Current Affairs for 02 January 2026

India’s Tobacco Taxation Reforms: Aligning Public Health with Fiscal Strategy Prelims: (Economy + CA)

Why in News ?

India has notified a new taxation regime for tobacco and related sin goods, effective 1 February, following legislative changes approved by Parliament. The reform restructures GST slabs, excise duties, and cess mechanisms for tobacco products, marking a significant shift in India’s approach to public health-oriented taxation.

Background & Context

Sin goods such as tobacco, pan masala, and alcohol are taxed heavily in India due to their adverse public health and social impacts. Tobacco taxation serves a dual policy objective:

• Discouraging consumption through higher prices
• Generating revenue for public expenditure, especially in health and social security

Despite being placed in the highest GST slabs since 2017, tobacco products—particularly cigarettes—remained relatively affordable over the past decade due to stagnation in effective excise duties. This weakened tobacco control efforts even as incomes rose.

Globally, institutions such as the World Health Organization (WHO) recommend that tobacco prices should rise faster than income growth to reduce affordability and consumption. India’s latest reforms seek to address this gap.

Structure of Tobacco Taxation in India

India follows a multi-layered taxation framework for tobacco products, involving:

• Goods and Services Tax (GST)
• Central Excise Duty
• Cess (earlier GST Compensation Cess, now replaced for tobacco)

Under GST, tobacco products have consistently been treated as demerit goods, attracting the highest tax incidence. However, complexity in valuation and cess structures led to uneven enforcement and revenue leakage.

Key Features of India’s Tobacco Taxation Reforms

1. End of GST Compensation Cess

The GST Compensation Cess on tobacco products will cease from 1 February, as its original purpose—compensating States for GST-related revenue losses—has largely been fulfilled.

Key Points:

• The cess was introduced in 2017
• Its duration was extended due to pandemic-related fiscal stress
• Tobacco remained one of the last products under the cess

Significance: Marks the closure of a temporary, transition-phase tax instrument under GST.

2. Introduction of New Excise and Cess Framework

To replace the compensation cess, the government has introduced:

• Revised central excise duties on tobacco products
• A new cess under the Health Security-cum-National Security Act, 2025, applicable to pan masala and related manufacturing units

Purpose of the New Cess

• Create a non-lapsable and predictable revenue stream
• Support long-term security preparedness and capacity building
• Avoid increasing the tax burden on the general population

Significance: Reflects a shift from compensation-based cess to purpose-specific fiscal instruments.

3. Revised GST Slabs for Tobacco Products

The reform introduces major rationalisation in GST rates:

• Beedis shifted to the 18% GST slab from the earlier 28% category
• All other tobacco products, including cigarettes and chewing tobacco, moved to a 40% GST slab

Objectives

• Simplify the tax structure
• Ensure higher effective taxation on products with greater health risks

4. New Valuation Mechanism for Smokeless Tobacco

For smokeless tobacco products such as:

• Gutkha
• Khaini
• Jarda
• Chewing tobacco

GST valuation will now be based on the Retail Sale Price (RSP) declared on packaging.

Significance

• Curbs under-reporting and tax evasion
• Improves compliance in a sector prone to informal production
• Strengthens enforcement and revenue predictability

Public Health Rationale

• Higher tobacco prices reduce affordability and consumption
• Aligns India’s policy with WHO Framework Convention on Tobacco Control (FCTC)
• Addresses the stagnation in real tobacco prices despite income growth
• Supports long-term reduction in tobacco-related morbidity and mortality

Revenue and Fiscal Considerations

• Tobacco remains a major contributor to indirect tax revenues
• Replacement of a temporary cess with a dedicated, non-lapsable cess ensures:
  • Fiscal stability
  • Predictable funding streams
  • Alignment of taxation with sector-specific policy goals

Analysis: Why These Reforms Matter

• Bridges the gap between nominal tax rates and real affordability
• Strengthens tobacco control without raising broad-based taxes
• Simplifies tax administration and valuation mechanisms
• Balances public health objectives with fiscal sustainability
• Signals a maturing GST regime moving beyond transition-era instruments

Way Forward

• Periodic revision of tobacco taxes to outpace income growth
• Stronger enforcement against illicit trade
• Earmarking revenues for health and preventive care
• Greater coordination between Centre and States on sin taxation
• Public awareness campaigns to complement price-based deterrence

National Technology Readiness Assessment Framework

Context:

The National Technology Readiness Assessment Framework (NTRAF) was unveiled on December 29, 2025, to standardize innovation assessment in India.

Objective of the National Technology Readiness Assessment Framework

• Developed in collaboration with the Confederation of Indian Industry (CII), this framework establishes unified and objective standards for measuring the maturity of technology projects from laboratory concept to commercial deployment. The framework is open for public consultation until January 31, 2026.
• The framework aims to serve as an operational basis for various R&D funds launched under national missions.
• Its stringent standards ensure that any startup claiming to be “ready for deployment” is truly capable of achieving industrial-scale validation.

Methodology of the National Technology Readiness Assessment Framework

• By providing a consistent methodology for evaluating projects across nine technology readiness levels (TRLs), this framework will enable funding agencies to allocate resources more accurately and de-risk early-stage technologies for private investment.
• This includes stages ranging from proof of concept (TRL 1-3) to prototype development (TRL 4-6) and operational deployment (TRL 7-9).
• The structural rigor it introduces in evaluating high-risk, high-return projects will help refine the tool and evolve it to suit India's dynamic innovation landscape.

The Need for a National Technology Readiness Assessment Framework

• For too long, the Indian deeptech ecosystem has faced an unprecedented situation where academia and industry use different language regarding technology readiness.
• This inconsistency often leads to a 'wide gap' between TRL 4 and TRL 7, where funding is blocked due to perceived risks. The NTRAF leads to objective evidence and ensures that not only scientific experiments, but also achievable, market-ready solutions, are funded.
• It serves as a 'definitive guide' for the scientific community. The goal of establishing a common language for technology maturity is to bridge the often-subjective gap between a researcher's readiness claim and an investor's or evaluator's need for proof.
• The NTRAF It addresses ambiguity in technology transfer by establishing a unified metric that coordinates research laboratories, industry, and government on a valid and maintainable definition of readiness.

Key Features of the Framework

• Global Best Practices, Indian Context: Adapted from global standards (e.g., NASA) but tailored to the specific needs of the Indian R&D ecosystem.
• Objectivity over Subjectivity: Provides structured, evidence-based checklists for each stage of development, rather than qualitative estimates.
• Sector-Specific Complexities: Includes specialized appendices for specific sectors, such as healthcare and pharmaceuticals, and software, recognizing that different sectors have different development paths.
• Self-Assessment Tool: The project enables innovators to realistically assess their situation and identify technology gaps before seeking funding.

The Way Forward

Technology readiness should run parallel to market validation, especially beyond TRL 4. Also, a pilot phase can be adopted before implementing it on the ground.

India's Risk-Free RCEP Strategy

Context

• India's decision to stay out of the Regional Comprehensive Economic Partnership (RCEP) in 2019 appeared risky to many experts at the time. However, six years later, India has effectively reaped most of the economic benefits associated with RCEP without formally becoming a member.
• The recently concluded India-New Zealand Free Trade Agreement (FTA) is the most concrete confirmation of this strategy. With this, India now has free trade agreements in place with all RCEP member countries except China.
• This development indicates that India has adopted a balanced and well-thought-out trade policy, balancing market access, strategic autonomy, and economic security.

About RCEP

• RCEP is the world's largest trading alliance, comprising the 10 ASEAN countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, along with Australia, China, Japan, South Korea, and New Zealand.
• The group encompasses approximately 30% of global GDP and population. Its objective is to reduce tariffs, integrate supply chains, and facilitate trade.

Reasons for India's decision to stay away from RCEP

• India's decision to stay out of RCEP was primarily driven by structural and strategic concerns. The biggest concern was that a significant tariff reduction could flood Indian markets with Chinese goods.
• China's highly competitive manufacturing capabilities and the already widening trade deficit, especially with China and ASEAN countries, could pose a serious risk to India.
• Furthermore, adequate safeguards were not in place for sensitive sectors such as agriculture, small and medium enterprises, and domestic manufacturing. The timeline for tariff liberalization also lacked the flexibility India needed.

'RCEP Minus China': An Alternative Path

• By staying out of RCEP, India has chosen a different but pragmatic path. It has bilateral free trade agreements with 14 of the 15 RCEP countries, but not with China.
• Essentially, this strategy aims to preserve tariff and policy sovereignty while maintaining market access. Experts view this as smart risk management. It is neither as risky as joining RCEP nor as sensitive as signing a full-fledged FTA directly with China.

India-China Trade: Limited and Controlled

• India and China are members of the Asia Pacific Trade Agreement (APTA), a limited preferential trade agreement that provides partial tariff concessions on selected goods.
• Its advantage is that dependence on Chinese imports can be controlled while avoiding comprehensive tariff elimination.

Reasons why RCEP is more risky for India

• RCEP's multilateral and integrated structure would have weakened country-specific safeguards.
• Limited control over rules of origin would have allowed indirect entry of Chinese goods through ASEAN or other member countries.
• Furthermore, there was no effective mechanism for phased liberalization that would accommodate India's sensitivities.

RCEP India's FTAs ​​with Countries: A Gradual Journey

Before 2014

• India signed agreements such as the ASEAN-India Trade in Goods Agreement (2010), the India-South Korea CEPA (2010), and the India-Japan CEPA (2011). However, India's trade deficit with ASEAN increased sharply after the AITIGAA, leading to a reconsideration process, but progress has been limited.

After 2014

• After 2014, India adopted a more cautious and balanced approach. The India-Australia Economic Cooperation and Trade Agreement (ECTA) was signed in 2022, and negotiations are now underway to extend it. The India-New Zealand FTA, scheduled to conclude in December 2025, is the latest in this series.

India-New Zealand FTA

• Under this agreement, Indian exports will gain zero-duty market access to New Zealand.
• Additionally, an investment commitment of approximately $20 billion will strengthen India's industrial and infrastructure capabilities.
• This agreement strengthens India's strategic presence in the Pacific and Indo-Pacific regions and complements the bilateral coverage of RCEP (excluding China).

Challenges and Way Forward

• While this strategy has been successful, challenges remain. The trade deficit with ASEAN countries remains a concern, and the pace of rebalancing old FTAs ​​is slow.
• Increasing productivity is essential to make small and medium-sized enterprises and the manufacturing sector competitive at the domestic level, giving real impetus to 'Make in India' and 'Atmanirbhar Bharat'.
• Amid geopolitical pressures, India must embrace strategic multilateralism—where selective participation is ensured but autonomy is not compromised. In a time of restructuring of global supply chains, FTAs ​​can be used to diversify away from China-centric structures.

Conclusion

• India's trade policy after leaving RCEP reflects a mature, realistic, and interest-based approach. The 'RCEP minus China' strategy provided India with market access while maintaining tariff and policy controls.
• The India-New Zealand FTA completes this strategic journey and establishes India as a selective and confident participant in global trade, not a passive follower. In the long term, this approach is fully aligned with India's goals of economic resilience, strategic autonomy, and sustainable integration into global value chains.

Consumer Protection Act, 2019: Strengthening Consumer Rights in the Digital Age

Why in News ?

The Consumer Protection Act, 2019 came into force on 20 July 2020, replacing the Consumer Protection Act, 1986. The new law aims to empower consumers, strengthen grievance redressal mechanisms, and address emerging challenges such as e-commerce, misleading advertisements, and product liability, making consumer justice faster and more effective.

Background & Context

The Consumer Protection Act, 1986 was enacted at a time when consumer markets were relatively simple and dominated by physical transactions. Over the decades, the rapid expansion of:

• Digital marketplaces
• E-commerce platforms
• Complex supply chains
• Aggressive advertising practices

exposed significant limitations in the older law. The 1986 Act relied on single-point access to justice, resulting in prolonged litigation and delays.

To address these gaps, the Consumer Protection Act, 2019 was enacted to provide a consumer-centric, technology-enabled, and time-bound dispute resolution framework, aligned with the realities of a modern digital economy.

Key Features of the Consumer Protection Act, 2019

1. Central Consumer Protection Authority (CCPA)

The Act establishes the Central Consumer Protection Authority (CCPA) to promote, protect, and enforce consumer rights.

Powers and Functions of CCPA

• Conduct investigations into violations of consumer rights
• Institute complaints and initiate prosecution
• Order recall of unsafe goods and services
• Direct discontinuation of unfair trade practices
• Impose penalties on manufacturers, endorsers, and publishers for misleading advertisements

Significance: CCPA acts as a proactive regulatory body, shifting consumer protection from a purely grievance-driven system to preventive enforcement.

2. Product Liability Provisions

For the first time, the Act introduces product liability, making manufacturers, sellers, and service providers accountable for defective goods and deficient services.

Basis for Product Liability Action

• Manufacturing defects
• Design defects
• Deviation from manufacturing specifications
• Non-conformity with express warranty
• Inadequate instructions or warnings
• Faulty, imperfect, or deficient services

Significance: This ensures consumer safety, strengthens corporate accountability, and discourages negligent business practices.

3. E-commerce Rules and Unfair Trade Practices

The Consumer Protection (E-commerce) Rules, 2020 were notified under the Act to regulate digital marketplaces.

Key Provisions

• Mandatory disclosure of information on:
  • Return, refund, exchange, warranty, and guarantee
  • Delivery and shipment details
  • Modes and security of payment
  • Grievance redressal mechanism
  • Country of origin of goods
• E-commerce platforms must:
  • Acknowledge consumer complaints within 48 hours
  • Redress complaints within one month
  • Appoint a Grievance Officer
• Sellers cannot refuse refunds or returns for:
  • Defective or deficient goods/services
  • Late delivery
  • Misrepresentation or mismatch with description
• Prohibition on price manipulation to gain unjustified profits

Significance: The rules ensure fair competition, transparency, and consumer trust in online markets.

4. Punishment for Adulterated and Spurious Goods

The Act introduces stringent penalties to deter harmful trade practices.

Key Provisions

• First conviction:
  • Suspension of licence up to two years
• Second or subsequent conviction:
  • Permanent cancellation of licence

Significance: Protects consumers from health and safety hazards and strengthens deterrence against unethical manufacturing.

5. Alternate Dispute Resolution: Mediation

The Act introduces mediation as an alternative dispute resolution mechanism.

Key Features

• Consumer Commissions may refer cases to mediation if:
  • Scope for early settlement exists
  • Both parties consent
• Mediation conducted through Mediation Cells under Consumer Commissions
• No appeal against settlement arrived through mediation

Significance: Promotes speedy, cost-effective, and amicable dispute resolution.

6. Simplification of Consumer Dispute Adjudication

The Act modernises and simplifies adjudication procedures.

Major Reforms

• State and District Commissions empowered to review their own orders
• Consumers can file complaints:
  • Electronically
  • In commissions having jurisdiction over their place of residence
• Provision for video conferencing hearings
• Complaints deemed admissible if not decided within 21 days

Significance: Enhances access to justice and reduces procedural delays.

7. Other Rules and Institutional Framework

• No fee for filing cases up to ₹5 lakh
• Amounts due to unidentifiable consumers credited to the Consumer Welfare Fund (CWF)
• State Commissions to submit quarterly data on:
  • Vacancies
  • Pendency
  • Case disposal

8. Central Consumer Protection Council (CCPC)

The Act provides for the constitution of the Central Consumer Protection Council.

Key Features

• Advisory body on consumer issues
• Headed by the Union Minister of Consumer Affairs
• Minister of State as Vice-Chairperson
• 34 members from diverse fields
• Representation from all regions of India
• Tenure of three years

Significance: Facilitates cooperative federalism and participatory policymaking in consumer protection.

Analysis: Why the Act Matters

• Shifts consumer protection from reactive redressal to proactive regulation
• Addresses challenges of digital commerce and misleading advertisements
• Enhances corporate accountability through product liability
• Strengthens transparency, trust, and consumer confidence
• Aligns India’s consumer law with global best practices

Way Forward

• Strengthen enforcement capacity of CCPA
• Increase consumer awareness, especially in rural and digital markets
• Ensure timely appointment of members in Consumer Commissions
• Regular review of e-commerce rules to address evolving digital practices
• Promote mediation to reduce litigation burden

Aravalli Hills and Environmental Protection: Defining India’s Oldest Mountain Shield

Why in News ?

In December 2025, the Supreme Court of India kept its earlier November 2025 judgment on the definition of the Aravalli Hills in abeyance, citing serious environmental and regulatory concerns. The Court proposed a re-examination of the issue through a high-powered expert committee and imposed restrictions on mining and irreversible administrative actions in the Aravalli region until further review.

Background & Context

The Aravalli Hills are among the oldest surviving fold mountain systems in the world, with geological origins dating back nearly 1.5 billion years. Stretching over 690 km from Gujarat through Rajasthan and Haryana to Delhi, the range forms a critical ecological barrier in north-western India.

Over decades, the Aravallis have faced severe degradation due to:

• Extensive legal and illegal mining
• Rapid urbanisation
• Infrastructure expansion
• Weak enforcement of environmental regulations

Unlike many ecologically sensitive regions, protection of the Aravallis has evolved primarily through judicial intervention, rather than a single comprehensive legislation. Persistent ambiguity over the legal and scientific definition of the Aravalli range has remained the core challenge undermining conservation efforts.

About the Aravalli Mountain Range

Geographical and Ecological Significance

The Aravalli range plays a crucial environmental role by:

• Preventing eastward expansion of the Thar Desert
• Regulating regional climate and rainfall patterns
• Recharging groundwater aquifers
• Acting as a green buffer against air pollution, especially for Delhi-NCR
• Supporting tropical dry deciduous forests
• Sustaining diverse flora, fauna, and rural livelihoods

Despite their low elevation compared to the Himalayas, the Aravallis function as a keystone ecological system for north-west India.

Legal Background to the Aravalli Definition Issue

Environmental protection of the Aravallis has largely relied on:

• Environment (Protection) Act, 1986
• Forest conservation principles
• Multiple Supreme Court rulings restricting mining activities

However, the absence of a scientifically precise and uniform definition of what constitutes the Aravalli Hills has led to regulatory disputes and inconsistent enforcement across states.

November 2025 Supreme Court Judgment

In November 2025, the Supreme Court upheld a government-appointed expert panel’s definition, which restricted the Aravallis to:

• Hills with an elevation of 100 metres or more
• Hill clusters, slopes, and hillocks located within 500 metres of each other

This significantly narrowed the geographical scope of the protected Aravalli region.

Latest Supreme Court Developments (December 2025)

In response to widespread environmental concerns, the Supreme Court placed its own earlier judgment in abeyance.

Key Directions Issued by the Court

• No irreversible administrative or ecological actions to be taken based on the restrictive definition
• Fresh or renewed mining leases prohibited without prior approval of the apex court
• Recognition of public concern that the 100-metre elevation rule could exclude ecologically significant hills in:
  • Rajasthan
  • Haryana
  • Uttar Pradesh
  • Delhi

Judicial Observations

• Excluding lower hill ranges could create a “significant regulatory lacuna”
• Such gaps may enable unregulated mining and environmental degradation
• Technical thresholds should not defeat substantive environmental protection

Proposed High-Powered Expert Committee

The Supreme Court proposed constituting an expert committee to:

• Reassess whether regulated or sustainable mining in newly excluded areas still poses ecological risks
• Evaluate short-term and long-term environmental impacts of the restrictive definition
• Examine whether the 500-metre clustering rule creates paradoxes where ecologically continuous hills remain unprotected
• Recommend a holistic, ecosystem-based definition of the Aravalli range

The Court emphasised that any final definition must be grounded in exhaustive scientific, geological, and ecological assessment.

Environmental and Policy Implications

• Over-reliance on technical definitions can undermine ecological objectives
• Mining regulation must balance:
  • Economic activity
  • Environmental sustainability
  • Inter-generational equity
• Judicial oversight remains crucial in the absence of comprehensive legislative clarity
• Highlights limitations of fragmented environmental governance

Analysis: Why the Aravalli Debate Matters

• The case reflects the tension between developmental pressures and ecological preservation
• Demonstrates the judiciary’s role as an environmental sentinel
• Underscores the need for ecosystem-based policy approaches, rather than narrow physical thresholds
• Has direct implications for:
  • Air quality in Delhi-NCR
  • Desertification control
  • Groundwater security
  • Climate resilience

Way Forward

• Formulate a statutory, scientifically grounded definition of the Aravalli range
• Adopt landscape-level conservation planning
• Strengthen Centre–State coordination on mining regulation
• Integrate Aravalli protection into climate adaptation and urban planning frameworks
• Ensure continuous judicial and institutional monitoring

Transforming India with Artificial Intelligence (AI)

Why in News ?

The Government of India has highlighted the scale and impact of the IndiaAI Mission, backed by an investment of over ₹10,300 crore and deployment of 38,000 Graphics Processing Units (GPUs), positioning Artificial Intelligence (AI) as a key driver of inclusive growth, innovation, and digital governance.

Background & Context

Artificial Intelligence is emerging as a foundational technology reshaping economies, governance systems, and societies worldwide. For India, AI represents not only a tool for economic expansion but also a means to address long-standing development challenges in healthcare, agriculture, education, urban governance, and climate resilience.

India’s AI strategy emphasises:

• Democratisation of computing power
• Indigenous model development
• Inclusive and responsible AI adoption
• Alignment with Digital Public Infrastructure (DPI)

This approach aligns with India’s long-term vision of Viksit Bharat @2047.

What is Artificial Intelligence ?

Artificial Intelligence refers to the ability of machines to perform tasks that typically require human intelligence, such as:

• Learning from data
• Pattern recognition
• Decision-making
• Language understanding and generation

AI systems rely on:

• Large datasets
• Algorithms and machine learning models
• High-performance computing infrastructure

Over time, AI systems improve autonomously, enabling applications such as chatbots, image recognition, predictive analytics, and large language models (LLMs).

India’s AI Ecosystem: Present Status

Key Indicators

• India’s tech sector revenue projected to exceed USD 280 billion
• Over 6 million professionals employed in tech and AI
• 1,800+ Global Capability Centres, with 500+ focused on AI
• Around 1.8 lakh startups, with nearly 89% using AI
• 87% of enterprises actively deploying AI solutions
• Around 26% of firms have achieved AI maturity at scale

Leading AI-Adopting Sectors

• Industrial & automotive
• BFSI
• Healthcare
• Retail and consumer goods

India’s Global Standing in AI

According to Stanford University’s 2025 Global AI Vibrancy Tool:

• India ranks 3rd globally in AI competitiveness
• Strong performance in:
  • Talent pool
  • Research output
  • Startup ecosystem
  • Policy and governance

India is also:

• Second-largest contributor to AI projects on GitHub
• Among the top four countries in AI skills and capabilities

IndiaAI Mission

Vision: “Making AI in India and Making AI Work for India”

Overview

• Approved in March 2024
• Budget outlay: ₹10,371.92 crore over five years
• Implemented by IndiaAI, under MeitY

Infrastructure Expansion

• Initial target: 10,000 GPUs
• Achieved: 38,000 GPUs
• Subsidised access at ₹65 per hour

Seven Pillars of the IndiaAI Mission

1. IndiaAI Compute

• Affordable access to high-end GPUs
• Enables startups, academia, and MSMEs to train AI models

2. IndiaAI Application Development

• Focus on India-specific challenges:
  • Healthcare
  • Agriculture
  • Climate change
  • Governance
  • Education
• Over 30 AI applications approved
• Sector-specific hackathons to drive innovation

3. AIKosh (National Dataset Platform)

• Repository of high-quality datasets
• Over 5,500 datasets and 251 AI models
• Supports 20+ sectors
• Enables faster AI development

4. IndiaAI Foundation Models

• Development of sovereign large multimodal models
• Trained on Indian languages and datasets
• Ensures strategic autonomy in generative AI
• Multiple startups and academic consortia selected

5. IndiaAI Future Skills

• Capacity building and skilling:
  • 500 PhD fellows
  • 5,000 postgraduates
  • 8,000 undergraduates
• AI and Data Labs in Tier 2 and Tier 3 cities
• ITIs and polytechnics integrated

6. IndiaAI Startup Financing

• Financial and global expansion support
• IndiaAI Startups Global programme
• Market access to Europe and other regions

7. Safe and Trusted AI

• Focus on ethical and responsible AI
• Key areas:
  • Bias mitigation
  • Explainability
  • Privacy-preserving ML
  • AI auditing and governance

AI in Governance and Everyday Life

Healthcare

• Early disease detection
• AI-assisted diagnostics
• Telemedicine in remote regions

Agriculture

• Weather prediction
• Pest surveillance
• Crop advisory systems

Education

• Personalised learning
• AI modules under NEP 2020
• Multilingual digital education platforms

Justice and Governance

• AI-enabled translation of judgments
• Intelligent case management
• Enhanced access to justice

Climate and Disaster Management

• AI-based cyclone and rainfall forecasting
• Fire and lightning prediction
• Climate advisory tools

AI for Inclusive Societal Development

As per NITI Aayog’s 2025 report, AI can empower:

• 490 million informal workers
• Improve access to:
  • Healthcare
  • Skilling
  • Financial services

Digital ShramSetu Mission (Proposed)

• Voice-first AI interfaces
• Smart contracts for payments
• Micro-credentials and on-demand skilling

Challenges and Risks

• Digital divide and access inequality
• Data privacy and surveillance concerns
• Algorithmic bias
• Job displacement fears
• Cybersecurity risks

Way Forward

• Strengthening AI governance frameworks
• Expanding public AI infrastructure
• Ethical AI standards and audits
• Continuous skilling and reskilling
• Global collaboration with strategic autonomy

2025 Economic Reforms: Building a Future-Ready India

Why in News ?

In 2025, the Government of India undertook a wide-ranging set of economic reforms aimed at simplifying governance, reducing compliance burden, and strengthening inclusive growth. These reforms span income tax restructuring, labour codes, GST 2.0, rural employment guarantees, MSME support, export promotion, and ease of doing business measures—marking a decisive shift towards outcome-driven and citizen-centric economic governance.

Background & Context

India’s economic reforms in 2025 represent a transition from regulatory expansion to delivery-focused governance. Building on structural reforms of the past decade—such as GST, Insolvency and Bankruptcy Code (IBC), and Digital Public Infrastructure—the focus in 2025 moved towards:

• Simplifying legal and tax frameworks
• Reducing friction in everyday economic activity
• Enhancing predictability and trust in policy
• Strengthening employment, exports, and MSMEs

The reform agenda aligns with the long-term national vision of Viksit Bharat @2047, emphasizing productivity-led growth, inclusivity, and resilience.

Key Economic Reforms in 2025

1. Income Tax Reforms

Major Highlights

• Tax exemption up to ₹12 lakh under the new tax regime
• Effective exemption of ₹12.75 lakh for salaried taxpayers due to standard deduction
• Increased disposable income for the middle class, boosting consumption and savings

New Income Tax Act, 2025

Replacing the Income-tax Act, 1961, the new law is guided by three principles:

• Simplification of language and structure
• No major change in tax rates or policy
• Continuity and certainty for taxpayers

Key Structural Reforms

• Introduction of a single “Tax Year”, replacing Assessment Year and Previous Year
• Consolidation of compliance provisions (e.g., TDS under a single section)
• Strengthened faceless assessment and digital-first enforcement
• Improved dispute resolution mechanisms

Significance: The Act reduces litigation, enhances clarity, and modernizes India’s direct tax architecture for a digital economy.

2. Labour Reforms: Four Labour Codes

The Government consolidated 29 labour laws into four Labour Codes, covering over 50 crore workers:

1. Code on Wages (2019)
   1. Uniform definition of wages
   2. Statutory minimum wages across sectors
2. Industrial Relations Code (2020)
   1. Simplifies trade union regulations
   2. Streamlines dispute resolution
3. Code on Social Security (2020)
   1. Extends social security to gig, platform, and unorganised workers
   2. Covers health, maternity, life, and provident fund benefits
4. Occupational Safety, Health & Working Conditions Code (2020)
   1. Improves workplace safety
   2. Reduces multiplicity of inspections

Impact

• Nearly 10 million gig and platform workers covered annually
• Enhanced maternity benefits and safety provisions for women
• Shift from rule-based to outcome-based labour governance

3. Rural Employment Reforms

Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025

Replacing MGNREGA, the new framework integrates employment with rural development.

Key Features

• 125 days of guaranteed wage employment per rural household
• Weekly wage payments (maximum 15-day delay)
• Focus on durable asset creation:
  • Water security
  • Rural infrastructure
  • Climate-resilient projects
  • Livelihood enhancement
• Decentralised planning via Viksit Gram Panchayat Plans (VGPPs)
• Digital integration with PM Gati Shakti
• Administrative expenditure cap raised from 6% to 9%

Significance: Enhances livelihood security while strengthening rural infrastructure and agricultural productivity.

4. Ease of Doing Business Reforms

Quality Control Orders (QCOs)

To protect MSMEs from compliance shocks:

• Extended compliance timelines:
  • Micro enterprises: 6 months
  • Small enterprises: 3 months
• Exemptions for:
  • Export-oriented units
  • R&D imports (up to 200 units)
  • Legacy stock clearance

BIS Support for MSMEs

• Reduced marking fees
• Optional in-house labs
• Shared access to accredited labs
• Transparent product certification guidelines

5. MSME Reforms

Revised MSME Definition (Budget 2025–26)

Credit Support

• Credit guarantee doubled from ₹5 crore to ₹10 crore
• MCGS-MSME coverage up to ₹100 crore
• Collateral-free loans up to ₹10 lakh
• Improved access to working capital

6. GST 2.0 (Next-Generation GST Reforms)

Key Changes

• Two-slab structure: 5% and 18%
• Reduced classification disputes
• Faster refunds and simplified returns

Impact

• GST taxpayer base expanded to 1.5 crore
• Gross collections reached ₹22.08 lakh crore (FY 2024–25)
• Lower cost of living due to rate cuts on essentials

Significance: Strengthens GST as a citizen-centric, growth-oriented tax system.

7. Export Promotion Mission (EPM)

Outlay: ₹25,060 crore (2025–26 to 2030–31)

Objectives

• Affordable trade finance (Niryat Protsahan)
• Compliance, branding, logistics & market access (Niryat Disha)
• Focus on MSMEs, first-time exporters, and non-traditional districts

Expected Outcomes

• Export diversification
• Employment generation
• Enhanced global competitiveness

Other Trade & Business Reforms

• Digital integration via:
  • National Single Window
  • ICEGATE
  • Trade Connect
  • e-Commerce Export Hubs
• District Business Reform Action Plan (D-BRAP 2025)
• ₹58,000 crore disbursed under RoDTEP (till March 2025)
• Enhanced MSME participation in GeM procurement

Analysis: Why These Reforms Matter

• Shift from input-based regulation to outcome-based governance
• Reduced compliance costs and legal uncertainty
• Strong focus on jobs, MSMEs, exports, and rural livelihoods
• Reinforces cooperative federalism (GST, labour, rural employment)
• Strengthens trust in institutions and policy stability

Way Forward

• Timely implementation of Labour Codes across States
• Strengthening grievance redressal under GST 2.0
• Capacity-building at Panchayat and MSME levels
• Continuous monitoring to ensure inclusion and last-mile delivery