Supreme Court to Review Anonymous Political Donations

For Prelims: Supreme Court, Income Tax Act, 1961, Right to Information, Election Commission of India (ECI), Election Symbol Order, 1968, Representation of People Act (RPA), 1951, Electoral Trust, Electoral Bond Scheme.  

For Mains: Supreme Court review of political funding, regulatory framework for political funding, need of transparency in political funding and further reforms needed. 

Source: TH 

Why in News? 

The Supreme Court has decided to review a petition challenging the rule that allows political parties to receive anonymous cash donations below Rs 2000, which petitioners say creates a loophole for opaque, untraceable political funding. 

What Key Concern has been Highlighted in the Petition? 

• Total Ban on Cash Donations: It seeks to end cash donations even up to Rs 2000 allowed under Section 13A(d) of the Income Tax Act, 1961, which enables anonymous contributions, and demands full disclosure of donor details.  
• Violation of Fundamental Rights: The petition argues that Section 13A(d) violates Article 19(1)(a) by denying citizens their right to information, asserting that voters must know the sources of political funding to make informed choices. 
• Directions Sought on Form 24A: The petition seeks a mandamus directing the Election Commission of India (ECI) to scrutinise Form 24A contribution reports and require political parties to deposit contributions lacking address or PAN details.  
  • It also urges the ECI to suspend or withdraw party symbols under Paragraph 16A of the Election Symbol Order, 1968 by issuing notices to defaulting parties. 
• Further Proposed Reforms: It urges that political parties’ accounts be audited by independent auditors appointed by the ECI, and calls for stronger mechanisms to ensure timely submission of contribution and audit reports. 

What Rules Govern Political Donations in India? 

• Representation of People Act (RPA), 1951: Section 29B of the RPA, 1951 permits political parties to receive voluntary contributions from individuals and companies (excluding government companies and foreign sources). 
• Companies Act, 2013: Any company—except a government company or one that is less than three years old—can donate any amount, directly or indirectly, to a political party. However, it is capped at a maximum of 7.5% of their average annual net profit over 3 years. 
• Income Tax Act, 1961: Indian companies and individuals can claim tax deductions on donations made to political parties or electoral trusts under Sections 80GGB and 80GGC. 
• Foreign Contributions (Regulations) Act, 2010 (FCRA): Generally, foreign donations are prohibited. However, the definition of a foreign source was amended to exclude Indian companies with foreign investment (an Indian company with foreign shareholding beyond 50% is not treated as a foreign source). This allows companies (including foreign subsidiaries) to donate, provided they comply with FEMA sectoral caps. 
• Electoral Trusts Scheme, 2013: An Electoral Trust is set up by companies to collect donations from individuals and firms and distribute them to political parties.  
  • It can retain up to 5% of its funds (for administrative expenses), must distribute 95% to eligible parties (registered under section 29A of the RPA, 1951), and cannot accept cash donations. 

Why is Transparency in Political Funding Necessary? 

• Informed Political Choice: Citizens have a fundamental Right to Information on who funds political parties, implicitly protected under Article 19(1)(a), and affirmed in Union of India v. Association for Democratic Reforms (2002) that helps voters make informed choices. 
  • The Supreme Court in Association for Democratic Reforms v. Union of India (2024) struck down the Electoral Bond Scheme for violating voters’ Right to Information under Article 19(1)(a). 
• Supports Institutional Probity: Transparent funding helps dismantle the cycle of quid pro quo and strengthens institutional probity. By reducing opacity, it curbs routine policy distortions in areas such as resource allocation, taxation, and regulation.  
• Safeguard for National Sovereignty: Anonymous funding channels enable foreign interference, allowing hostile state or non-state actors to influence foreign policy, defence procurement, or internal security, threatening India’s strategic autonomy. 
• Preventing Market Distortions: Hidden corporate donations fuel crony capitalism, where political connections override market efficiency.  
  • This distorts resource allocation, suppresses innovation, hurts honest businesses, and undermines sustainable economic growth. 
• Upholds "Egalitarian Democracy": Without transparency, democracy risks becoming a plutocracy, where the wealthy buy political access and influence, undermining the egalitarian principles of the Constitution’s Preamble. 
• Meeting Global Standards: Many countries mandate transparent political funding, such as the United States, which has required disclosures since 1910.  

What Reforms Required for Transparent Political Funding in India? 

• Complete Ban of Anonymous Cash Donations: A crucial reform is to amend Section 13A(d) of the Income Tax Act, 1961, by removing cash donations up to Rs 2000 or replacing it with a lower threshold as a viable solution.  
  • Mandating all political contributions through digital modes would ensure a clear audit trail, eliminate cash, and provide digital access and literacy to avoid voter disenfranchisement. 
  • The 170th Law Commission Report recommended removing Explanation 1 of Section 77 RPA, which allowed friends or parties to spend freely, ensuring all candidate-related expenses count toward the expenditure limit. 
    • Deleting it would make all expenses count. 
• Strengthening Institutional Enforcement: Strengthen the ECI’s powers to de-register non-compliant parties, and appoint independent auditors, while ensuring RBI and SEBI enforce stricter oversight of corporate donations to prevent black money into political funding. 
  • Introducing a mechanism for whistleblower protection or addressing public grievances related to political donations could further strengthen enforcement. 
• Real-Time Transparency: All political parties should be required to publicly upload donor details (PAN, address, amount) on a single ECI portal in real time. This portal should be integrated with the Income Tax Department to automatically verify donations and flag discrepancies for investigation. 
• Systemic & Long-Term Reforms: Implement partial state funding for campaign expenses (e.g., public airtime, limited printing) to reduce dependence on private capital, as recommended by the Indrajit Gupta Committee (1998) and Law Commission (1999). Additionally, set a national election expenditure limit with strict monitoring to ensure fair spending. 
  • State funding reforms could be tied to further accountability measures, such as transparency in how these funds are spent by political parties 

Conclusion 

The Supreme Court’s review of political funding transparency highlights the need to eliminate anonymous cash donations, strengthen institutional oversight, and ensure real-time disclosure of contributions. Transparent funding safeguards democracy, curbs corruption, prevents policy capture, and aligns India with global best practices, enabling voters to make informed electoral choices. 

Drishti Mains Question:

Q. Discuss the significance of transparency in political funding for strengthening democratic accountability in India.

Frequently Asked Questions (FAQs) 

Q. What is Section 13A(d) of the Income Tax Act? 
It allows political parties to accept cash donations up to ₹2000, which the petition claims enables opaque and untraceable funding. 

Q. Which Supreme Court case struck down the Electoral Bond Scheme? 
Association for Democratic Reforms v. Union of India (2024) struck down the Electoral Bond Scheme for violating voters’ Right to Information. 

Q. What are Electoral Trusts?
Electoral Trusts are non-profit entities set up by companies to collect donations and distribute them to eligible political parties, retaining up to 5% for administrative expenses, and cannot accept cash contributions. 

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. 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)

Custodial Violence in India

For Prelims: Article 21, Article 20(1), Article 20(3), Universal Declaration of Human Rights (UDHR), International Covenant on Civil and Political Rights, International Covenant on Economic, Social and Cultural Rights, UNCAT, NHRC.   

For Mains: Custodial torture in India, Measures needed to prevent custodial torture.

Source: TH 

Why in News?  

The Supreme Court of India revisited the issue of custodial torture after noting poor compliance with its 2020 order mandating CCTV cameras in police stations and central investigative agency offices, a concern sharpened by reports of 11 custodial deaths in eight months in Rajasthan. 

Note: In 2020, SC in Paramvir Singh Saini vs. Baljit Singh directed the Centre to install CCTV cameras and recording systems in all police stations to deter custodial torture.  

• The order was extended to central agencies such as the National Investigation Agency, Central Bureau of Investigation, Directorate of Enforcement, Narcotics Control Bureau, Department of Revenue Intelligence, and any agency with powers of interrogation and arrest.  
• The court said these safeguards were essential to protect the fundamental right to dignity and life.

What is Custodial Violence? 

• Custodial violence: It is not defined in any Indian statute. The term combines custody (meaning lawful detention or safekeeping) with violence, referring to physical or psychological harm inflicted on a person in police or judicial custody. 
  • Under Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, custody is classified into police custody (up to 15 days for interrogation) and judicial custody (detention in prison until bail or completion of sentence). 
  • Custodial violence includes torture, assault, harassment, humiliation, rape, and even deaths that occur while a person is under official custody. 
• Custodial Violence in India: 
  • Ancient India: Kautilya’s Arthashastra described severe punishments, including mutilation, burning, and attacks by animals. 
  • Medieval Period: Under the Mughals, Shariat laws guided harsh corporal punishments remained a routine part of law enforcement. 
  • British Colonial Period: The Police Act of 1861 created a force designed for repression. 
    • Political prisoners and ordinary detainees were often beaten, starved, or subjected to severe physical punishment.  
    • The Prisons Act of 1894, which granted wide powers to jail authorities, still influences prison administration today. 
  • Post-Independence Period:  After Independence, India largely kept its colonial-era policing and prison systems with little reform.  
    • The old mindset of control and coercion persisted, and custodial violence continued due to outdated laws, weak accountability, and poor institutional modernization. 
    • The National Human Rights Commission (NHRC) received 2,346 new intimations concerning death in judicial custody, and 160 intimations of death in police custody during the year 2023-2024. 

How is Custodial Violence Regulated in India? 

Constitutional Provisions 

• Article 21: Guarantees the right to life and personal liberty, which includes the freedom from torture and other cruel, inhuman, or degrading treatment or punishment.  
• Article 20(1): It states that no person can be convicted for an act that was not an offence under the law at the time it was committed, thereby prohibiting excessive or retrospective punishment.  
• Article 20(3): Protects an individual from being compelled to self-incriminate, safeguarding the accused from coerced or forced confessions through torture or pressure.  

Legal Provisions 

• Bharatiya Nyaya Sanhita (2023): It penalizes those who intentionally cause hurt or grievous hurt to extract confessions, information, through violence or coercion.  
• Bharatiya Nagarik Suraksha Sanhita (BNSS, 2023): It mandates that arrests and detentions follow valid reasons, documented procedures.  
• Bharatiya Sakshya Adhiniyam (2023): It invalidates confessions made under inducement, threat, coercion, or promise. 

International Safeguards 

• United Nation Charter, 1945: It mandates that prisoners be treated with dignity, affirming that their fundamental rights and freedoms remain protected under the International Covenant on Civil and Political Rights (India ratified the ICCPR in 1979).  
• Universal Declaration of Human Rights (1948): It protects individuals from torture, cruel treatment, and enforced disappearances, ensuring the right to dignity and security.  

Directives to Prevent Custodial Torture 

• Law Commission of India:  In its 273rd Report (2017), urged India to ratify UNCAT and enact a dedicated law criminalising torture.  
• Judicial Pronouncements:  
  • DK Basu vs State of West Bengal (1997): SC laid down arrest and detention guidelines, barred third-degree methods, and held the State accountable for custodial violence by public servants. 
  • Nambi Narayanan v. Siby Mathews and Others (2018): The SC awarded him  compensation for the immense humiliation caused by wrongful arrest and harassment, underscoring the severe psychological harm of custodial abuse and false prosecution.

What are the Challenges in Curbing Custodial Violence in India? 

• Weak Legal Framework: India still lacks a clear legal definition of torture, which makes prosecution difficult and leaves large gaps in enforcement.   
  • Colonial laws like the Police Act of 1861 and the Prisons Act of 1894 continue to shape policing and prison administration with minimal reform.  
  • The Prevention of Torture Bill, never became law, and the absence of a comprehensive anti-torture statute remains a major barrier to curbing custodial abuse. 
• Poor Accountability and Institutional Protection: The BNSS requiring prior government sanction for prosecution shield officials from legal action.   
  • Investigations into custodial deaths are often delayed, evidence deteriorates, and inquiries lack independence. As a result, conviction rates for custodial violence remain extremely low. 
• Colonial Policing Culture and Punitive Mindset: The policing culture in India still reflects its colonial roots, where force was a primary tool for maintaining control. 
  • Many officers believe physical coercion is necessary to deal with criminals, and third-degree methods have become part of the accepted police subculture.  
  • Societal approval of “tough action” and political interference further reinforce these punitive attitudes and practices. 
• Lack of Professional Capacity and Corruption: Inadequate training in forensic methods, human rights, and non-coercive interrogation means officers often rely on physical force.  
  • The lack of modern investigative tools and scientific capacity makes torture a perceived shortcut to extract information. 
  • Custodial violence is frequently used as a tool for corruption a powerful station house officer (SHO)-based hierarchy let such misconduct flourish, turning torture into a means of financial gain or influence. 
• Delayed Justice and Weak Oversight Mechanisms: Slow judicial processes, delayed medical reports, and ineffective magisterial inquiries create space for custodial abuse to go unchecked.  
  • Oversight institutions like the NHRC issue guidelines, but their recommendations are advisory and often ignored.  
  • Even court orders such as mandatory CCTV installation see weak compliance, allowing custodial violence to persist with little scrutiny. 

What Measures can Curb Custodial Violence in India? 

• Define Custodial Violence in Law and Ratify CAT: India must clearly define “custodial violence” in law and ratify the UN Convention Against Torture (CAT)., which it signed in 1997 but has not yet ratified.  
  • Ratification would bind India to global standards, require criminalisation of torture, and strengthen accountability mechanisms.  
  • Enacting an anti-torture law aligned with CAT would firmly establish zero tolerance for custodial abuse and oblige the State to prevent, investigate, and punish such violations. 
• Enhance Transparency Through Technology: CCTV monitoring, digital arrest records, and real-time reporting systems like the Crime and Criminal Tracking Network (CCTNS) should be expanded.  
  • Technology reduces opportunities for abuse and improves evidence quality. 
• Improve Professional Capacity: Police personnel require training in non-coercive interrogation, forensic tools, and scientific investigation.  
  • Human rights sensitisation, stress-management skills, and ethical policing modules should be incorporated into training academies. 
• Strengthen Human Rights Institutions: NHRC should be given binding powers rather than advisory roles. Reporting custodial deaths within 24 hours must be made fully mandatory, with consequences for non-compliance. 
• Increase Public Awareness and Legal Literacy: Citizens must be informed of their arrest rights and safeguards. Civil society, media, and community policing initiatives can help reduce tolerance for violent policing. 

Conclusion

Custodial violence persists in India due to weak legal safeguards, poor accountability, and outdated policing structures. Strengthening oversight, defining torture in law, and ratifying CAT are essential to uphold constitutional rights and human dignity.

Drishti Mains Question:

Colonial policing structures and a punitive police sub-culture are the primary causes of custodial violence in India. Discuss.

Frequently Asked Questions (FAQs) 

Q. What is custodial Violence?
Custodial violence is physical or psychological harm inflicted on persons held by police or state authorities, including beatings, sexual violence, threats, sleep deprivation and forced confessions; it violates Article 21 (right to dignity).

Q. What key Supreme Court directions address custodial safety?
D.K. Basu (1997) laid procedural safeguards on arrest, custody and medical examination; Paramvir Singh Saini (2020) mandated CCTV and recording systems in police stations and interrogation rooms to deter torture.

Q. Why should India ratify UNCAT?
Ratifying the UN Convention Against Torture (UNCAT) would require India to criminalise torture, adopt preventive measures, create independent complaint mechanisms and strengthen accountability to meet binding international standards. 

UPSC Civil Services Examination, Previous Year Question (PYQ)

Mains

Q. Though the Human Rights Commissions have contributed immensely to the protection of human rights in India, yet they have failed to assert themselves against the mighty and powerful. Analysing their structural and practical limitations, suggest remedial measures. (2021)

Q. National Human Rights Commission (NHRC) in India can be most effective when its tasks are adequately supported by other mechanisms that ensure the accountability of a government. In light of the above observation, assess the role of NHRC as an effective complement to the judiciary and other institutions in promoting and protecting human rights standards. (2014)

Strengthening MSMEs for Economic Resilience

For Prelims: MSMEs, Priority Sector Lending, Mudra, Non-performing Assets (NPA), Trade Receivables Discounting System), Samadhaan Portal, Khadi and Village Industries Commission (KVIC), NITI Aayog, Intellectual Property Rights (IPR), Cloud Computing.   

For Mains: MSME sector's contribution to GDP, employment, and exports, alongside challenges like credit gaps, delayed payments, and needed policy interventions. 

Source: IE 

Why in News? 

The Delayed Payments Report 3.0, “MSME’s Access to Finance and Timely Payments” highlights that many MSMEs face challenging conditions that limit their growth and contribution to the Indian economy, underscoring the need to strengthen innovation, and competitiveness in the sector.  

What are Micro, Small, and Medium Enterprises (MSMEs)? 

• About: Micro, Small, and Medium Enterprises (MSMEs) are businesses classified according to their investment in plant & machinery or equipment and annual turnover.  
  • They are vital to India's economy, fostering entrepreneurship, creating employment, and driving industrialization in rural and semi-urban areas. 
• Classification of MSMEs: 

• MSME Regulation in India:  The Micro, Small, and Medium Enterprises Development Act, 2006 addresses MSME issues, establishes a National Board, defines enterprise, and empowers the Central Government to boost MSME competitiveness. 
  • In 2007, the Ministry of Micro, Small, and Medium Enterprises was formed which develops policies, facilitates programs, and monitors implementation to support MSMEs. 

What Role do MSMEs Play in Driving the Growth of the Indian Economy? 

• Engine of Economic Growth & Employment: MSMEs contribute around 29% to India’s Gross Domestic Product (GDP) and around 36% to manufacturing output. 
  • It employs over 120 million people. For example, the textile industry employs millions in spinning, weaving, and apparel manufacturing. 
• Driving Exports & Global Trade: MSMEs account for nearly 45% of India’s total exports, boosting India’s position in global trade. The handicraft sector, dominated by small enterprises, contributes about 40% of global handmade carpet exports. 
• Rural Development & Inclusivity: MSMEs drive rural industrialization and inclusive growth, aligning with Dr. APJ Abdul Kalam’s PURA (Providing Urban Amenities in Rural Areas) vision. Institutions like Khadi and Village Industries Commission (KVIC), mainly small-scale units, aid in balanced regional development. 
• Catalyzing Innovation: India’s startup ecosystem—the third-largest globally—is predominantly MSME-driven, with innovations in e-commerce, fintech, and other emerging industries. 
• Women Empowerment: According to the Udyam Registration Portal, over 20% of MSMEs are women-owned, reflecting growing female participation in entrepreneurship. 

What are the Key Challenges Hindering MSME Growth in India? 

Financial Hindrance (as per the Report) 

• Delayed Payments: The value of delayed payments remains cripplingly high at Rs. 8.14 lakh crore. This ties up essential working capital, preventing businesses from investing in raw materials, new machinery, or even paying their employees on time. 
• Unmet Credit Needs: The report estimates the unmet credit need is around Rs. 25 lakh crore.  
  • While bank loans have grown to Rs. 12.99 lakh crore, this still leaves a huge gap, forcing MSMEs to rely on expensive informal credit or forgo growth opportunities. 
• Rigid Banking Practices: Credit policies like Priority Sector Lending and Mudra loans have widened coverage but fall short due to: 
  • Information asymmetry (banks lack the data to accurately assess the creditworthiness of small businesses). 
  • Punitive Non-performing Assets (NPA) classification norms, which make banks hesitant to lend to what they perceive as risky MSMEs, fearing the loans will be classified as stressed assets. 

Other Hindrances 

• Formalization Barrier: Fear of tax and regulatory scrutiny keeps small owners informal, limiting access to formal credit and government schemes; over 90% of MSMEs in India remain informal, according to NITI Aayog. 
• Inadequate Access to Specialized Knowledge: MSMEs often lack affordable advisory services for exports, Intellectual Property Rights (IPR) filing, and quality certifications (ISO), keeping them out of high-value markets. They also miss mentorship networks to guide scaling and crisis management. 
• Vulnerability to Global Supply Chain Shocks: Many MSMEs rely on imported raw materials, making them vulnerable to pandemics, geopolitical conflicts, or shipping crises, which disrupt supply chains and raise input costs.  
  • E.g., India's exports contracted by 9.3% in August 2024 due to Red Sea disruptions. 
• Limited Market Access: MSMEs face limited marketing and digital reach, reduced competitiveness from high tariffs (e.g., US 50% tariffs), and higher per-unit costs due to small size, constraining exports and profitability. 
  • A constant struggle for survival due to the working capital crisis leaves little capital for investment in research and development (R&D), new technologies, or upgrading machinery.

Key Committees on Strengthening MSMEs 

• Standing Committee on Finance Report on MSME Credit (April 2022): 
  • Cash-flow Based Lending: Shift from asset-backed to real-time cash-flow based loans, linking GSTIN to account aggregator frameworks for better credit assessment. 
  • Accelerating MSME Formalisation: Encourage GST registration by linking credit access to GST invoices, increasing formal credit use and reducing reliance on informal high-cost sources. 
  • Targeted Credit Guarantees: Provide guarantees to vulnerable sectors and regions (e.g., salons, tour agencies, rural MSMEs) to ensure financial support during crises. 
  • Strengthening SIDBI’s Role: Inject Rs 5,000–10,000 crore into SIDBI to finance NBFCs and lower borrowing costs (e.g., Udyam Assist Platform for registration and financial linkages). 
• UK Sinha Committee (2019): It recommended a Rs 5,000 crore stressed asset fund for MSMEs affected by demonetisation, GST, and liquidity crises, and doubling collateral-free loan limits from Rs 10 lakh to Rs 20 lakh for Mudra borrowers, SHGs, and MSMEs. 
• Abid Hussain Committee (1997): It recommended that future policy should focus on promotion over protection, provide training and marketing support, and develop infrastructure in enterprise clusters. 
• Nayak Committee (1992): Banks must provide at least 20% of a business’s turnover as finance, with the business contributing 5% as margin.

What Key Strategies can Help Transform India’s MSME sector? 

• Promote Alternative Financing: Promote Invoice Discounting, Peer-to-Peer (P2P) lending, and venture debt for high-growth MSMEs. Create a public credit registry using GST, utility bills, and Udyam data to enable cash-flow-based lending over collateral-based lending. 
• Market Access: Collaborate with e-commerce platforms to create low-fee, MSME-only storefronts with support for onboarding, cataloging, and digital marketing.  
  • Support export consortia through grants and logistics, helping MSME clusters meet large orders and international standards. 
• Technology Adoption: Provide financial grants for MSMEs to adopt cloud computing, and automated machinery to boost productivity, and set up sector-specific tech clinics offering affordable consultancy for technical upgrades. 
• Strengthen the MSME Samadhaan Portal: Enforce automated penalties on large corporations that delay MSME payments beyond 45 days, and implement a One-Time Settlement Scheme to clear statutory dues for micro-enterprises, reducing legal burdens. 
• Fostering Resilience: Promote cluster-based development with common facility centers (for testing, design, R&D) and shared infrastructure (effluent treatment, warehousing) to reduce costs, and incentivize green practices through tax benefits, faster loans, and ESG certifications.

Conclusion 

The MSME sector is crucial for India’s economic growth, employment, and exports, but its potential is limited by a credit gap, delayed payments, and technological obsolescence. A transformative strategy emphasizing formalization, digital financing, market access, and resilient infrastructure is essential to unlock its full impact.

Drishti Mains Question

"The MSME sector is the backbone of the Indian economy, yet it remains its Achilles' heel." Critically analyze this statement in the context of the financial and structural challenges faced by MSMEs.

Frequently Asked Questions (FAQs) 

Q. What are MSMEs in India?
Micro, Small, and Medium Enterprises are businesses classified by investment in plant, machinery, and turnover, crucial for employment, exports, and rural industrialization. 

Q. How do MSMEs contribute to India’s economy? 
They contribute 29% of GDP, 36% of manufacturing output, nearly 45% of exports, and provide employment to over 120 million people. 

Q. How do delayed payments impact the growth of MSMEs?
Delayed payments, valued at over ₹8.14 lakh crore, tie up essential working capital, crippling the ability of MSMEs to invest in raw materials, new machinery, and innovation. 

UPSC Civil Services Examination, Previous Year Question:(PYQ)   

Prelims 

Q.1 What is/are the recent policy initiative(s)of Government of India to promote the growth of the manufacturing sector? (2012)

1. Setting up of National Investment and Manufacturing Zones   
2. Providing the benefit of ‘single window clearance’   
3. Establishing the Technology Acquisition and Development Fund   

Select the correct answer using the codes given below:   

(a) 1 only   

(b) 2 and 3 only   

(c) 1 and 3 only   

(d) 1, 2 and 3  

Ans: (d) 

Q2. Which of the following can aid in furthering the Government’s objective of inclusive growth? (2011)

1. Promoting Self-Help Groups   
2. Promoting Micro, Small and Medium Enterprises   
3. Implementing the Right to Education Act   

Select the correct answer using the codes given below:   

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

Ans: (d)

Q3. Consider the following statements with reference to India : (2023)

1. According to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the ‘medium enterprises’ are those with investments in plant and machinery between `15 crore and `25 crore.   
2. All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.   

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: (b)

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Mains

Q.1 “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (2017)

Q.2 Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis the industry in the country? Can India become a developed country without a strong industrial base? (2014) 

Insolvency and Bankruptcy Code (IBC) Process

Source: ET 

Why in News?

The finance ministry, after reviewing delays in case admissions and resolutions at various National Company Law Tribunal (NCLT) benches, urged banks to adopt a more strategic and coordinated approach to strengthen the Insolvency and Bankruptcy Code (IBC) process for faster timelines and better value recovery. 

What is the Insolvency and Bankruptcy Code (IBC) Process? 

• Insolvency and Bankruptcy Code (IBC): Enacted in 2016 and based on the recommendations of the T.K. Vishwanathan’s Bankruptcy Law Reforms Committee (2015), the IBC created a unified, time-bound, and creditor-driven framework for resolving corporate distress in India. 
  • It was introduced when non-performing assets (NPAs) were rising and older mechanisms SARFAESI, Lok Adalats were proving ineffective and slow. 
  • The IBC ensures that when a business becomes “sick” and defaults on its loans, creditors can recover value quickly, either through resolution (restructuring, sale to new owners) or liquidation. 
  • Its core objective is to prevent the loss of asset value, maintain a healthy credit cycle, and free up stuck capital to keep the economy vibrant. 
• Regulating Authority: The Insolvency and Bankruptcy Board of India (IBBI), a statutory body established under the IBC, 2016, is responsible for formulating rules and regulations for insolvency resolution in India.   
  • It comprises members from the Ministry of Finance, Ministry of Corporate Affairs, and the Reserve Bank of India. 
• Adjudicating Authority: In the IBC, the Adjudicating Authority for corporate persons is the NCLT, while for individuals and firms, it's the Debt Recovery Tribunal (DRT). 
• The Committee of Creditors (CoC):  It is a decision-making body under IBC, 2016. composed mainly of financial creditors, its primary role is to evaluate, approve, or reject resolution plans for a corporate debtor undergoing the Corporate Insolvency Resolution Process (CIRP). 

IBC Process 

• Triggering Insolvency: A financial creditor, operational creditor, or the debtor may file for insolvency on default. 
• Admission by NCLT: NCLT admits or rejects the application within 14 days. Once admitted, the formal CIRP starts. 
• Appointment of IRP: NCLT appoints an Interim Resolution Professional (IRP) to take control of the company, secure assets, and collect financial data. 
• Formation of CoC: The IRP forms the Committee of Creditors (CoC) of financial creditors, which decides on revival or sale of the company and may retain or replace the IRP. 
• Resolution Plan: Resolution plans are invited, evaluated, and approved by the CoC with 66% votes; failing this, liquidation follows. 
• NCLT Approval: The approved plan is submitted to NCLT for final clearance, making it binding on all stakeholders. 
• Timeline: CIRP must be completed within 330 days, ensuring faster recovery and preventing value erosion.

Pre-packaged Insolvency Resolution Process (PPIRP) 

• The PPIRP is a faster, cost-effective insolvency mechanism introduced for Micro, Small, and Medium Enterprises (MSMEs).  
• It was launched through the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 to help MSMEs facing financial stress, especially after the COVID-19 pandemic. 
• Under the PPIRP for MSMEs, creditors and existing owners can agree out of court to sell the business to an approved buyer (either a third party or a related party). 
• The mechanism is currently available for defaults up to Rs 1 crore. It must be completed within 120 days of commencement.

Regulatory Provisions for Asset Recovery in India 

• SARFAESI Act, 2002: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) is a core law empowering secured creditors (mainly banks and financial institutions) to recover dues without court intervention. 
  • The Act enables banks to recover NPAs efficiently by promoting Asset Reconstruction Companies (ARCs) and Securitisation Companies. 
• Asset Reconstruction Company (ARC): It is a special type of financial institution that buys the debts of the bank at a mutually agreed value and attempts to recover the debts or associated securities by itself.  
  • The concept of ARCs was introduced by the Narsimham Committee – II (1998), leading to the establishment of ARCs under the SARFAESI Act, 2002. 

Frequently Asked Questions (FAQs) 

Q. What is the primary objective of the Insolvency and Bankruptcy Code (IBC), 2016? 
The IBC aims to provide a unified, time-bound, creditor-driven framework to resolve corporate distress, preserve asset value, and restore a healthy credit cycle. 

Q. Who are the adjudicating and regulatory bodies under the IBC? 
The Insolvency and Bankruptcy Board of India (IBBI) regulates the process; the National Company Law Tribunal (NCLT) adjudicates corporate insolvency, while DRTs handle individual/firm cases. 

Q. What triggers the Corporate Insolvency Resolution Process (CIRP) and what is the minimum default threshold?
CIRP can be triggered by a financial creditor, operational creditor, or the debtor on default; the content provided states the minimum default threshold is Rs 1 crore. 

Q. What is the Pre-Pack Insolvency Resolution Process (PPIRP) for MSMEs and its stipulated timeline?
PPIRP allows out-of-court, creditor-approved sale or restructuring for MSMEs (defaults up to Rs 1 crore as per the content) and must be completed within 120 days to fast-track recovery.

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) 

HAMMER Precision-Guided Weapon

Source: BS 

India and France have signed a Joint Venture Cooperation Agreement (JVCA) to produce the Highly Agile Modular Munition Extended Range (HAMMER) system in India. 

HAMMER 

• About: It is a precision-guided air-to-ground weapon developed by French Safran Electronics & Defence.  
  • It converts unguided bombs into precision-strike weapons using a modular guidance + propulsion kit. 
• Key Features: Has a stand-off range of up to 70 km, enabling attacks from outside hostile air defence zones. 
  • Maintains high accuracy even in GPS-denied or electronic warfare conditions. 
  • Effective against stationary and moving targets. 
• Operational Use: It was effectively used by India during Operation Sindoor and compatible with the French Rafale and India’s Tejas light combat aircraft. 
• Importance for India: Enhances India's precision strike capability and deep offensive potential.  
  • Enables stand-off strikes without exposing aircraft to enemy air defence. 
  • Indigenisation is expected to rise to 60%, covering electronics and mechanical components, and it strengthens India–France defence ties, including fighter jet engine development and Rafale Marine procurement. 

Read More: Operation Sindoor 

India to Host 2030 Commonwealth Games

Source:PIB

The Prime Minister of India congratulated the nation as India won the Centenary Commonwealth Games (CWG) 2030 bid, with Ahmedabad (also known as Amdavad) in Gujarat set to host the CWG 2030. 

• About: CWG is the world’s second-largest multi-sport event after the Olympics, featuring athletes from 71 nations and territories, most of which are former British colonies.  
  • CWG was the brainchild of Canadian sportswriter Melville Marks Robinson. 
  • The idea of CWG originated from the 1911 Inter-Empire Championships in London, held during the Festival of Empire for King George V’s coronation. 
  • The first official CWG, then known as the British Empire Games, were held in 1930 with Canada’s Hamilton as hosts.  
    • Canadian athlete Gordon Smallacombe won the first gold medal at the Commonwealth Games in the triple jump. 
  • Since the first edition, the Games have been held every four years except in 1942 and 1946, and they were formally renamed the Commonwealth Games in 1978. 
• Governing Body: Commonwealth Games Federation (CGF) is responsible for the direction and control of the Games. 
• India at CWG: India last hosted the Commonwealth Games in 2010 in New Delhi, where it recorded its best-ever performance with 101 medals, including 38 golds, finishing second overall.  
  • Its next-best tally was 69 medals, including 30 golds, at Manchester 2002.

Read more: India to Host Commonwealth Games 2030 

India’s CEC to Assume Chairpersonship of International IDEA

Source: TH

India’s Chief Election Commissioner (CEC) is set to assume the role of the Chairperson of the International Institute for Democracy and Electoral Assistance (International IDEA) for the year 2026. 

• About International Institute for Democracy and Electoral Assistance: An inter-governmental organization (IGO) established in 1995 with an explicit mandate to support sustainable democracy worldwide. 
  • International IDEA has been granted UN observer status, and its secretariat is located in Stockholm, Sweden. 
• Mission & Vision: Its mission is to advance, promote, and protect sustainable democracy globally, with a vision for a world where everyone lives in inclusive and resilient democracies. 
• Core Functions: It operates through four key modalities: knowledge production, capacity development, advocacy, and convening dialogues. 

• Key Focus Areas (Workstreams): Its work is organized around six thematic areas: 

• Membership: Comprises 35 member states, with the United States and Japan as observers. India is a founding member.

Read More: Democracy Report 2022 

SURYAKIRAN XIX – 2025

Source:PIB 

The 19^th edition of the India–Nepal joint military exercise, SURYAKIRAN XIX – 2025, was held at Pithoragarh, Uttarakhand, to deepen military cooperation. 

• SURYAKIRAN: The joint exercise first started in 2011. It aims to practice Sub-Conventional Operations under Chapter VII of the UN Mandate, crucial for peacekeeping and conflict-management missions. 
  • Training areas include Jungle Warfare, Counter-Terrorism in Mountain Terrain, Humanitarian Assistance & Disaster Relief (HADR), Medical Response, Environmental Conservation, and Integrated Ground–Aviation Operations. 
  • The 19^th edition integrates emerging technologies, such as Unmanned Aerial Systems (UAS), drone-based Intelligence, Surveillance, and Reconnaissance (ISR) AI-enabled decision tools, unmanned logistics platforms, and armoured protection systems. 

India- Nepal Defence Relations 

• Military Ties: The 1816 Treaty of Sugauli, an agreement between the Gurkha chiefs of Nepal and the British Indian government, ended the Anglo-Nepalese War (1814–16) and paved the way for Nepali recruitment into the Indian (erstwhile British Indian) Army. 
• Treaty of Peace and Friendship 1950: The Treaty of Peace and Friendship 1950 granted national treatment to each other’s citizens in economic participation, property ownership, trade, residence, and movement. 

Read more: Building a Resilient India–Nepal Relationship