address local development needs and basic services like sanitation and water management.
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  UPSC Angle: Haryana receives grant for local bodies.

  Key Facts:

  • Haryana received ₹195.13 crore
  • Recommended by the Ministry of Panchayati Raj and Ministry of Jal Shakti
  • For local development needs and basic services like sanitation and water management
• 2025-06-06 [Polity & Governance] — States Demand Increased Tax Revenue Share from Centre
  The majority of the 28 states in the Indian Union have requested the 16th Finance Commission to increase the tax revenue distributed between the central and state governments, potentially demanding a 50% share of total revenues. The 15th Finance Commission had previously mandated the central government to devolve 41% of its tax revenue to the state governments.
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  UPSC Angle: States requesting increased tax revenue share from the 16th Finance Commission.

  Key Facts:

  • 16th Finance Commission
  • 28 states
  • tax revenue distribution
  • 15th Finance Commission
  • 41% devolution
  • 50% share demand
  • Armen Pangara
• 2025-06-02 [Schemes & Programs] — Jal Shakti Ministry Highlights Progress in Sanitation and Drinking Water
  The Department of Drinking Water and Sanitation, Ministry of Jal Shakti, reported significant progress in rural sanitation and drinking water access through Swachh Bharat Mission-Grameen Phase II and Jal Jeevan Mission. There was a 460% surge in ODF Plus villages from December 2022 to December 2024. The 15th Finance Commission allocated ₹1.42 lakh crore for water supply and sanitation from 2021–2026.
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  UPSC Angle: Progress in rural sanitation and drinking water under SBM-G.

  Key Facts:

  • 460% surge in ODF Plus villages (from 1 lakh in Dec 2022 to 5.61 lakh in Dec 2024)
  • 15th Finance Commission: ₹1.42 lakh crore for water supply and sanitation (2021–2026)
  • Expenditure: ₹25,391.83 crore (2014-2023), ₹9,726.01 crore (2023-2024)

Tamil Nadu's Fiscal Federalism & Autonomy Campaign

Focus: Items detailing Tamil Nadu's broader political strategy to challenge Central funding allocations and assert state autonomy beyond just the education sector.

UPSC Value: Highlights the friction points in fiscal federalism, specifically regarding tax devolution, MNREGA funds, and state autonomy committees.

5 news items in this theme:

• 2026-02-17 [Polity & Governance] — Tamil Nadu CM Calls for Structural Reset in India's Federalism
  Tamil Nadu CM M.K. Stalin argues that India's federalism suffers from a centralizing bias. The Justice Kurian Joseph Committee, formed by Tamil Nadu, submitted Part I of its report on Union-State relations on February 16, 2026, covering Governors, language, delimitation, education, health, and GST. The report questions the Union's expanding legislative and fiscal authority, suggesting excessive centralization weakens the federal balance.
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  UPSC Angle: TN CM calls for structural reset in India's federalism.

  Key Facts:

  • Justice Kurian Joseph Committee Report: Advocates for a structural reset to restore state autonomy and right-size the Union's role in governance
  • S.R. Bommai vs. Union of India (1994): Supreme Court declared federalism a part of the Constitution's Basic Structure
  • Article 280: Provides for a Finance Commission to recommend the distribution of tax proceeds between the Union and States
  • NCT Delhi vs. Union of India (2018/2023): Supreme Court reaffirmed that the elected government of a State/UT must have control over its administrative services
  • Justice Kurian Joseph Committee report submitted on February 16, 2026.
  • Report covers Governors, language, delimitation, education, health, and GST.
• 2025-05-10 [Polity & Governance] — Tamil Nadu Assembly Resolution Against 'G. Ramji Law'
  On May 10, 2025, Tamil Nadu Chief Minister MK Stalin moved a resolution in the Tamil Nadu Assembly against the 'G. Ramji law,' urging the central government to restore the previous funding structure of the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA). Stalin alleged discrimination in fund allocation and stated that annual allocations must not be lowered.
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  UPSC Angle: Tamil Nadu Assembly resolution against 'G. Ramji law'.

  Key Facts:

  • Resolution moved by: MK Stalin
  • Against: 'G. Ramji law'
  • Issue: MNREGA funding structure
  • Allegation: Discrimination in fund allocation
• 2025-04-22 [Polity & Governance] — State initiatives in Tamil Nadu and Telangana
  In April 2025, Tamil Nadu formed a high-level committee to review Centre-State relations and suggest measures for enhancing state autonomy. The Telangana government became the first in India to implement Scheduled Castes (SC) sub-categorisation, following the Supreme Court's approval. On April 14, 2025, the state issued a Government Order (GO) enforcing the Telangana Scheduled Castes (Rationalization of Reservations) Act, 2025.
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  UPSC Angle: TN panel to review Centre-State relations; Telangana implements family doctor program.

  Key Facts:

  • Tamil Nadu committee formation: April 2025
  • Objective: review Centre-State relations and enhance state autonomy
  • Telangana SC sub-categorisation implementation: April 2025
  • Enforced via: Telangana Scheduled Castes (Rationalization of Reservations) Act, 2025
  • GO issued: April 14, 2025
• 2025-04-18 [Polity & Governance] — T.N. CM Stalin reminds PM Modi of his statements as Gujarat CM over seeking funds.
  Tamil Nadu Chief Minister M.K. Stalin on Friday (April 18, 2025) reminded Prime Minister Narendra Modi about his statements as Gujarat Chief Minister over seeking funds from the Union government. He also asked if Union Home Minister Amit Shah could guarantee that delimitation would not reduce Tamil Nadu's representation, exempt the State from the ambit of NEET, and assure that Hindi would not be imposed.
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  UPSC Angle: Not exam-relevant

  Key Facts:

  • M.K. Stalin: Tamil Nadu Chief Minister
  • Narendra Modi: Prime Minister
  • Amit Shah: Union Home Minister
  • NEET: Stalin asked for exemption of state from NEET
  • Delimitation: Stalin asked for guarantee that delimitation would not reduce Tamil Nadu's representation
  • Hindi: Stalin asked for assurance that Hindi would not be imposed.
• 2025-03-26 [Polity & Governance] — Centre Claims MGNREGS Funds Allocation
  The Rural Development Ministry claimed in Lok Sabha that Uttar Pradesh, despite having nearly triple the population of Tamil Nadu, receives less funding under the Mahatma Gandhi National Rural Employment Guarantee Act Scheme (MGNREGS). Opposition protests ensued, leading to the adjournment of the House for 15 minutes.
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  UPSC Angle: MGNREGS fund allocation disparities between states; population vs. funding.

  Key Facts:

  • UP gets less MGNREGS funding than Tamil Nadu, according to Rural Development Ministry

State Engagement with Gold: Schemes and Reserves

Focus: Items tracking the government's dual approach to gold: mobilizing household gold via financial instruments (SGB, GMS) and accumulating central bank reserves.

UPSC Value: Connects the management of physical gold reserves (external sector stability) with paper gold schemes (reducing import dependence and fiscal liability).

5 news items in this theme:

• 2026-02-03 [Economy] — Sovereign Gold Bonds
  Budget clarified that capital gains tax exemption on sovereign gold bonds will not apply to investors who purchase them in the secondary market and hold them to maturity. The Sovereign Gold Bond (SGB) Scheme was first launched by the Government of India (GOI) on October 30, 2015. These bonds are government securities denominated in grams of gold and are substitutes for holding physical gold.
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  UPSC Angle: Capital gains tax exemption on SGBs clarified for secondary market purchases.

  Key Facts:

  • Capital gains tax exemption on sovereign gold bonds will not apply to investors who purchase them in the secondary market and hold them to maturity
  • The Sovereign Gold Bond (SGB) Scheme was first launched by the Government of India (GOI) on October 30, 2015
  • These bonds are government securities denominated in grams of gold
  • The bond is issued by the Reserve Bank on behalf of the GOI
• 2025-10-21 [Economy] — India's Gold Reserves Cross USD 100 Billion
  The Reserve Bank of India (RBI) announced that the value of India's gold reserves crossed USD 100 billion for the first time, reaching USD 102.36 billion in the week ending October 10, 2025. As of March 2025, total gold holdings were around 879.6 metric tonnes. Gold now forms 14.7% of India's total foreign exchange reserves, the highest since 1996–97.
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  UPSC Angle: India's gold reserves cross USD 100 billion.

  Key Facts:

  • India's gold reserves reached USD 102.36 billion (Oct 10, 2025)
  • Total gold holdings: Around 879.6 metric tonnes (March 2025)
  • Gold forms 14.7% of India's total foreign exchange reserves
• 2025-05-06 [Economy] — RBI Increases Gold Holdings
  The Reserve Bank of India has increased its gold holdings to 11.70% of foreign exchange reserves, aligning with global trends among central banks. This increase reflects a strategy to diversify reserves and hedge against economic uncertainties. Central banks worldwide are hoarding gold as it is a safe haven asset and can be costlier than liquidating foreign currency assets.
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  UPSC Angle: RBI increases gold holdings to 11.70% of foreign exchange reserves.

  Key Facts:

  • RBI increased gold holdings to 11.70% of foreign exchange reserves.
  • Gold holdings are at 879.59 metric tonnes.
• 2025-04-17 [Economy] — Sovereign Gold Bond Scheme premature redemption opens
  The Sovereign Gold Bond (SGB) Scheme's premature redemption window for the 2017-18 Series III tranche opened on April 16, 2025. Investors could submit redemption requests from March 17, 2025, to April 7, 2025, at branches of the State Bank of India.
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  UPSC Angle: SGB Scheme's premature redemption window opened on April 16, 2025.

  Key Facts:

  • Sovereign Gold Bond (SGB) Scheme
  • 2017-18 Series III
  • Premature redemption date: April 16, 2025
  • Request submission period: March 17, 2025 - April 7, 2025
  • State Bank of India (SBI)
• 2025-03-26 [Economy] — Gold Monetization Scheme Changes
  The government has decided to discontinue medium-term and long-term deposits under the Gold Monetization Scheme, while short-term bank deposits will continue at the discretion of individual banks. The scheme was launched in November 2015 as a revamped version of an older gold deposit scheme.
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  UPSC Angle: Government discontinues medium-term and long-term deposits under Gold Monetization Scheme.

  Key Facts:

  • Government decided to discontinue medium-term and long-term deposits under the Gold Monetization Scheme.
  • Short-term bank deposits under the scheme will continue at the discretion of individual banks.
  • The Gold Monetization Scheme was launched in November 2015.

PLI Policy Assessment: Performance, Reviews, and Challenges

Focus: Items tracking the macro-level evaluation of the PLI scheme, including government reviews, statistical impact reports, and international legal challenges.

UPSC Value: Critical for understanding the efficacy of the PLI scheme, its contribution to exports/GDP, and the WTO compliance challenges it faces.

5 news items in this theme:

• 2025-10-30 [International Relations] — China Files WTO Complaint Against India's PLI Scheme
  China has filed a formal complaint against India at the World Trade Organization (WTO), alleging that India's Production-Linked Incentive (PLI) Scheme violates WTO subsidy rules. China claims that the scheme offers prohibited subsidies that are contingent on the use of domestic inputs rather than imported goods, thereby breaching global trade norms. The PLI Scheme, launched in 2020, aims to transform India into a global manufacturing hub by offering financial incentives.
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  UPSC Angle: China files WTO complaint against India's PLI Scheme.

  Key Facts:

  • Complaint filed by China against India at the World Trade Organisation (WTO)
  • India's Production-Linked Incentive (PLI) Scheme launched in 2020
  • China alleges PLI scheme violates WTO subsidy rules
  • The PLI Scheme covers 14 sectors
  • China filed a complaint against India at the WTO
  • Complaint alleges that India's industrial policies include prohibited subsidies
• 2025-08-25 [Schemes & Programs] — PLI Scheme: Powering India's Industrial Renaissance
  The Production Linked Incentive (PLI) Scheme aims to enhance domestic manufacturing, increase exports, and create jobs by providing performance-based incentives to companies. With an incentive outlay of ₹1.97 lakh crore spread over five years, the scheme has approved 806 applications as of 2025, leading to committed investments of ₹1.76 lakh crore and total sales of ₹16.5 lakh crore by PLI firms and creation of over 12 lakh jobs.
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  UPSC Angle: PLI Scheme aims to boost domestic manufacturing, exports, and job creation.

  Key Facts:

  • The PLI scheme aims to raise India's manufacturing share of GDP to 25% by 2025–30.
  • The total incentive outlay is ₹1.97 lakh crore over five years.
  • As of 2025, 806 applications have been approved.
  • Committed investments amount to ₹1.76 lakh crore.
  • Total sales by PLI firms have reached ₹16.5 lakh crore.
  • The scheme has created over 12 lakh jobs.
  • The PLI scheme covers 14 strategic sectors.
• 2025-06-26 [Economy] — India's Total Exports Reach All-Time High in FY25
  India's total exports reached an all-time high of USD 825 billion in FY25, registering a 6.3% growth. This outperformed the global trade growth of 4%, driven mainly by sectors supported by the Production Linked Incentive (PLI) scheme. PLI-backed exports crossed Rs 5.3 lakh crore, with significant contributions from electronics, pharmaceuticals, food processing, and telecom industries.
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  UPSC Angle: India's total exports reach an all-time high in FY25.

  Key Facts:

  • Total exports in FY25: USD 825 billion.
  • Export growth: 6.3%.
  • PLI-backed exports: Crossed Rs 5.3 lakh crore.
  • Trade deficit has reached $94.26 billion, up from $78.39 billion in FY24.
• 2025-05-24 [Economy] — India's Manufacturing Hub Transformation
  India is rapidly emerging as a global manufacturing hub powered by the production linked incentive (PLI) scheme launched in 2020, under the self-reliant India vision, offering 4-6% subsidies on incremental sales across 14 key sectors including electronics, pharma, and automobiles. Foxconn committed $1.5 billion to expand its operations in India.
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  UPSC Angle: India as a manufacturing hub due to the PLI scheme.

  Key Facts:

  • India is rapidly emerging as a global manufacturing hub powered by the PLI scheme.
  • Foxconn committed $1.5 billion to expand its operations in India.
• 2025-03-03 [Economy] — Government reviewing Production Linked Incentive (PLI) scheme
  The Indian government is reviewing the impact of the Production Linked Incentive (PLI) scheme five years after its implementation and is discussing the introduction of PLI 2.0 to further boost domestic manufacturing. PLI 2.0 aims to increase efficiency, drive growth, and enhance India's global manufacturing competitiveness.
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  UPSC Angle: Government reviewing Production Linked Incentive (PLI) scheme.

  Key Facts:

  • Government reviewing Production Linked Incentive (PLI) scheme
  • Five years after implementation
  • Discussions for PLI 2.0 to boost domestic manufacturing
  • PLI 2.0 aims to increase efficiency and enhance India's global manufacturing competitiveness

Evolution of National Wage Standards and Regulatory Thresholds

Focus: Regulatory actions and policy deliberations regarding the definition of wage floors, supervisory thresholds, and the conceptual shift from minimum to living wages.

UPSC Value: Critical for understanding labor reforms, the implementation of the Code on Wages 2019, and social security measures for the rural and urban workforce.

4 news items in this theme:

• 2026-01-30 [Polity & Governance] — Ministry of Labour Defines Supervisory Wage Limit
  The Ministry of Labour and Employment has defined the wage threshold for supervisory staff under the Code on Wages, 2019, setting the monthly wage limit at ₹18,000 via Notification S.O. 454(E) dated January 30, 2026.
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  UPSC Angle: Ministry of Labour defines supervisory wage limit at ₹18,000 per month.

  Key Facts:

  • Monthly wage limit for supervisory staff set at ₹18,000
  • Notification S.O. 454(E) dated January 30, 2026
  • Under the Code on Wages, 2019
• 2025-07-30 [Economy] — India Considers 'Living Wage' Framework
  The Union Ministry of Labour and Employment is considering a shift from a "minimum wage" to a "living wage" framework, covering essential social expenditures. A minimum wage is the legally mandated lowest amount an employer must pay a worker, irrespective of the cost of living, while a living wage is the income necessary for a worker and their family to afford a basic but decent standard of living.
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  UPSC Angle: India considers shifting from minimum wage to a living wage.

  Key Facts:

  • India considering shift to 'living wage' framework
  • Living wage would cover essential social expenditures
  • Minimum wage is legally mandated lowest amount an employer must pay
  • Living wage is income necessary for a decent standard of living
• 2025-04-15 [Economy] — Enhancement of Minimum Wages w.e.f. 01/04/2025
  Order No.F.No.(142)/02/MW/VII/Part file/211-241 was issued on April 15, 2025, to enhance minimum wages with effect from April 1, 2025.
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  UPSC Angle: Enhancement of minimum wages with effect from April 1, 2025.

  Key Facts:

  • Order No.F.No.(142)/02/MW/VII/Part file/211-241
  • Date: 15/04/2025
  • Effective from: 01/04/2025
• 2025-04-11 [Polity & Governance] — Parliamentary Panel Recommends MGNREGA Wage Revision
  The Parliamentary Standing Committee on Rural Development has recommended revising and ensuring uniformity in MGNREGA wages, citing rising living costs and inadequate inflation indexation. MGNREGA guarantees 100 days of wage employment to rural households annually and has over 25 crore registered workers, acting as a crucial safety net.
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  UPSC Angle: Parliamentary panel recommends MGNREGA wage revision and uniformity.

  Key Facts:

  • Parliamentary Standing Committee on Rural Development recommends MGNREGA wage revision
  • Reason: Rising cost of living and inadequate inflation indexation
  • MGNREGA ensures 100 days of guaranteed wage employment to rural households annually
  • Over 25 crore registered workers

Fiscal Management and Borrowing Dynamics

Focus: Items detailing the government's borrowing requirements, fiscal deficit targets, and capital assistance to states.

UPSC Value: Provides a macroeconomic snapshot of how the government finances its deficit and supports state-level capital expenditure.

3 news items in this theme:

• 2026-02-05 [Economy] — Fiscal Deficit and Debt-GDP Ratios
  A transparent five-year path for fiscal deficit and debt-GDP ratios, with growth assumptions, is required, but the Budget does not clearly indicate when the FRBM targets of 3% fiscal deficit and 40% debt-GDP ratio will be achieved. The effective interest rate on government debt is estimated at 7.12% in 2026–27.
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  UPSC Angle: Budget lacks clear path for fiscal deficit and debt-GDP ratios.

  Key Facts:

  • Effective interest rate on government debt estimated at 7.12% in 2026–27
  • Gross tax buoyancy is projected at only 0.8.
  • Direct taxes show buoyancy of 1.1 and account for 61.2% of gross tax revenues.
  • Indirect tax buoyancy is only 0.3, with GST collections not expected to match GDP growth in 2026–27.
  • The effective interest rate on government debt is estimated at 7.12% in 2026–27.
  • The Sixteenth Finance Commission retained the States' share in the divisible pool at 41%.
  • Total Finance Commission grants fall from 0.43% of GDP in 2025–26 to 0.33% in 2026–27.
• 2025-04-12 [Schemes & Programs] — Special Assistance to States for Capital Investment Scheme
  The Central government provides financial assistance to states as a 50-year interest-free loan for capital investment projects like roads, flyovers, bridges, hospital buildings, and tourism development. The scheme was launched considering the fiscal environment faced by State Governments due to COVID-19 pandemic. The Scheme was continued in financial years 2021-22, 2022-23 and 2023-24 and further in FY 2024-25.
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  UPSC Angle: Central govt provides 50-year interest-free loans for state capital investment.

  Key Facts:

  • 50-year interest-free loan for capital investment projects.
• 2025-03-28 [Economy] — Government to Raise ₹8 Lakh Crore via Bonds in H1 FY26
  The Indian government plans to raise ₹8 lakh crore through dated securities in H1 FY26, part of the ₹14.82 lakh crore total market borrowing for the year, to bridge the 4.4% fiscal deficit (₹15.68 lakh crore). The plan includes ₹10,000 crore in Sovereign Green Bonds (SGrBs) and weekly auctions of ₹25,000-36,000 crore. Net market borrowings via dated securities stand at ₹11.54 lakh crore, while Treasury Bills (T-Bills) borrowing in Q1 FY26 is ₹19,000 crore per week.
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  UPSC Angle: Government to raise ₹8 lakh crore via bonds in H1 FY26.

  Key Facts:

  • Borrowing target for H1 FY26: ₹8 lakh crore
  • Total market borrowing for FY26: ₹14.82 lakh crore
  • Fiscal deficit target: 4.4% of GDP (₹15.68 lakh crore)
  • Sovereign Green Bonds (SGrBs): ₹10,000 crore
  • Weekly auctions: ₹25,000-36,000 crore
  • Net market borrowings via dated securities: ₹11.54 lakh crore
  • Treasury Bills (T-Bills) borrowing in Q1 FY26: ₹19,000 crore per week

Fiscal Federalism and State Financial Stress

Focus: Analysis of the evolving financial relationship between the Centre and States, focusing on the 16th Finance Commission and shifting burdens.

UPSC Value: Essential for understanding Centre-State financial relations, the impact of central acts on state budgets, and the role of the Finance Commission.

3 news items in this theme:

• 2026-02-03 [Polity & Governance] — 16th Finance Commission Retains 41% Devolution
  The government has accepted the 16th Finance Commission's key recommendation to maintain the states' share in central taxes at 41% for the period of 2026-31. The states' share in the divisible pool of central taxes remains unchanged at 41%, consistent with the 15th Finance Commission. The Commission acknowledges that States face shrinking fiscal space under the GST framework.
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  UPSC Angle: 16th Finance Commission retains states' share in central taxes at 41%.

  Key Facts:

  • The Sixteenth Finance Commission covers the five-year period from 2026–27 to 2030–31
  • It is chaired by Dr. Arvind Panagariya
  • The government has accepted its key recommendation to maintain the states' share in central taxes at 41% for the period of 2026-31
  • The states' share in the divisible pool of central taxes remains unchanged at 41%, consistent with the 15th Finance Commission
• 2025-12-24 [Polity & Governance] — Concerns over VB-G RAM G Act, 2025
  The VB-G RAM G Act, 2025 raises concerns due to the removal of the Union government's obligation to compensate workers for wage delays and the shifting of financial responsibility to States, potentially threatening the federal balance. Fiscal pressure on States may lead to work demand suppression, increasing unemployment and distress-driven migration.
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  UPSC Angle: VB-G RAM G Act, 2025 raises concerns about worker compensation.

  Key Facts:

  • Removes Union government's obligation to compensate workers for wage delays
  • Shifts financial responsibility to States
  • Risk of political favoritism and uneven access
  • Fiscal pressure may suppress work demand, increasing unemployment
• 2025-05-04 [Polity & Governance] — EPW: Fiscal Federalism Issues for the 16th Finance Commission
  The Economic and Political Weekly published a special issue on May 3, 2025, focusing on fiscal federalism and issues before the Sixteenth Finance Commission, including devolution to states. The issue contains articles analyzing state finances, fiscal rules, and public sector borrowings, offering insights and perspectives for the commission's deliberations.
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  UPSC Angle: EPW special issue focuses on fiscal federalism for 16th Finance Commission.

  Key Facts:

  • Published by: Economic and Political Weekly
  • Date: May 3, 2025
  • Focus: Fiscal federalism and the Sixteenth Finance Commission
  • Analyzed: State finances, fiscal rules, and public sector borrowings

Evolution of PM-POSHAN Financials and Administration

Focus: Updates specifically regarding the cost norms, financial outlays, and inflation tracking mechanisms of the PM-POSHAN scheme.

UPSC Value: Tracks the administrative adjustments of a major welfare scheme in response to inflation, highlighting the link between economic indicators (CPI-RL) and social welfare implementation.

3 news items in this theme:

• 2026-02-01 [Schemes & Programs] — PM-POSHAN Scheme Details
  The PM-POSHAN Scheme aims to provide one hot cooked meal per school day to children studying in Balvatikas (pre-primary), and Classes 1 to 8 across government and government-aided schools. The Labour Bureau uses the CPI-Rural Labourers (CPI-RL) to calculate inflation specifically for the PM-POSHAN food basket across 600 villages.
  More details

  UPSC Angle: PM-POSHAN provides hot cooked meals to children in classes 1-8.

  Key Facts:

  • Request by: 22 states and Union Territories
  • Scheme: PM-POSHAN (formerly Mid-Day Meal Scheme)
  • Objective: Increase honorarium for cooks and helpers
  • Implemented by: Ministry of Education
  • Nodal Ministry: Ministry of Education
  • Target Students: Children studying in Balvatikas (pre-primary), and Classes 1 to 8 across government and government-aided schools.
  • Inflation Tracking: The Labour Bureau uses the CPI-Rural Labourers (CPI-RL) to calculate inflation specifically for the PM-POSHAN food basket across 600 villages.
• 2025-09-19 [Schemes & Programs] — PM POSHAN Scheme Update
  The PM POSHAN Scheme, successor to the Mid-Day Meal Scheme under NFSA 2013, covers classes I-VIII in government and aided schools, benefiting approximately 11.80 crore children across 11.20 lakh schools. A financial outlay of ₹1.3 lakh crore is allocated for 2021-2026, with a 9.5% hike in material cost in 2025 adding an extra ₹954 crore burden.
  More details

  UPSC Angle: PM POSHAN Scheme covers classes I-VIII in government and aided schools.

  Key Facts:

  • Successor: Replaced the Mid-Day Meal Scheme under the National Food Security Act (NFSA), 2013
  • Coverage: Classes I to VIII in Government and aided schools
  • Beneficiaries: Approximately 11.80 crore children across 11.20 lakh schools
  • Financials: ₹1.3 lakh crore outlay for 2021-2026
  • Cooking material costs increased by 9.5% in 2025, adding an extra ₹954 crore burden
  • Food grains provided at NFSA rates (100g/child/day for primary, 150g for upper primary)
  • Cooking costs: ₹4.97 for primary, ₹7.45 for upper primary per child/day
• 2025-04-12 [Schemes & Programs] — PM-POSHAN Scheme Material Cost Increase
  The material cost for cooking hot meals under the PM-POSHAN scheme has been increased by 9.5% due to inflation adjustments, leading to an additional expenditure of ₹954 crore in FY 2025-26. Revised per-student daily material costs from May 1, 2025: ₹6.78 for Bal Vatikas and primary schools, and ₹10.17 for upper primary schools. The scheme benefits around 11.2 crore students across 10.36 lakh government and aided schools.
  More details

  UPSC Angle: PM-POSHAN scheme material cost increased by 9.5% due to inflation.

  Key Facts:

  • Material cost increased by 9.5%.
  • Additional expenditure of ₹954 crore in FY 2025-26.
  • Revised costs: ₹6.78 for Bal Vatikas and primary schools, ₹10.17 for upper primary schools.
  • Increase: 9.5%
  • Reason: Inflation adjustments
  • Additional expenditure in FY 2025-26: ₹954 crore
  • Revised per-student daily material costs from May 1, 2025:
  • Bal Vatikas and primary schools: ₹6.78 (earlier ₹6.19)
  • Upper primary schools: ₹10.17 (earlier ₹9.29)
  • Covers Students in Bal Vatikas and Classes 1 to 8 in government and government-aided schools.
  • Benefits around 11.2 crore students across 10.36 lakh government and aided schools.

Center-State Political Friction and Electoral Dynamics

Focus: The interplay between Union-level leadership, state-level electoral outcomes, and the resulting political contestation with opposition-governed states.

UPSC Value: Understanding the complexities of Indian federalism, specifically how national electoral victories shape political rhetoric toward opposition-ruled states and the impact of state authorities on national discourse.

3 news items in this theme:

• 2025-12-20 [Polity & Governance] — PM Modi on West Bengal
  PM Modi stated that the people of West Bengal need freedom from the "mahajungle-raj" prevailing in Kolkata, highlighting the NDA victory in Bihar assembly polls. He said Bihar had rejected "jungle-raj" for 20 years.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • People of West Bengal need freedom from the 'mahajungle-raj'
  • Bihar rejected 'jungle-raj' for 20 years
• 2025-11-15 [Polity & Governance] — NDA Wins Bihar Assembly Elections
  The National Democratic Alliance (NDA) secured a victory in the Bihar Assembly elections with 202 out of 243 seats, achieving 46.6% of the vote share. The BJP emerged as the largest party, and Nitish Kumar is set to become Chief Minister for a record tenth term. The opposition Mahagathbandhan, including RJD and Congress, suffered a defeat.
  More details

  UPSC Angle: NDA wins Bihar Assembly elections with 202 seats.

  Key Facts:

  • NDA won 202 out of 243 seats
  • BJP emerged as the largest party with 89 seats
  • JD(U) followed closely with 85 seats
  • RJD got the highest vote share but less number of seats
  • Nitish Kumar is likely to be sworn in for his 10th term as the Chief Minister of Bihar
  • NDA secured 202 out of 243 seats.
  • NDA achieved 46.6% of the vote share.
  • BJP emerged as the single-largest party.
  • Nitish Kumar to take office for a tenth term.
  • Voter turnout was 66.91%.
• 2025-07-11 [International Relations] — MEA Condemns Punjab CM's Remarks on PM's Global South Tour
  The Ministry of External Affairs (MEA) has disassociated itself from comments made by Punjab Chief Minister Bhagwant Mann mocking Prime Minister Narendra Modi's recent five-nation tour of countries in the Global South. The MEA strongly objected to the remarks made by a “high state authority about India's relations with friendly countries from the Global South”.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • Ministry of External Affairs (MEA)
  • Bhagwant Mann
  • Narendra Modi
  • Global South
  • Prime Minister Narendra Modi
  • Global South countries

Indian Opposition Critiques of the Modi Administration

Focus: Statements and predictions from Indian opposition leaders (Congress and Shiv Sena UBT) targeting the Modi government's economic performance, stability, and policy vision.

UPSC Value: Examines the role of the political opposition in India in challenging governance, economic management, and the stability of the ruling coalition.

3 news items in this theme:

• 2025-12-19 [Polity & Governance] — Political Speculation
  Shiv Sena (UBT) leader Sanjay Raut claimed that there are talks in Delhi about a potential "political earthquake" on December 19, 2025, that could lead to the fall of the Narendra Modi government. Raut attributed the epicenter of this potential change to the US, echoing claims made by Congress leader Prithviraj Chavan.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • Sanjay Raut (Shiv Sena UBT) claims of a potential political earthquake on December 19, 2025
  • Claims the 'epicenter' is in the US
  • Prithviraj Chavan (Congress) also predicted a major political event on December 19
• 2025-10-12 [Polity & Governance] — Rahul Gandhi on Education and Manufacturing
  Congress leader Rahul Gandhi stated on October 12, 2025, that India requires an education system reflecting its diversity, accessible to all, and fostering critical thinking. He also suggested building an alternative manufacturing system, possibly in partnership with the U.S. or Peru.
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  UPSC Angle: Rahul Gandhi on education system reflecting diversity and critical thinking.

  Key Facts:

  • Rahul Gandhi, Congress leader
  • Advocates for inclusive education system
  • Suggests alternative manufacturing partnership with U.S. or Peru
• 2025-06-28 [Economy] — Congress Targets Modi Government's Economic Policies
  The Congress party criticized the Narendra Modi government's economic policies, claiming they have led to sluggish investment growth due to "policies of suppression and oppression". Congress President Mallikarjun Kharge stated that savings have dried up and household expenditures have been curbed. Jairam Ramesh noted that private sector capital expenditure may be 25% lower in 2025/26 compared to the previous year.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • Private sector capital expenditure may be 25% lower in 2025/26 compared to the previous year
  • Interest rates on savings account were at their lowest in 25 years
  • Household savings at their lowest in 50 years

Carney Administration Domestic Economic Agenda

Focus: Key domestic administrative and economic management actions taken by the new Canadian government in its first year.

UPSC Value: Useful for analyzing the initial domestic policy framework and economic priorities of a new administration.

3 news items in this theme:

• 2025-11-17 [Economy] — First Ministers Discuss Economic Transformation
  On November 17, 2025, Prime Minister Mark Carney met virtually with provincial and territorial premiers to discuss transforming the Canadian economy and Budget 2025's role in enabling $1 trillion in total investment over five years. They addressed streamlining major project reviews, removing interprovincial trade barriers, and building affordable homes.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • Prime Minister: Mark Carney
  • Meeting date: November 17, 2025
  • Budget 2025 aims to enable $1 trillion in total investment into Canada over the next five years.
  • A second tranche of projects was referred to the Major Projects Office (MPO).
  • The projects combined with the first tranche represent more than $116 billion in investments.
  • Prime Minister of Canada: Mark Carney
  • First Ministers' Meeting Date: November 17, 2025
  • Meeting Type: Virtual
• 2025-09-08 [Economy] — PM Carney Announces Tariff Relief for Atlantic Canada
  Prime Minister Mark Carney announced that $80 million from the $1 billion regional tariff response fund will be allocated to small and medium-sized businesses in Atlantic Canada. This funding aims to help these businesses invest in the future and address challenges they face.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • Mark Carney
  • $80 million
  • $1 billion regional tariff response fund
  • small and medium-sized businesses
  • Atlantic Canada
  • John Hogan
  • Joanne Thompson
  • Newfoundland and Labrador
• 2025-05-13 [International Relations] — New Canadian Federal Cabinet Announced
  Prime Minister Mark Carney announced his new Cabinet on May 13, 2025, following the federal election, with a focus on Canada's sovereignty, economy, and G7 leadership. The Cabinet includes 28 ministers and highlights a commitment to a true cabinet government.
  More details

  UPSC Angle: New Canadian Federal Cabinet Announced.

  Key Facts:

  • Prime Minister: Mark Carney (Nepean, ON)
  • President of the Treasury Board: Shafqat Ali (Brampton—Chinguacousy Park, ON)
  • Minister of Crown-Indigenous Relations: Rebecca Alty (Northwest Territories)
  • Minister of Foreign Affairs: Anita Anand (Oakville East, ON)
  • Minister of Public Safety: Gary Anandasangaree (Scarborough—Guildwood—Rouge Park)
  • Minister of Finance and Nationale Revenue: François-Phillippe Champagne (Saint-Maurice—)
  • Minister of Northern Affairs and Arctic Affairs and Minister responsible for the Canadian Northern Economic Development Agency: Rebecca Chartrand (Churchill—Keewatinook Aski,
  • Minister of Veterans Affairs and Associate Minister of National Defence: Jill McKnight
  • Minister of Immigration, Refugees and Citizenship: Lena Metlege Diab (Halifax West, NS)
  • Minister of Health: Marjorie Michel (Papineau, QC)
  • Minister of Emergency Management and Community Resilience and Minister responsible for Prairies Economic Development Canada: Eleanor Olszewski (Edmonton Centre, AB)
  • Minister of Housing and Infrastructure and Minister responsible for Pacific Economic Development Canada: Gregor Robertson (Vancouver Fraserview–South Burnaby, BC)
  • Minister of International Trade: Maninder Sidhu (Brampton East)
  • The new session of Parliament will open on May 26th.
  • King Charles will deliver a Speech from the Throne on May 27th

Evolution of Cooperative Federalism and Decentralized Governance

Focus: High-level policy advocacy and institutional efforts focused on enhancing Center-State coordination and decentralizing administrative and economic functions.

UPSC Value: This thread is significant for GS Paper II (Federalism and Governance) as it demonstrates the multi-sectoral push (security, agriculture, and general administration) toward a more collaborative federal structure.

3 news items in this theme:

• 2025-10-31 [Economy] — India Needs More Decentralisation and Tech in Agriculture
  The Chair of the Economic Advisory Council to the Prime Minister (EAC-PM) stated that India needs more decentralisation and greater use of technology in agriculture. This suggests a policy focus on improving agricultural practices through technology and decentralised systems.
  More details

  UPSC Angle: India needs more decentralisation and tech in agriculture (EAC-PM).

  Key Facts:

  • EAC-PM
  • decentralisation
  • technology
  • agriculture
• 2025-07-27 [Defense & Security] — India's Rising Global Stature Increases National Security Challenges: Amit Shah
  Union Home Minister Amit Shah stated that India's increasing prominence on the world stage will lead to greater national security challenges. He emphasized the need for better coordination and the formation of "homogenous teams of Central and State agencies" to address these challenges.
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  UPSC Angle: India's rising global stature increases national security challenges.

  Key Facts:

  • India's rising stature
  • Increased security challenges
  • India's rising stature will lead to increasing national security challenges
  • Need for better coordination between Central and State agencies
  • Formation of homogenous teams of Central and State agencies should be formed
  • Event: 8th National Security Strategies (NSS) Conference-2025
  • Organized by: Intelligence Bureau (IB)
• 2025-07-11 [Polity & Governance] — Zonal Councils as Engines of Cooperation
  Union Home Minister Amit Shah has stated that zonal councils have transformed into engines of cooperation. Zonal councils likely facilitate better coordination and development among states.
  More details

  UPSC Angle: Zonal councils are engines of cooperation, says Amit Shah.

  Key Facts:

  • Amit Shah
  • Zonal councils

LPG Pricing Dynamics and OMC Fiscal Management

Focus: Fluctuations in LPG pricing and government fiscal measures to compensate Oil Marketing Companies for losses incurred on domestic gas sales.

UPSC Value: Understanding the mechanism of fuel subsidies, price regulation, and the fiscal impact of under-recoveries on public sector undertakings is essential for the Indian Economy and Governance syllabus.

3 news items in this theme:

• 2025-09-01 [Economy] — Commercial LPG prices slashed
  Commercial LPG prices have been slashed by ₹51.50 from September 1; however, there is no change in domestic cylinder rates.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • Commercial LPG prices: Slashed by ₹51.50
  • No change in domestic cylinder rates
• 2025-08-08 [Economy] — Cabinet Approves Compensation for Oil Marketing Companies
  The Union Cabinet approved a compensation of ₹30,000 crore to the three public sector Oil Marketing Companies (OMCs) for losses incurred on the sale of domestic LPG. The compensation will be paid in 12 tranches.
  More details

  UPSC Angle: Cabinet approves ₹30,000 crore compensation to OMCs for LPG losses.

  Key Facts:

  • Compensation of ₹30,000 crore approved for public sector Oil Marketing Companies.
  • Compensation is for losses on the sale of domestic LPG.
  • The compensation will be paid in 12 tranches.
  • The Union Cabinet approved a compensation of ₹30,000 crore.
  • To the three public sector Oil Marketing Companies.
  • For losses incurred on the sale of domestic LPG.
• 2025-04-07 [Economy] — Cooking gas prices increase
  Cooking gas prices have become more expensive by Rs 50 per cylinder.
  More details

  UPSC Angle: Not exam-relevant

  Key Facts:

  • Cooking gas
  • Rs 50 per cylinder

Institutional and Geopolitical Evolution of the BRICS Bloc

Focus: The items illustrate the expansion of BRICS cooperation from its foundational financial institutions (NDB) to collective security stances and future monetary policy objectives.

UPSC Value: Understanding the multi-dimensional growth of BRICS is essential for analyzing the shift toward a multipolar world order in International Relations.

3 news items in this theme:

• 2025-06-21 [International Relations] — Brazil's Ambassador on BRICS Currency
  Brazil's Ambassador to India, Kenneth Felix Haczynski da Nobrega, stated that a BRICS currency is a complex, long-term aspirational objective, emphasizing that BRICS countries already trade in local currencies and that this shouldn't be linked to de-dollarization. He highlighted that BRICS's priorities under Brazil's chairpersonship include reforming multilateral institutions to give emerging economies like Brazil and India a greater voice, as well as boosting partnerships in the health sector.
  More details

  UPSC Angle: Brazil's Ambassador on BRICS currency: a long-term objective.

  Key Facts:

  • BRICS currency is an 'aspirational objective' and not a short-term prospect.
  • BRICS countries already trade in local currencies.
  • Brazil's priorities for BRICS include reform of multilateral institutions and boosting health sector partnerships.
  • Kenneth Felix Haczynski da Nobrega is Brazil's Ambassador to India.
• 2025-06-08 [Economy] — World Bank: 27 Crore Indians escape extreme poverty
  A World Bank report highlighted the upliftment of 27 crore people from poverty in 11 years. BRICS nations backed India's zero-tolerance stance on terrorism after the Pahalgam attack.
  More details

  UPSC Angle: World Bank: 27 crore Indians escape extreme poverty.

  Key Facts:

  • A World Bank report highlighted the upliftment of 27 crore people from poverty in 11 years.
• 2025-05-23 [International Relations] — New Development Bank (NDB)
  The New Development Bank (NDB) was founded by BRICS nations in 2014 and became operational in 2015. Its objectives include mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging economies. Initially limited to BRICS, its membership now includes Bangladesh, Egypt, UAE, Uruguay, and Algeria and its headquarters is located in Shanghai, China.
  More details

  UPSC Angle: New Development Bank (NDB) founded by BRICS nations in 2014.

  Key Facts:

  • Founded by BRICS nations
  • Established: 2014
  • Operational: 2015
  • Initial authorized capital: USD 100 billion
  • Initial subscribed capital: USD 50 billion
  • Headquarters: Shanghai, China
  • Members: Bangladesh, Egypt, UAE, Uruguay, and Algeria