RBI Grade B Current Affairs — 26 August 2026

The Reserve Bank of India's Monetary Policy Committee, chaired by Governor Sanjay Malhotra, unanimously held the repo rate at 6.5 percent with a neutral stance in its first bi-monthly review of 2025-26. The Standing Deposit Facility rate stays at 6.25 percent and the Marginal Standing Facility rate at 6.75 percent. The RBI projected real GDP growth at 6.9 percent for FY26, down from 7.6 percent in FY25, citing West Asia conflict risks and possible El Niño conditions. CPI inflation is projected at 4.6 percent.

The MPC decision involves three interlocking mechanisms every aspirant must understand.

**LAF Corridor mechanics:** The repo rate sits at the centre of the Liquidity Adjustment Facility corridor. The SDF rate (floor) is always 25 basis points below repo, and the MSF rate (ceiling) is always 25 basis points above. When the repo rate is 6.5%, the SDF is 6.25% and MSF is 6.75%. A 'neutral stance' means the MPC is neither committed to cutting nor hiking — it retains optionality based on incoming data.

**Inflation targeting framework:** Under the amended RBI Act, the MPC must keep CPI inflation at 4% ± 2%. Projecting inflation at 4.6% keeps it within the tolerance band but above the 4% target, explaining why rates remain unchanged rather than being cut. The twin upside risks — energy prices from the West Asia conflict and El Niño affecting food prices — make the MPC cautious.

**Growth-inflation tradeoff:** Lower GDP growth (6.9% vs 7.6% in FY25) might ordinarily prompt rate cuts to stimulate demand. But with inflation still above 4% and external risks elevated, the MPC chose to hold. This illustrates the classic monetary policy dilemma — easing to support growth risks reigniting inflation. The unanimous vote signals consensus, not division.

**Exchange rate policy:** RBI reaffirmed market-determined exchange rates, with intervention only to curb disruptive volatility — not to defend a specific level. This is distinct from a fixed or managed peg.

Unified Payments Interface, launched by NPCI on April 11, 2016, completed ten years of operation in 2026. Built on IMPS infrastructure and regulated under the Payment and Settlement Systems Act, 2007, UPI now processes over 18 billion transactions monthly, accounting for roughly 46% of global real-time payment volumes. It operates across 8 countries including Singapore, UAE, and France. The system connects 600-plus banks and supports features like UPI Lite, UPI 123PAY for feature phones, and credit-line-on-UPI.

UPI is a real-time, mobile-first interoperable payment system built on the Immediate Payment Service (IMPS) rails developed by NPCI. It uses a Virtual Payment Address (VPA) to abstract bank account details, enabling push and pull transactions on a 24×7×365 basis. The regulatory anchor is the Payment and Settlement Systems Act, 2007, under which RBI authorises payment system operators. NPCI, a not-for-profit entity set up jointly by RBI and IBA under the Companies Act, owns and operates UPI.

At its core, UPI works on a two-factor authentication model (device binding + UPI PIN) and is interoperable across third-party apps (PhonePe, GPay, Paytm, etc.) and bank apps. This interoperability, mandated by NPCI, is what separates UPI from closed-loop wallets.

Key structural milestones: UPI was launched April 11, 2016; UPI 2.0 added overdraft accounts and one-time mandates (2018); UPI Lite (offline, low-value transactions without UPI PIN up to ₹500, wallet limit ₹2,000) was introduced in 2022; UPI 123PAY for feature phones (IVR, missed-call, app-based) in 2022; and credit-line-on-UPI allowing pre-sanctioned credit lines from banks to be used via UPI was enabled in 2023. RBI has also set a market-cap rule: no single third-party app can exceed 30% of total UPI transaction volume, though the deadline has been extended multiple times. Globally, UPI linkages exist with PayNow (Singapore), PromptPay (Thailand), and several Gulf nations. India's share of roughly 46% of global real-time payment volume is a critical statistical anchor for exam purposes.

India and Japan have formalised a semiconductor cooperation pact, pairing Japan's mature chip-design expertise and materials technology with India's large engineering talent pool and growing fab ambitions under the India Semiconductor Mission. The agreement covers joint research, workforce training, and supply-chain integration. It arrives as both nations seek to reduce dependence on a concentrated East Asian chip supply chain and as India's ₹76,000 crore semiconductor incentive scheme attracts its first anchor fab investments.

Semiconductors have become the defining strategic resource of the 21st century — the oil of the digital age. A chip shortage in 2021–22 disrupted automotive, consumer electronics, and defence supply chains globally, accelerating every major economy's push for domestic fabrication capacity.

India's position today is asymmetric: it has strong chip-design capability (over 20% of the world's chip designers are India-trained) but almost zero domestic fabrication. Japan, meanwhile, was once the world's dominant chipmaker — holding over 50% of global semiconductor market share in the late 1980s — but ceded ground to Taiwan (TSMC), South Korea (Samsung), and later China. Japan retains world-class strengths in semiconductor-grade silicon wafers, specialty chemicals, photolithography materials, and legacy-node chip design.

The pact thus represents a complementarity play: India supplies scale (engineers, land, market), Japan supplies depth (process know-how, materials, equipment).

India Semiconductor Mission (ISM), launched under the Ministry of Electronics and Information Technology (MeitY), operates a ₹76,000 crore (~$10 billion) scheme with fiscal support for fab units (50% of project cost), display fabs, and compound semiconductor units. First approvals include Tata Electronics–Powerchip (Gujarat) and CG Power–Renesas (Sanand).

The geopolitical layer matters for the exam: India, Japan, the US, and Australia form the Quad — semiconductor supply-chain resilience is now a Quad-level agenda item. Understanding how bilateral tech pacts nest inside multilateral frameworks like the Quad and the IPEF (Indo-Pacific Economic Framework) is precisely the 'static hinterland' UPSC tests.

India signed the Trade and Economic Partnership Agreement (TEPA) with the four-nation European Free Trade Association — Switzerland, Norway, Iceland, and Liechtenstein — in March 2024. EFTA committed to facilitating $100 billion in investment into India over 15 years and generating one million direct jobs. MoS Commerce Jitin Prasada reviewed implementation progress in 2025. TEPA is India's first FTA with developed European nations and covers goods, services, intellectual property, and investment promotion.

TEPA between India and EFTA is structurally significant for several reasons that examiners probe. First, EFTA is not the EU — it comprises Switzerland, Norway, Iceland, and Liechtenstein, and was founded in 1960 as an alternative to the European Economic Community. India is not a member; TEPA is a bilateral trade pact, not a membership arrangement.

The agreement is notable because it contains a legally binding investment facilitation commitment — $100 billion over 15 years — which is unprecedented in India's FTA history. Unlike most FTAs that only reduce tariffs, TEPA includes a best-endeavour clause on investment targets, making the investment commitment politically prominent even if it lacks hard enforcement teeth.

TEPA covers goods (phased tariff reduction), services (Mode 1–4 under GATS framework), intellectual property rights (TRIPS-plus provisions, especially relevant for Swiss pharmaceuticals), investment facilitation, and government procurement discussions. India secured carve-outs on sensitive agricultural products and dairy.

For RBI aspirants, the payment and financial services chapter is relevant — it enables greater Swiss financial services access to India while India's UPI and digital payment systems gain potential recognition pathways in EFTA markets.

For UPSC aspirants, TEPA represents India's shift toward quality FTAs with investment conditionality rather than pure market-access deals, reflecting lessons learned from the ASEAN FTA experience where India ran large deficits without commensurate investment inflows.