Mains Practice Questions for the Day
- Q. “Semiconductors are not merely industrial inputs but strategic assets that determine a nation’s technological and economic strength.” In this context, examine the need for developing a domestic semiconductor ecosystem in India. Discuss how Semicon 2.0 seeks to achieve this objective.
- Q. The introduction of Merchant Discount Rate on selected UPI transactions reflects an attempt to balance the financial sustainability of digital-payment infrastructure with financial inclusion. Examine the rationale and major features of the new framework. Discuss its challenges and suggest a suitable way forward.
Q. “Semiconductors are not merely industrial inputs but strategic assets that determine a nation’s technological and economic strength.” In this context, examine the need for developing a domestic semiconductor ecosystem in India. Discuss how Semicon 2.0 seeks to achieve this objective.
Introduction:
Semiconductors are the basic components of modern electronics. They power artificial intelligence, telecommunications, electric vehicles, medical equipment, data centres, defence systems and space missions. Secure access to chips has therefore become essential for economic competitiveness, technological self-reliance and national security.
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Need for a Domestic Semiconductor Ecosystem
- India’s semiconductor demand is projected to reach $110 billion by FY2030 and exceed $200 billion by FY2035.
- India spent nearly $150 billion on semiconductor-product imports during FY2017–FY2025.
- Global chip production is concentrated in a few countries, exposing India to geopolitical and supply-chain disruptions.
- Defence platforms, satellites, telecommunications and critical infrastructure require secure and reliable chips.
- Domestic manufacturing can reduce foreign-exchange outflow, increase value addition and generate high-skilled employment.
Role of Semicon 2.0
Approved with an outlay of ₹1,27,500 crore, Semicon 2.0 seeks to build the complete chip value chain through six pillars:
- chip design;
- machines and specialised materials;
- additional fabrication facilities;
- advanced and conventional packaging;
- research and development; and
- talent creation.
It builds upon Semicon 1.0, under which 12 manufacturing units and 24 chip-design projects were approved.
Challenges
- Semiconductor fabrication is technologically complex and capital-intensive.
- India’s domestic manufacturing capacity remains at an early stage.
- Equipment, materials and advanced technologies are globally concentrated.
- The industry requires highly specialised engineers, researchers and operators.
- Semiconductor projects require patience, precision and stable long-term policies.
Way Forward
- Maintain predictable and sustained policy support.
- Strengthen cooperation among industry, universities and research institutions.
- Expand specialised education and workforce training.
- Promote domestic production of equipment, chemicals and materials.
- Combine self-reliance with trusted international technology partnerships.
- Support research from mature nodes to advanced semiconductor technologies.
Conclusion:
Semicon 2.0 represents India’s shift from isolated manufacturing projects towards an integrated semiconductor ecosystem. Effective implementation can strengthen supply-chain resilience, strategic autonomy and India’s position as a trusted global technology hub.
Q. The introduction of Merchant Discount Rate on selected UPI transactions reflects an attempt to balance the financial sustainability of digital-payment infrastructure with financial inclusion. Examine the rationale and major features of the new framework. Discuss its challenges and suggest a suitable way forward.
Introduction:
The Merchant Discount Rate (MDR) is a fee paid by merchants to banks, payment-service providers and UPI applications for processing digital payments. From October 15, 2026, it will apply to specified person-to-merchant UPI transactions above ₹2,000, while individuals and most small-value payments will remain exempt.
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Rationale
Banks and payment companies bear expenditure on cloud storage, security, settlement, applications and customer support. The annual cost of maintaining UPI infrastructure is estimated at up to ₹20,000 crore. MDR seeks to generate resources for sustaining and improving this infrastructure.
Major Features
- Person-to-person transfers remain free irrespective of value.
- Merchant payments up to ₹2,000 are exempt.
- General merchant payments above ₹2,000 attract 0.4% MDR, capped at ₹300 for transactions of ₹75,000 or more.
- Essential-sector payments attract a flat ₹5 charge.
- Capital-market payments attract 0.02%, subject to a ₹300 ceiling.
- UPI AutoPay transactions and eligible micro-merchants receiving up to ₹1 lakh monthly remain exempt.
- MDR revenue is shared among payer banks, merchant banks, UPI applications and Payment Service Providers.
Challenges
- Merchants may indirectly pass the charge to consumers or encourage cash payments.
- Reclassification may increase costs for growing micro-merchants.
- Revenue may become concentrated among dominant banks and UPI applications.
- The source of the proposed contribution equal to 5% of MDR collections for the small-merchant fund remains unclear.
- Charges may weaken UPI’s character as accessible digital public infrastructure.
Way Forward
- Strictly prevent platform fees, hidden charges and indirect recovery from consumers.
- Clearly communicate P2PM eligibility and reclassification rules.
- Publish transparent data on MDR collection and distribution.
- Clarify the financing and utilisation of the small-merchant fund.
- Periodically assess the framework’s impact on merchant behaviour, cash usage and financial inclusion.
Conclusion:
A carefully regulated MDR can support UPI’s financial sustainability without undermining its accessibility. Transparent implementation and effective protection of consumers and small merchants are essential to preserve India’s digital-payment momentum.
