Current Affairs 28 August 2025

Content

1. India May Become 2nd-Largest Economy by 2038 (PPP terms)
2. Finance Ministry’s July 2025 Economic Review – US Tariff Impact
3. E-commerce Exports Policy Debate
4. India–US Tariff & Diplomatic Tensions
5. ISRO’s Integrated Air Drop Test (IADT) & Gaganyaan Roadmap

India May Become 2nd-Largest Economy by 2038 (PPP terms)

Understanding PPP & GDP

• GDP (Nominal): Measured at market exchange rates; useful for global financial flows.
• GDP (PPP): Purchasing Power Parity adjusts for price level differences → reflects real purchasing power, living standards.
• India’s position today (2024-25):
  • Nominal GDP ~ $4.1 trillion (5th largest).
  • PPP GDP ~ $15.4 trillion (3rd largest, after China & US).

Relevance : GS 3(Indian Economy)

EY Report (Aug 2025) – Key Projections

• 2030: India’s GDP at $20.7 trillion (PPP).
• 2038: India at $34.2 trillion (PPP) → 2nd largest economy, overtaking the US.
• US in comparison: Debt >120% of GDP, slower growth (~2.1%).
• China: Still No.1 but faces aging & debt issues.

Growth Drivers for India

1. Demographics
   1. Median age: 28.8 years (2025) vs China (39), US (38).
   1. Large working-age population → “demographic dividend”.
2. Savings & Investment
   1. Among the highest savings rates globally → fuels capital formation.
   1. Infra spending + private investments rising under PLI (Production Linked Incentives).
3. Structural Reforms
   1. GST → unified tax regime.
   1. IBC → improved insolvency resolution.
   1. UPI → digital payments revolution.
   1. PLI schemes → boost manufacturing, exports.
4. Fiscal Position
   1. Govt. debt-to-GDP projected to decline: 81.3% (2024) → 75.8% (2030).
   1. Relatively sustainable compared to US (120%+) or Japan (250%+).
5. Technology & Green Growth
   1. Adoption of AI, renewables, EVs, green hydrogen.
   1. Digital infra (UPI, Aadhaar, ONDC) = global benchmark.

Risks & Challenges

• External shocks:
  • US Tariffs (Aug 2025): 50% tariffs on Indian goods → potential 0.9% GDP impact.
  • With countermeasures, hit reduced to just 0.1% (10 bps).
• Internal hurdles:
  • Job creation lagging vs working-age population.
  • Regional disparities (North-South divide).
  • Skill development gap in AI, advanced manufacturing.
• Global Comparisons:
  • China: Growth slowing (aging, high debt).
  • US: Political polarization, debt >120% GDP.
  • Germany/Japan: Aging population + dependence on trade.
    → India seen as most dynamic among top 5 economies.

Global Implications

• Geo-economics:
  • India as growth engine of Global South.
  • Alternative to overdependence on China for global supply chains.
• Geo-politics:
  • Larger role in G20, BRICS, WTO reform.
  • Strengthens case for UNSC permanent membership.
• Viksit Bharat 2047 Vision:
  • Second-largest economy by 2038 → aligns with India’s plan to become a developed nation by 2047.

Key Takeaways

• India’s trajectory to $34.2 trillion GDP (PPP) by 2038 makes it No.2 globally.
• Drivers: demographics, reforms, savings, infra, digital, green energy.
• Risks: tariffs, global slowdowns, domestic unemployment.
• Strategy Needed:
  • Diversify trade partners.
  • Invest in education & skills.
  • Push domestic demand + manufacturing.
  • Sustainable fiscal & energy policies.

Finance Ministry’s July 2025 Economic Review – US Tariff Impact

Tariffs & Trade

• Tariff: Tax imposed on imports/exports → makes goods costlier, reduces competitiveness.
• Direct effect: Higher tariffs → costlier Indian exports in US → lower demand.
• Indirect/Secondary effect: Supply chain disruptions, reduced investment, job losses in export sectors.
• Tertiary effect: Slower growth in allied sectors (logistics, finance, services linked to exports).

Relevance : GS 2(International Relations) , GS 3(Indian Economy)

Immediate Context

• US action: Extra 15–20% tariff, potential 50% tariff on some Indian exports (Aug 2025).
• Sectors exempted: Pharmaceuticals, semiconductors, consumer electronics → soften the blow.
• India’s exports to US: ~2% of GDP.
• Exposure subject to tariffs: ~12% of India’s GDP (after exemptions).

Finance Ministry’s Key Observations

1. Immediate impact limited, but:
   1. Secondary & tertiary effects could hurt exports, capital formation, investor confidence.
2. Diversification Strategy:
   1. Recent FTAs: UK, EU.
   1. Ongoing negotiations: US, EU, New Zealand, Chile, Peru.
   1. Will take time to yield results.
3. Government’s Approach:
   1. “Government & private sector acting in tandem” can minimise disruption.
   1. Tariffs seen as a temporary setback → opportunity to strengthen resilience.
4. Global Credit Outlook:
   1. S&P upgraded India’s rating BB+ → BBB.
   1. Suggests India’s fundamentals are strong enough to absorb tariff shocks.

Risks Identified

• Short-term risks:
  • Export slowdown in high-value sectors (engineering goods, textiles, auto components).
  • Reduced capital formation (investment hesitancy due to uncertainty).
• Medium-term risks:
  • Supply chain disruptions.
  • Loss of competitiveness vis-à-vis Vietnam, Bangladesh, ASEAN (who enjoy lower US tariffs).
• Long-term risks:
  • Overdependence on US market (India’s largest trading partner).
  • Risk of being caught in US–China geopolitical rivalry.

Opportunities in Crisis

• Export Diversification: Shift to EU, UK, ASEAN, Africa, Latin America.
• Domestic Demand Push: Boosting “Make in India” for local consumption.
• Resilience-building: Policies to handle global shocks better (PLI, infra, digital push).
• Strategic Negotiation: Use tariff threat as leverage in India-US trade deal.

Global & Domestic Context

• Global backdrop: Rising protectionism (US, EU), weakening WTO dispute settlement.
• India’s positioning:
  • Dynamic among top 5 economies (growth ~6–6.5%).
  • Strengthened fiscal & external fundamentals → buffer against shocks.

Key Takeaways

• Direct hit limited: Only ~2% of GDP exposed directly.
• Secondary/tertiary risks matter: exports, investment, supply chains could slow.
• Mitigation: Diversification, policy agility, public-private cooperation.
• Big picture: India can turn tariff pressure into opportunity to push reforms, diversify trade, and accelerate domestic capacity-building.

E-commerce Exports Policy Debate

E-commerce Export Models

• Marketplace model (current dominant in India)
  • Platform acts as an intermediary (Amazon, Flipkart, Meesho).
  • Sellers own goods; platform facilitates sale.
  • Suits MSMEs selling handicrafts, books, garments, jewellery (avg. value $25–$1,000).
• Inventory-led model (debated)
  • Platform owns inventory → sells directly to consumers.
  • Allows efficiency, scale, compliance ease.
  • China’s success: $300 bn exports via inventory-led e-commerce.
  • India currently restricts FDI in inventory-led B2C (to protect local traders & prevent monopolies).

Relevance : GS 3(Export-Import)

Current Context

• India’s e-commerce exports (2025): ~$5 billion only.
• Potential (GIRI think-tank): $350 billion by 2030 if reforms + ECEHs succeed.
• ECEHs (E-commerce Export Hubs): Announced in Union Budget → clusters for logistics, warehousing, packaging, customs clearances, MSME support.

Stakeholder Positions

• MSMEs’ demand:
  • Allow FDI in inventory-led model.
  • Reduces compliance burden (taxes, customs, paperwork).
  • Ensures better logistics, global competitiveness.
• Opposition groups (domestic traders, policy hawks):
  • Fear of market concentration by giants (Amazon, Walmart, Alibaba).
  • Threat to kirana shops & small sellers.
  • Risk of predatory pricing, job losses in traditional retail.
• Government stance (so far):
  • Exploring options but cautious due to political sensitivity (trader community = large voting bloc).
  • Consultations ongoing with US firms, American-Indian retailers, MSME groups.

Opportunities for India

• China model replication: From <$10 bn in early 2000s → $300 bn exports today.
• MSME integration into global value chains via digital platforms.
• Boost to “Vocal for Local” + “Atmanirbhar Bharat” → reach foreign markets.
• Potential growth driver: E-commerce exports could rival IT exports boom of early 2000s.
• Foreign investment inflow: Efficient inventory-led supply chains attract FDI.

Risks & Challenges

• Market distortion: Few large platforms dominating → MSMEs may become dependent.
• Policy contradictions:
  • Atma Nirbhar Bharat vs. heavy FDI inflows.
  • Trader associations (CAIT) resistance.
• Infrastructure gaps: Customs, logistics, warehousing not yet fully digitized.
• Data concerns: Inventory-led models → control of consumer data by foreign giants.
• Political economy: Trader lobby’s clout may block reforms despite economic logic.

Global Context

• China: Inventory-led e-commerce + logistics backbone → dominant in cross-border trade.
• US/EU: Hybrid models (marketplace + inventory).
• India lagging: Despite digital revolution (UPI, ONDC, GST), exports via e-commerce <1% of total merchandise exports.

Way Forward

• Short-term:
  • Operationalize ECEHs with single-window clearances, warehousing, packaging, payment solutions.
  • Provide export credit + insurance to MSMEs selling online.
• Medium-term:
  • Gradual opening to FDI in inventory-led model with safeguards (caps, domestic sourcing norms).
  • Integrate MSMEs with ONDC (Open Network for Digital Commerce) for cross-border trade.
• Long-term:
  • Build China-style logistics backbone (ports, bonded warehouses, digital customs).
  • Target $350 bn e-commerce exports by 2030, aligning with “Viksit Bharat 2047” goals.

Key Takeaways

• India’s e-commerce exports = $5 bn (2025) vs China’s $300 bn.
• Potential = $350 bn by 2030 if reforms + FDI allowed in inventory-led model.
• MSMEs demand easing compliance via inventory-led FDI, but strong opposition exists.
• Policy balance needed between boosting exports and protecting small domestic traders.

India–US Tariff & Diplomatic Tensions

Trade Relationship

• India–US trade (2024–25):
  • Goods trade: ~$200 bn (US is India’s largest trading partner).
  • Services trade: ~$65–70 bn (IT, consulting, digital services major contributors).
  • India exports to US: ~2% of India’s GDP; exposure to tariffs (after exemptions) ≈ 12% of GDP exports.
• New tariffs (Aug 27, 2025):
  • US imposed 50% tariffs on Indian goods (some exemptions → pharma, consumer electronics).
  • Immediate effect limited, but secondary + tertiary effects (supply chains, investor sentiment, FDI flows) more worrying.

Relevance : GS 2(international Relations), GS 3(Indian Economy)

Diplomatic Context

• US Treasury Secretary Bessent:
  • Called India–US relationship “complicated”.
  • Stressed that Trump & Modi enjoy strong personal rapport.
  • Assured that “end of the day, both countries will come together”.
• Donald Trump’s stance:
  • Reiterated claims of brokering India–Pakistan ceasefire (May 2025), even suggesting he “prevented a nuclear conflict”.
  • Threatened India with “tariffs so high your head will spin” if hostilities resumed.
  • Highlights Trump’s transactional style → linking security issues (India–Pakistan) with trade deals.
• Indian Govt response:
  • Commerce Ministry: “Communication lines open” with US; also engaging industry to soften tariff impact.
  • Ongoing India–US FTA talks, but progress slow due to divergences (agriculture, digital trade, tariffs).

Geopolitical Layer

• India–Pakistan angle:
  • Trump claims → pressure diplomacy (“stop war or face tariffs”).
  • India rejects external mediation, but acknowledges US influence in crisis de-escalation.
• Energy & Russia factor:
  • US pushing India on Russian oil imports.
  • India balancing → cheap Russian crude vs. avoiding sanctions.
• Visas & People-to-People ties:
  • Parallel US debates: H-1B visas (DeSantis calling them a “scam”), green card reforms.
  • Impacts ~1 million Indian professionals in US → politically sensitive.

Domestic Implications for India

• Economic:
  • Immediate tariff impact small (0.1% GDP hit).
  • Risk of export diversification pressure → India needs FTAs with EU, UK, others.
  • MSMEs & textile/handicraft exporters most affected.
• Political:
  • Modi–Trump personal rapport may cushion fallout.
  • But Trump’s rhetoric (“your head will spin”) plays into domestic political optics.
• Strategic:
  • India cannot allow trade tensions to spill over into defense cooperation (Quad, Indo-Pacific strategy, defense tech transfers).

Opportunities for India

• Negotiating leverage: India can offer tariff reductions on US agri/energy imports in exchange for easing tariffs.
• Diversification: Boosting trade with EU, UK (FTAs signed), ASEAN, Africa to reduce overdependence on US.
• Reforms push: Tariff shock can accelerate domestic reforms (logistics, ease of doing business, MSME digitization).

Risks & Challenges

• Transactional Trump: Uses tariffs as foreign policy tool → creates uncertainty.
• Domestic US politics: H-1B crackdown, election year rhetoric can harden stance on India.
• Geopolitical linkage: US tying India–Pakistan conflict to trade concessions complicates India’s diplomatic space.
• Investor sentiment: Long-term US tariffs could discourage US FDI in Indian manufacturing.

Big Picture

• India–US ties = multi-dimensional (trade, defense, people-to-people, Indo-Pacific security).
• Current tensions underline the need for:
  • Redrawing India’s trade “red lines” (per Editorial note).
  • Accelerating domestic reforms (infrastructure, MSMEs, e-commerce exports).
  • Strategic hedging: Balancing US pressure with alternative markets (EU, ASEAN, BRICS).

Key Takeaways

• India–US trade conflict (2025) = economic + political + geopolitical mix.
• Tariff impact modest on GDP, but secondary effects → riskier (exports, FDI, supply chains).
• Trump’s rhetoric links security (India–Pak conflict) with trade concessions, complicating matters.
• India must use this pressure as an opportunity to diversify trade & accelerate reforms, while safeguarding strategic ties with the US.

ISRO’s Integrated Air Drop Test (IADT) & Gaganyaan Roadmap

What is IADT?

• Definition: An experimental test to validate the parachute-based deceleration system that slows down and safely lands the Gaganyaan crew module after atmospheric reentry.
• How conducted (Aug 24, 2025):
  • 4.8–5 tonne dummy crew capsules dropped from 3 km altitude using an Indian Air Force Chinook helicopter.
  • Parachutes deployed in sequence (pilot chute → drogue chute → three main chutes of 25 m each).
  • Aim: Ensure safe splashdown in sea conditions within 8 m tolerance.
• Purpose: Replicate the last and most critical stage of a human spaceflight — safe recovery of astronauts.

Relevance : GS 3(Space )

Agencies Involved

• ISRO: Lead agency, developing human-rated systems.
• IAF (Indian Air Force): Provided Chinook helicopter.
• DRDO labs:
  • DMRL: Defence Metallurgical Research Laboratory → heat-shield & structural materials.
  • LRDE: Electronics & avionics for parachute and health monitoring.
• Navy & Coast Guard: Recovery readiness in case of failures or emergencies.

Why Multiple Tests are Needed

• Human spaceflight demands 99.9%+ reliability (vs ~90–95% for robotic missions).
• Tests ensure redundancy & safety under all possible failures:
  • Crew Escape System (CES) – abort during launch.
  • Air-drop tests – safe parachute deployment.
  • Pad abort & in-flight abort tests – already demonstrated in 2018 & 2023.
  • Uncrewed Gaganyaan missions (G1, G2) before actual astronauts.
• Hundreds of subsystem tests (ECLS, IVHMS, escape motors, composites) → certification before human flight.

Preparations for Gaganyaan

• Mission goal: Send 3 astronauts to Low Earth Orbit (LEO) for 3 days (~400 km altitude).
• Launcher: Human-rated LVM3 (GSLV Mk-III) rocket.
• Milestones:
  • TV-D1 (Oct 2023) → CES pad abort success.
  • TV-D2 (Dec 2023) → helicopter abort test.
  • TV-D3 (2024) → multiple abort scenarios.
  • G1 (Apr 2024) → first uncrewed orbital flight with Vyommitra humanoid robot.
  • Crewed H1 mission → post-2025 after full validation.

India’s Long-Term Spaceflight Roadmap

• Not just Gaganyaan → foundation for broader human space program.
• Key milestones announced:
  • Bharatiya Antariksh Station (BAS) in Low Earth Orbit by 2035.
  • Crewed lunar landing by 2040.
• Technologies needed:
  • Reusable launch vehicles.
  • Advanced life-support & environmental systems.
  • Deep-space propulsion & radiation protection.
  • Habitability modules for orbital stations.

Strategic & Economic Significance

• Prestige: India joins elite club (US, Russia, China) in human spaceflight.
• Technology spin-offs: Materials science, robotics, AI, avionics, composites, life-support tech.
• Geopolitical leverage: Space diplomacy → collaborations with NASA, ESA, JAXA, Roscosmos.
• Economic multiplier: Indigenous tech fosters aerospace, defense, MSME ecosystem.

Challenges

• Cost: Gaganyaan budget ~₹9,000–10,000 crore (excluding BAS & lunar mission).
• Safety: Astronaut life-risk → zero margin of error.
• Delays: Pandemic, supply chain disruptions, and technology development slowed timelines (original crewed flight target: 2022, now ~2025–26).
• Capability gap: Human-rating rockets, radiation shielding, long-duration life support still under development.

Big Picture

• IADT success = critical milestone → validates safe astronaut recovery.
• Gaganyaan = stepping stone → India’s roadmap is about sustained human presence in space, not just one-off missions.
• Aligns with “Viksit Bharat @2047” vision: tech leadership, self-reliance, and space power status.