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GS Paper: GS3

  • Supreme Court makes school students the instrument for changing household waste behaviour

    Why in the News

    The Supreme Court has directed the Department of School and Higher Education to integrate theoretical and practical instruction on solid waste management so that students train their own family members. The order rejects the assumption that solid waste is a problem for sanitary workers alone, holding that a minuscule number of sanitary workers cannot handle the waste generated by a population of 1.4 billion. The order was passed on 18 August and released on Wednesday.

    What are the Solid Waste Management Rules, 2026?

    1. About: The Solid Waste Management (SWM) Rules, 2026 are the subordinate rules that set the national standards for the segregation, collection, transport, processing and disposal of municipal solid waste.
    2. Benchmark for audit: The Court treated these Rules as the extant standard against which existing waste infrastructure must be completely audited and upgraded.
    3. Where implementation power sits: The Court agreed with the Additional Solicitor General that the true power to implement the Rules lies with householders, local body officers and every direct and indirect contributor of waste, not with the municipal machinery alone.

    What are the five categories of waste the Court identified?

    1. Biodegradable waste: Organic waste from kitchens, markets and gardens that decomposes and is treatable by composting or biomethanation.
    2. Non biodegradable waste: Plastics, metals, glass and packaging that persist and require material recovery or recycling.
    3. Hazardous waste: Waste with toxic, corrosive, reactive or infectious properties requiring specialised handling and treatment.
    4. Electronic waste: Discarded electrical and electronic equipment carrying both recoverable metals and toxic components.
    5. Construction waste: Debris from building, renovation and demolition, which is the heaviest stream by volume in a growing city.
    6. The Court’s conclusion from the set: The volume and complexity of these five streams have outgrown what any single class of workers can be expected to handle.

    Why did the Court call the sanitary worker assumption constitutionally unethical?

    1. The prevailing assumption: The Bench held that the assumption that solid waste is a problem for sanitary workers alone, while the rest of the population remains passive generators, is neither legally correct nor practically sustainable, and is constitutionally unethical.
    2. The general feeling in society: The Court described the regrettable attitude as one where a person is entitled to generate but not to cooperate and control the impact of solid waste management at the threshold.
    3. Arithmetic of the mismatch: Every human being and their activities result in pollution, yet all contributors expect a minuscule percentage of sanitary workers to handle it.
    4. The responsibility it fixed: The Court held that this perception shall be eradicated and that waste management shall be the responsibility of all contributors.
    5. The public health warning: Continued complacency would lead to pandemic and endemic situations.

    What monitoring machinery has the Court already put in place?

    1. Trigger for the committee: The imbalance between the volume of waste generated and the infrastructure to collect it alarmed the Court on 25 May, when it constituted a monitoring committee.
    2. Five Union Secretaries: The committee comprises the Secretaries of the Ministries of Housing and Urban Affairs; Environment, Forest and Climate Change; Jal Shakti; and Panchayati Raj and Rural Development; and the Department of Drinking Water and Sanitation.
    3. Pollution regulator: The Member Secretary of the Central Pollution Control Board (CPCB) is the sixth member.
    4. Design logic of the composition: Urban services, environmental standards, water and sanitation, and rural local government are placed in a single body because waste crosses all four jurisdictions.

    Why did the Court fall back on education rather than penalty?

    1. The limit of law: The Bench accepted the reality that law alone could not induce good civic behaviour, and that the change had to come from within.
    2. The instrument chosen: The Court held that an educated child is the most effective and least coercive instrument for educating a parent or a relative.
    3. The tension this creates: Rules, standards and a five Secretary committee are enforceable instruments with fixed accountability, while behavioural change through schoolchildren has no compliance date and no defaulter.
    4. The reversal of the usual direction: Compliance is being routed through the household rather than through the municipal contractor, which shifts the burden to the very generators the Rules had earlier treated as passive.

    What directions did the Court issue?

    1. Curriculum integration: The Department of School and Higher Education must integrate, with immediate effect, both theoretical and practical knowledge on solid waste management.
    2. Students as trainers: Students are to be equipped to train their own family members in waste handling at the household stage.
    3. Teachers as trainers of trainers: Teachers are to be trained so that they can deliver the practical component.
    4. District level engagement: District Collectors must engage with households and educational institutions.
    5. Infrastructure audit: The waste infrastructure needs a complete audit and upgradation to meet the extant standards of the Solid Waste Management Rules, 2026.

    Conclusion

    The Court has reclassified solid waste from a service delivery failure of municipal sanitation into a generation side behavioural failure of 1.4 billion contributors, and has held the passive generator assumption to be constitutionally unethical. Its enforceable directions are the curriculum mandate on the Department of School and Higher Education, the engagement duty on District Collectors and the infrastructure audit against the Solid Waste Management Rules, 2026. The five Secretary committee constituted on 25 May continues to monitor the volume and infrastructure mismatch. The next stage will turn on whether the Department reports a dated curriculum integration plan, since the order carries an immediate effect direction but no separate compliance schedule.

    “[2018, GS3, 10 marks] What are the impediments in disposing the huge quantities of discarded solid wastes which are continuously being generated? How do we remove safely the toxic wastes that have been accumulating in our habitable environment?”

  • Supreme Court orders a time bound eviction framework for Agasthyamalai encroachments

    Why in the News

    The Supreme Court has held that clearing encroachments inside the protected areas of the Agasthyamalai landscape requires a structured, time bound and closely monitored framework. Encroachments have survived decades of directions from the Madras High Court and the top court, so the Court has shifted from ordering eviction to removing the benefits that keep illegal occupation viable. The Court also raised the option of using paramilitary forces to carry out the evictions.

    What is the Central Empowered Committee?

    1. About: The Central Empowered Committee (CEC) is a body that examines forest and wildlife compliance matters and reports its findings and recommendations directly to the Supreme Court.
    2. Mandate in this case: The Court directed it last year to survey the entire Agasthyamalai landscape and identify every non forestry activity running contrary to the Forest (Conservation) Act, 1980 and the Wild Life (Protection) Act, 1972.
    3. Output: It submitted an interim report carrying division wise findings and recommended a time bound, division wise encroachment eviction plan.

    What did the Central Empowered Committee find on the ground?

    1. Kanyakumari Wildlife Sanctuary: An area of 427.40 hectares stands encroached, with 237.09 hectares caught in litigation. Verified maps of the reserve forest are not available.
    2. Srivilliputhur-Megamalai Tiger Reserve: As per official records of 2020, around 4,595 individuals are encroaching upon 5,071.27 hectares of reserved forest land.
    3. Nature of the occupation: The encroachments there are old, with many holdings under permanent cultivation of silk cotton, cardamom and beans.
    4. Structures inside forest land: A total of 116 government and public utility structures have been constructed inside forest lands without prior approval.
    5. Encroachers on the government payroll: A total of 118 individuals listed as encroachers were identified as serving or retired government employees, including personnel from the Army, the Police, the Forest Department and other State departments.
    6. Kalakad-Mundanthurai Tiger Reserve: The total extent of encroachment is 10.16 hectares by 998 families.

    Why does encroachment in Srivilliputhur-Megamalai carry consequences beyond the forest boundary?

    1. Upper catchment function: The Committee recorded the reserve as one of the most ecologically vulnerable areas because it forms the upper catchment of the Vaigai river.
    2. Downstream dependence: The Vaigai is a critical water source for five downstream districts, so degradation of the catchment transfers the cost to users outside the forest.
    3. Permanent cultivation: Standing plantation crops convert a temporary trespass into a settled land use that resists seasonal eviction.
    4. Enforcement record: Despite clear orders from the Madras High Court to remove encroachments, no significant progress has been made so far.

    What did Tamil Nadu offer in its defence?

    1. Detailed affidavit: The State filed an affidavit listing the steps its authorities had already taken against encroachment.
    2. Resistance on the ground: It acknowledged resistance from encroachers as a live obstacle to eviction drives.
    3. Pending litigation: It cited ongoing court cases that block action on specific parcels.
    4. Social profile of encroachers: It stated that many encroachers were landless and drawn from economically weaker sections.
    5. Law and order risk: The Committee separately recorded that law and order problems arose whenever the Forest Department attempted evictions, making a joint effort necessary.

    Can the difficulty of rehabilitation justify indefinite postponement of eviction?

    1. The Court’s acceptance: The Bench accepted that the complexity of the rehabilitation task is real and cannot be understated.
    2. The limit it set: That complexity cannot serve as a perpetual justification for the indefinite postponement of legally mandated eviction and restoration measures.
    3. What the two positions expose: The State’s constraint is genuine and its cost falls on the forest, so every year of delay converts an unlawful occupation into a settled claim.
    4. The shift in remedy: The Court moved from repeating an eviction order that had failed for decades to withdrawing the entitlements that make continued occupation rational.

    What has the Supreme Court directed?

    1. Action against government servants: Disciplinary and legal action must be initiated against all 118 identified government servants found to be encroachers.
    2. Moratorium on state benefits: A blanket moratorium was sought on the extension of welfare schemes, public utilities, transport facilities, electricity supply and infrastructure support within encroached forest areas, so that illegal occupation is neither incentivised nor legitimised.
    3. Freeze on new activity: A complete prohibition was ordered on the approval or commencement of any new non forestry activity within Agasthyamalai.
    4. A monitored framework: The matter requires a structured, time bound and closely monitored framework rather than periodic directions.
    5. Force option: The Court went as far as to suggest using the paramilitary to evict the encroachers and protect the ecologically sensitive region.

    Why has the political economy of eviction defeated three decades of orders?

    1. Benefits without title: Welfare schemes, electricity and transport reaching encroached parcels signalled state acceptance, which is precisely what the moratorium now targets.
    2. Enforcers as beneficiaries: With 118 serving or retired government employees among the encroachers, including Forest Department personnel, the enforcing agency contained a section of the offenders.
    3. Numbers as leverage: Evicting 4,595 individuals in a single reserve converts a forest law question into a mass displacement question that no district administration will initiate alone.
    4. Electoral exposure: The newly formed coalition government in Tamil Nadu faces two major Dravidian parties in the Opposition that are likely to resist an eviction touching thousands of families.
    5. Restoration burden: Beyond eviction, the State carries the task of resettling and rehabilitating the displaced families and restoring the original forest cover.

    Conclusion

    The Supreme Court has accepted that a repeated eviction order is not a remedy when the State’s own benefit delivery keeps encroachment viable, so it has attacked the incentive rather than only the occupation. The directions now require disciplinary action against 118 government servants, a freeze on welfare and utility extension inside encroached forest, and a prohibition on fresh non forestry activity in Agasthyamalai. The State must now produce a division wise, time bound eviction and restoration plan while simultaneously resettling landless families it has itself described as economically weak. Whether the moratorium survives the political cost of enforcing it is the test the next hearing will apply.

    Protected Area Governance in India

    1. About: A protected area is a legally notified tract managed primarily for the conservation of wildlife and its habitat, with human use restricted by statute rather than by administrative discretion.
    2. Four statutory categories: The Wild Life (Protection) Act, 1972 provides for National Parks, Wildlife Sanctuaries, Conservation Reserves and Community Reserves, each with a different level of permitted human activity.
    3. Scale: India’s protected area network covers a little over 5 percent of the country’s geographical area, while recorded forest cover is close to a fifth of it.
    4. Tiger reserves: A tiger reserve is constituted with a core or Critical Tiger Habitat, kept inviolate, and a buffer zone allowing regulated coexistence.
    5. Diversion control: Any use of forest land for a non forest purpose requires prior central approval under the Forest (Conservation) Act, 1980, which is why the 116 unapproved structures in Agasthyamalai are themselves an offence.
    6. Judicial supervision: Forest governance in India has been supervised continuously by the Supreme Court since the 1996 T.N. Godavarman Thirumulpad proceedings, which extended statutory forest protection to all land recorded as forest.

    Laws and Rules Governing Forests and Wildlife in India

    1. Indian Forest Act, 1927: Provides for the constitution of reserved forests, protected forests and village forests, and defines forest offences and their penalties.
    2. Wild Life (Protection) Act, 1972: Establishes protected areas, prohibits hunting of scheduled species and regulates trade in wildlife articles.
    3. 2006 amendment: Created the National Tiger Conservation Authority and the statutory concept of Critical Tiger Habitat.
    4. 2022 amendment: Restructured the species schedules and gave effect to India’s obligations under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).
    5. Forest (Conservation) Act, 1980: Bars the dereservation of reserved forest and the use of forest land for non forest purposes without prior approval of the Union government.
    6. Van (Sanrakshan Evam Samvardhan) Adhiniyam, 2023: Renamed the 1980 Act and exempted specified categories of land and strategic projects from prior approval.
    7. Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006: Recognises individual and community forest rights of forest dwelling Scheduled Tribes and other traditional forest dwellers and provides the only lawful route for settling occupation claims.
    8. Compensatory Afforestation Fund Act, 2016: Governs the use of funds collected as compensatory afforestation and net present value from diverted forest land.
    9. Environment (Protection) Act, 1986: Provides the umbrella power under which eco sensitive zones around protected areas are notified.

    Key Facts about Protected Areas in India

    1. Project Tiger was launched in 1973 and Project Elephant in 1992.
    2. The National Tiger Conservation Authority and the Wildlife Crime Control Bureau are the two central bodies created under the Wild Life (Protection) Act, 1972 and its amendments.
    3. Critical Tiger Habitat is notified under Section 38V of the Wild Life (Protection) Act, 1972 on the basis of scientific evidence.
    4. The Western Ghats were inscribed as a UNESCO World Heritage Site in 2012 under the natural criteria.
    5. Wildlife Week is observed from 2 to 8 October every year.
    6. India’s biosphere reserves follow the core, buffer and transition zoning of the UNESCO Man and the Biosphere Programme.

    Back2Basics: The Agasthyamalai Landscape

    1. Location: It occupies the southern end of the Western Ghats, straddling the Tamil Nadu and Kerala border, and is named after the Agastyamalai peak.
    2. Designation: The Agasthyamalai Biosphere Reserve was designated in 2001 and was added to the UNESCO World Network of Biosphere Reserves in 2016.
    3. Protected areas on the Tamil Nadu side: Kalakad-Mundanthurai Tiger Reserve, Srivilliputhur-Megamalai Tiger Reserve and Kanyakumari Wildlife Sanctuary.
    4. Protected areas on the Kerala side: Neyyar, Peppara and Shendurney Wildlife Sanctuaries.
    5. Kalakad-Mundanthurai Tiger Reserve: Notified in 1988 as Tamil Nadu’s first tiger reserve, it is often called a river sanctuary for the number of streams rising within it.
    6. Srivilliputhur-Megamalai Tiger Reserve: Notified in 2021 as Tamil Nadu’s fifth tiger reserve, it forms the upper catchment of the Vaigai river.
    7. Species: The landscape holds the endemic lion tailed macaque, the Nilgiri tahr and the Nilgiri langur, alongside tiger and elephant populations.
    8. Communities: The Kani tribal community lives in the landscape and is associated with the traditional knowledge of the Arogyapacha plant.

    Challenges in Protected Area Management in India

    1. Encroachment and regularisation pressure: Long standing occupation acquires political protection and becomes practically irreversible. e.g. the 427.40 hectares encroached in Kanyakumari Wildlife Sanctuary, of which 237.09 hectares sit in litigation.
    2. Unauthorised construction inside forest land: Public agencies themselves build without the prior approval the Forest (Conservation) Act, 1980 requires. e.g. the 116 government and public utility structures recorded inside Agasthyamalai forest land.
    3. Linear infrastructure fragmentation: Roads and railway lines cut habitat into blocks and raise animal mortality. e.g. animal deaths on the national highway running through Kaziranga National Park during the annual Brahmaputra floods.
    4. Human wildlife conflict: Crop and life losses on the periphery erode local support for strict protection. e.g. repeated elephant deaths on the Madukkarai railway stretch near Coimbatore.
    5. Rights settlement conflicting with eviction: Claims under the Forest Rights Act, 2006 and eviction drives run on separate tracks with no sequencing. e.g. the Supreme Court’s February 2019 order in Wildlife First v Union of India directing eviction of rejected claimants, which was stayed within weeks.
    6. Invasive species: Alien plants suppress native fodder and degrade grazing habitat. e.g. the spread of Lantana camara and Senna spectabilis across Bandipur and Wayanad.
    7. Frontline capacity deficit: Vacancies and weak equipment leave beat level protection thin. e.g. the Forest Department in Agasthyamalai being unable to conduct evictions without a joint force because of law and order risk.

    Way Forward

    1. Division wise time bound plan: Adopt the Committee’s recommendation of a division wise eviction schedule with named officers, fixed dates and monthly reporting to the Court.
    2. Sequence rights settlement before eviction: Complete the disposal of individual and community claims under the Forest Rights Act, 2006 in each division first, so eviction proceeds only against occupation that has no legal basis.
    3. Rehabilitation package before displacement: Notify a resettlement package with alternative land, housing and livelihood support before any eviction of landless families, on the pattern of the voluntary village relocation model used in tiger reserves.
    4. Departmental accountability: Complete disciplinary proceedings against the 118 serving and retired government employees within a fixed period and publish the outcome.
    5. Verified cadastral mapping: Prepare and publish verified maps of the reserve forest boundaries of Kanyakumari Wildlife Sanctuary using satellite imagery, since the absence of maps is itself an enabler of encroachment.
    6. Utility linkage audit: Audit every electricity connection, road and welfare scheme extended into forest parcels and terminate those inside notified boundaries.
    7. Catchment restoration: Fund assisted natural regeneration of the vacated Vaigai upper catchment through the Compensatory Afforestation Fund, with downstream district water users as monitored stakeholders.

    “[2020] Among the following Tiger Reserves, which one has the largest area under “Critical Tiger Habitat”?

    (a) Corbett

    (b) Ranthambore

    (c) Nagarjunsagar-Srisailam

    (d) Sunderbans

  • SEBI’s Closing Auction Session: Better Price Discovery, and the First Manipulation Case

    Why in the News

    The Closing Auction Session (CAS), introduced by the Securities and Exchange Board of India (SEBI) on 3 August 2026 to replace the average based method of fixing stock market closing prices, has raised mutual fund participation from 5% to 7% earlier to 25%. Within ten days of launch the regulator imposed a Rs 3.7 crore penalty on two entities for manipulating the same window, which exposes the trade off at the centre of the reform, that concentrating price discovery into a single transparent auction also concentrates the target for manipulation.

    How does the Closing Auction Session work?

    1. A fixed auction window: CAS is an official 20 minute auction held between 3:15 p.m. and 3:35 p.m., during which the exchange collects buy and sell orders from participants instead of executing continuous trades.
    2. A blind auction: Participants cannot see the full order book during the window, which prevents an order placed at the last instant from being priced against a visible book.
    3. Matching at the equilibrium price: At the end of the window all orders are matched at a single equilibrium price, defined as the price at which the maximum number of shares can be traded.
    4. Deferred execution: In contrast to continuous trading, where bids and offers match instantly, an auction can only result in a trade after the exchange ends it, which allows more time for supply and demand to find a new equilibrium.

    What is the Volume Weighted Average Price?

    1. An average of executed trades: The Volume Weighted Average Price (VWAP) is the average price of trades executed over a defined period, weighted by the quantity traded at each price, and it was the basis on which exchanges earlier fixed the closing price from the last 30 minutes of continuous trading.
    2. Why an average is vulnerable: Because it averages trades that have already happened, a few large trades placed at the end of the period can pull the average disproportionately without any change in the underlying supply and demand.

    What is order imbalance?

    1. The gap between buy and sell interest: Order imbalance is the gap between cumulative buy quantity and cumulative sell quantity at different price levels within the auction, and a low imbalance indicates that the discovered price represents a more stable consensus.

    What is tracking error?

    1. Deviation of a fund from its benchmark: Tracking error is the extent to which an index fund's or exchange traded fund's return diverges from the return of the index it is meant to replicate, and it widens when the closing price used to value the fund differs from the price at which the index is computed.

    Why did SEBI replace the VWAP based closing price?

    1. The closing price is a reference, not a number: The closing price of a security is used for portfolio valuation, index computation, derivative settlement, mutual fund net asset value calculation and institutional investment decisions, so it must reflect the expectations of both buyers and sellers.
    2. The old method's weakness: Exchanges determined the closing price largely through the VWAP of trades in the last 30 minutes of continuous trading, and a few large last minute trades could disproportionately affect the final average, creating the possibility of price distortion.
    3. When distortion was worst: The vulnerability was concentrated on large event days, specifically index rebalancing days and derivative expiry days, when order flow is heavily one sided.
    4. The measured evidence: For NIFTY 50 stocks, volatility in the last half hour exceeded the volatility observed between 09:15 and 14:30 by 1.8 times on MSCI index rebalancing days and by 1.5 times on FTSE index rebalancing days in 2024.
    5. The conceptual shift: CAS converts closing price determination from passive averaging of past trades into dynamic demand and supply discovery, and reduces price noise while improving the information efficiency of Indian equity markets.
    6. The regulatory gain: The SEBI Chairperson stated that CAS provides the regulator with greater capability to identify manipulation than the earlier VWAP based system.

    What does the spread of closing auctions across major exchanges establish about the model?

    1. The peer group: With this move the National Stock Exchange and the Bombay Stock Exchange have joined NASDAQ, the New York Stock Exchange, the London Stock Exchange, Euronext, the Hong Kong Stock Exchange, Singapore Exchange, the Tokyo Stock Exchange and the Australian Securities Exchange, all of which fix closing prices by auction.
    2. United States, NASDAQ Closing Cross: A single price auction at the close that publishes indicative closing prices and order imbalance information in the minutes before the cross, so that participants can supply liquidity against a visible imbalance.
    3. United States, New York Stock Exchange Closing Auction: Designated Market Makers publish imbalance information before the close and are obliged to offset residual imbalance, which places an accountable intermediary inside the auction.
    4. United Kingdom, London Stock Exchange: A closing auction with a randomised end to the uncrossing phase, so that no participant can time an order to the exact final instant.
    5. Hong Kong Stock Exchange: Reintroduced its Closing Auction Session in 2016 with price limits and a random closing period, after an earlier version launched in 2008 was suspended in 2009 following manipulation concerns, which is the closest precedent for India's present position.
    6. Japan, Tokyo Stock Exchange: Uses the Itayose single price call auction method to determine the closing price, matching all eligible orders at one price.
    7. Australian Securities Exchange: Runs a single price closing auction with a randomised start, again to defeat last instant order timing.
    8. What the set demonstrates: Closing auctions were initially adopted to achieve efficient price discovery and have since become a liquidity event in their own right, with the volume share of closing auctions increasing across both Europe and America.

    Who gains from a cleaner closing price?

    1. Passive funds first: India's passive funds, which have expanded from a relatively small base to a multi crore asset base driven by exchange traded funds and index funds, are likely to be the biggest beneficiaries initially, because they depend on accurate closing prices to replicate benchmarks.
    2. Mutual funds have already moved: The SEBI Chairperson stated that mutual funds' participation rate in CAS has risen sharply to 25%, compared with 5% to 7% earlier.
    3. Large orders execute without leaking information: The auction allows large investors to participate anonymously and execute at a commonly discovered price, which reduces information leakage and the price impact that usually accompanies large orders placed close to market closing time.
    4. Foreign institutional capital: Foreign investors managing billions of dollars prefer markets with predictable closing mechanisms, so aligning India with international practice can improve institutional inflows into Indian equities.
    5. Better execution technology: Execution algorithms that analyse order imbalance, liquidity patterns and equilibrium prices push Indian markets toward institutional quality trading practices.
    6. A stronger valuation benchmark: A well functioning CAS makes the closing price a stronger valuation benchmark by incorporating the bid spread, order imbalance, liquidity and investor conviction, rather than only executed trade prices.

    Does concentrating price discovery into one window reduce manipulation or relocate it?

    1. The case that it reduces manipulation: Matching at a single equilibrium price with a blind order book removes the ability of a few late trades to pull an average, and the regulator gains a complete record of every order placed and cancelled inside the window.
    2. The case that it relocates manipulation: Concentrating the entire closing price determination into 20 minutes creates one high value target, and the first enforcement action arrived within ten days of launch.
    3. The evidence for the second reading: The alleged manipulation involved placing very large orders and cancelling them within seconds, a technique that works precisely because the auction aggregates orders before matching them.
    4. What actually changed: The manipulation did not disappear, it became visible, since the regulator could identify the pattern from the order and cancellation record in a way the VWAP system did not permit.
    5. The unresolved part: Detection after the event does not prevent the closing price on that day from being distorted, and the closing price then flows into index computation, net asset values and derivative settlement before the enforcement order is issued.

    What did SEBI's first CAS manipulation order find?

    1. The penalty and the entities: SEBI imposed a penalty of Rs 3.7 crore on Copthall Mauritius Investment Ltd. and Mansi Share and Stock Broking Private Ltd. and barred them from the market for allegedly manipulating trades during the CAS.
    2. The date and the context: The alleged violations occurred on 13 August 2026, the day on which weekly derivative contracts linked to the Sensex expired.
    3. The reference price rule: SEBI fixes the maximum permitted deviation from the reference price at 3% within the CAS.
    4. The buy side conduct: One entity placed large buy orders constituting at least 85% of all buy orders made in the minutes before the Sensex closed, all of them above the 3% deviation mark, and simultaneously cancelled its latest buy order.
    5. The sell side conduct: The other entity placed large sell orders across eight Sensex constituents totalling about 12.65 lakh shares, of which more than seven lakh shares were placed 2.5% below the reference price and 4.6 lakh shares below 1%, and cancelled them within four to five seconds.
    6. The alleged effect: The manipulation led to three price spikes.
    7. The alleged motive: SEBI's preliminary findings state that placing and then cancelling these large buy and sell orders allowed the noticees to avoid losses or wrongfully profit from positions in derivative trades that would otherwise have expired worthless.
    8. The stage of proceedings: The noticees have been given 21 days to respond to the interim order.
    9. The regulator's stated posture: The SEBI Chairperson stated that anyone manipulating the CAS would face strict and immediate action, that CAS exists for transparency, and that those who think they can manipulate CAS in order to discredit it are mistaken.

    Challenges to the Closing Auction Session

    1. Cash and derivative markets close at different times: Cash market closing prices are set through CAS while equity derivatives continue trading beyond the window, creating a temporary gap between spot and futures prices. e.g. on Sensex weekly expiry days the mismatch is largest, and it was on the 13 August 2026 expiry that the first manipulation case arose.
    2. Arbitrage strategies lose their reference: Arbitrage traders who price the spot against the future cannot do so cleanly when one leg is settled by auction and the other by continuous trading. e.g. cash and carry arbitrage positions built on a VWAP close now carry an unhedged residual through the auction window.
    3. Algorithmic and institutional models were built on the old mechanism: Institutional traders and algorithmic firms must rebuild strategies that assumed a VWAP based close, factoring in auction imbalances, indicative prices and real time order flow. e.g. SEBI itself stated that the problem is a lack of understanding, because algorithms and other players historically based their models on the old mechanism.
    4. Index levels jumped across the auction in early sessions: Participants raised concerns over the sharp difference between index levels recorded before CAS and after the auction on the first two trading days, though SEBI ruled out foul play. e.g. this gap appeared immediately after the 3 August 2026 launch, before participation had stabilised.
    5. Illiquid securities cannot generate a representative price: The efficiency of CAS depends on sufficient order participation, and in less liquid securities limited buy and sell orders may produce a closing price that does not represent broader market sentiment. e.g. this is why the mechanism was launched only for stocks with futures and options contracts rather than the whole cash market.
    6. Retail investors do not recognise the new closing price: For many retail investors the closing price has traditionally meant the last traded price or a VWAP figure, so intraday traders and derivative participants may find the auction price confusing. e.g. an investor comparing a broker application's last traded price with the official closing price on the same screen sees two different numbers.
    7. Order cancellation is a manipulation channel the auction structure enables: Large orders placed to shift the indicative equilibrium and then withdrawn before matching are the classic auction manipulation technique. e.g. the 13 August 2026 case involved sell orders cancelled within four to five seconds of being placed.
    8. The 3% deviation band can itself be gamed: A cap on deviation from the reference price becomes a target that orders cluster against rather than a limit they respect. e.g. all of the buy orders in the first enforcement case were placed above the 3% deviation mark.
    9. Derivative expiry concentration magnifies the stake: Restricting the number of weekly expiries per exchange concentrated open interest into fewer expiry days, so the value riding on a single closing price rose. e.g. the alleged manipulation was targeted at derivative positions that would otherwise have expired worthless.
    10. Enforcement is after the fact: An interim order issued days later cannot restore a distorted closing price that has already flowed into net asset values, index levels and settlement. e.g. the Rs 3.7 crore order came with a 21 day response window, long after the 13 August settlement had been completed.

    Conclusion

    CAS replaces a passively computed average with an actively discovered equilibrium, and on the evidence of the first three weeks it is working as intended, with mutual fund participation quadrupling and the regulator able to reconstruct manipulation from the order record in a way the VWAP system did not allow. What the first enforcement case shows is that the reform relocates manipulation rather than eliminating it, moving it from a diffuse 30 minute average into a concentrated 20 minute auction where it is more consequential but also more visible. The correct test of the mechanism is not the volatility of its first fortnight but measurable improvement in market quality, specifically lower tracking errors, reduced closing price variance, narrower spreads, improved liquidity and stronger price efficiency.

    India's Securities Market

    1. What it is: The securities market is the set of institutions through which companies and governments raise capital by issuing securities and through which those securities are subsequently traded, valued and settled.
    2. Two segments: The primary market handles fresh issuance through public offers and private placements, while the secondary market handles trading of already issued securities on exchanges.
    3. Regulatory architecture: SEBI regulates the securities market, the RBI regulates the government securities and money markets, and the Insurance Regulatory and Development Authority of India and the Pension Fund Regulatory and Development Authority regulate the institutional investors that participate in it.
    4. Two national exchanges: The Bombay Stock Exchange, established in 1875, is Asia's oldest stock exchange, and the National Stock Exchange, which began operations in 1994, introduced screen based nationwide electronic trading.
    5. Global standing in derivatives: India accounts for a very large share of equity option contracts traded globally, and the National Stock Exchange has ranked as the world's largest derivatives exchange by number of contracts traded for several consecutive years.
    6. Dematerialised holding: Securities are held in electronic form through two depositories, the National Securities Depository Limited and the Central Depository Services Limited, established under the Depositories Act, 1996.
    7. Settlement cycle: India moved to a T plus 1 settlement cycle for all listed equities by January 2023, becoming one of the first large markets to do so, and has since introduced an optional same day settlement segment.
    8. Rising retail and passive participation: Growth in demat account openings, systematic investment plans and index linked products has made passive funds a structurally important source of demand, which is why the accuracy of the closing price now carries system wide consequences.
    9. Investor protection funds: Exchanges maintain Investor Protection Funds and SEBI operates an Investor Protection and Education Fund funded partly from disgorged amounts and penalties.

    Laws and Rules Governing India's Securities Market

    1. Securities and Exchange Board of India Act, 1992: Constitutes SEBI as a statutory body and gives it the powers to protect investor interests, promote market development and regulate the securities market.
    2. Section 11 confers the general power to regulate, and Section 11B the power to issue directions, including the interim orders under which market access is barred.
    3. Section 15HA provides the penalty for fraudulent and unfair trade practices, and Section 15J sets the factors for determining the quantum of penalty.
    4. Securities Contracts (Regulation) Act, 1956: Governs the recognition and regulation of stock exchanges, the definition of securities and the listing of securities.
    5. Securities Contracts (Regulation) Rules, 1957: Prescribe minimum public shareholding requirements and the conditions for continued listing.
    6. Depositories Act, 1996: Provides for the dematerialisation of securities and the constitution and regulation of depositories and depository participants.
    7. Companies Act, 2013: Governs public issues, prospectus disclosure, related party transactions and corporate governance obligations of listed companies.
    8. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003: Prohibit manipulative and deceptive devices, including placing orders with no intention of executing them, which is the provision under which order and cancellation manipulation is pursued.
    9. SEBI (Prohibition of Insider Trading) Regulations, 2015: Prohibit trading on unpublished price sensitive information and require listed companies to maintain structured digital databases of such information.
    10. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Fix continuous disclosure, board composition and related party approval requirements for listed entities.
    11. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: Govern open offers on acquisition of control or of specified shareholding thresholds.
    12. SEBI (Intermediaries) Regulations, 2008: Govern registration and conduct of brokers, merchant bankers and other intermediaries, under which broking entities are proceeded against.
    13. Prevention of Money Laundering Act, 2002: Applies know your customer and beneficial ownership obligations to market intermediaries and foreign portfolio investors.

    Key Facts about SEBI and India's Exchanges

    1. CAS was launched on 3 August 2026, initially for stocks having futures and options contracts, and runs from 3:15 p.m. to 3:35 p.m.
    2. SEBI fixes the maximum deviation from the reference price within the CAS at 3%.
    3. Mutual fund participation in CAS rose to 25% from 5% to 7% earlier within the first weeks of operation.
    4. SEBI released its study on retail and non retail participation in the derivatives market for 2025-26 on 20 August 2026.
    5. An earlier SEBI study flagged that over 90% of trades by retail investors in the derivatives segment resulted in losses.
    6. SEBI's measures to curb excessive derivatives volatility include increasing lot sizes and limiting the number of expiries per exchange, while the Union Budget raised the Securities Transaction Tax on the segment.
    7. SEBI was established as a non statutory body in April 1988 and given statutory status by the SEBI Act, 1992 with effect from 30 January 1992.
    8. SEBI's headquarters is at the Bandra Kurla Complex in Mumbai, with regional offices in New Delhi, Kolkata, Chennai and Ahmedabad.
    9. Appeals against SEBI orders lie to the Securities Appellate Tribunal, and from there to the Supreme Court on a question of law.
    10. National Investors' Day, marking investor awareness, and the Investor Protection and Education Fund are both instruments through which SEBI discharges its investor protection mandate.

    Back2Basics: Securities and Exchange Board of India

    1. Governing Act: Constituted under the Securities and Exchange Board of India Act, 1992.
    2. Year established: Set up as an administrative body in April 1988 and given statutory powers with effect from 30 January 1992.
    3. Administrative ministry: Functions under the Department of Economic Affairs, Ministry of Finance.
    4. Threefold mandate: To protect the interests of investors in securities, to promote the development of the securities market, and to regulate the securities market.
    5. Composition: A Chairperson, two members from among officials of the Union Ministries dealing with finance and law, one member from the RBI, and five other members appointed by the Union Government, of whom at least three are whole time members.
    6. Appointment: The Chairperson and members are appointed by the Union Government, and the Chairperson can be removed only on the grounds specified in the Act.
    7. Jurisdiction: Covers stock exchanges, depositories, brokers, merchant bankers, mutual funds, foreign portfolio investors, credit rating agencies, listed companies and investment advisers.
    8. Quasi legislative power: Frames regulations binding on all market participants without requiring prior parliamentary approval, subject to laying before Parliament.
    9. Quasi judicial power: Conducts inquiries, passes interim and final orders, imposes monetary penalties, bars entities from the market and orders disgorgement of unlawful gains.
    10. Quasi executive power: Investigates, conducts search and seizure with the approval of a designated court, and calls for records from any person associated with the securities market.
    11. Appellate route: Its orders are appealable to the Securities Appellate Tribunal, a statutory tribunal constituted under the same Act.

    Challenges in India's Securities Market

    1. Retail losses concentrated in derivatives: Retail participation has grown fastest in the segment where retail outcomes are worst. e.g. a SEBI study found that over 90% of trades by retail investors in the futures and options segment led to losses.
    2. Speed advantage of co-located algorithmic trading: Firms with exchange co-located servers execute in fractions of the time available to other participants, raising questions of unequal access. e.g. the National Stock Exchange co-location matter, in which SEBI passed disgorgement orders, ran for years before resolution.
    3. Manipulation in small and mid cap counters: Thin float and low liquidity make price manipulation cheap in smaller listed companies. e.g. SEBI's action against Dhenu Buildcon Infra Ltd. for allegedly creating a Rs 1,000 crore unsecured loan through 46 transactions over eight days and converting part of it into equity through preferential allotment, leaving six entities with 99.70% of outstanding equity.
    4. Unregistered investment advice through digital channels: Social media based tip providers operate outside the registered investment adviser framework. e.g. SEBI has repeatedly issued orders against finfluencers running paid advisory channels without registration.
    5. Enforcement timelines outrun market timelines: Investigation, interim order, final order and appeal can take years while the price effect is realised in minutes. e.g. an interim order carrying a 21 day response window is issued after the affected settlement is complete.
    6. Corporate governance failures at listed entities: Related party transactions and fund diversion continue to surface after the fact. e.g. the Central Bureau of Investigation registered a case against Gensol Engineering Limited, Gensol EV Lease Limited and their promoters for allegedly causing a loss of Rs 672.74 crore to the Indian Renewable Energy Development Agency Limited.
    7. Concentration risk from passive investing: As index funds grow, index inclusion and rebalancing decisions move prices independently of company fundamentals. e.g. volatility on MSCI and FTSE rebalancing days for NIFTY 50 stocks ran 1.8 times and 1.5 times the normal session volatility in 2024.
    8. Cross border and offshore derivative exposure: Positions built through offshore derivative instruments and foreign entities complicate beneficial ownership tracing. e.g. the first CAS manipulation order named a Mauritius domiciled investment entity.
    9. Investor grievance redress capacity: The volume of complaints from a rapidly widening retail base outpaces the capacity of the online dispute resolution and grievance mechanisms. e.g. the SCORES platform and the Online Dispute Resolution portal were both introduced in response to backlogs rather than in anticipation of them.

    Way Forward

    1. Align the derivative and cash market close: Extend an auction based or reference linked close to the derivatives segment, so that the spot and futures legs settle against a consistent price and the expiry day arbitrage gap closes.
    2. Publish indicative equilibrium prices and imbalance during the window: Adopt the NASDAQ and New York Stock Exchange practice of disseminating indicative prices and order imbalance, so that participants can supply liquidity against a visible imbalance rather than trade blind.
    3. Randomise the auction close: Follow the London Stock Exchange and Australian Securities Exchange practice of a randomised uncrossing moment, so that an order timed to the final instant cannot determine the outcome.
    4. Penalise order and cancellation patterns directly: Frame an explicit order to trade ratio and cancellation threshold for the auction window, so that placing large orders with no intention of execution is actionable on the pattern itself rather than only on proof of derivative gain.
    5. Phase the extension to illiquid securities: Extend CAS beyond futures and options eligible stocks only where a minimum order participation threshold is demonstrated, so that thin counters are not given a closing price that no consensus supports.
    6. Run a structured transition programme for algorithmic participants: Publish auction microstructure documentation and offer a simulated environment, since the regulator has itself identified model dependence on the old mechanism as the core adjustment problem.
    7. Invest in retail investor communication: Explain through exchange and broker interfaces why the last traded price and the official closing price now differ, so that the change does not itself become a source of mistrust.
    8. Publish a market quality dashboard: Report tracking error, closing price variance, bid ask spreads and auction liquidity on a rolling basis, so that CAS is evaluated on the metrics the reform was designed to improve rather than on daily volatility.

    Matching Previous Year Question

    “[2025] Consider the following statements: I. India accounts for a very large portion of all equity option contracts traded globally, thus exhibiting a great boom. II. India's stock market has grown rapidly in the recent past, even overtaking Hong Kong's at some point in time. III. There is no regulatory body either to warn small investors about the risks of options trading or to act on unregistered financial advisors in this regard. Which of the statements given above are correct? (a) I and II only (b) II and III only (c) I and III only (d) I, II and III Answer: (a)”

  • BRICS is working for a future that puts the planet first

    Why in the News

    India hosted the 12th BRICS Environment Ministers' Meeting on 18 August 2026 in New Delhi under its chairship of the grouping. The tension it exposes is that a bloc holding roughly 40 percent of global gross domestic product continues to argue for differentiated responsibility in climate action, while the outcomes it produces are principles and knowledge platforms rather than binding obligations.

    What is BRICS and what weight does it carry?

    1. What it is: BRICS is an intergovernmental grouping of major emerging economies, founded around Brazil, Russia, India, China and South Africa, that coordinates positions on economic governance, development and multilateral reform.
    2. Demographic weight: BRICS countries account for 49.5 percent of the world's population.
    3. Economic weight: They account for approximately 40 percent of global gross domestic product.
    4. Trade weight: They account for 26 percent of international trade, which together with the population and output figures underscores their growing influence on the global economy, the development agenda and the future direction of international cooperation.

    What is the BRICS Environment Working Group?

    1. What it is: The BRICS Environment Working Group is the technical body under which member countries negotiate environmental cooperation and prepare the outcomes adopted at the Environment Ministers' Meeting.
    2. Its function this cycle: Under India's chairship it organised its work around four interconnected priorities, which formed the substantive agenda of the 12th Environment Ministers' Meeting.

    What is Mission LiFE?

    1. What it is: Mission LiFE (Lifestyle for Environment) is an Indian initiative that seeks to shift climate action from state and market levers to individual and community behaviour, treating consumption choices as a mitigation instrument.
    2. Its role at BRICS: The BRICS priority on Promoting Sustainable Lifestyles builds directly on the principles of Mission LiFE.

    What is Ek Ped Maa Ke Naam?

    1. What it is: Ek Ped Maa Ke Naam, meaning a tree in the name of mother, is a national tree plantation campaign that ties ecological restoration to individual participation.
    2. What it demonstrates: Together with Mission LiFE it demonstrates the value of combining ecological restoration, public participation and community ownership.

    What were the four priorities of the BRICS Environment Working Group under India's chairship?

    1. Promoting Sustainable Lifestyles: Builds on the principles of Mission LiFE and encourages responsible and sustainable consumption and production, behavioural change, awareness among citizens and communities, and knowledge-sharing.
    2. Afforestation, Forest Fire Management and Disaster Resilience: Addresses growing pressures on forests, land and natural ecosystems through integrated landscape restoration, combating land degradation, wildfire preparedness and response, early-warning systems and ecosystem resilience, using scientific advances such as remote sensing and artificial intelligence.
    3. Circular Economy: Reflects the recognition that the traditional take, make and dispose model is no longer sustainable, and treats the circular economy as a key enabler of sustainable development and inclusive growth that reduces environmental pressures while creating economic opportunities and green employment through cooperation in research, innovation, technology transfer and capacity building.
    4. Adaptation: Responds to intensifying climate impacts and the disproportionate vulnerabilities of developing countries, and recognises that traditional, indigenous and local knowledge systems offer valuable insights for building resilience.

    What are the BRICS Principles for Advancing Climate Resilience through People-Centric and Community-Based Adaptation?

    1. What they are: A set of principles adopted under the BRICS adaptation priority that place communities rather than agencies at the centre of adaptation planning.
    2. The core method: They emphasise integrating traditional, indigenous and local knowledge with modern science and technology.
    3. The stated objective: The integration is intended to create context-specific, evidence-based and culturally appropriate adaptation solutions.
    4. Why the framing matters: Adaptation has become an urgent necessity particularly for developing countries facing disproportionate vulnerabilities, which is the constituency these principles are written for.

    What outcomes did India's chairship produce beyond declarations?

    1. Practical principles: The outcomes include the development of practical principles on sustainable lifestyles, integrated landscape management, forest fire preparedness and community-based adaptation.
    2. Technical products: They include technical reports, platforms, dialogues and knowledge-sharing networks rather than declaratory text alone.
    3. The process behind them: These outcomes reflect months of collaboration, negotiation and consensus-building among member countries.
    4. The claimed significance: They are presented as demonstrating the value of multilateral cooperation in addressing common environmental challenges at a time when multilateral processes are under strain.
    5. The stated guiding vision: India's chairship was guided by the stated aim of advancing the forum with a people-centric approach and the spirit of Humanity First, extending the inclusivity and Global South focus of India's G20 presidency.

    What does India's own record contribute to the BRICS position?

    1. Emissions intensity: India reduced the emissions intensity of its economy by 37.38 percent between 2005 and 2022.
    2. Non-fossil capacity: Non-fossil sources accounted for 54.18 percent of installed electricity capacity as of 30 June 2026.
    3. The forward commitment: India's new Nationally Determined Contribution (NDC) for 2031 to 2035, the national climate pledge submitted under the Paris Agreement, reflects a commitment to advancing climate action while supporting inclusive development and energy security.
    4. The argument these figures serve: India's efforts to reduce emissions intensity while expanding non-fossil energy capacity reinforce the position that development and environmental responsibility can advance together.
    5. The domestic template exported: Mission LiFE and Ek Ped Maa Ke Naam illustrate how climate action, biodiversity conservation, resilience-building and livelihood enhancement can reinforce one another when pursued through integrated approaches.

    Why does a bloc of this economic weight still argue for differentiated responsibility?

    1. The principle asserted: The principles of equity and Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) resonated across the meeting and remain fundamental to an effective and balanced global response to climate change.
    2. The basis of the claim: The principle rests on historical contribution to the accumulated stock of emissions and on current capability, not on present output share alone.
    3. The vulnerability argument: Adaptation is an urgent necessity particularly for developing countries facing disproportionate vulnerabilities, which is a burden the bloc's economic weight does not offset.
    4. The counter-pressure implicit in the figures: A grouping holding about 40 percent of global gross domestic product and 26 percent of international trade is difficult to present as a category requiring differentiated treatment on capability grounds.
    5. The bloc's own answer: Environmental action must be people-centric, implementation-oriented and responsive to the realities of developing countries, which shifts the test from aggregate output to conditions on the ground.
    6. The concession in the argument: Success will ultimately be measured not by the adoption of principles alone but by their ability to strengthen ecosystems, support livelihoods and build a more resilient future, which acknowledges that principles alone settle nothing.

    Conclusion

    The 12th BRICS Environment Ministers' Meeting in New Delhi on 18 August 2026 organised the bloc's environmental agenda around sustainable lifestyles, afforestation and disaster resilience, the circular economy and community-based adaptation, and adopted principles on people-centric adaptation grounded in equity and Common but Differentiated Responsibilities and Respective Capabilities. India brought to that table an emissions intensity reduction of 37.38 percent between 2005 and 2022, non-fossil sources at 54.18 percent of installed electricity capacity as of 30 June 2026, and a new Nationally Determined Contribution for 2031 to 2035. What remains unresolved is the conversion of adopted principles into strengthened ecosystems and supported livelihoods, which is the test the chairship has itself named.

    What is Common but Differentiated Responsibilities and Respective Capabilities?

    Source: Backgrounder, CoP UNFCCC.docx

    1. About: Common but Differentiated Responsibilities holds that all countries share the climate problem but that their obligations differ based on historical contributions to emissions and on current capability to act.
    2. Rationale: It exists to reconcile the universal character of the climate problem with the unequal responsibility for causing it and the unequal means available to address it.
    3. Where it was codified: It was embedded at the Rio Earth Summit of 1992 as the legal foundation of the climate regime and appears among the 27 principles of the Rio Declaration alongside the precautionary and polluter-pays principles.
    4. Annex I: Members of the Organisation for Economic Co-operation and Development as of 1992 plus economies in transition, required to adopt national policies to limit greenhouse gas emissions and protect sinks.
    5. Annex II: A subset of Annex I comprising only the Organisation for Economic Co-operation and Development members, required to provide financial resources to developing countries and facilitate technology transfer.
    6. Non-Annex I: Developing countries, carrying no binding emission targets under the original architecture.
    7. Least Developed Countries: A separate category given special consideration in view of limited capacity to respond to climate change.
    8. How Paris altered it: The Paris Agreement of 2015 replaced the firewall with a universal Nationally Determined Contribution system, common in framework but flexible in commitment, so differentiation survives through national determination rather than through separate annexes.

    Key Concerns Regarding Common but Differentiated Responsibilities

    1. The firewall's eroding legitimacy: As emerging economies became major annual emitters, the moral case for zero binding obligations on the non-Annex I side became the central contested question in climate diplomacy.
    2. Unmet finance obligations: The differentiated bargain rests on developed country finance that has repeatedly fallen short, and the 100 billion dollar per year pledge made at Copenhagen in 2009 became the most discussed unmet promise in the regime.
    3. Counting private finance as public obligation: Developed countries have sought to count private flows towards the finance goal, which India has objected to on the ground that private finance does not reach the most vulnerable countries and comes at commercial rather than concessional rates.
    4. Asymmetric transparency demands: Verification pressure has historically been applied to developing country mitigation rather than to developed country finance and technology transfer, which was the core of the standoff at Bali in 2007.
    5. No substantive obligation under the Paris system: Nationally Determined Contributions carry no international legal obligation on the substance of the target, so differentiation coexists with collectively insufficient ambition.
    6. Trade measures bypassing the principle: Unilateral trade instruments applied at the border shift the burden regardless of differentiated status, and India has treated the European Union's Carbon Border Adjustment Mechanism as incompatible with the principle.

    The Global Climate Governance Architecture

    Source: Backgrounder, CoP UNFCCC.docx

    1. Stockholm, 1972: The United Nations Conference on the Human Environment established the United Nations Environment Programme (UNEP), the first global intergovernmental platform for the environment, headquartered in Nairobi, and adopted the Stockholm Declaration of 26 non-binding principles.
    2. Rio Earth Summit, 1992: Produced three legally binding treaties in one conference, the United Nations Framework Convention on Climate Change (UNFCCC), the Convention on Biological Diversity (CBD) and the United Nations Convention to Combat Desertification (UNCCD), together called the Rio Trio, and codified Common but Differentiated Responsibilities as the foundational legal principle.
    3. Kyoto Protocol, 1997: The first legally binding instrument under the Framework Convention, requiring Annex I countries to cut emissions by an average of about 5 percent during 2008 to 2012, and creating three market mechanisms, the Clean Development Mechanism, Joint Implementation and Emissions Trading.
    4. Copenhagen, 2009: Recognised the 2 degrees Celsius limit for the first time and produced the first quantified climate finance goal of 100 billion dollars per year by 2020, negotiated by the BASIC group of Brazil, South Africa, India and China with the United States outside the formal process.
    5. Paris Agreement, 2015: Established the universal Nationally Determined Contribution system with submissions every five years and a no-backsliding progression rule, alongside Article 6 carbon markets, Article 9 finance obligations, the Enhanced Transparency Framework and the five-yearly Global Stocktake.
    6. Glasgow, 2021: Locked in the Article 6.2 and 6.4 rulebook including corresponding adjustments, and was where India announced its Panchamrit targets.
    7. Baku, 2024: Agreed the New Collective Quantified Goal (NCQG) of at least 300 billion dollars per year by 2035 from developed countries, with a broader aspirational goal of 1.3 trillion dollars per year from all sources.
    8. Belem, 2025: Adopted the Belem Political Package and the Global Mutirao declaration, agreed 59 Belem Adaptation Indicators under the United Arab Emirates Framework for Global Climate Resilience, established a Just Transition Mechanism, and was the deadline for third-generation Nationally Determined Contributions to 2035.
    9. The forward calendar: COP31 is to be held in Antalya, Turkiye in November 2026 and COP32 in Addis Ababa, Ethiopia in 2027.

    India's Standing Climate Targets

    Source: Backgrounder, CoP UNFCCC.docx

    1. Panchamrit, announced at Glasgow in 2021: Five commitments, namely 500 GW non-fossil energy capacity by 2030, 50 percent of energy requirements from renewable energy by 2030, reduction of projected carbon emissions by 1 billion tonnes by 2030, reduction of the carbon intensity of the economy by 45 percent by 2030 over 2005 levels, and net zero emissions by 2070.
    2. The 2022 Nationally Determined Contribution update: India upgraded its emissions intensity target to 45 percent by 2030 from the 33 to 35 percent pledged at Paris, and its non-fossil installed capacity target to 50 percent by 2030 from 40 percent.
    3. Ratification record: India signed the Paris Agreement on 22 April 2016 and ratified it on 2 October 2016, among the earliest major economies to do so.
    4. Long-Term Low Emission Development Strategy: A qualitative roadmap reaffirming net zero by 2070, grounded in climate justice and Common but Differentiated Responsibilities, spanning seven transitions across electricity, transport, industry, urban planning, forests, carbon removal and finance.
    5. Greenhouse Gases Emission Intensity Target Rules, 2025: Legally binding emission intensity targets notified for over 400 industrial units, covering aluminium, cement, chlor-alkali and pulp and paper initially, with iron and steel, fertiliser, petroleum refining, petrochemicals and textiles to follow, enforced through the Carbon Credit Trading Scheme, 2023.
    6. Article 6 National Designated Authority: A 21-member committee headed by the Secretary, Ministry of Environment, Forest and Climate Change, authorises projects under Article 6.4, with renewable energy, green hydrogen, green ammonia and carbon capture, utilisation and storage as eligible activities.

    Key Facts about BRICS

    1. The name: The acronym originated as BRIC for Brazil, Russia, India and China, with South Africa joining in 2010 to make BRICS.
    2. First summit: The first BRIC leaders' summit was held at Yekaterinburg in Russia in 2009.
    3. Expansion: Membership was expanded from 2024 to include Egypt, Ethiopia, Iran and the United Arab Emirates, with Indonesia joining in 2025.
    4. New Development Bank: Established under the 2014 Fortaleza Agreement and headquartered in Shanghai, it finances infrastructure and sustainable development projects in member and other developing countries.
    5. Contingent Reserve Arrangement: A currency swap framework agreed at Fortaleza in 2014 to provide members with short-term liquidity support against balance of payments pressure.
    6. Chairship: The chairship rotates annually among members, and India chairs the grouping for the current cycle.
    7. The environment track: The Environment Ministers' Meeting is the sectoral ministerial under which the BRICS Environment Working Group's outcomes are adopted, and the 12th meeting was held in New Delhi on 18 August 2026.

    Back2Basics: The New Development Bank

    1. What it is: The New Development Bank is a multilateral development bank established by the BRICS countries to mobilise resources for infrastructure and sustainable development projects.
    2. Founding instrument: It was established under the Agreement on the New Development Bank signed at the Fortaleza Summit in Brazil in 2014 and began operations in 2015.
    3. Headquarters: Shanghai, China, with regional offices including one in Johannesburg, South Africa.
    4. Capital structure: It was founded with equal shareholding among the five founding members, which distinguishes it from the weighted voting of the Bretton Woods institutions.
    5. Membership expansion: It has admitted non-founding members including Bangladesh, the United Arab Emirates, Egypt and Algeria.
    6. Mandate: It lends for infrastructure and sustainable development, with a significant share of its portfolio in clean energy, transport, water and sanitation, and urban development.
    7. India's position: India is a founding member and among the largest recipients of New Development Bank lending.

    Challenges to BRICS Environmental Cooperation

    1. Outcomes without binding force: The chairship's outputs are principles, technical reports and knowledge networks rather than enforceable commitments, e.g. the BRICS Principles on people-centric adaptation carry no compliance mechanism.
    2. Divergent member emission profiles: The bloc contains both the world's largest annual emitter and states with very low per capita emissions, which makes a single position difficult, e.g. China's annual emissions are several times India's while both invoke the same differentiated status.
    3. Fossil fuel dependence within the bloc: Several members are major hydrocarbon producers or exporters, which limits how far the grouping can go on transition language, e.g. Russia, Iran and the United Arab Emirates are among the world's leading oil and gas exporters.
    4. Finance gap unaddressed: The bloc restates the equity claim without an internal financing instrument for adaptation, e.g. adaptation finance for vulnerable members still depends on the contested developed country pledges under the Framework Convention.
    5. Unilateral trade measures bypassing the framework: Border carbon measures shift the burden regardless of differentiated status, e.g. the European Union's Carbon Border Adjustment Mechanism covers steel, aluminium, cement, fertilisers, electricity and hydrogen, and India has raised it as a trade barrier at the World Trade Organization.
    6. Bilateral frictions inside the grouping: Political disputes between members limit the depth of cooperation, e.g. unresolved boundary questions between two of the founding members constrain joint implementation.
    7. Institutional thinness: The grouping has no permanent secretariat, so continuity depends on the annual chair, e.g. priorities set under one chairship are not guaranteed carry-forward under the next.
    8. Weak measurement of implementation: Success is asserted through outputs rather than measured through outcomes, e.g. sustainable lifestyle and afforestation priorities carry no agreed indicator set comparable to the Belem Adaptation Indicators.

    Way Forward

    1. Convert principles into indicator sets: Attach measurable indicators and reporting timelines to each of the four priorities, so that the sustainable lifestyles, afforestation, circular economy and adaptation tracks can be assessed rather than asserted.
    2. Create a BRICS adaptation finance window: Use the New Development Bank to establish a dedicated adaptation and resilience lending facility, so the equity argument is backed by an internal instrument and not only by claims on developed country finance.
    3. Institutionalise the Environment Working Group: Give the working group a standing technical secretariat function, so priorities survive the annual rotation of the chairship.
    4. Build a shared technology transfer platform: Operationalise cooperation in research, innovation, technology transfer and capacity building for the circular economy through a common platform rather than through bilateral arrangements.
    5. Coordinate a joint response to border carbon measures: Present a common BRICS position at the World Trade Organization on unilateral trade instruments that bypass Common but Differentiated Responsibilities.
    6. Scale the community-based adaptation model: Convert the BRICS Principles on people-centric adaptation into pilot programmes with member country funding, integrating traditional and indigenous knowledge with remote sensing and artificial intelligence tools.
    7. Sustain the domestic template: Continue Mission LiFE and Ek Ped Maa Ke Naam as demonstrable models of behaviour-led and participation-led action that other members can adapt, so the chairship leaves a replicable method behind.

    Matching Previous Year Question

    “[2021, GS3, 10 marks] Explain the purpose of the Green Grid Initiative launched at the World Leaders Summit of the COP26 UN Climate Change Conference in Glasgow in November 2021. When was this idea first floated in the International Solar Alliance (ISA)?”

    # Compiled Articles, 20 August 2026 (Part 6, Items 31 to 36)

  • Early Closure of the FCNR(B) Swap Window and the Cost of Absorbing Dollars

    Why in the News

    The Reserve Bank of India (RBI) advanced the closure of the Foreign Currency Non-Resident (Bank), or FCNR(B), swap window by a month, and the RBI Governor defended the move on 19 August 2026 as a calibrated and data driven response rather than a reversal. The decision exposes a shift in the objective of India's forex defence, from maximising dollar inflows to managing the rising domestic cost of absorbing them.

    What is the FCNR(B) deposit and what was the swap window?

    1. The deposit: FCNR(B) deposits allow non residents to hold money in an Indian bank in the foreign currency itself, so the depositor faces no rupee exchange risk on the principal.
    2. Permanent availability: These deposits are available at all times and are a standing category of non resident deposit, not a temporary scheme.
    3. The temporary swap facility: In June 2026 the RBI opened a temporary window allowing banks to swap these foreign currency deposits with the central bank, with the RBI bearing the full currency risk on them.
    4. What the window did: By taking the currency risk off bank balance sheets, the facility made it commercially attractive for banks to mobilise fresh foreign currency deposits and convert them into rupee resources.

    What are External Commercial Borrowings?

    1. Foreign currency loans to Indian entities: External Commercial Borrowings (ECBs) are commercial loans raised by eligible Indian resident entities from recognised non resident lenders, governed by RBI limits on amount, maturity, end use and all in cost.

    What are Overseas Foreign Currency Borrowings?

    1. Bank borrowing abroad: Overseas Foreign Currency Borrowings (OFCBs) are foreign currency funds raised abroad by Indian banks themselves, typically through their overseas branches, and brought back to support domestic foreign currency lending and liquidity.

    What is sterilisation?

    1. Neutralising the rupee side of a dollar purchase: Sterilisation is the operation by which a central bank absorbs the rupee liquidity it releases when it buys foreign currency, using instruments such as open market sales of government securities or cash reserve ratio changes, so that the forex purchase does not add to domestic money supply.
    2. Why it has a cost: The central bank earns a low return on the dollars it holds and pays a higher domestic rate on the instruments used to absorb the rupees, and that spread is the sterilisation cost, which rises the longer the position is held.

    Why did the RBI advance the closure of the window?

    1. Inflows exceeded expectations: Inflows had been stronger than the RBI and most market participants had expected, so the quantity objective of the facility was met ahead of schedule.
    2. Diminishing marginal utility of each dollar: The Governor stated that there is a diminishing marginal utility of every dollar that is swapped, because each additional dollar adds less to an already adequate reserve and inflow position.
    3. Rising marginal cost: At the same time there is an increasing marginal cost, because the rupee liquidity created has to be sterilised for a longer period, and that cost accumulates with the size and duration of the position.
    4. A decision from strength: The closure was taken from a position of strength rather than under stress, and forms part of the RBI's wider external sector management.
    5. Not a reversal: The Governor stated that it would not be correct to call it a U turn, that it is rather a calibration, and that the move demonstrated the central bank's ability to remain flexible and data dependent amid rapidly changing conditions.

    Does an early closure amount to a policy reversal or a calibration?

    1. The criticism: Remarks made after the Monetary Policy Committee meeting of 5 August 2026 were read by the market as ruling out an early closure, so bringing the date forward within two weeks was read as a reversal of stated guidance.
    2. The defence on wording: The Governor pointed to the use of the words as of now in the statement that there was no proposal to advance the last date, which conditioned the guidance on the information available at that moment.
    3. The defence on process: The RBI had also said it would keep stakeholders informed of any decision, which on the central bank's reading indicated that an early closure had not been ruled out.
    4. The underlying trade off: Data dependence requires a central bank to change course when the data changes, while forward guidance requires it to keep its word, and the two objectives pull against each other whenever conditions move faster than the guidance horizon.
    5. Why the distinction matters commercially: Banks and depositors price fixed tenure instruments against the announced window, so an advanced closure imposes a real cost on those who planned against the earlier date, regardless of how the change is described.

    What do the three schemes mean for India's balance of payments?

    1. The combined expectation: The RBI expects the three schemes together, FCNR(B), ECBs and OFCBs, to attract at least $80 billion.
    2. What the number signals: The Governor stated that this reflects the country's strong macroeconomic fundamentals and would further strengthen the balance of payments.
    3. The channel: All three are capital account inflows, so they finance the current account deficit and add to reserves without requiring an improvement in the trade balance itself.
    4. The currency backdrop: The rupee stood at 95.76 to the United States dollar and the Indian basket crude oil price at $92.11 a barrel as of 18 August 2026, which is the pressure the inflows are being mobilised against.
    5. The market backdrop: The Sensex closed at 76,909.68, down 325.78 points or 0.42%, and the Nifty at 24,078.30, down 76.60 points or 0.32%, on the day the remarks were made.

    What did the Governor prescribe for Indian banks to reach global scale?

    1. The stated ambition: The Prime Minister has set out the objective of having an Indian bank among the world's top five, and the Governor stated that Indian banks have the scale and ability to achieve a larger global footprint and are on the right path.
    2. Governance and institutional strength: Banks must continue improving governance and institutional strength and build a sound risk management culture.
    3. Customer trust: They must sustain good customer service and retain customer trust, which the Governor listed as a distinct requirement rather than a consequence of the others.
    4. Technology and cost: They need to invest continuously in technology, reduce costs, improve efficiency and expand their reach.
    5. People: They must continuously train and equip their staff to adapt nimbly to a growing economy and a fast evolving financial system.
    6. On mergers: Asked whether bank mergers would hasten the process, the Governor said what is needed is a good, strong banking system with healthy competition, that the government merged a few banks earlier, and that whether there is a case for further mergers is a call the government can take.

    Challenges to the RBI's Forex Inflow Schemes and External Sector Management

    1. Sterilisation cost accumulates on the central bank's own balance sheet: Every dollar absorbed requires rupee liquidity to be withdrawn at a domestic rate higher than the return earned on reserves, and the spread is a direct cost. e.g. sustained open market sales of government securities to absorb liquidity push up domestic yields at the same time as the government is running a large borrowing programme.
    2. The inflows are debt creating, not equity: ECBs, OFCBs and FCNR(B) deposits all create a repayment obligation in foreign currency, unlike foreign direct investment, so they improve the balance of payments today at the cost of a redemption cliff later. e.g. the $34 billion FCNR(B) mobilisation of 2013 produced a concentrated redemption in late 2016 that the RBI had to manage through a pre announced forward book.
    3. Currency risk transfers to the central bank, not away from the system: Under the swap facility the RBI bears the full currency risk, so a sharp rupee depreciation converts a banking sector exposure into a public balance sheet loss. e.g. with the rupee at 95.76 to the dollar, every further rupee of depreciation raises the rupee cost of returning the same dollar principal.
    4. Guidance reversals raise the risk premium on future schemes: Advancing a closure date after indicating no such proposal makes participants discount the next announced window. e.g. banks that had built deposit mobilisation campaigns around the original closure date carry stranded acquisition costs.
    5. Inflows can reverse faster than they arrived: Non resident deposits and portfolio linked borrowings respond to interest rate differentials and can exit within a quarter. e.g. foreign portfolio investors withdrew a record of about Rs 1.66 lakh crore from Indian markets in 2025.
    6. Oil dominates the current account the schemes are financing: India imports the bulk of its crude requirement, so a rise in the crude price widens the deficit faster than capital inflows can be mobilised. e.g. the Indian basket price at $92.11 a barrel on 18 August 2026 sits well above the levels around which recent import bills were budgeted.
    7. Tariff shocks can undercut the export side simultaneously: Trade restrictions imposed by a major partner reduce export earnings at the same time as capital inflows are being courted. e.g. the imposition of tariffs of up to 50% on Indian goods by the United States in August 2025 hit textiles and auto components, which are labour intensive export earners.
    8. Concentration of banking scale can weaken competition: Pursuing a top five global bank through further mergers reduces the number of competing lenders, which the Governor himself flagged by insisting on healthy competition. e.g. the amalgamation of ten public sector banks into four with effect from 1 April 2020 cut the number of public sector banks from 27 in 2017 to 12.

    Conclusion

    The early closure of the FCNR(B) swap window is best read not as a change of view on the rupee but as the point at which the RBI judged the marginal cost of absorbing another dollar to exceed its marginal benefit. With the three schemes expected to deliver at least $80 billion, the quantity objective is largely met, and the residual task is managing the sterilisation cost of the liquidity already created. The open question is whether the communication cost of advancing an announced date will raise the price of the next facility the RBI needs to open.

    India's External Sector: Capital Flows and the Rupee

    Source: Backgrounder, External Sector_ FDI,FPI, Weakening Rupee against Dollar.docx

    1. Foreign Direct Investment: Foreign Direct Investment (FDI) is investment made to acquire a lasting interest and significant control over an enterprise, defined as 10% or more of the post issue paid up equity capital of a listed company, or any stake in an unlisted company.
    2. Foreign Portfolio Investment: Foreign Portfolio Investment (FPI) is investment in financial assets for short term financial gain without control, defined as less than 10% of the paid up equity capital of a listed company.
    3. Divergent stability: FDI is long term, strategic and often tied to physical assets such as factories, while FPI is highly liquid, passive and prone to sudden reversals during global stress.
    4. Split regulation: FDI is regulated primarily by the RBI under the Foreign Exchange Management Act and by the Department for Promotion of Industry and Internal Trade through the Consolidated FDI Policy, while FPI is regulated by the Securities and Exchange Board of India under the SEBI (Foreign Portfolio Investors) Regulations, 2019.
    5. FDI entry routes: Investment enters either through the automatic route, requiring no prior approval and only reporting to the RBI, or the government approval route requiring prior clearance, for example food retail and defence above 74%.
    6. Prohibited sectors: FDI is barred in atomic energy, gambling and lotteries, chit funds and Nidhi companies, real estate other than townships and special economic zones, and tobacco.
    7. Recent flow stress: Net FDI turned negative for three consecutive months even as gross inflows remained strong, driven by higher outward direct investment by Indian companies and high repatriation by foreign companies operating in India.
    8. The harvest phase: Many investments made in the early 2000s have reached a stage where funds prioritise profit booking over expansion, so repatriation rises without any deterioration in the investment climate.
    9. Portfolio outflow scale: FPIs recorded a record outflow of about Rs 1.66 lakh crore, roughly $18.9 billion, in 2025, the largest since FPI investment began in India.
    10. Financialisation of FDI: A growing share of FDI is routed through Alternative Investment Funds rather than direct industrial equity, so headline FDI increasingly behaves like volatile portfolio money and delivers less technology transfer.
    11. Round tripping: A large share of inflows still originates from Mauritius and Singapore, which points to tax arbitrage rather than fresh industrial capital and inflates the headline number relative to its productive impact.

    Statutory and Regulatory Framework Governing India's External Sector

    1. Foreign Exchange Management Act, 1999: Replaced the earlier control based regime and governs all current and capital account transactions, with the RBI as the administering authority.
    2. Section 6 of the Foreign Exchange Management Act, 1999: Empowers the RBI, in consultation with the Union Government, to specify the permissible classes of capital account transactions and the limits on them, which is the source of the FCNR(B), ECB and OFCB frameworks.
    3. Reserve Bank of India Act, 1934: Vests the RBI with the management of the country's foreign exchange reserves and with the issue and regulation of currency.
    4. Foreign Exchange Management (Deposit) Regulations, 2016: Govern non resident deposit accounts, including the FCNR(B), Non-Resident External and Non-Resident Ordinary categories.
    5. External Commercial Borrowings Master Direction of the RBI: Fixes eligible borrowers, recognised lenders, minimum average maturity, all in cost ceilings and permitted end uses for ECBs.
    6. Prevention of Money Laundering Act, 2002: Applies reporting and beneficial ownership requirements to cross border financial flows through banks and market intermediaries.
    7. SEBI (Foreign Portfolio Investors) Regulations, 2019: Govern registration, categorisation and investment limits for foreign portfolio investors in Indian securities.
    8. Consolidated FDI Policy of the Department for Promotion of Industry and Internal Trade: Codifies sectoral caps, entry routes and conditionalities for foreign direct investment.

    Government and Central Bank Initiatives to Manage External Sector Stress

    Source: Backgrounder, External Sector_ FDI,FPI, Weakening Rupee against Dollar.docx

    1. Open market operation purchases of government securities: A programme of about Rs 2 trillion in open market purchases, conducted in tranches, was used to offset the domestic cash crunch caused by portfolio investors pulling out of Indian equities.
    2. Dollar rupee swap and forex sales: A $10 billion dollar rupee swap auction, alongside direct sale of dollars, was used to prevent the rupee from crashing through a threshold level during a period of dollar shortage.
    3. Trade diversification through free trade agreements: The India European Union Free Trade Agreement and the India United Kingdom Comprehensive Economic and Trade Agreement are being used to reduce dependence on a single dominant export market.
    4. National Single Window System: Integrates 32 central departments and more than 25 States into a unified clearance portal to reduce approval delays that deter foreign investors.
    5. Jan Vishwas amendments: Decriminalisation of a large set of minor industry offences and removal of imprisonment for technical violations, aimed at reducing the perception of regulatory risk.
    6. New labour codes: Nationwide implementation of the four labour codes to simplify compliance on wages and social security for foreign investors.
    7. Beneficial ownership screening: Stricter beneficial ownership checks and portal upgrades to ensure incoming FDI brings permanent technology rather than tax arbitrage capital.

    Key Facts about India's Foreign Exchange Framework

    1. The rupee stood at 95.76 to the United States dollar and the Indian basket crude oil price at $92.11 a barrel as of 18 August 2026.
    2. The three schemes of FCNR(B), ECBs and OFCBs are together expected to attract at least $80 billion.
    3. India follows a managed float exchange rate regime, in which the rupee's external value is market determined and the RBI intervenes only to curb excessive volatility, not to defend a level.
    4. India's exchange rate arrangement is classified by the International Monetary Fund on the basis of observed intervention behaviour, not on any officially announced peg.
    5. The Foreign Exchange Management Act, 1999 replaced the Foreign Exchange Regulation Act, 1973, converting foreign exchange violations from criminal offences into civil contraventions.
    6. Non resident Indians hold rupee denominated deposits through Non-Resident External and Non-Resident Ordinary accounts, and foreign currency denominated deposits through FCNR(B) accounts.
    7. Portfolio investors withdrew a record of about Rs 1.66 lakh crore, roughly $18.9 billion, from Indian markets in 2025.
    8. Foreign direct investment is defined at a threshold of 10% or more of the post issue paid up equity capital of a listed company, the internationally standard cut off separating direct from portfolio investment.

    Back2Basics: India's Foreign Exchange Reserves

    1. What they are: Foreign exchange reserves are external assets held and controlled by the RBI that are readily available to finance a balance of payments gap and to intervene in the currency market.
    2. Four components: Reserves comprise foreign currency assets, gold, Special Drawing Rights held with the International Monetary Fund, and the Reserve Tranche Position with the Fund.
    3. Foreign currency assets: The largest component, held mainly in sovereign bonds, treasury bills and deposits with other central banks and the Bank for International Settlements, denominated chiefly in United States dollars, euros, pounds sterling and yen.
    4. Gold: Held partly domestically and partly in custody abroad, and revalued periodically, so movements in the gold price alone change the headline reserve number without any transaction.
    5. Special Drawing Rights: An international reserve asset created by the International Monetary Fund, allocated to members in proportion to their quota, whose value is set from a basket of five currencies comprising the United States dollar, euro, Chinese renminbi, Japanese yen and pound sterling.
    6. Reserve Tranche Position: The portion of a member's quota subscription paid in reserve assets, which the member may draw on from the Fund without conditions.
    7. Adequacy measures: Reserve adequacy is judged by the number of months of imports covered, by the ratio of reserves to short term external debt on residual maturity, and by the ratio of reserves to broad money.
    8. The forward book: The RBI's net forward position in the currency market is disclosed separately, because outstanding forward sales are a claim on future reserves that the headline number does not capture.
    9. Custody and disclosure: Reserve data are published weekly in the RBI's Weekly Statistical Supplement, with the currency composition disclosed with a lag in the half yearly report on foreign exchange reserves.

    Challenges in India's External Sector

    Source: Backgrounder, External Sector_ FDI,FPI, Weakening Rupee against Dollar.docx

    1. Protectionism and policy shocks abroad: Tariff escalation and trade fragmentation divert capital toward friend shoring hubs or back to home markets. e.g. tariffs rising to 50% on key Indian goods in August 2025 directly hit export oriented manufacturing in textiles and automobiles.
    2. Competing destinations with faster approvals: Rival economies offer quicker clearances and wider free trade agreement networks for near shoring investors. e.g. Vietnam, Indonesia and Mexico have absorbed a large share of the China plus one relocation that India was positioned to attract.
    3. Policy unpredictability: Frequent regulatory pivots undermine investor trust in the stability of the rules. e.g. retrospective taxation disputes and changes in e-commerce marketplace rules in 2025 sustained a perception of high regulatory risk.
    4. Cumbersome approvals: Land and environmental clearances remain a bottleneck for greenfield investment. e.g. roughly 200 FDI proposals faced delays as of August 2025 because of screening requirements, and legacy cases such as the abandoned $12 billion POSCO project continue to define the land risk narrative.
    5. Skill mismatch in frontier sectors: Only about 5% of India's workforce is formally skilled, with acute shortages in wafer fabrication and artificial intelligence roles. e.g. semiconductor and electric vehicle investors face a talent gap that constrains how much high value FDI India can absorb.
    6. Weak contract enforcement: Long drawn arbitration and a backlog in commercial courts raise the perceived exit risk for investors. e.g. multi year tax arbitration such as the Cairn Energy dispute is repeatedly cited as evidence of an unpredictable legal exit.
    7. Round tripping and financialisation: A large share of inflows originates in low tax jurisdictions and an increasing share is routed through Alternative Investment Funds rather than industrial equity. e.g. persistent concentration of inflows from Mauritius and Singapore points to tax arbitrage rather than fresh productive capital.
    8. Weak external demand: Cooling global orders discourage export oriented investment in labour intensive sectors. e.g. purchasing managers' index readings in April 2025 recorded a sharp cooling in Indian export orders.

    Way Forward

    1. Publish a sterilisation cost disclosure: Report the carrying cost of intervention alongside the reserve number, so that decisions to open or close swap windows can be evaluated against a visible fiscal and balance sheet cost.
    2. Pre announce redemption management for debt creating inflows: Publish the maturity profile of FCNR(B), ECB and OFCB obligations and the forward cover arranged against them, so that a redemption cliff is priced in advance rather than discovered.
    3. Attach conditions and horizons to guidance: State the data conditions under which a stated window date could change at the time the guidance is issued, so that a data driven adjustment is not read as a reversal.
    4. Rebalance toward equity inflows: Reduce the reliance on debt creating flows by removing sectoral entry frictions and completing single window clearances, so that the same balance of payments support carries no repayment obligation.
    5. Diversify export markets through concluded agreements: Operationalise the European Union and United Kingdom trade agreements at the level of standards, rules of origin and customs procedure, so that the current account improves rather than being financed by capital.
    6. Deepen the onshore rupee derivatives market: Widen participation in exchange traded currency futures and the non deliverable forward segment, so that hedging demand is met onshore and the RBI is not the residual bearer of currency risk.
    7. Reduce the oil exposure structurally: Expand strategic petroleum reserve capacity, ethanol blending and electric mobility so that a $90 a barrel oil price does not automatically translate into an external financing requirement.
    8. Strengthen banks before consolidating them: Prioritise governance, risk management culture and technology investment, as the Governor set out, over amalgamation, so that scale is built on institutional strength rather than on balance sheet addition.

    Matching Previous Year Question

    “[2018, GS3, 15 marks] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India?”

  • After Naxalism, a development corridor

    Why in the News

    The Centre declared the country free from Naxalism on 31 March 2026, closing a security campaign that ran for decades across the forests of Chhattisgarh, Jharkhand and the rest of the former Red Corridor. The tension this exposes is that the military defeat of an insurgency does not by itself produce the economic activity that must occupy the space the guns have vacated.

    What is Left Wing Extremism and what was the Red Corridor?

    1. The movement: Left Wing Extremism (LWE), commonly called Naxalism, is an armed insurgency pursuing the capture of state power through protracted rural armed struggle, drawing on Maoist doctrine.
    2. The territory: The Red Corridor was the contiguous belt of forested and mineral-rich districts across central and eastern India where Maoist cadres exercised effective control and the state's writ was contested.
    3. What that control looked like: For decades the region was associated with ambushes, armed cadres and Maoist control rather than with routine administration.
    4. The declared end point: The Centre declared the country free from Naxalism on 31 March 2026, which is treated as a turning point rather than as the end of the task.

    What are CoBRA units?

    1. What they are: Commando Battalion for Resolute Action (CoBRA) is the specialised jungle warfare and guerrilla warfare force raised within the Central Reserve Police Force for anti-Naxal operations.
    2. Their role here: CoBRA units, deployed alongside state police forces, carried out the operations that dismantled strongholds which had remained difficult to penetrate for years.

    What was the strategy that dismantled the insurgency?

    1. Intelligence-led operations: Operations were driven by actionable intelligence on cadre location and movement rather than by area domination alone.
    2. Centre and state coordination: Greater coordination between central and state forces removed the seams across state borders that cadres had used to evade pursuit.
    3. Disruption of Maoist financing: Agencies targeted the financial networks that sustained the insurgency, cutting the flow that paid, armed and supplied cadres.
    4. Rehabilitation: A surrender policy sought to bring former cadres back into civilian life through financial assistance, training and support for reintegration.
    5. Sustained expansion of the security grid: The security presence was expanded continuously rather than surged and withdrawn, so that recovered territory was held.
    6. Political direction from the top: Repeated engagement by the Union Home Minister, including visits to Bastar and security review meetings on the ground, kept the Centre involved in an operational challenge requiring coordination between Delhi, state governments and personnel deployed deep inside difficult terrain.

    Which operations broke the strongholds?

    1. Black Forest: One of the named operations conducted by CoBRA units alongside state police forces.
    2. Octopus: A second named operation in the same series.
    3. Double Bull: A third named operation in the same series.
    4. Chakrabandha: A fourth named operation in the same series.
    5. The common outcome: Together these operations helped dismantle strongholds that had remained difficult to penetrate for years, which is what allowed a more permanent state presence to be established.

    What has the development push delivered since 2014?

    1. Security infrastructure: 408 new security camps and 597 fortified police stations have been established in LWE-affected areas since 2014.
    2. Road connectivity: More than 12,000 km of roads have been constructed in the affected regions.
    3. Formal finance: 1,804 bank branches and 1,321 ATMs have been added.
    4. Postal reach: 6,025 post offices have been added.
    5. Telecommunications: Mobile connectivity has expanded across most villages in the affected regions.
    6. Education and skills: Eklavya Model Residential Schools, Industrial Training Institutes and skill development centres have been established alongside the physical infrastructure.

    Why does a road, a bank branch or a tower change more than the statistic suggests?

    1. Roads change access, not distance: A road changes access to a market and to a hospital, converting a physical distance into a usable one.
    2. Bank branches change the terms of credit: A bank branch connects households to formal finance and displaces the informal lender who set the terms in its absence.
    3. Towers change the relationship to the state: A telecom tower brings a remote village closer to the rest of the country, which affects everything from grievance redress to remittances.
    4. Schools change the option set: A school or a skill centre expands the choices available to young people, which is the mechanism by which recruitment into an insurgency loses its appeal.
    5. The sequencing that made it possible: These interventions became feasible only once security forces could establish a more permanent presence in areas where the state had previously struggled to maintain one.

    Why is the end of armed conflict the easier half of the task?

    1. The achievement is a milestone, not an outcome: The guns going silent is an important milestone, and the harder task is ensuring that the space they leave behind is filled with roads, schools, businesses, livelihoods and functioning institutions.
    2. The nature of the state's presence must change: The objective now is a state presence defined by institutions and opportunity rather than by the security challenge that once dominated the landscape.
    3. Infrastructure is an input, not a result: Roads, branches and towers must begin to generate sustained economic activity, better education and greater integration with the rest of India, which is not automatic.
    4. The next phase is less visible: The coming phase will be less dramatic than the operations that made the headlines, and could be more important in determining the legacy of the campaign.
    5. Reversibility is the risk: Rehabilitation must hold, since the surrender policy's purpose is to prevent former cadres from returning to the movement and to prevent the movement from replenishing its ranks.
    6. The test stated: The former Red Corridor becomes a development corridor only when the infrastructure now reaching these regions begins to generate sustained economic activity, which is where the larger test begins.

    Conclusion

    The military campaign against Left Wing Extremism succeeded through intelligence-led operations, central and state coordination, disruption of financing, rehabilitation and a sustained security grid, and the Centre declared the country free from Naxalism on 31 March 2026. The infrastructure that followed, 408 camps, 597 fortified police stations, over 12,000 km of roads, 1,804 bank branches, 1,321 ATMs and 6,025 post offices, has changed the physical reach of the state. What remains unresolved is whether that reach converts into sustained economic activity and institutions, since the durability of the achievement will be judged on that conversion and not on the operations.

    Left Wing Extremism in India

    1. What it is: Left Wing Extremism is an armed movement seeking to overthrow the state through protracted people's war, organised around rural base areas, guerrilla zones and armed squads.
    2. Origin: The movement takes its popular name from the 1967 peasant uprising at Naxalbari in West Bengal.
    3. Present organisation: The Communist Party of India (Maoist) was formed in 2004 through the merger of the People's War Group and the Maoist Communist Centre of India, and is proscribed as a terrorist organisation.
    4. Geographic concentration: Activity was concentrated in a forested, mineral-rich and tribal-majority belt spanning Chhattisgarh, Jharkhand, Odisha, Bihar, Maharashtra, Andhra Pradesh, Telangana, Madhya Pradesh and West Bengal.
    5. Structural drivers: The movement drew on land alienation, displacement by mining and infrastructure projects, denial of forest rights, absence of administration and the weakness of local grievance redress in Fifth Schedule areas.
    6. The doctrinal frame: The Union government's approach has been organised around the SAMADHAN doctrine, which sets out the components of the counter-insurgency response.
    7. Institutional lead: The Ministry of Home Affairs coordinates the response through the Left Wing Extremism Division, with the Central Reserve Police Force as the principal central force deployed.

    Laws Governing the Response to Left Wing Extremism

    1. Unlawful Activities (Prevention) Act, 1967: The principal central law used to proscribe the Communist Party of India (Maoist) and its front organisations and to prosecute membership and support.
    2. The 2019 amendment allows the designation of individuals, not only organisations, as terrorists.
    3. Prevention of Money Laundering Act, 2002: The instrument used to trace and attach the financial networks that sustained the insurgency.
    4. Chhattisgarh Special Public Security Act, 2005: A state law empowering the declaration of organisations as unlawful and criminalising membership and assistance in the most affected state.
    5. Andhra Pradesh Public Security Act, 1992: The corresponding state instrument in the southern part of the former corridor.
    6. Arms Act, 1959 and Explosive Substances Act, 1908: Govern possession and use of weapons and explosives, which are the principal charges alongside the terrorism statutes.
    7. Provisions of the Panchayats (Extension to the Scheduled Areas) Act, 1996 (PESA): Extends panchayat provisions to Fifth Schedule areas and vests the Gram Sabha with powers over land, minor minerals and local plans, addressing a grievance the insurgency mobilised.
    8. Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006: Recognises individual and community forest rights, addressing the land and forest alienation that underpinned recruitment.
    9. Fifth Schedule to the Constitution: Governs the administration of Scheduled Areas through the Governor and the Tribes Advisory Council, and is the constitutional frame within which most affected districts sit.

    Government Initiatives for Left Wing Extremism Affected Areas

    1. National Policy and Action Plan, 2015: The overarching framework combining security measures, development interventions, rights and entitlements of local communities, and public perception management.
    2. Security Related Expenditure (SRE) Scheme: Reimburses state governments for security-related expenditure including training, operational costs, ex gratia payments and the surrender and rehabilitation of former cadres.
    3. Special Central Assistance (SCA) for the most affected districts: Funds public infrastructure and services in the districts of highest concern, filling critical gaps identified by district administrations.
    4. Special Infrastructure Scheme (SIS): Strengthens state police infrastructure, including special forces and fortified police stations, in affected states.
    5. Road Connectivity Project for LWE Affected Areas (RCPLWEA): Successor to the Road Requirement Plan, it constructs and upgrades roads and bridges to open isolated blocks to administration and markets.
    6. LWE Mobile Tower Project: Installs mobile towers in affected districts to extend telecommunications where commercial operators would not otherwise invest.
    7. Eklavya Model Residential Schools: Provide residential schooling for tribal children in blocks with high Scheduled Tribe population, extending secondary education in the affected belt.
    8. Aspirational Districts Programme: Targets the least developed districts, a large share of which fall in the former corridor, on health, nutrition, education, agriculture, financial inclusion and infrastructure indicators.
    9. Civic Action Programme: Funds central armed police forces to conduct welfare activities that build confidence between security forces and local communities.

    Back2Basics: The SAMADHAN Doctrine

    1. What it is: SAMADHAN is the Union government's stated doctrine for countering Left Wing Extremism, articulated as an eight-point formulation.
    2. S, Smart leadership: Leadership capable of directing an operation that spans police, intelligence and administration.
    3. A, Aggressive strategy: A posture of sustained offensive operations rather than defensive holding.
    4. M, Motivation and training: Continuous training and morale management for deployed forces.
    5. A, Actionable intelligence: Intelligence specific enough to act on, which is the input the campaign was built around.
    6. D, Dashboard-based key result areas and key performance indicators: Measured performance targets for units and districts.
    7. H, Harnessing technology: Use of surveillance, communications and data tools in operations.
    8. A, Action plan for each theatre: A theatre-specific plan rather than a uniform national approach.
    9. N, No access to financing: Cutting the financial networks that sustain cadres, weapons and logistics.

    Key Facts about the Left Wing Extremism Campaign

    1. The declaration: The Centre declared the country free from Naxalism on 31 March 2026.
    2. Central Reserve Police Force: The largest central armed police force, it marked its Raising Day on 27 July and has been the principal force deployed in the campaign.
    3. CoBRA: The Commando Battalion for Resolute Action is the Central Reserve Police Force's specialised jungle and guerrilla warfare unit for anti-Naxal operations.
    4. Named operations: Black Forest, Octopus, Double Bull and Chakrabandha are the operations named as having dismantled entrenched strongholds.
    5. Bastar: The Bastar division of Chhattisgarh was the operational centre of the campaign and the site of repeated ministerial review visits.
    6. Infrastructure since 2014: 408 new security camps, 597 fortified police stations, over 12,000 km of roads, 1,804 bank branches, 1,321 ATMs and 6,025 post offices in affected areas.
    7. The origin marker: The movement is named after Naxalbari in West Bengal, the site of the 1967 uprising.

    Challenges in Consolidating the Post-Insurgency Transition

    1. Infrastructure without economic activity: Physical assets do not automatically generate livelihoods, e.g. more than 12,000 km of roads open access to markets only where there is production to move.
    2. Reversibility of surrender: Rehabilitation fails where former cadres find no economic footing, e.g. surrendered cadres receiving one-time financial assistance without sustained employment remain vulnerable to re-recruitment.
    3. Unsettled land and forest rights: The grievance that fed recruitment persists where titles remain unrecognised, e.g. pending individual and community claims under the Forest Rights Act, 2006 in Fifth Schedule districts.
    4. Displacement from mining and industry: Development in a mineral-rich belt can reproduce the alienation the insurgency mobilised, e.g. resettlement disputes around iron ore and coal projects in Bastar and Jharkhand.
    5. Thin administrative capacity: Newly opened blocks lack the staffing to run the institutions now built, e.g. teacher and health worker vacancies in interior blocks leave schools and health centres nominally functional.
    6. Security-first institutional habits: Areas administered through a security grid do not convert automatically to civil administration, e.g. 408 security camps and 597 fortified police stations remain the most visible state presence in many blocks.
    7. Justice system backlog: Cases registered during the campaign remain unresolved and undercut confidence, e.g. long undertrial detention of tribal accused under the Unlawful Activities (Prevention) Act, 1967.
    8. Residual and displaced cadres: Movement remnants may relocate rather than dissolve, e.g. cadre movement across inter-state boundaries has historically shifted the problem rather than ended it.
    9. Fragile fiscal continuity: Development spending contingent on the insurgency's salience declines once the emergency is declared over, e.g. schemes framed as LWE-specific lose their justification the moment the region is declared free.

    Way Forward

    1. Shift funding from security-tagged to development-tagged windows: Convert LWE-specific central assistance into sustained district development funding, so financing does not lapse with the security declaration.
    2. Complete forest rights recognition: Clear the backlog of individual and community forest rights claims in the former corridor, which addresses the grievance the movement recruited on.
    3. Staff the institutions already built: Fill teacher, health worker and revenue staff vacancies in the newly connected blocks, since a building without staff does not constitute a functioning institution.
    4. Link infrastructure to production: Tie the road, banking and connectivity network to minor forest produce value chains, agro-processing and local enterprise credit, so that access converts into income.
    5. Make rehabilitation employment-linked: Extend the surrender policy beyond financial assistance into guaranteed placement in skill centres, Industrial Training Institutes and public works, so reintegration is durable.
    6. Strengthen PESA implementation: Operationalise Gram Sabha powers over land, minor minerals and local plans under the Provisions of the Panchayats (Extension to the Scheduled Areas) Act, 1996, so local consent governs the next phase of development.
    7. Fast-track pending cases: Establish dedicated courts to clear the backlog of insurgency-era cases, since prolonged undertrial detention undermines the legitimacy the campaign gained.

    Matching Previous Year Question

    “[2025, GS3, 10 marks] The Government of India recently stated that Left Wing Extremism (LWE) will be eliminated by 2026. What do you understand by LWE and how are the people affected by it? What measures have been taken by the government to eliminate LWE?”

  • RBI’s MPC Minutes Signal a Turn from Easing to Tightening

    Why in the News

    The August 2026 MPC minutes show growing concern over rising inflation. Although the repo rate was kept unchanged at 5.25%, some members see a possible rate hike later in 2026-27 as inflation is projected to peak at 5.9% in Q3.

    MPC: Key Prelims Facts

    • Legal basis: RBI Act, 1934, amended in 2016.
    • Composition: 6 members
      • 3 from RBI
      • 3 external members appointed by the Central Government.
    • Chairperson: RBI Governor.
    • Voting: One vote per member; Governor has a casting vote in case of a tie.
    • Minutes: Published on the 14th day after the meeting.
    • Mandate: Set the policy repo rate to achieve the inflation target.

    August 2026 Policy Review

    • Repo rate: 5.25%, unchanged.
    • Growth forecast: Raised from 6.6% to 6.7%.
    • Inflation forecast: Lowered from 5.1% to 5%.
    • Q3 inflation projection: 5.9%.
    • Inflation is expected to decline after the Q3 peak, supporting the decision to wait rather than tighten immediately.

    Core Inflation

    • Core inflation = CPI inflation excluding food and fuel.
    • It captures relatively persistent, demand-driven price pressures that monetary policy can influence.
    • Core excluding precious metals additionally removes gold and silver, preventing bullion price movements from distorting the underlying inflation signal.

    Second-Round Inflation Effects

    • A first-round shock, such as higher oil prices, can spread through the economy:
    • Higher oil prices → higher input costs → higher production costs → higher prices of goods/services → broader inflation
    • This transmission is called a second-round effect.

    De-Anchoring of Inflation Expectations

    • When households and firms stop believing inflation will return to the 4% target, they may:
    • Expect high inflation → demand higher wages/prices → firms raise prices → inflation becomes self-sustaining
    • This is why MPC members are closely watching expectations and generalisation of price pressures.

    Why a Rate Hike May Be Difficult

    • Supply shocks: Interest rates cannot directly increase oil supply or food production.
    • Transmission lag: Monetary policy affects the economy with a time lag.
    • Food weight: Food shocks can substantially raise headline CPI.
    • Growth trade-off: Higher rates can weaken investment and consumption.
    • Exchange rate: Rate differentials and rupee depreciation can affect imported inflation.
    • Fiscal/administered prices: Taxes, MSP and administered fuel prices lie largely outside MPC control.
    • Changing CPI basket: Changes in CPI weights can affect historical comparisons.

    “[2024, GS3, 10 marks] What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.”

    [2017] Which of the following statements is/are correct regarding the ‘Monetary Policy Committee (MPC)?
    1. It decides the RBI’s benchmark interest rates.
    2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
    3. It functions under the chairmanship of the Union Finance Minister.
    Select the correct answer using the code given below:

    [A] 1 only

    [B] 1 and 2 only

    [C] 3 only

    [D] 2 and 3 only

  • To build AI for all, bring in more women

    Why in the News

    India ranks among the world’s leading artificial intelligence ready nations, powered by Digital Public Infrastructure and a large innovation ecosystem, while women fall from 43 percent of STEM graduates to 10 percent of senior AI leadership. Every artificial intelligence system begins with data and every dataset begins with people, so a pipeline that loses women at each stage produces systems that reproduce the inequality of the society they learn from.

    What is the AI pipeline?

    1. Definition: The AI pipeline is the full sequence from data collection through model training and deployment to the decisions the model produces.
    2. Not only technical: It is not merely a technological conduit of code, silicon and compute power. It is fundamentally a human pipeline.
    3. It starts early: The pipeline begins before the first line of code is written, at the point where data about people is collected or not collected.
    4. Where the consequences land: Its outputs shape decisions affecting millions, from loan sanction to clinical recommendation.
    5. The failure mode: When people are absent from that data, artificial intelligence inherits those gaps.

    What is Digital Public Infrastructure?

    1. Definition: Digital Public Infrastructure (DPI) is a set of shared, interoperable digital systems, such as digital identity, payments and data exchange layers, built as public utilities on which both government and private services run.
    2. Why it matters here: India’s artificial intelligence readiness is powered by DPI, which also determines whose transactions and records enter the datasets models are trained on.

    What is the India AI Mission?

    1. Definition: The India AI Mission is the national programme providing compute capacity, datasets, application development support, skilling and startup financing for artificial intelligence in India.
    2. Relevance here: It is the vehicle through which artificial intelligence in India can be steered onto the same inclusive path that DPI followed for public welfare.

    Where does the pipeline leak women?

    1. STEM foundation: Women account for 43 percent of India’s STEM graduates, one of the world’s largest pools of women STEM graduates.
    2. Tech workforce: Representation falls to 26 percent in the technology workforce.
    3. Advanced AI roles: Only 12 percent of professionals in advanced artificial intelligence roles are women.
    4. Senior AI leadership: Women hold just 10 percent of senior artificial intelligence leadership positions.
    5. What the sequence shows: At every stage the pipeline leaks talent, lived experience and innovation, so the loss compounds rather than occurring at one bottleneck.

    What causes the leakage?

    1. Access to the network itself: Only 57 percent of women have independent internet access, compared with 72 percent of men.
    2. Nutrition and education: Unequal nutrition and unequal education set the disparity before any career choice is made.
    3. Caregiving responsibilities: Unpaid care work removes women from the workforce at the point where advanced technical careers compound.
    4. Workplace discrimination: Discrimination at work blocks progression from entry level technical roles into advanced ones.
    5. Language barriers: Artificial intelligence education is dominated by English, which excludes those schooled in other languages.
    6. School infrastructure: A student cannot pursue robotics where her school lacks the necessary infrastructure, so the exclusion begins well before higher education.
    7. Influence, not only presence: A woman who becomes an artificial intelligence engineer often remains the only woman in the room, with limited influence in product design.

    What happens to systems built without women in the data?

    1. Credit assessment: A self help group member in rural Bihar applying for a micro-loan is scored by models relying mainly on historical male financial patterns, which may underestimate her creditworthiness.
    2. Maternal health tools: A community health worker in Gujarat depends on artificial intelligence enabled maternal health tools, and training data that fails to reflect local nutrition and health conditions produces inaccurate recommendations affecting maternal care.
    3. The general mechanism: Artificial intelligence automates existing inequalities when trained on incomplete or biased data.
    4. The learning relationship: Artificial intelligence learns from society, so an unequal society produces an artificial intelligence that reflects that inequality.
    5. Why datasets alone are insufficient: Correcting the output requires more than diverse datasets, because the decisions about what to collect and what to optimise are made by the people in the room.

    Does India’s AI readiness conceal an exclusion problem?

    1. The readiness claim: India ranks among the world’s leading artificial intelligence ready nations, powered by Digital Public Infrastructure and a thriving innovation ecosystem.
    2. The contradiction beneath it: India produces one of the world’s largest pools of women STEM graduates, and women steadily disappear as the artificial intelligence pipeline advances.
    3. Formal equality achieved early: When India adopted its Constitution in 1950, it granted women and men universal adult franchise simultaneously, ahead of the sequence followed in several western democracies.
    4. Substantive access lagging: That simultaneous political inclusion sits alongside a 15 percentage point gap in independent internet access between men and women today.
    5. What the measure of leadership should be: True artificial intelligence leadership cannot be measured only by models, investments or patents. It must be measured by whether artificial intelligence reflects India’s diversity of languages, cultures, socio-economic realities and lived experiences.

    What does the corrective path look like?

    1. The precedent of scale: India has already shown how technology can advance public welfare at scale, and the India AI Mission offers the opportunity to ensure artificial intelligence follows the same inclusive path.
    2. Existing women’s institutions: Across rural India, women’s self-help groups have built strong financial ecosystems through collective savings and entrepreneurship, which is usable financial data and an existing delivery network.
    3. Influence changes output: When women occupy positions of influence, the technology itself shifts.
    4. Four roles, not one: Women and marginalised communities must participate as researchers, engineers, entrepreneurs and policymakers, not only as subjects in the training data.
    5. The constitutional foundation: The commitment to simultaneous inclusion continues through Digital Public Infrastructure, which provides the base for building inclusive artificial intelligence.

    Challenges to building inclusive AI

    1. Unpaid care work truncates technical careers: Time available for advanced training and long project cycles is unequal, e.g. the Time Use Survey 2019 recorded women spending 299 minutes a day on unpaid domestic work against 97 minutes for men.
    2. Device and connectivity gap precedes the skills gap: Independent access, not shared household access, determines who generates data, e.g. the National Family Health Survey 2019 to 2021 found 33.3 percent of women had ever used the internet against 57.1 percent of men.
    3. Language exclusion in model and curriculum: English dominant material and models exclude most first generation learners, e.g. Bhashini and BharatGen were set up precisely because Indian language coverage in large models was thin.
    4. Data annotation labour has no design voice: The workers who label training data are outside the decisions the data shapes, e.g. annotation work is outsourced at low wages with no representation in product design.
    5. No bias audit obligation: Automated decision systems face no statutory fairness testing requirement, e.g. the Digital Personal Data Protection Act, 2023 governs consent and processing of personal data but imposes no algorithmic audit duty.
    6. Online safety drives women off the platforms that generate data: Harassment reduces sustained participation, e.g. National Crime Records Bureau data has recorded a rising count of cyber crimes against women.
    7. Absence of sex disaggregated public datasets: Models cannot be checked for differential performance where the data does not record the split, e.g. many administrative datasets used for training carry no reliable gender field.

    Conclusion

    The central point is that the artificial intelligence pipeline is a human pipeline, and the numbers show it losing women at every stage from 43 percent of STEM graduates to 10 percent of senior AI leadership. Diverse datasets alone will not correct outputs shaped by rooms in which women are absent, so participation must extend to research, engineering, entrepreneurship and policymaking. What remains unresolved is the access gap that precedes all of it, with only 57 percent of women holding independent internet access against 72 percent of men.

  • Gene Editing’s Bold Move: Permanently Shut Down PCSK9

    Why in the News

    VERVE-102, an experimental in vivo base editing therapy delivered as a single intravenous infusion, permanently switches off the PCSK9 gene inside liver cells and cut LDL cholesterol by about 62 percent in a phase 1 trial. Cholesterol control has until now been a lifelong compliance problem, and a one time genetic change replaces that problem with a permanent, irreversible one.

    How does VERVE-102 work?

    1. What it is: VERVE-102 is not a traditional drug. It is a form of in vivo gene editing, meaning the editing is done inside the patient’s body rather than on cells removed and returned.
    2. Step 1, delivery: Genetic instructions are delivered through a single intravenous infusion.
    3. Step 2, the edit: Those instructions make a one time targeted change to the DNA inside liver cells, altering a single base in the PCSK9 gene.
    4. Step 3, the effect: The edited liver cells permanently lose the ability to produce PCSK9.
    5. Step 4, the outcome: With PCSK9 production switched off, the liver clears more LDL cholesterol from the blood, and the effect persists without repeat dosing.
    6. The stated goal: A single infusion that permanently reduces the liver’s ability to produce PCSK9, so that a one and done cholesterol treatment could eventually replace conventional medicines.

    What is LDL cholesterol?

    1. Definition: LDL (low-density lipoprotein) is called bad cholesterol because high levels make it stick to artery walls and form hard fatty deposits called plaque.
    2. Why it matters: These deposits narrow the arteries and block blood flow, which raises the risk of heart attacks and strokes.

    What is PCSK9 and why is it the target?

    1. What it is: PCSK9 is a protein involved in regulating LDL cholesterol in the blood.
    2. The natural experiment: People who naturally carry certain loss-of-function changes in the PCSK9 gene have lower LDL cholesterol throughout their lives and a lower risk of coronary heart disease.
    3. The inference: Reducing PCSK9 activity is therefore a safe and effective route to lowering cardiovascular risk.
    4. Confirmed by drugs: PCSK9 monoclonal antibodies substantially reduce LDL cholesterol and cardiovascular events, confirming the target.
    5. The limitation VERVE-102 addresses: Traditional medicines temporarily block PCSK9 or reduce its production, so their effects require continued treatment.

    What did the phase 1 trial find?

    1. LDL reduction: LDL cholesterol fell by about 62 percent in the highest dose group after four weeks.
    2. PCSK9 reduction: PCSK9 levels in that group fell by about 88 percent.
    3. Absolute fall: LDL cholesterol decreased by approximately 78 mg/dL on average.
    4. Follow up length: Some participants were followed for at least one year, and the longest follow up reached 18 months.
    5. Durability so far: The reductions in PCSK9 and LDL cholesterol were relatively stable across that period.

    How much cardiovascular risk does that reduction translate into?

    1. The established ratio: For every 1 mmol/L reduction in LDL cholesterol, cardiovascular risk falls by 20 to 22 percent.
    2. Worked case: An LDL cholesterol of 4.0 mmol/L, approximately 155 mg/dL, falling to 1.6 mmol/L is a 60 percent reduction.
    3. Effect of that case: That fall halves the patient’s cardiovascular risk.
    4. What remains unproven: VERVE-102 has not yet been shown to prevent heart attacks or strokes directly.
    5. The supporting evidence: All cholesterol lowering trials so far have shown that lower cholesterol means fewer cardiovascular events, and drugs blocking the PCSK9 protein have been shown to reduce heart attacks.

    How does it compare with the treatments already in use?

    1. Statins: Usually the foundation of treatment. They are relatively inexpensive, widely available, and supported by extensive evidence showing reductions in cardiovascular events.
    2. Ezetimibe: A cholesterol absorption inhibitor, taken orally, that works by blocking cholesterol from being absorbed in the small intestine.
    3. PCSK9 antibody medicines: They produce powerful LDL reductions and have demonstrated cardiovascular benefits, but require repeated injections.
    4. Inclisiran: It reduces PCSK9 production and can lower LDL cholesterol by roughly 50 percent, with less frequent dosing that makes long term treatment easier. It does not permanently modify DNA.
    5. The distinguishing feature of VERVE-102: Every existing option acts temporarily and must be continued. VERVE-102 makes a permanent change to DNA.

    Does permanence justify the loss of reversibility?

    1. The compliance case: Repeat prescriptions and remembering daily doses are a standing burden, and a safe one time treatment would remove that burden entirely.
    2. The unknown: This is a permanent change and the long term consequences are not yet known, so treated patients will need close observation.
    3. The reassurance from biology: Naturally occurring loss-of-function mutations of the gene exist, and people carrying them have less heart disease and live longer, which is the basis for the trial.
    4. The evidence horizon problem: An 18 month period is very different from proving that an effect will last for decades, and that requires further research.
    5. The current standing of the therapy: It is a potential future option for selected high risk patients, not a replacement for statins, ezetimibe, PCSK9 inhibitors or inclisiran.
    6. Trial breadth: More diverse trials are needed to establish whether the effect holds across populations over decades.

    Who would be considered for it first?

    1. Familial hypercholesterolemia: An inherited condition producing very high LDL cholesterol from birth, whose patients have the most to gain from a permanent reduction.
    2. Very high cardiovascular risk patients: Those whose risk is not controlled by existing therapy would be the second group.
    3. The staging logic: Beginning with these groups allows observation for problems before any wider use.
    4. What it is not yet: It is not a population level cholesterol intervention and is not positioned as one.

    Challenges to VERVE-102

    1. Irreversibility of a permanent edit: A therapy that cannot be stopped removes the physician’s ability to withdraw treatment, e.g. a statin prescription can be discontinued the day an adverse effect appears, while an edited liver cell population cannot be restored.
    2. Evidence horizon is short: Durability is established only to 18 months, e.g. statin cardiovascular outcome evidence rests on trials such as the Heart Protection Study that ran over five years in more than 20,000 participants.
    3. Delivery vector and off target risk: Gene therapy delivery carries historical safety precedent, e.g. the 1999 death of a participant in an adenoviral vector gene therapy trial in the United States halted the field for years.
    4. Cost and access: One time genetic therapies have been priced far beyond public health budgets, e.g. Casgevy, the first approved CRISPR based therapy, is priced at over two million dollars per patient in the United States.
    5. Population applicability: Early phase cohorts do not establish effect across differing lipid profiles, e.g. coronary artery disease in South Asians presents roughly a decade earlier and at lower body mass index than in western populations.
    6. Regulatory pathway for permanent somatic edits: Approval frameworks for irreversible somatic edits are still forming, e.g. India’s National Guidelines for Gene Therapy Product Development and Clinical Trials, 2019 permit somatic editing under review but bar germline editing outright.
    7. The competing benchmark is already cheap: A one time therapy must justify a large upfront price against an existing generic, e.g. statins cost a few rupees a day in India and are on the National List of Essential Medicines.

    Conclusion

    The central finding is that a permanent genetic switch off of PCSK9 through a single infusion produces LDL reductions larger than any daily medicine achieves, and that the reduction has held for 18 months. What remains unresolved is whether a permanent change is safe across a lifetime, and whether the LDL reduction converts into fewer heart attacks and strokes, neither of which the phase 1 data can answer. Until large outcome trials report, the therapy stands as an option for familial hypercholesterolemia and very high risk patients rather than a replacement for statins, ezetimibe, PCSK9 inhibitors or inclisiran.

    PYQ Relevance:

    Question (2021, GS3): “What are the research and developmental achievements in applied biotechnology? How will these achievements help to uplift the poorer sections of society?
    Linkage: Applied biotechnology is the primary field where gene editing techniques (like CRISPR) are developed to address challenges in health and agriculture, which can specifically benefit the underprivileged

  • Draft rules under the SHANTI Act could favour Russia’s Rosatom in India’s nuclear opening

    Why in the News

    Draft rules issued by the Department of Atomic Energy under the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act require any foreign nuclear technology brought into India to be design certified by the regulator in its country of origin and already operational there or in another foreign country. Only two Small Modular Reactors are operational anywhere in the world, so a clause written as a safety filter narrows India’s field of eligible suppliers to the one country that already has an operating unit.

    Mentor’s Comment

    A proven technology test is the most defensible condition a regulator can write. It is also the condition that most reliably locks out every new entrant, because nothing can be operational before someone allows it to operate somewhere first.

    What is the SHANTI Act?

    1. Full name: The Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India Act, referred to as the SHANTI Act.
    2. Function: It is the statute under which India’s expansion of nuclear power generation is being governed, including the terms on which foreign nuclear technology may be sourced for an Indian plant or reactor.
    3. Rule making authority: The Department of Atomic Energy (DAE) frames the subordinate rules under the Act, and has now issued them in draft.
    4. Operative clause in the draft rules: Foreign nuclear technology sourced for a nuclear power plant or reactor in India must mandatorily carry design certification or approval from the regulatory body in its country of origin, and must already be operational there or in another foreign country.

    What is a Small Modular Reactor?

    1. Definition: A Small Modular Reactor (SMR) is an advanced nuclear reactor with about one third the generating capacity of a conventional large power reactor, built from factory made modules rather than site fabricated components.
    2. Intended use: SMRs are aimed at supplying clean electricity to remote regions with limited grid infrastructure and to individual industrial enterprises.
    3. India’s interest: India is examining SMRs for localised applications such as energy hungry data centres, and for scaling up baseload capacity quickly.

    What do the draft rules actually require of a foreign supplier?

    1. Home regulator certification: The design must be certified or approved by the regulatory body of the technology’s country of origin.
    2. Prior operating record: The technology must already be operational in that country or in another foreign country.
    3. Cumulative condition: Both tests must be met together, so a design certified but not yet built fails the rule, and a demonstration unit without home regulator certification also fails it.
    4. Practical filter: The clause screens out first of a kind designs, which is the entire category most SMR developers currently sit in.

    What does the global SMR field look like?

    1. Russia, Akademik Lomonosov: A floating power unit with two modules of 35 MWe that began commercial operation in May 2020. It is a non self propelled power barge docked at Pevek harbour, supplying heat to the Arctic port town and electricity to the regional grid, and is the world’s northernmost nuclear power plant.
    2. China, HTR-PM: A demonstration project grid connected in December 2021 that started commercial operations in December 2023, the second of the two SMRs operational globally.
    3. United States, Holtec International: The New Jersey based developer’s SMR is still in the design certification phase and is yet to be cleared by its domestic regulator.
    4. United Kingdom, Rolls-Royce SMR: Also in the design certification phase, with no operating unit anywhere.
    5. United States, GE-Hitachi BWRX-300: A boiling water reactor derived SMR, likewise awaiting domestic regulatory clearance.
    6. What the set demonstrates: Only Russia and China clear the operational test today, and Russia is the only country in the world with expertise in floating nuclear power solutions.

    What is Russia already positioned to supply in India?

    1. Existing build: Russia is already constructing conventional nuclear projects in India and holds a lead in the nascent SMR field.
    2. Kudankulam: The Kudankulam Nuclear Power Project (KKNPP) in Tamil Nadu is India’s largest nuclear power station and the flagship project of Russian and Indian energy cooperation. Units 1 and 2 use Russia’s earlier VVER-1000 light water reactors, where water cools the reactor, and are connected to the national grid supplying south India.
    3. Serial construction pitch: A key negotiating point from the Russian side is serial construction of high capacity units of Russian design in India based on the new generation VVER-1200 reactor models, with technical specifications being proposed by Russia.
    4. SMR pitch: Rosatom State Corporation has made a strong pitch for deploying its SMRs for targeted applications in India, and construction of SMRs of Russian design in India is under discussion.
    5. Floating solutions: In April 2024, Rosatom presented its Indian partners with information on its floating nuclear power solutions.
    6. Bilateral track: Progress on Kudankulam and the SMR proposal was reviewed at a working meeting in Mumbai on 10 November between the Chairman of the Department of Atomic Energy and the Director General of Rosatom.

    Why does cost also point the same way?

    1. Indigenous benchmark: India’s indigenous pressurised heavy water reactors (PHWRs) cost about Rs 18 crore per MW-electric.
    2. Russian comparison: Russian reactors are estimated at about Rs 34 crore per MW-electric, which industry insiders describe as only marginally more expensive.
    3. Western comparison: Light water reactors offered by French and United States companies are significantly more expensive than India’s indigenous PHWRs.
    4. Where the cost sits: Fuel accounts for a relatively small share of the overall cost of nuclear generation, so the capital number dominates.
    5. Financing and time: High upfront capital cost remains the key challenge for new projects, and financing costs and the length of the construction period are critical determinants of the final cost of nuclear power.

    What are the other major changes in India’s nuclear framework?

    1. Change to an existing monopoly: The reform track opens nuclear power generation beyond the exclusive preserve of state owned entities, which the Atomic Energy Act, 1962 had reserved for the government.
    2. Change to an existing liability regime: The Civil Liability for Nuclear Damage Act, 2010, whose Section 17(b) gives the operator a right of recourse against the supplier, is part of the same reform track because that provision is the standing deterrent for foreign vendors.
    3. New institutional target: A Nuclear Energy Mission for Viksit Bharat carries an outlay of Rs 20,000 crore for research and development on Small Modular Reactors, with at least five indigenously designed SMRs targeted to be operational by 2033.
    4. New capacity goal: A national target of 100 GW of nuclear capacity by 2047 anchors the entire framework, against present installed capacity of under 9 GW.
    5. New subordinate rules: The draft rules now released are the first set of subordinate legislation under the SHANTI Act governing sourcing of foreign nuclear technology.

    Does a proven technology test buy safety at the cost of competition?

    1. The case for the clause: A design already certified and operating abroad carries demonstrated safety performance, which is the strongest assurance a regulator can demand before a first Indian deployment.
    2. The cost of the clause: Almost every SMR developer is in the design certification phase, so a rule keyed to operating status excludes the field rather than ranking it.
    3. Competition effect: With Holtec, Rolls-Royce SMR and the GE-Hitachi BWRX-300 all outside the gate, price discovery for Indian projects narrows to one supplier’s quotation.
    4. Reciprocity problem: India’s own first of a kind designs have no operating record either, so a mirror clause applied abroad would keep Indian reactors out of foreign markets.
    5. Strategic dependence: Serial construction of VVER-1200 units plus SMR supply from the same country deepens a single supplier relationship in a sector with sixty year asset lives.

    Challenges to the design certification and prior operation clause

    1. The eligible field collapses to two countries: Only Russia and China have an operating SMR, e.g. Akademik Lomonosov since May 2020 and HTR-PM since December 2023, so every other developer is excluded until its home regulator acts.
    2. First of a kind Indian designs get no reciprocal entry: An indigenous SMR has no operating unit anywhere, e.g. the Bharat Small Modular Reactor of about 200 MWe exists only on paper, so a comparable foreign rule would bar it abroad.
    3. Supplier liability still deters western vendors independently of this clause: Section 17(b) of the Civil Liability for Nuclear Damage Act, 2010 has kept projects frozen, e.g. the Jaitapur project with French supply has been under negotiation since 2010 without a single unit built.
    4. Construction period risk dominates project cost: Long build times inflate financing cost, e.g. Kudankulam Unit 1 was sanctioned in 1988 and reached criticality only in 2013.
    5. Fuel supply remains external for safeguarded reactors: Imported uranium underpins the light water fleet, e.g. India sources uranium from Kazakhstan, Uzbekistan, Russia and Canada under Nuclear Suppliers Group waiver arrangements.
    6. Local acceptance and land acquisition delay siting: Public opposition has stalled commissioning, e.g. protests at Kudankulam through 2011 and 2012 delayed the first unit by over a year.
    7. SMR economics depend on serial factory production: A handful of units cannot amortise a module factory, e.g. Pevek’s barge served a single Arctic town, which is not a template for grid scale Indian demand.

    Conclusion

    The rules under the SHANTI Act are at the stage of a draft released by the Department of Atomic Energy for public comment, and the operative clause requires foreign nuclear technology to be design certified in its country of origin and already operational there or abroad. The next milestone is the close of the comment window on 4 September 2026, after which the rules are to be finalised and notified. As drafted, the clause leaves Rosatom as effectively the only qualifying SMR supplier, with Holtec International, Rolls-Royce SMR and the GE-Hitachi BWRX-300 all still in design certification.