Current Economic Affairs

Current Economic Affairs

Concept Explanation

Here’s what you need to understand before diving into specific policies: RBI Grade B Phase 2 doesn’t test whether you memorised economic theories. It tests whether you can connect what’s happening right now in the economy to the theory you’ve studied. So when the exam asks about current economic affairs, it wants you to demonstrate exactly this: policy → data → impact chain.

Let’s start with RBI’s Monetary Policy Committee (MPC). The MPC was constituted in 2016 under the RBI Act, with the explicit goal of inflation targeting. It has six members — three RBI officials and three external members appointed by the government. It meets six times a year (approximately every two months) and decides on the repo rate — the rate at which RBI lends to commercial banks. The inflation target is 4% (±2% tolerance band, so 2-6% is the comfort zone). The MPC uses a bi-monthly policy cycle (as opposed to the old system where RBI Governor announced policy whenever needed).

As of the February 2025 MPC meeting, the repo rate has been held at 6.5% — unchanged since February 2023. This was a deliberate “higher for longer” stance designed to bring inflation sustainably to 4%. Why hasn’t RBI cut rates despite pressure? Because food inflation (especially vegetables, pulses) has been stubborn, and RBI wants credible evidence of inflation cooling before easing. The Governor’s statement after each MPC meeting is a masterclass in communication — reading those statements carefully is the single best preparation for this section of the exam.

Inflation trajectory: India uses Consumer Price Index (CPI) combined as its inflation measure. Headline CPI inflation was 5.1% in December 2024, above the 4% target but within the tolerance band. Core inflation (CPI excluding food and fuel) has been more persistent, hovering around 3.8-4.2%. The MPC’s job is to look through temporary food price shocks while ensuring they don’t become embedded in inflation expectations. The RBI Act actually has a flexible inflation targeting (FIT) framework — RBI is not mechanically required to hit 4% every quarter, but must endeavour to do so over the medium term while considering growth.

Now, the Union Budget 2025-26 was presented by Finance Minister Nirmala Sitharaman on February 1, 2025. Key highlights:

• Fiscal deficit target: 4.8% of GDP (down from 5.1% in FY25 RE) — this is the fiscal consolidation roadmap India is committed to
• Capital expenditure (capex): ₹11.2 lakh crore — the government is deliberately spending big on infrastructure to crowd in private investment (this is classic Keynesian countercyclical policy)
• Gross tax revenue estimated at ₹38.65 lakh crore; net tax to states via devolution: ₹47.66 lakh crore
• PM SVANidhi (micro-credit for street vendors) extended; PM-KISAN income support of ₹6,000/year continued
• 54% of Budget spending goes to states via devolution and centrally sponsored schemes — a federalism story

GST collections have been a bright spot: monthly GST collections have been above ₹1.87 lakh crore consistently since mid-2024, crossing ₹2.10 lakh crore in April 2024. The 20th consecutive month above ₹1.5 lakh crore. This is significant because GST is the most visible indicator of economic activity — when people are consuming, GST collections rise.

GDP growth: RBI projects 6.5% GDP growth for FY25, making India the fastest-growing large economy (China is growing at ~4.5%). India’s growth is driven by domestic consumption, infrastructure capex, and a resilient services sector. The International Monetary Fund (IMF) has also projected India at 6.5% for 2024-25.

Banking reforms: RBI has been pushing for digital lending standards — the Reserve Bank of India (Digital Lending – Data Handling) Directions, 2024 came into effect to protect borrowers from rogue lending apps. RBI also raised promoter contribution norms for bank board resolutions to strengthen governance. The Reserve Bank of India – Integrated Ombudsman Scheme 2021 has been upgraded to handle complaints faster.

The Digital Rupee (e-₹) is RBI’s central bank digital currency (CBDC) initiative. As of early 2025, the e-₹ pilot covers 17 banks for wholesale use (intended for interbank settlements and government securities) and 11 banks for retail use in select cities. Over 5 lakh users have transacted using e-₹. RBI’s stated objectives: reduce cost of money printing and distribution, enable direct government transfers, and improve monetary policy transmission. The challenge? Private digital payment systems (UPI, wallets) are already extremely efficient in India — finding the niche for CBDC is the ongoing work.

Key Terms & Definitions

Term	Definition
MPC	Monetary Policy Committee — 6-member RBI body that sets the repo rate; meets 6 times a year
Repo Rate	The rate at which RBI lends short-term money to commercial banks against government securities
Fiscal Deficit	Government’s total expenditure minus total receipts excluding borrowings; expressed as % of GDP
GST	Goods and Services Tax — comprehensive indirect tax replaced multiple indirect taxes since July 2017
Capex	Capital Expenditure — government spending on infrastructure, assets with long-term economic value
Core Inflation	CPI inflation excluding food and fuel components; signals underlying demand pressure
e-₹	Digital Rupee — India’s central bank digital currency (CBDC) launched in pilot stages since 2022
FIT	Flexible Inflation Targeting — RBI’s framework balancing inflation control with growth considerations
CRR	Cash Reserve Ratio — percentage of deposits banks must keep with RBI as reserves (currently 4.5%)
SLR	Statutory Liquidity Ratio — percentage of deposits banks must invest in government securities (currently 18%)

Real-World Example (RBI Context)

When the February 2025 MPC held the repo rate at 6.5% for the 10th consecutive time, the Governor’s statement said the decision was “guided by the evolving growth-inflation dynamics.” Bond markets reacted — the 10-year G-sec yield softened by 3 basis points. The same day, UPI transaction values hit a record ₹21 lakh crore in January 2025. These two data points tell a complete story: rate stability on one hand, digital payments momentum on the other — the exam loves asking you to connect such dots.

Exam Pattern / How It Appears

• Conceptual: Why does RBI use CPI (not WPI) as its inflation target? What is flexible inflation targeting?
• Numerical: Calculate fiscal deficit as % of GDP from given Budget figures; compute real interest rate from nominal rate and inflation
• Case-based: MPC statement excerpts → predict the likely monetary policy direction
• Current: Which GST slab covers restaurant services? What is the current repo rate? (Keep these current facts on your fingertips)

Step-by-Step Example

Q: The Union Budget shows total receipts (excluding borrowings) of ₹30.6 lakh crore and total expenditure of ₹50.6 lakh crore. Calculate the fiscal deficit as a percentage of GDP, given that GDP is ₹200 lakh crore.

Answer: Fiscal Deficit = Total Expenditure − Total Receipts = ₹50.6 lakh crore − ₹30.6 lakh crore = ₹20 lakh crore Fiscal Deficit as % of GDP = (₹20 lakh crore / ₹200 lakh crore) × 100 = 10% Note: India’s actual fiscal deficits are lower because government also gets disinvestment receipts and Recovery of loans. The primary deficit (excluding interest payments) is another commonly asked metric. For FY25 BE, fiscal deficit was 5.1% of GDP.