PYQ Relevance:
[UPSC 2019] What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy, which would satisfy India’s National self-esteem and ambitions” Explain with suitable examples.
Linkage: The article points out several trade and economic tensions between the U.S. and India. These include disagreements over the actual size of the U.S. trade deficit with India, the increase of tariffs on steel and aluminium imports from 25% and 10% to 50%, which also affects India, and warnings of possible tariffs on Apple products if they are made in India. |
Mentor’s Comment: Israel’s bold “Rising Lion” operation against Iran on June 13, 2025, is a major turning point in Middle East politics. By killing top Iranian military and nuclear officials and bombing over 100 key sites, Israel has taken one of the most serious actions in its long rivalry with Iran. Both countries have described it as a historic moment, showing how serious the situation is. This is more than just a military move — it could have huge effects on the region and the world, including risks to energy supplies, rising tensions, and economic problems. It raises important questions about whether such surprise attacks can really prevent conflict or if they make things worse in an already unstable region.
Today’s editorial focuses on the analysis of the Israeli attack on Iran and its impact. This content is very relevant to GS Paper II (International Relations) Mains.
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Let’s learn!
Why in the News?
Recently, the Israeli military launched the “Rising Lion” operation against Iran, which is a very big step up in tensions in the Middle East.
What are the strategic objectives behind Israel’s “Rising Lion” operation against Iran?
- Neutralizing Nuclear and Missile Capabilities: Israel seeks to dismantle Iran’s ability to develop or deploy nuclear weapons and long-range missiles. Eg: Over 200 Israeli Air Force jets attacked 100+ targets, including nuclear sites and missile installations.
- Eliminating Key Military Leadership: The operation targets Iran’s military command to disrupt strategic coordination and weaken retaliation capabilities. Eg: High-ranking officials like the Chief of Staff of the Armed Forces and Revolutionary Guard commanderswere assassinated.
- Asserting Regional Military Superiority: By launching a preemptive, technology-driven blitzkrieg, Israel aims to reinforce its deterrence and reshape regional power dynamics. Eg: The campaign follows 21 months of pressure on Iran and its proxies, including provocative assassinationsand systematic airstrikes.
Why has the Israeli campaign raised concerns about regional and global stability?
- Risk of Regional Escalation: The conflict could widen if Iran retaliates or drags its proxies into action, destabilizing the Middle East. Eg: The Sunni Arab world fears blowback through attacks on oil facilities, incitement of Shia minorities, or revival of terrorist networks like ISIS.
- Threat to Global Oil Supply Chains: Hostilities near key maritime chokepoints like the Strait of Hormuz can disrupt global energy flows. Eg: About 20% of global oil passes through the Strait; any Iranian attempt to block it could trigger oil price surgesand inflation.
- Economic Fallout and Global Instability: A prolonged or messy war could amplify existing economic challenges like inflation, supply chain shocks, and geopolitical tension. Eg: The conflict may cause stock market instability, worsen the impact of other regional conflicts, and reverse global growth momentum.
How has U.S. foreign policy influenced the escalation of the Israel-Iran conflict?
- Withdrawal from the Iran Nuclear Deal: The U.S. pulled out of the Joint Comprehensive Plan of Action (JCPOA) in 2018, dismantling diplomatic progress and increasing Iran’s nuclear activity. Eg: Under Trump 1.0, the U.S. exited the deal and applied “maximum pressure” sanctions, leading to heightened tensions and mistrust.
- Economic Strangulation Strategy: U.S. actions aimed to weaken Iran economically and diplomatically, increasing regional hostility. Eg: The U.S. pressured Saudi Arabia to flood the oil market, reducing Iran’s oil revenues, and pushed the IAEAto condemn Iran before the Israeli attack.
- Military and Diplomatic Alignments: The U.S. built strategic ties and military alignments with Israel and other regional players to isolate Iran. Eg: The June 12 IAEA resolution, U.S. airstrikes on al-Houthis, and renewed ties with Pakistan signal coordinated steps that emboldened Israeli action.
What are the implications of the conflict for the Sunni Arab world and global oil supply chains?
- Strait of Hormuz Vulnerability: The conflict raises the risk of disruption in the Strait of Hormuz, a vital energy chokepoint. Eg: Nearly 20% of global oil supply passes through this strait, and Iran may block or threaten its use in retaliation.
- Shia-Sunni Sectarian Tensions: Iran could incite Shia minorities in Sunni-ruled countries, destabilizing domestic security. Eg: Countries like Saudi Arabia and Bahrain fear internal unrest or uprisings, particularly in Shia-dominated regions.
- Proxy Warfare and Regional Blowback: Iran-backed militias or proxies may target Sunni governments or U.S. allies, increasing regional instability. Eg: Attacks by Hezbollah, Houthis, or Iraqi militias could threaten infrastructure in UAE or Saudi Arabia.
- Oil Price Surge and Inflation: Threats to supply lines or actual conflict could lead to global oil price spikes, impacting inflation. Eg: Fear of escalation alone can push prices upward, hurting import-dependent economies like India, and driving global market volatility.
- Policy Dilemma for Sunni Arab States: Sunni states face a strategic dilemma—balancing between opposing Iran and avoiding regional escalation. Eg: Countries like Saudi Arabia and the UAE are wary of openly backing Israel, fearing retaliation and regional backlash.
What could be the impact on India?
- Oil Price Volatility and Economic Stress: Rising tensions threaten energy security, as India imports over 85% of its crude oil. Eg: A spike in Brent crude prices due to disruptions in the Strait of Hormuz would increase India’s current account deficit, raise fuel prices, and trigger inflation.
- Geopolitical Balancing Challenge: India must maintain a delicate diplomatic balance between Israel, Iran, and the U.S. Eg: India has strong strategic ties with Israel (defence and tech) but also energy and connectivity interests with Iran (e.g., Chabahar Port), making neutrality harder to maintain.
- Threat to Diaspora and Trade Routes: Escalation could impact the safety of the Indian diaspora in the Gulf and disrupt maritime trade routes. Eg: Over 8 million Indians live in West Asia. Any conflict-induced displacement or shipping disruptions through the Persian Gulf would hurt remittances and exports.
Way forward:
- Strengthen Energy Diversification and Strategic Reserves: India should diversify oil import sources (e.g., from Latin America, Africa) and expand strategic petroleum reserves to cushion against supply shocks. Eg: Fast-track deals with Brazil, UAE, and the U.S., while increasing domestic oil storage capacity.
- Pursue Proactive and Balanced Diplomacy: India must engage in quiet diplomacy with both Israel and Iran, reaffirming strategic ties without compromising neutrality. Eg: Leverage platforms like BRICS, Shanghai Cooperation Organisation (SCO), and G20 to promote regional de-escalation and safeguard Indian interests.
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Why in the News?
The tragic crash of Air India flight AI171 in Ahmedabad on June 12, 2025, which killed over 300 people, is a shocking reminder of how poor aviation safety is in India. This is not a one-time event, but part of a long series of deadly air accidents over the years that show serious problems in the system.
What governance failures led to the AI171 crash?
- Lack of Regulatory Oversight: Authorities like the DGCA and MoCA failed to enforce basic safety measures, such as proper runway maintenanceand bird hazard management. Eg: Overgrown grass near the runway in Ahmedabad attracted birds, possibly causing engine failure due to bird ingestion.
- Failure to Act on Past Warnings: Despite repeated aviation accidents over decades, systemic safety reforms were not implemented, and accountabilitywas routinely evaded. Eg: After major crashes like Mangaluru (2010) and Kozhikode (2020), safety lapses were identified but ignored by aviation authorities.
- Politicisation and Poor Leadership Appointments: Key aviation bodies were headed by bureaucrats or politically appointed officials lacking technical expertise in aviation safety. Eg: Professionals were bypassed in favour of public-relations-focused appointees at DGCA and AAI, weakening institutional response to risks.
Why is DGCA under criticism post-AI171 incident?
- Lack of Regulatory Oversight: Authorities like the DGCA and MoCA failed to enforce basic safety measures, such as proper runway maintenanceand bird hazard management. Eg: Overgrown grass near the runway in Ahmedabad attracted birds, possibly causing engine failure due to bird ingestion.
- Failure to Act on Past Warnings: Despite repeated aviation accidents over decades, systemic safety reforms were not implemented, and accountabilitywas routinely evaded. Eg: After major crashes like Mangaluru (2010) and Kozhikode (2020), safety lapses were identified but ignored by aviation authorities.
- Politicisation and Poor Leadership Appointments: Key aviation bodies were headed by bureaucrats or politically appointed officials lacking technical expertise in aviation safety. Eg: Professionals were bypassed in favour of public-relations-focused appointees at DGCA and AAI, weakening institutional response to risks.
How does a lack of accountability affect aviation safety in India?
- Recurring Accidents without Systemic Change: When no one is held responsible, critical safety lapses continue unchecked across the aviation sector. Eg: Despite the Mangaluru (2010) and Kozhikode (2020) crashes, Air India and regulators did not implement robust safety reforms.
- Blame Shift to Pilots: Authorities often scapegoat pilots instead of addressing deeper infrastructure and regulatory issues, undermining fair investigations. Eg: In the AI171 crash, DGCA named the pilots publicly, violating ICAO norms, instead of probing systemic failings.
- No Judicial Enforcement of Reforms: Weak legal follow-up allows ministries and aviation bodies to evade reforms even after Public Interest Litigations or inquiries. Eg: After the Mangaluru crash, a PIL listing DGCA and MoCA violations was dismissed by the Supreme Court, citing procedural grounds.
Which global aviation norms were violated in this crash’s aftermath?
- Violation of ICAO Confidentiality Norms: The International Civil Aviation Organization (ICAO) mandates that crew identities be protected during and after investigations to maintain fairness and objectivity. Eg: The DGCA named the pilots involved in the AI171 crash, breaching ICAO Annex 13, which prohibits revealing crew names before the final report.
- Neglect of Pre-Monsoon Runway Safety Protocols: ICAO standards require strict runway maintenance, especially before seasonal weather shifts, to prevent bird strikes and foreign object damage. Eg: In the AI171 crash, video evidence showed untrimmed grass near the runway at Ahmedabad airport, attracting birds and violating global runway wildlife hazard management norms.
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What reforms are needed to strengthen aviation safety oversight? (Way forward)
- Professionalisation of Regulatory Bodies: Appoint trained aviation professionals—not bureaucrats—to head institutions like the DGCA and AAI for evidence-based decision-making and technical leadership. Eg: ICAO recommends that civil aviation authorities be led by aviation experts to ensure technical integrity.
- Independent and Transparent Accident Investigations: Create an autonomous investigation body separate from the Ministry of Civil Aviation to probe accidents, publish findings without interference, and fix systemic gaps. Eg: The U.S. NTSB operates independently of the FAA and reports directly to Congress, ensuring accountability.
- Enforcement of International Standards: Enforce strict compliance with ICAO safety protocols, such as restricting construction near flight paths and maintaining airport surroundings. Eg: The presence of a high-rise building in AI171’s flight path violated ICAO’s obstacle clearance norms.
Mains PYQ:
[UPSC 2014] “International civil aviation laws provide all countries complete and exclusive sovereignty over the airspace above the territory. What do you understand by airspace? What are the implications of these laws on the space above this airspace? Discuss the challenges which this poses and suggests ways to contain the threat.
Linkage: “International civil aviation laws” and “airspace”, which are fundamental legal and operational aspects governing the aviation sector. In this article talks about the violations of “International Civil Aviation Organization (ICAO) standards” in India’s aviation system, underscoring the importance of understanding the legal and regulatory framework of the aviation sector.
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Why in the News?
North Bengal’s tea gardens are in crisis, especially for women workers, due to climate change, pests, low wages, and reduced production, causing economic struggles and increased gender-based hardships.
What challenges do women tea workers face due to climate change and poor labour conditions?
- Extreme Heat Exposure: Women work under open skies with no shade, facing soaring temperatures due to climate change. Eg: Workers suffer from headaches, vomiting, and exhaustion while plucking leaves during peak summer months like April and May.
- Lack of Basic Facilities: Absence of crèches, sanitation, and rest shelters forces women to manage both labour and childcare in unsafe conditions. Eg: Children are hung in cloth cradles tied to trees as mothers continue work in the gardens.
- Human-Wildlife Conflict: Encroachment of wildlife into tea estates due to changing weather patterns increases risk of attacks. Eg: Leopard attacks have injured several women, despite efforts like using whistles to drive them away.
Why is tea yield and quality declining in North Bengal?
- Erratic Rainfall Patterns: The monsoon is no longer evenly spread, with rainfall occurring in short, intense bursts, affecting soil moisture and crop cycle. Eg: Dry spells during critical growth months like February and March reduce yields and degrade leaf quality.
- Rising Temperatures: Increasing heat reduces the ideal climatic conditions necessary for tea cultivation, impacting both quantity and flavour. Eg: Temperatures crossing 30°C for extended periods lead to loss of the tea’s aroma and taste.
- Increased Pest and Disease Attacks: Climate change weakens tea bushes, making them more vulnerable to pests and diseases. Eg: Frequent pest attacks force farmers to use chemical sprays, which also degrade leaf quality.
How do low wages impact the lives of tea plantation workers?
- Economic Hardship: Low daily earnings make it difficult for workers to meet basic needs such as food, healthcare, and education. Eg: A worker earning only Rs 250 per day struggles to support their family after losing a spouse.
- Lack of Childcare Support: Insufficient income prevents access to proper childcare facilities, forcing unsafe alternatives at the workplace. Eg: In some cases, children are kept in cloth cradles tied to trees due to the absence of crèche facilities.
- No Scope for Upward Mobility: With stagnant wages and no savings, workers remain stuck in poverty with no chance to improve living standards. Eg: Despite long-standing demands to increase wages to Rs 600 per day, many still earn significantly less, affecting their long-term well-being.
What climate-resilient practices are tea estates adopting?
- Organic Farming: Switching to organic methods reduces chemical use and improves soil health for long-term sustainability. Eg: Some estates have gone fully organic, avoiding chemical fertilisers and promoting natural soil enrichment.
- Soil Conservation Techniques: Practices like mulching and intercropping help retain moisture, reduce erosion, and maintain fertility during erratic rainfall. Eg: Estates use mulching and intercropping with legumes to prevent soil erosion and conserve moisture during dry spells.
- Water Management Strategies: Creation of water bodies and rainwater harvesting enhances water availability during prolonged dry periods. Eg: Gardens are building water bodies to improve microclimates and ensure irrigation in the absence of seasonal showers.
Why is the tea sector overlooked in policy and climate action?
- Lack of Market Visibility: Despite being globally consumed, tea lacks strong marketing and policy attention compared to other cash crops. Eg: Unlike coffee, tea receives little brand promotion, limiting public and policymaker focus.
- Neglect of Women Labour Force: Tea is the largest employer of women labourers, yet there is inadequate investment in their welfare or working conditions. Eg: No crèche facilities exist in many gardens, forcing women to hang children from trees during work.
- Insufficient Climate Funding: Small growers lack access to funds and technical guidance to adopt climate-resilient practices. Eg: High cost of herbal pesticides prevents adoption, while most farmers rely on peer advice instead of expert support.
Way forward:
- Improve Working Conditions and Wages: Ensure minimum wage revision, provide shade, drinking water, crèche facilities, and medical support for women tea workers to enhance their safety and well-being.
- Promote Climate-Resilient Practices with Institutional Support: Encourage organic farming, soil conservation, and afforestation, backed by government funding and policies tailored to protect both workers and the environment.
Mains PYQ:
[UPSC 2024] What are the major challenges faced by Indian irrigation system in recent times? State the measures taken by the government for efficient irrigation management.
Linkage: The tea gardens are experiencing “prolonged dry spells” and a drop in the “groundwater table”, highlighting a critical challenge for irrigation and water management in the tea heartland.
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Why in the News?
Under the Dharti Aba Janjatiya Gram Utkarsh Abhiyaan (DAJGUA), the Ministry of Tribal Affairs has sanctioned the creation of District and State-level Forest Rights Act (FRA) Cells across 18 States and Union Territories.
About Dharti Aba Janjatiya Gram Utkarsh Abhiyaan (DAJGUA)
- Launch: It was launched in October 2024 by Ministry of Tribal Affairs.
- Mission Goal: The initiative aims to promote holistic development of tribal communities by addressing gaps in infrastructure, livelihoods, education, and health.
- Geographical Reach: The program covers over 63,843 tribal-dominated villages across 30 States/UTs, 2,911 blocks, and 549 districts, benefitting over 5 crore tribal people.
- Funding: The total budget is ₹79,156 crore, with a central share of ₹56,333 crore and a state share of ₹22,823 crore.
- Inspiration: DAJGUA is modelled after the PM-JANMAN Scheme, which focuses specifically on the welfare of Particularly Vulnerable Tribal Groups (PVTGs).
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What are FRA Cells under DAJGUA?
- Overview: FRA Cells are administrative support units created under the Dharti Aba Janjatiya Gram Utkarsh Abhiyaan (DAJGUA) to assist in implementing the Forest Rights Act (FRA), 2006.
- Funding Support: These cells are funded directly by the Union Ministry of Tribal Affairs, marking the first instance of central government financing a structured FRA support mechanism.
- Objective: The core aim of FRA Cells is to help tribal claimants and Gram Sabhas prepare and submit forest rights claims, especially in tribal-dominated districts.
- Goal: FRA Cells aim to reduce delays and rejections in forest rights applications by improving documentation quality and data management.
Key Features of FRA Cells:
- Coverage Scale: As of 2025, a total of 324 district-level and 17 state-level FRA Cells have been approved across 18 States and Union Territories.
- Funding Allocation: Each district-level cell is provided ₹8.67 lakh, and each state-level cell receives ₹25.85 lakh, funded as Grants-in-Aid General by the Centre.
- Operational Functions: FRA Cells assist in document collection, Gram Sabha resolution drafting, conversion of forest villages into revenue villages, land demarcation, digitization, and record uploads to official portals.
- Limitations: FRA Cells do NOT interfere with the decision-making powers of statutory authorities like Gram Sabhas, Sub-Divisional Level Committees (SDLCs), or District Level Committees (DLCs).
- Leading States: The highest number of FRA Cells have been approved in Madhya Pradesh (55), Chhattisgarh (30), Telangana (29), Maharashtra (26), Assam (25), and Jharkhand (24).
Back2Basics: Forest Rights Act (FRA), 2006
- Overview: The law is officially called The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006.
- Objectives: FRA seeks to recognize and vest forest land rights to Scheduled Tribes (STs) and Other Traditional Forest Dwellers (OTFDs) who have traditionally depended on forests but lacked formal land ownership.
- Major Provisions: It provides for:
- Ownership of Minor Forest Produce (MFP)
- Community rights such as grazing and water use
- Habitat rights for PVTGs
- Community Forest Resource (CFR) rights to manage and protect forests
- Institutional Framework: The Act is implemented through a multi-tier system consisting of Gram Sabhas, Forest Rights Committees (FRCs), SDLCs, DLCs, and State Monitoring Committees.
- Significance: FRA provides legal protection from evictions, supports livelihoods, and enhances local forest governance through community participation and legal recognition.
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| [UPSC 2021] At the national level, which ministry is the nodal agency to ensure effective implementation of the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006?
Options: (a) Ministry of Environment, Forest and Climate Change (b) Ministry of Panchayati Raj (c) Ministry of Rural Development (d) Ministry of Tribal Affairs* |
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Why in the News?
For the first time since India’s independence, the Shipki La pass in Himachal Pradesh has been opened to domestic tourists, marking a historic shift in India’s border tourism strategy.
About Shipki La Pass:
- It is a high-altitude mountain pass at 3,930 meters in the Kinnaur district of Himachal Pradesh, on the India–Tibet (China) border.
- It is one of only 3 official border trading points between India and Tibet, along with Nathu La (Sikkim) and Lipulekh (Uttarakhand).
- The Sutlej River (called Langqen Zangbo in Tibet) enters India near Shipki La, adding geographical importance to the area.
- The pass lies along National Highway 5 (NH5) and is considered one of the highest motorable roads in India.
- Historically, it served as a major trade route, enabling exchange of salt, wool, spices, yak tails, and tea between India and Tibet.
- Trade was stopped in 1962 after the India-China war, resumed in 1992, but was halted again during COVID-19.
- On June 9, 2025, Himachal Pradesh opened the pass to Indian tourists for the first time since Independence.
- The initiative is part of a “Border Tourism” strategy, which includes the launch of the Sarhad Van Udyan (Border Forest Park).
- It is also being considered as an alternate route for the Kailash Mansarovar Yatra.
Other Important Himalayan Passes:
- Ladakh and Jammu & Kashmir:
- Khardung La (5,359 m) – Among the highest motorable passes; connects Leh with Nubra Valley.
- Zoji La – Links Srinagar with Leh; vital for year-round Ladakh access.
- Chang La, Baralacha La, Umling La (5,798 m) – Crucial for Leh connectivity and defense.
- Rezang La – Famous for the 1962 India-China war battle.
- Karakoram Pass, Aghil Pass, Demchok Pass – Strategic India-China border passes.
- Himachal Pradesh:
- Rohtang Pass – Connects Kullu with Lahaul-Spiti; key for tourism and logistics.
- Parang La – Links Spiti Valley and Parvati Valley; used by trekkers and herders.
- Shipki La – Now open to tourists; historical Indo-Tibetan trade route.
- Uttarakhand:
- Lipulekh Pass (5,632 m) – Used for Kailash Mansarovar Yatra.
- Mana Pass – One of the highest vehicle-accessible passes; connects to Tibet.
- Niti Pass, Milam Pass, Kuthi Pass – Historical trade and pilgrimage routes.
- Sikkim:
- Nathu La – Major border trade route; part of the ancient Silk Route.
- Jelep La – Historical route linking Sikkim with Lhasa via Chumbi Valley.
- Arunachal Pradesh:
- Se La, Bum La – Connect to Tawang and Bhutan border.
- Pangsau Pass, Diphu Pass – Connect Arunachal with Myanmar; important for WWII history and connectivity.
| [UPSC 2007] Which one of the following Himalayan passes was reopened around in the middle of the year 2006 to facilitate trade between India and China?
Options: (a) Chang La (b) Jara La (c) Nathu La (d) Shipki La |
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Why in the News?
Authorities have recovered the black box from the crash site of the recent incident in Ahmedabad.
About Black Boxes:
- Purpose: Black boxes are essential flight data recording devices used in aircraft to aid in accident investigation and flight safety analysis.
- Development: Australian scientist David Warren in 1954, developed the first practical FDR after investigating mid-air explosions.
- Color and Visibility: Despite the name, black boxes are painted bright orange with reflective material to make them easily visible after a crash.
- Two Main Types: Aircraft typically have two black boxes:
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- Cockpit Voice Recorder (CVR) and
- Digital Flight Data Recorder (DFDR).
- Single Unit: Some aircraft integrate both functions into a single combined unit.
- How does it work?
- Cockpit Voice Recorder (CVR): The CVR records cockpit audio, including pilot conversations, radio transmissions, alarm sounds, and background noises like engine hum or warning tones.
- Digital Flight Data Recorder (DFDR): The DFDR logs key flight performance data, including altitude, airspeed, direction, engine parameters, and system operations, capturing thousands of data points per second.
- Installation Location: Black boxes are usually installed in the tail section of the aircraft, as this area is statistically more likely to remain intact in a crash.
- Recording Capacity: The CVR records the last 2 hours of cockpit audio on a continuous loop, while the DFDR stores up to 25 hours of flight data.
- Durability and Protection: Black boxes use solid-state memory chips housed in crash-survivable casings that can endure high-impact forces, extreme temperatures (up to 1,100°C), and deep-sea pressure.
- Underwater Locator Beacons (ULBs): Each black box includes a beacon that emits signals for up to 30 days, aiding search teams in locating the devices in the event of a water crash.
Use of Black Boxes in India:
- Regulation in India: In India, aircraft crash investigations are conducted by the Aircraft Accident Investigation Bureau (AAIB) under the Ministry of Civil Aviation, using black box data as primary evidence.
- Recent Development (April 2025): India established its first dedicated Flight Recorders Laboratory in New Delhi, strengthening the country’s capability to analyze crash data independently and efficiently.
| [UPSC 2025] GPS-Aided Geo Augmented Navigation (GAGAN) uses a system of ground stations to provide necessary augmentation. Which of the following statements is/are correct in respect of GAGAN?
I. It is designed to provide additional accuracy and integrity.
II. It will allow more uniform and high-quality air traffic management.
III. It will provide benefits only in aviation but not in other modes of transportation.
Options: (a) I, II and III (b) II and III only (c) I only (d) I and II only* |
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Why in the News?
The Finance Ministry has firmly denied recent online rumours suggesting that the government is planning to impose Merchant Discount Rate (MDR) charges on UPI transactions.
About Merchant Discount Rate (MDR):
- Overview: MDR refers to the fee charged to merchants by banks or payment service providers for processing digital payments made via credit cards, debit cards or other digital modes.
- Purpose: It serves to compensate multiple stakeholders involved in a digital transaction, including the issuing bank, acquiring bank, payment gateway, and network operator.
- Fee Structure: MDR is typically calculated as a percentage of the total transaction amount, usually ranging from 1% to 3%, depending on the transaction and merchant type.
- RBI Regulation: The Reserve Bank of India (RBI) regulates MDR, and merchants are NOT permitted to pass this fee onto customers.
- Discontinuation: To promote cashless payments, the government waived MDR on UPI and RuPay card transactions in 2020, benefiting small merchants and consumers.
How does it work?
- Transaction Flow: When a customer pays digitally, the payment amount is credited to the merchant’s account after deducting the MDR fee.
- Example: If a customer pays ₹1,000 and the MDR is 2%, the merchant receives ₹980, while the remaining ₹20 is distributed among the banks and service providers.
- Automatic Deduction: The MDR amount is automatically deducted by the settlement system at the time of transaction processing.
- Variable Rates: The MDR rate may vary depending on factors such as the type of card used, nature of business, monthly transaction volume, and average transaction value.
- Merchant Agreements: Merchants are required to sign MDR agreements with their payment service providers before they begin accepting digital payments.
- Operational Cost: MDR is treated as a part of the merchant’s operational costs when offering customers the convenience of digital payment options.
| [UPSC 2017] Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news?
Options: (a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
(b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
(c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards. *
(d) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards. |
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