Political Funding Reforms

For Prelims: Election Commission of India (ECI), Electoral Trusts, Representation of the People Act (RPA), 1951, Foreign Exchange Management Act, 1999 (FEMA), FDI Policy, FCRA, 2010, Supreme Court, Indrajit Gupta Committee (1998), Comptroller and Auditor General (CAG), Shell Companies.

For Mains: Key highlights of the ADR report on political funding, Statutory provisions regarding political donations in India, Need of financial transparency in elections for democratic accountability, Reforms needed for ensuring transparent political funding in India. 

Source: Mint 

Why in News? 

A report by the Association for Democratic Reforms (ADR) focuses on donations of Rs 20,000 or more declared to the Election Commission of India (ECI) by national political parties for FY 2024-25, highlighting efforts toward democratic accountability.   

• It revealed that the Bharatiya Janata Party (BJP) received Rs 6,074 crore in donations during FY 2024-25, marking a 171% increase from the previous year. 

Summary 

• The 2024-25 ADR report highlights a 161% surge in national party donations, with corporate contributions accounting for over 92% of the total.  
• The report emphasizes the dominance of Electoral Trusts and the BJP’s 91% share of aggregate funding.  
• This data underscores the urgent need for transparency reforms and stricter ECI oversight to ensure democratic accountability.

What are the Key Highlights of the ADR Report on Political Funding? 

• Massive Funding Surge: Total donations (above Rs 20,000) to National parties rose by 161% to Rs 6,648 crore, with the BJP accounting for over 91% of the total aggregate.

• Dominance of Corporate Funding: Business sectors contributed 92.18% of total donations, while individual contributors accounted for only 7.61%. 
• Role of Electoral Trusts: The Prudent Electoral Trust remains the largest donor, contributing Rs 2,413 crore collectively to the BJP, Indian National Congress (INC), and Aam Aadmi Party (AAP), with a major share directed toward the BJP. 
• Geographic Concentration: The highest volume of donations originated from Delhi, followed by Maharashtra and Gujarat. 
• Zero-Declaration Trend: The Bahujan Samaj Party (BSP) maintained its 19-year streak of declaring nil donations above the Rs 20,000 threshold.

Political Funding 

• About: Political funding refers to the methods and sources through which political parties and candidates raise financial resources to cover their operational costs, election campaigns, and party activities. 
• Primary Sources: Political parties in India generally receive funds through the following channels: 
  • Individual Donations: Voluntary contributions from citizens; donations above Rs 2,000 must be made through non-cash modes (cheque/digital). 
  • Corporate Funding: Companies can donate to parties, provided they disclose the total amount in their Profit and Loss account (Section 182 of the Companies Act, 2013). 
  • Electoral Trusts: Electoral Trusts collect corporate and individual donations for political parties (cash transactions prohibited). They must distribute 95% of annual funds to registered parties, retaining only 5% for administrative costs. 
  • Public/State Funding: In some countries (though not fully in India), the government provides funds to parties based on their performance in previous elections. Currently, India has "indirect" state funding, such as free airtime on public broadcasters and subsidized land for party offices. 
• Transparency Requirements: Under Section 29C of the Representation of the People Act (RPA), 1951, parties must submit a "Contribution Report" to the ECI for all donations exceeding Rs 20,000 to claim tax exemptions. 
• Statutory Provisions: 
  • Representation of the People Act (RPA), 1951: Section 29A mandates that every political party must be registered with the ECI to be eligible for donations and tax exemptions. 
    • Section 29B allows political parties to accept voluntary contributions from any person or company (except government companies and foreign sources). 
  • Income Tax Act, 1961: Section 13A grants 100% tax exemption to registered political parties on income from voluntary contributions, house property, and capital gains.  
    • Section 80GGC/80GGB allows 100% deduction from the gross total income for individuals (80GGC) and companies (80GGB) for contributions made to a registered political party or an electoral trust, provided the payment is not in cash. 
  • Companies Act, 2013: Under Section 182, only companies in existence for more than 3 years can make political contributions. Government companies are strictly prohibited. Previously, there was a cap of 7.5% of average net profits, but the Finance Act 2017 removed this cap. 
    • Companies must disclose the total amount contributed and the name of the recipient political party in their Profit and Loss Account. 
  • Foreign Contribution (Regulation) Act (FCRA), 2010: Section 3 explicitly prohibits candidates for election, members of legislatures, and political parties from accepting any "foreign contribution." 
    • However, under the Finance Act, 2016 and Finance Act, 2018 retrospective amendments, an Indian company is not considered a "foreign source" even if more than 50% of its share capital is held by a foreign entity, provided it complies with the sectoral caps and other limits prescribed under Foreign Exchange Management Act, 1999 (FEMA) (and the FDI Policy notified thereunder). 

How has the Political Funding Landscape Evolved in India? 

• Pre-2017 Era: Before 2017, the system was largely informal. Most donations were made in cash, with a reporting threshold of Rs 20,000. Parties often broke down large donations into smaller "anonymous" chunks to avoid disclosure.  
  • Companies were restricted from donating more than 7.5% of their average net profit from the previous three years. 
• Electoral Bond Era (2018–2024): It prioritized donor privacy over public transparency. While it successfully moved funds into the banking system (reducing "black money"), it created an information asymmetry where the public did not know who was funding whom. 
  • The 7.5% corporate profit cap was removed, and the requirement for companies to disclose which party they funded in their profit-and-loss accounts was eliminated. 
• Supreme Court Electoral Bond Ruling 2024: In Association for Democratic Reforms & Anr. v. Union of India & Ors Case 2024, the Supreme Court struck down the Electoral Bond Scheme as unconstitutional. The Court ruled that anonymous funding violates the voters' right to information under Article 19(1)(a).  
  • The Court highlighted that unlimited corporate funding could lead to "institutionalized corruption" where policies are influenced by large donors. 
• Current Landscape (2025–2026): Since the ban on bonds, political funding has reverted to three primary pillars: 
  • Electoral Trusts: These act as intermediaries. Companies donate to the Trust (e.g., Prudent Electoral Trust), which then distributes funds to parties. 
  • Direct Corporate/Individual Donations: Parties are back to receiving direct cheques and digital transfers.  
  • Digital Reporting (IEMS): The Election Commission of India (ECI) now requires the online filing of contribution reports through the Integrated Election Management System (IEMS) to speed up the auditing process.

How does Financial Transparency in Elections Ensure Democratic Accountability? 

• Prevent "Quid Pro Quo" Arrangements: Without transparency, large corporate donors can provide massive funds to political parties in exchange for favorable policies, licenses, or contracts once that party is in power. Transparency acts as a deterrent against the "politico-corporate nexus" by making these transactions visible to the public eye. 
• Ensure a Level Playing Field: Elections should be a competition of ideas, not a competition of wallets. By knowing the source of funds, ECI can better enforce spending limits, preventing a "financial arms race" that marginalizes the common citizen. 
• Protect National Sovereignty: Foreign entities may attempt to influence a country’s domestic policies by funding specific candidates or parties. Strict enforcement of the FCRA, 2010 and mandatory disclosure ensure that political parties are not beholden to foreign interests.  
• Empower the "Informed Voter": A voter has the right to know who is "powering" a candidate. If a candidate is funded by an industry that the voter opposes (e.g., a specific tobacco or mining conglomerate), that information is vital for the voter to make a rational decision. 
  • When funding is transparent, the mandate given by the people is based on a clear understanding of the candidate's allegiances. 
• Constitutional Perspective: The Supreme Court struck down the Electoral Bonds Scheme specifically because it compromised transparency in political funding. The Court ruled that while curbing black money is a legitimate goal, it cannot be used as a "blanket excuse" to keep the entire funding process anonymous. 

Key Committees/Commissions on Political Funding

Committee/Commission	Core Focus & Recommendations
Tarkunde Committee (1974-75)	Recommended that political parties must submit audited accounts and that the Election Commission should be a multi-member body.
Dinesh Goswami Committee (1990)	Proposed partial state funding in kind (e.g., fuel, stationery) and suggested a ban on company donations to reduce the "nexus."
Indrajit Gupta Committee (1998)	Specifically explored State Funding of Elections. It endorsed state support to ensure a level playing field, but only for "recognized" parties and only "in-kind" (not cash).
Law Commission (170th Report) (1999)	Argued that state funding is "desirable" but only if parties are strictly prohibited from taking funds from other sources and have internal democracy.

Which Reforms are Essential for Ensuring Transparent Political Funding in India? 

• Mandatory & Real-Time Disclosure: Currently, parties only report individual donations above Rs 20,000 annually. The disclosure threshold should be lowered (e.g., to Rs 2,000) to prevent "splitting" large donations into many small, anonymous ones. 
• State Funding of Elections (In-Kind): Indrajit Gupta Committee (1998) proposed "partial state funding" in kind—providing facilities like free airtime on media, fuel for vehicles, paper for posters, and rent-free office space—rather than giving cash. 
  • Some experts suggest a central fund like Electoral Trust where corporates can donate blindly; the ECI then distributes these funds to parties based on their previous vote share. 
• Ceiling on Party Expenditure: While there is a legal limit on how much an individual candidate can spend, there is currently no limit on what a political party can spend on an election.  Introduce a formal cap on the total expenditure a political party can incur during an election cycle to ensure a level playing field for smaller parties. 
  • The Law Commission of India (255th Report, 2015) has supported the introduction of expenditure ceilings for political parties to complement candidates’ expenditure limits. 
• Independent Auditing: Currently, political parties choose their own auditors. Mandate that political party accounts be audited by a panel of auditors approved by the Comptroller and Auditor General (CAG) or the ECI. This would ensure that the audits are impartial and rigorous. 
• Decoupling Corporate Influence: Restore the cap on corporate donations (previously 7.5% of net profit) to prevent loss-making "shell companies" from being used as conduits for money laundering.  
  • Require companies to get explicit approval from shareholders during Annual General Meetings (AGMs) before making political donations. 
• Empowering ECI: The ECI currently has limited power to punish parties for financial non-compliance. Grant the ECI the statutory power to de-register a political party if it fails to submit audited accounts or violates funding norms. 

Conclusion 

The surge in political donations, dominated by corporate interests and specific parties, highlights a critical intersection of finance and governance. Addressing these disparities through capping party expenditure, reintroducing corporate donation limits, and granting the ECI de-registration powers is essential to safeguard democratic integrity and ensure a level playing field. 

Drishti Mains Question:

Discuss the feasibility of State Funding of Elections in India as a measure to reduce the influence of black money in politics.

Frequently Asked Questions (FAQs) 

1. What is the significance of Section 29C of the Representation of the People Act, 1951? 
It mandates political parties to report donations exceeding ₹20,000 to the ECI annually; failure to do so disqualifies the party from Income Tax exemptions under Section 13A. 

2. How did the Finance Act 2017 alter corporate political funding? 
It removed the previous cap of 7.5% of average net profits for donations, allowing companies (including loss-making ones) to contribute unlimited amounts to political parties. 

3. Are foreign contributions allowed for Indian political parties? 
No, the FCRA 2010 prohibits it; however, recent amendments allow donations from Indian companies with over 50% foreign shareholding if they follow FEMA guidelines. 

UPSC Civil Services Examination Previous Year Questions (PYQ)   

Prelims 

Q. Consider the following statements: (2017) 

1. The Election Commission of India is a five-member body.   
2. Union Ministry of Home Affairs decides the election schedule for the conduct of both general  elections and bye-elections.  
3. Election Commission resolves the disputes relating to splits/mergers of recognised political parties.  

Which of the statements given above is/are correct?   

(a) 1 and 2 only   

(b) 2 only   

(c) 2 and 3 only   

(d) 3 only   

Ans: (d)

---

Mains 

Q. In the light of recent controversy regarding the use of Electronic Voting Machines (EVM), what are the challenges before the Election Commission of India to ensure the trustworthiness of elections in India? (2018)

Q. To enhance the quality of democracy in India the Election Commission of India has proposed electoral reforms in 2016. What are the suggested reforms and how far are they significant to make democracy successful? (2017)

Pradhan Mantri Awaas Yojana–Gramin

Source: PIB 

Why in News?  

As of March 2026, Pradhan Mantri Awaas Yojana–Gramin (PMAY-G) has successfully completed nearly 3 crore houses, marking a major milestone in rural transformation.  

• With an ambitious target of 4.95 crore houses by 2029, the scheme continues to drive inclusive growth, strengthen social welfare, and advance the vision of “Housing for All” in rural India. 

What is the Pradhan Mantri Awas Yojana-Gramin (PMAY-G)?  

• About: PMAY-G  aims to provide a permanent (pucca) house with basic amenities to all houseless rural households and those living in kutcha or dilapidated dwellings, thereby improving living standards and ensuring dignity and security for the rural poor. 
  • It is implemented by the Ministry of Rural Development (MoRD) and was launched in 2016, restructuring the earlier Indira Awaas Yojana to achieve the goal of “Housing for All.”  
• Selection: The selection of beneficiaries involves a thorough three-stage validation process, including the Socio-Economic Caste Census 2011, Gram Sabha approvals, and geo-tagging, ensuring that aid reaches the most deserving individuals.  
• Cost Sharing: The Centre and states share expenses in the 60:40 ratio in the case of plain areas, and 90:10 for Northeastern states, two Himalayan states (Himachal Pradesh and Uttarakhand) and the Union Territory(UT) of J&K.   
  • The Centre bears 100% cost in the case of other UTs including Ladakh.  
• Implementation Framework and Reforms: 
  • Direct Benefit Transfer (DBT): Construction funds are wired directly into beneficiaries' bank accounts, cutting out middlemen and leakages. 
  • Multi-Tier Inspections: Block officers inspect 10% of houses, while district officers inspect 2% at every construction stage. National-level monitors also conduct field visits. 
  • Social Audits: Gram Panchayats conduct community-led reviews at least once a year to hold the system accountable. 
  • AwaasSoft MIS: A web-based bilingual platform integrates everything from beneficiary identification to fund releases into a single, transparent dashboard. 
  • Dedicated Local Support: Every sanctioned house is assigned a local functionary to assist the family and ensure timely construction. 
• AI‑Driven Monitoring in Rural Housing: 
  • AI Recommendation Systems: Artificial intelligence models analyze uploaded photographs to identify walls, roofs, and doors, automatically recommending the final photo for approval. 
  • Anomaly Detection: Machine learning algorithms compare house photos within the same locality to flag similarities, effectively preventing duplication and fraud. 
  • Face Authentication & e-KYC: The Awaas+ 2024 mobile app verifies beneficiaries using Aadhaar-based, AI-enabled face authentication. 
  • Liveliness Detection: Advanced features like eye-blink and motion detection ensure that the person authenticating is physically present, preventing impersonation. 
  • Digital Geo-Tagging: Time-and-date-stamped photographs are uploaded at every construction stage for real-time tracking. 

Impact on Rural Households 

• Improved Living Conditions: Families now live in permanent houses that are durable, safe, and weather‑resistant. This shift from temporary to permanent housing has enhanced security and dignity for millions of households. 
• Sanitation and Health: Through convergence with the Swachh Bharat Mission – Gramin (SBM-G), beneficiaries receive Rs 12,000 for toilet construction, drastically reducing health risks. 
• Clean Energy and Water: The scheme links households to PM Ujjwala Yojana for LPG connections, PM Surya Ghar for solar electricity, and Jal Jeevan Mission for piped drinking water. 
• Women’s Empowerment: By mandating or encouraging house ownership in the name of women (or jointly), PMAY-G actively promotes gender equality and property rights, aligning with Sustainable Development Goal 5a. 
• Skill and Employment Generation: The scheme guarantees 90–95 days of unskilled labor wages under the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (formerly MGNREGA) and has certified over 3 lakh rural masons.

What are the Issues Affecting PMAY-G? 

• Outdated Beneficiary Identification: The Parliamentary Standing Committee on Rural Development noted that the scheme continues to rely on SECC 2011 data, which is now outdated, leading to the exclusion of newly eligible households while allowing non-poor or no-longer-eligible beneficiaries to remain in the system. 
• Inadequate Financial Assistance: The existing financial support is insufficient in the context of rising construction costs and inflation, forcing beneficiaries to take loans or leave houses incomplete. 
• Geo-Tagging and Monitoring Fraud: Comptroller and Auditor General of India highlighted that the geo-tagging system has been compromised, with houses being tagged hundreds of kilometers away from actual locations, enabling fund diversion without real construction and exposing weak monitoring. 
• Bribes and “Cut Money”: Many beneficiaries report being forced to pay bribes or a share of funds to officials or middlemen for approval or release of installments, undermining the scheme’s intent.

Conclusion 

PMAY-G has moved beyond providing shelter to delivering dignity, security, and opportunity. Addressing challenges requires updating beneficiary databases, enhancing financial assistance in line with inflation, strengthening digital and ground-level monitoring systems, and ensuring transparency and accountability, so that PMAY-G can effectively achieve its goal of housing for all in rural India. 

Drishti Mains Question:

“PMAY-G represents a shift from welfare delivery to dignity-led development.” Critically examine. 

Frequently Asked Questions (FAQs) 

1. What is Pradhan Mantri Awaas Yojana–Gramin (PMAY-G)? 
It is a rural housing scheme launched in 2016 to provide pucca houses with basic amenities to houseless and kutcha-household families. 

2. How are beneficiaries selected under Pradhan Mantri Awaas Yojana–Gramin (PMAY-G)? 
Selection is done through a three-stage process: Socio-Economic Caste Census (SECC) 2011 data, Gram Sabha validation, and geo-tagging. 

3. What is the funding pattern of Pradhan Mantri Awaas Yojana–Gramin (PMAY-G)? 
The Centre-State sharing ratio is 60:40 for plain areas, 90:10 for Northeastern and Himalayan states, and 100% central funding for Union Territories. 

4. How does Pradhan Mantri Awaas Yojana–Gramin (PMAY-G) ensure transparency? 
Through Direct Benefit Transfer (DBT), geo-tagging, AwaasSoft MIS platform, social audits, and AI-based monitoring systems. 

5. What are the key impacts of Pradhan Mantri Awaas Yojana–Gramin (PMAY-G)? 
It improves housing quality, sanitation, clean energy access, women empowerment, and rural employment opportunities. 

UPSC Civil Services Examination Previous Year Question (PYQ)  

Prelims  

Q. How does the National Rural Livelihood Missionseekto improve livelihood options of rural poor? (2012) 

1. By setting up a large number of new manufacturing industries and agribusiness centres in rural areas  
2. By strengthening ‘self-help groups’ and providing skill development  
3. By supplying seeds, fertilizers, diesel pump-sets and micro-irrigation equipment free of cost to farmers  

Select the correct answer using the codes given below:

(a) 1 and 2 only  

(b) 2 only  

(c) 1 and 3 only  

(d) 1, 2 and 3

Ans: (b)

Insolvency and Bankruptcy Code (Amendment) Bill, 2025

Source: TH 

Why in News? 

The Lok Sabha has passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, introducing 12 key amendments to Insolvency and Bankruptcy Code, 2016 (IBC) aimed at maximizing stakeholder value, enforcing strict resolution timelines, and aligning Indian law with global best practices like cross-border insolvency. 

What are the Key Provisions of the IBC (Amendment) Bill, 2025? 

• New Resolution Models: The Bill replaces the fast-track process with a creditor-initiated insolvency framework featuring an out-of-court settlement option and a "debtor-in-possession, creditor-in-control" model to maintain business continuity. 
• Strict Timelines: It sets a timeline of 180 days for completion of liquidation, extendable up to 90 days. Admissions of insolvency applications must occur within 14 days once a default is established.  
  • The Adjudicating Authority must approve or reject resolution plans within 30 days, and National Company Law Appellate Tribunal (NCLAT) appeals must be decided within 3 months. 
• Compressed Process: The new out-of-court initiation mechanism has a compressed 150-day timeline to expedite the recovery process. 
• Cross-Border and Group Insolvency: The Bill provides an enabling framework for cross-border insolvency and group insolvency, crucial for promoting international investor confidence and handling complex corporate structures. 
• Deterrents for Litigation: To curb delays caused by extensive litigation, penalties ranging from Rs 1 lakh to Rs 2 crore will be imposed on individuals initiating frivolous or vexatious proceedings. 
• Protection of Workmen: Under the IBC hierarchy, workmen's dues are given high priority, placed on par with secured creditors and ranked above unsecured financial creditors and government dues. 
• Post-Resolution Success: Market capitalization of resolved firms reportedly grew from Rs 2.8 lakh crore to Rs 9 lakh crore within 5 years, demonstrating the long-term efficacy of the framework. 

What is the Insolvency and Bankruptcy Code (IBC), 2016? 

• About: IBC, 2016 is a landmark Indian law designed to consolidate and simplify the legal framework for resolving insolvency and bankruptcy for companies, partnership firms, and individuals. 
  • Prior to 2016, the process was fragmented across multiple laws (like the SARFAESI Act, 2002 and the Companies Act, 2013), leading to long delays and low recovery rates for creditors. 
• Core Objectives: To complete the insolvency process within a strict timeframe (180 days as per 2025 amendment bill).  
  • To preserve the value of the debtor's assets by ensuring the business continues as a "going concern" rather than immediate liquidation. 
  • To provide a "clean exit" for failed businesses, thereby encouraging entrepreneurship and credit availability. 
  • As per the existing mechanism, the Corporate Insolvency Resolution Process (CIRP) is legally mandated to conclude within a maximum of 330 days, inclusive of any litigation time. Standard proceedings are designed to be completed within 180 days, though an extension of up to 90 days. 
• Institutional Framework: The IBC operates through 4 pillars to ensure smooth implementation: 
  • Insolvency Professionals (IPs): Licensed experts who take over the management of the debtor during the resolution process. 
  • Insolvency Professional Agencies (IPAs): Regulatory bodies that enroll and govern the conduct of IPs. 
  • Information Utilities (IUs): Centralized databases that store authenticated financial information of debtors to establish "default" quickly. 
  • Adjudicating Authorities: NCLT handles corporate cases, while the Debt Recovery Tribunal (DRT) handles individual and partnership cases. 
• Resolution Process: When a default occurs, either the creditor (financial or operational) or the debtor can trigger the Corporate Insolvency Resolution Process (CIRP). 
  • Once the NCLT admits the plea, a moratorium is declared, preventing any lawsuits or asset seizures against the company. 
  • A Committee of Creditors (CoC) is formed, which decides whether to restructure the debt through a "Resolution Plan" or to liquidate the company if no viable plan is found. 
• Key Achievements: By late 2025, it facilitated the recovery of Rs 4.1 lakh crore for creditors and successfully rescued over 1,300 companies.  
  • Its greatest impact is a behavioral shift as over 30,310 cases involving Rs 13.78 lakh crore were settled before admission, as promoters feared losing control.  
  • High recovery efficiency—averaging 170% of liquidation value—has helped drive bank Gross NPAs to a record low of 2.3%, strengthening the overall economy. 
• Banking Health and Recovery: The IBC is a primary driver for improving the banking sector's health, accounting for 52.3% of total recoveries by Scheduled Commercial Banks (SCBs), contributing Rs 54,528 crore of the total Rs 1.04 lakh crore recovered. 

What are the Critical Challenges Facing the IBC Framework? 

• Prolonged Resolution Delays: While the IBC mandates completion of the CIRP within 330 days, the actual average is exceeding 700 days due to overburdened NCLT benches, high vacancies, and excessive litigation. 
• Erosion of Asset Value: Extended timelines lead to suboptimal recovery rates (averaging 32–36% of admitted claims), resulting in "high haircuts" (the percentage of debt waived) for creditors that sometimes reach 80–95%. 
• Judicial and Infrastructure Constraints: Frequent and frivolous litigation by erstwhile promoters often interferes with the "commercial wisdom" of the Committee of Creditors (CoC), while a shortage of technical members at the NCLT delays case admissions. 
• Underutilization of Specialized Schemes: The Pre-packaged Insolvency Resolution Process (PIRP) for MSMEs remains largely ineffective. As a result, many distressed MSMEs continue to rely on the more time-consuming and costly CIRP or face premature liquidation. 
• Liquidation over Resolution: Contrary to the goal of keeping companies as a "going concern," a high percentage of cases end in liquidation rather than a successful resolution plan, often because the assets are already too degraded by the time they reach the IBC. 
• Inter-Creditor Disputes: Conflicts between financial creditors and operational creditors, or between secured and unsecured creditors, often lead to prolonged litigation, delaying the distribution of proceeds under the waterfall mechanism. 
  • The Waterfall Mechanism dictates the specific order of priority in which the proceeds from the sale of a liquidated company’s assets are distributed to various stakeholders. The "waterfall" logic ensures that the money flows from the top tier of creditors to the bottom. 

What Steps are Needed to Strengthen the IBC Framework? 

• Implementation of Strict Timelines: Strictly adhere to the statutory 14-day period for NCLT to admit insolvency applications once a default is established. Implement a recommended three-month timeline for the NCLAT to dispose of appeals, preventing the "litigation trap" that currently stalls resolutions. 
• Establish Specialized NCLT Benches: Expedite the appointment of additional judicial and technical members to clear the backlog of nearly 30,000 cases and ensure specialized handling of complex financial matters. 
• Operationalize the iPIE Platform: Launch the Integrated Technology Platform (iPIE) for real-time case tracking, digital filing, and automated verification of claims through Information Utilities (IUs). 
• Adopt the UNCITRAL Model Law: Enact a comprehensive Cross-Border Insolvency framework based on global standards to manage interconnected corporate assets and foreign creditor claims effectively. 
• Simplify PIRP for MSMEs: Enhance the Pre-Packaged Insolvency Resolution Process (PIRP) by lowering voting thresholds and simplifying compliance to make it a viable "debtor-in-possession" model for smaller enterprises.

Conclusion 

The 2025 amendments transform the IBC from a recovery tool into a value-maximization engine. By addressing cross-border complexities and enforcing punitive deterrents against litigation delays, the Bill ensures that failed businesses achieve a "clean exit" or a "viable rebirth," ultimately safeguarding the stability of India’s banking sector and investor confidence. 

Drishti Mains Question:

What is the Insolvency and Bankruptcy Code (IBC), 2016? Examine its core objectives and the institutional framework through which it operates.

Frequently Asked Questions (FAQs) 

1. What is the timeline for admission of an insolvency application under the IBC (Amendment) Bill, 2025? 
The Adjudicating Authority (NCLT) must admit the application within 14 days once a default by the company has been established. 

2. What is the new out-of-court mechanism introduced in the IBC Amendment Bill, 2025? 
A creditor-initiated resolution process with a compressed 150-day timeline has been introduced, featuring a "debtor-in-possession, creditor-in-control" model for faster recovery 

3. What are the four institutional pillars that support the IBC framework? 
The framework relies on Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs), Information Utilities (IUs), and Adjudicating Authorities (NCLT/DRT). 

UPSC Civil Services Examination, Previous Year Question (PYQ)   

Prelims 

Q. Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (2017)

(a) It is a procedure for considering ecological costs of developmental schemes formulated by the Government.   

(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.   

(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.   

(d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government. 

Ans: (b)

Petrochemical Duty Waiver

Source: IE 

Why in News? 

The Government of India has announced a full customs duty exemption on 40 critical petrochemical products until 30th June, 2026, to counter cost pressures and supply chain volatility triggered by the ongoing West Asia conflict. 

What are Petrochemical Products? 

• About: Petrochemical products are the fundamental chemical "building blocks" derived from petroleum or natural gas. They serve as the starting point for 95% of all manufactured goods, from medical devices to renewable energy components. 
• Categorizes: They are categorized into 3 main groups based on their chemical structure: 
  • Olefins (Alkanes): Olefins are the most widely produced petrochemicals and are primarily used to create plastics and synthetic rubber. E.g., 
    • Ethylene: Primary raw material for Polyethylene (PE)—the most common plastic used in packaging, bottles, and films. 
    • Propylene: Critical for making Polypropylene (PP), which is used in automotive parts, textiles, and heat-resistant food containers. 
    • Butadiene: The essential ingredient for Synthetic Rubber, used extensively in the manufacturing of vehicle tires and gaskets. 
  • BTX Aromatics: These ring-shaped hydrocarbons are vital for creating high-strength plastics, detergents, and synthetic fibers. E.g., 
    • Benzene: Used in clothing and industrial packaging. 
    • Toluene: Primarily used as a high-octane gasoline additive and a solvent in paints. 
    • Xylenes: Used as raw material for PET (Polyethylene Terephthalate)—the clear plastic used for water bottles and polyester clothing. 
  • Synthesis Gas (Syngas): Syngas is a mixture of carbon monoxide and hydrogen used to produce fertilizers and chemical intermediates. 
    • Ammonia: The foundation of the global food supply; it is the primary source for nitrogen-based fertilizers like Urea. 
    • Methanol: A versatile solvent and fuel additive that is also used to make formaldehyde for plywood resins and various plastics. 
• Economic and Strategic Importance: Petrochemicals account for a growing share of global oil and natural gas demand (currently around 12–14% of oil use). Production is concentrated in regions with access to affordable feedstocks, such as ethane from natural gas or naphtha from oil refining. 

Objective and Coverage of the Exemption 

• Strategic Objective: The measure provides "temporary and targeted relief" to downstream sectors by ensuring the availability of inputs like anhydrous ammonia, toluene, styrene, and methanol, which have seen price spikes due to Israel-US strikes on Iran. 
• Impacted Sectors: This exemption specifically supports plastics, textiles, pharmaceuticals, automotive components, and chemicals, helping to stabilize the manufacturing segment and reduce final prices for consumers. 

Customs Duty 

• About: Customs duty is a mandatory tax imposed by the government on the movement of goods across international borders. In India, this is governed by the Customs Act, 1962, and the Customs Tariff Act, 1975. 
• Objectives: Beyond revenue generation, duties are utilized for the protection of domestic industries (by making imports costlier), trade regulation, and ensuring that imported goods meet national safety and environmental standards. 
• Types of Customs Duties: Customs duties are generally classified as follows: 
  • Ad Valorem Duty: Calculated as a fixed percentage of the value of the goods (most common globally). 
  • Specific Duty: A fixed amount per unit of measurement (e.g., per kilogram, per liter, or per piece). 
  • Compound Duty: A combination of ad valorem and specific duties. 
  • Additional Duties: Such as anti-dumping duty (to counter unfairly low-priced imports), countervailing duty (against subsidized imports), protective duty, or social welfare surcharges. 
• Valuation Methodology: The duty is not simply charged on the sticker price of the item. It is calculated based on the Assessable Value, which typically follows the CIF (Cost, Insurance, and Freight) value (Assessable Value = Cost of Goods + Insurance + Freight). 
  • Customs Duty = Assessable Value × Applicable Duty Rate. 
• Recent Reforms: The Union Budget 2026-27 reduced custom duty on goods imported for personal use is reduced from 20% to 10%. Customs duty is fully exempted on 17 cancer drugs and medicines/foods for 7 rare diseases. 

Frequently Asked Questions (FAQs) 

1. What is Customs Duty? 
Customs duty is a mandatory tax imposed by the government on the movement of goods across international borders. 

2. What constitutes the 'Assessable Value' for calculating Customs Duty? 
It is primarily the CIF (Cost, Insurance, and Freight) value of the goods, representing the total cost of the product until it reaches the Indian port. 

3. How do Olefins and Aromatics differ in their industrial application? 
Olefins (e.g., Ethylene) are the primary precursors for versatile plastics and packaging, while Aromatics (e.g., Benzene) are essential for high-strength synthetic fibers and detergents. 

UPSC Civil Services Examination, Previous Year Questions (PYQ) 

Q1. Consider the following statements: (2018) 

1. The quantity of imported edible oils is more than the domestic production of edible oils in the last five years. 
2. The Government does not impose any customs duty on all the imported edible oils as a special case. 

Which of the statements given above is/are correct? 

(a) 1 only 

(b) 2 only 

(c) Both 1 and 2 

(d) Neither 1 nor 2 

Ans: (a) 

India Inducts SSBN INS Aridaman

Source: IE 

India inducted its 3rd nuclear-powered ballistic missile submarine, INS Aridaman, marking a significant milestone where the nation will, for the 1st time, maintain 3 operational SSBNs at sea. 

• Also, India recently commissioned the stealth frigate, INS Taragiri, which will further boost the Indian Navy’s ability to secure the country’s interests in the Indian Ocean Region (IOR). 

INS Aridaman 

• About: INS Aridhaman is India’s 3rd nuclear-powered ballistic missile submarine (SSBN) of the Arihant-class after INS Arihant (2016) and INS Arighat (2024). It has been developed under the Advanced Technology Vessel (ATV) project. 
  • INS Arihant: Commissioned in 2016, the 6,000-tonne INS Arihant established the sea leg of India’s nuclear triad and completed its first deterrence patrol in 2018. 
  • INS Arighaat: Building on the success of INS Arihant, the 2nd SSBN, INS Arighaat, was commissioned in 2024, further stabilising India’s continuous presence in deep waters. 
• Enhanced Missile Capacity: The 7,000-tonne INS Aridaman features 8 vertical launching system tubes, allowing it to carry a larger payload of K-15 (700 km range) and K-4 (3,500 km range) Submarine-Launched Ballistic Missiles (SLBMs). 
• Nuclear Triad & 2nd-Strike Capability: The commissioning of INS Aridaman solidifies India’s nuclear triad—the ability to launch nuclear weapons from land (Agni missiles), air (Rafale, Su-30MKI), and sea—ensuring a credible 2nd-strike capability in alignment with the "No First Use" nuclear doctrine. 
• Operational Milestone: With this commissioning, India solidifies its position among a select group of nations—including the United States, Russia, the United Kingdom, France and China—capable of operating an undersea nuclear deterrent. 
• Future Strategic Roadmap: India is currently constructing a 4th SSBN (codenamed S-4*, likely to enter service in 2027) and pursuing a Nuclear-powered Attack Submarine (SSN) programme, alongside Project-75I for advanced conventional submarines equipped with AIP (Air-Independent Propulsion) technology. 

Read More: India's Submarine Strength, INS Taragiri 

Classification of Districts Affected by LWE

Source: TH 

The Union Ministry of Home Affairs (MHA) has comprehensively revised the categorization of districts affected by Left-Wing Extremism (LWE) to align anti-Naxal strategies with current ground realities, marking a historic contraction of the Red Corridor (districts of India which have the presence and influence of Naxalites). 

• New Classification: The earlier category of “most affected districts” has been replaced with a more nuanced classification consisting of LWE Affected Districts, Districts of Concern, and Legacy & Thrust Districts, allowing better assessment of the intensity of extremism. 
• Current Categorisation (2026): At present, only Bijapur (Chhattisgarh) and West Singhbhum (Jharkhand) are classified as LWE Affected Districts, while Kanker (Chhattisgarh) is categorised as a District of Concern, and the remaining 35 districts fall under Legacy & Thrust category across nine states. 
  • Previously, districts such as Bijapur, Sukma, and Narayanpur in Chhattisgarh were part of the “most affected” category till 2025, indicating a significant improvement in the situation. 
• Decline of Red Corridor: The Red Corridor has sharply reduced from over 200 districts in 2005 to just 2 districts in 2026, reflecting the success of sustained security and developmental interventions, in line with India’s target to eliminate LWE by March 2026. 
• Purpose of Reclassification: The revised categorisation aims to ensure better allocation of resources and alignment of anti-LWE efforts with evolving ground realities, making interventions more targeted and effective. 
• Policy Framework: The changes are rooted in the National Policy and Action Plan to Address LWE (2015), which combines security measures with development initiatives to tackle extremism comprehensively. 
• Security Related Expenditure (SRE) Scheme: The revised categorizations will dictate resource deployment under the SRE Scheme, where the Centre reimburses States for security force operations, ex-gratia payments, and the rehabilitation of surrendered LWE cadres and community policing. 
  • A total of Rs 1,685 crore has been released up to 2023–24 under the SRE Scheme, reflecting sustained financial commitment to combat LWE. 
• Naxal-free India: The Union Government has declared in the Lok Sabha that the country is effectively “Naxal-free,” marking a major milestone in internal security.

Read more: Left Wing Extremism-Free India 

Death Anniversary of Chhatrapati Shivaji Maharaj

Source: PIB 

Union Home Minister and Minister of Cooperation paid tributes to Chhatrapati Shivaji Maharaj on his Punyatithi (Death Anniversary). 

• Chhatrapati Shivaji Maharaj: Born on 19th February 1630 at Shivneri Fort near Pune, was the founder of the Maratha Empire and a visionary leader who resisted Mughal rule and championed self-governance. 
• Vision of Hindavi Swarajya: At a young age, Shivaji Maharaj took a pledge to establish Hindavi Swarajya (Self-Rule), a progressive concept of indigenous sovereignty, ethical governance, and political independence free from foreign domination. 
  • He successfully united the masses around the core ideals of Swadharma (one's own dharma/duty), Swaraj (self-rule), and Swabhasha (one's own language), intentionally replacing Persian with Marathi and Sanskrit as the languages of administration. 
• Major Battles Fought by Shivaji Maharaj: Battle of Pratapgad (1659), Battle of Pavan Khind (1660), Battle of Surat (1664), Battle of Purandar (1665), Battle of Sinhagad (1670), and Battle of Sangamner (1679). 
  • The Wagh nakh, was used by Shivaji to kill Afzal Khan in the 1659 Battle of Pratapgad.  
• Military and Naval Genius: He is globally recognized for his innovative Guerrilla Warfare tactics (Ganimi Kava) and is celebrated as the "Father of the Indian Navy" for building a robust fleet and coastal forts (like Sindhudurg) to protect the western seaboard. 
• Administration: He led a strong governance structured around the Ashtapradhan Mandal (Council of Eight Ministers).  
  • He introduced a system of direct revenue assessment and collection from cultivators, reducing intermediary exploitation. 
• Titles: He was honoured with titles such as Chhatrapati, Shakakarta, Kshatriya Kulavantas, and Haindava Dharmodhhaarak, reflecting his sovereignty, warrior lineage, and role as a protector of dharma. 
• Final Days: He passed away on 3rd April 1680, at the Raigad Fort due to severe health complications. 

Read more: Chhatrapati Shivaji Maharaj 

RBI Ban on NDD Contracts

Source: IE 

The Reserve Bank of India (RBI) has restricted banks’ participation in Non-Deliverable Derivative (NDD) contracts to curb offshore currency manipulation and stabilize the Indian Rupee (INR) amidst global geopolitical tensions. 

• Following the directive, the Rupee staged a sharp recovery, rallying from below 95 to 93.10 against the US Dollar as speculative pressure eased. 
• Another significant aspect is the RBI’s restriction on Related Party Transactions (RPTs), a move designed to prevent intra-group dealings from obscuring true risk exposure or being used to shift profits and risks across jurisdictions 

Non-Deliverable Derivative 

• About: A Non-Deliverable Derivative (NDD) is a financial contract used to hedge or speculate on currencies that are non-convertible or subject to strict capital controls.  
  • Unlike a standard derivative, where the underlying asset is physically exchanged, an NDD is settled strictly in a freely convertible currency (usually the US Dollar). 
• Working Mechanism: In an NDD, there is no exchange of the "principal" amount of the two currencies. Instead, the parties agree on a "contract rate" and a "fixing date." 
  • On the fixing date, the market exchange rate (spot rate) is compared to the agreed contract rate. 
  • The difference between the contract rate and the spot rate is calculated. The "loser" pays the "winner" the difference in a convertible currency like USD. 
• Key Features of NDDs: 
  • Offshore Trading: These are typically traded in offshore financial centers (like Singapore, London, or Dubai) to bypass the domestic regulations, like Capital Account controls of the home country. In India, NDDs, primarily in the form of Non-Deliverable Forwards (NDFs), are regulated by RBI.  
  • No Physical Delivery: The person never actually handles the "restricted" currency (e.g., Chinese Yuan, or Indian Rupee). 
  • Cash-Settled: Everything is resolved through a net cash payment in a major global currency. 
• Concerns: These instruments have long been criticised for distorting price discovery and enabling manipulation, as offshore sentiment frequently diverges from domestic fundamentals.  
  • Some market participants misused the NDF market by cancelling and re-entering contracts to exploit price swings, effectively turning hedging tools into speculative instruments.  
  • Additionally, big offshore traders leverage geopolitical and trade tensions to take massive positions against the rupee, creating a downward pressure that impacts India’s onshore market.. 

Read More: Electricity Derivatives