Subject: Bilateral Relations

Why in the News?

USA’s decision to sign a civil nuclear cooperation agreement with Saudi Arabia marks a significant shift in Middle East geopolitics. In this context, many argue that India should accelerate its own nuclear export readiness in response.

What is the substance of the US-Saudi agreement, and why is it controversial?

1. The core deal: The agreement would help Saudi Arabia build a civilian nuclear energy programme and reduce dependence on hydrocarbons, with American companies building Saudi reactors to secure a long term position in the kingdom’s nuclear infrastructure.
2. The enrichment controversy: The main point of contention is the possibility of a uranium enrichment facility in Saudi Arabia, even as Washington seeks to roll back Iran’s nuclear capabilities, creating an apparent contradiction.
3. The strategic rationale behind the contradiction: The rise of Iran’s regional influence has pushed the UAE towards its own civilian nuclear programme; a Saudi facility built and supervised by American companies is presented as reducing proliferation risk while giving Riyadh strategic parity with Tehran.
4. Congressional and diplomatic hurdles: The agreement faces scrutiny in the US Congress and opposition from Israel’s supporters and the non-proliferation community.

How is the nuclear deal linked to the broader regional diplomatic picture?

1. Tied to Israel normalisation: Washington is linking the nuclear deal to Saudi recognition of Israel, which Riyadh has so far declined under the Abraham Accords framework.
2. A triangular negotiation: The agreement could become part of a broader negotiation among USA, Saudi Arabia, and Israel covering regional security, Palestinian statehood, and the future of Arab-Israeli relations.

Where does India stand in this emerging nuclear industrial competition, and what does the editorial recommend?

1. India is largely absent: This reflects decades of resistance within India’s atomic energy sector to reforms enabling export-oriented industrial participation.
2. The editorial’s recommendation: The US-Saudi deal should accelerate implementation of India’s SHANTI Act framework to prepare Indian industry for exporting nuclear technology across the Middle East.
3. A call for political support: India should support the US-Saudi agreement, provided it is backed by strong non-proliferation safeguards, and should offer assistance to Saudi Arabia’s civilian nuclear programme.

Conclusion

The US-Saudi nuclear agreement reflects USA’s use of civil nuclear cooperation as a tool of regional strategic balancing, linking energy security, non-proliferation, and Saudi-Israel normalisation. For India, it is a strategic opportunity to strengthen its civil nuclear industry and emerge as a future nuclear technology exporter.

Back2Basics

1. SHANTI Act, 2025: A proposed legislative reform intended to open India’s civil nuclear sector to private and foreign investment in reactor construction and technology exports, reducing the traditional state monopoly in atomic energy.
2. Abraham Accords: The 2020 diplomatic framework under which several Arab states normalised relations with Israel. Saudi Arabia has not yet joined the framework.

PYQ RELEVANCE

[UPSC 2018] In what ways would the ongoing US-Iran Nuclear Pact Controversy affect the national interest of India? How should India respond to this situation?

Linkage: The PYQ examines the geopolitical implications of nuclear diplomacy in West Asia and its impact on India’s strategic interests. The article analyses the proposed US-Saudi civil nuclear agreement, its implications for regional power balance, nuclear non-proliferation, and India’s strategic and nuclear diplomacy in West Asia.

Why in the News?

The Trump administration began imposing permanent tariffs under Section 301 of the US Trade Act, 1974 on 60 trading partners after its earlier International Emergency Economic Powers Act (IEEPA) tariffs were struck down by the US Supreme Court. This places India in a more favorable bracket than China and Vietnam even as such tariffs function as domestic politics rather than sound economics.

How does the new four tier tariff structure actually work, and where does India sit in it?

1. Legal foundation shift: The administration is rebuilding the tariff regime under Section 301 of the Trade Act, 1974 (targeting alleged forced labour in imports) after its International Emergency Economic Powers Act (IEEPA) tariffs were declared illegal by the US Supreme Court in February.
2. The four tiers: The most favourable group (EU, Taiwan) faces a Section 301 tariff calculated only to bring the total to 10% where the Most Favoured Nation (MFN) rate is below that; the second tier, including India and 16 others such as Pakistan, Sri Lanka, Canada, and Mexico, faces a flat additional 10%; the third tier (Japan, South Korea, Switzerland) faces a flat 12.5%; the least favourable tier of 38 countries, including China and Vietnam, also faces a flat 12.5%.
3. India’s rate fell during negotiation: India’s tariff dropped from 12.5% first proposed in March to 10%, after India amended its Foreign Trade Policy on 14 June to explicitly ban imports made using forced labour.
4. India’s export performance defied predictions: Despite tariff measures since early 2025, India’s merchandise exports to the US grew 0.9% (from US$86.5 billion to US$87.3 billion) in 2025-26, according to an ICRIER report, though this was driven entirely by products on the US exclusion list (pharmaceuticals and electronics), while non-excluded exports fell 11.2%.

What is the real reason the USTR gives for the tariffs, and is that reason coherent?

1. The stated aim: The US Trade Representative (USTR) says countries that import forced labour goods gain an unfair cost advantage, harming American workers.
2. The geopolitical tell: All 60 countries under investigation were found “guilty,” with the most favourable grouping being the EU and Taiwan and the least favourable being China and Vietnam, a grouping that tracks geopolitical alignment more than measurable differences in forced labour enforcement.
3. The stated target is explicit: The tariffs are primarily meant to force countries to reduce dependence on China, with which the US is engaged in a trade war.
4. New textile quotas complicate India’s advantage: Tariff Rate Quotas (TRQs) granted to Bangladesh, Cambodia, Indonesia, and Malaysia for importing US cotton could divert textile and apparel sourcing away from India, despite its overall favourable tariff position.

Why do tariffs persist as policy despite weak economic evidence for them?

1. Tariffs function as a domestic tax, not a foreign penalty: Research by economists Mary Amiti, David Weinstein, and Stephen Redding shows tariff costs are largely borne by American businesses and consumers through higher prices, not by foreign producers.
2. Global supply chains blunt the intended effect: More than half of global trade consists of intermediate goods; tariffs on inputs such as steel or electronics raise costs for the very domestic manufacturers they are intended to protect.
3. Trade deficits have not shrunk: The US continues to run a record merchandise trade deficit despite successive tariff rounds, since deficits are driven by savings, investment, and consumption, not tariffs, while global supply chains have rerouted through Vietnam, Mexico, and other intermediary economies.
4. The political logic that survives the economic failure: Every successful political narrative needs someone to blame, someone to protect, and a visible policy action signalling resolve; tariffs provide all three even when they fail economically, whereas structural reforms require patience and produce fewer immediate political gains.

Conclusion

India’s tariff position is more favourable than China’s or Vietnam’s largely due to geopolitical considerations presented through the language of forced labour, rather than a consistent trade policy standard. At the same time, while India may benefit in the short term from trade diversion, new textile sourcing quotas for competing countries could reduce that advantage over the longer term.

PYQ Relevance

[UPSC 2018] What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India?

Linkage: The PYQ examines the implications of global trade wars, protectionism, WTO reforms, and India’s trade interests in the evolving international trading system. The article analyses the new US tariff regime, its geopolitical and economic motivations, its implications for the multilateral trading order, and the opportunities and challenges it creates for India’s exports and trade strategy.

Why in the News

Donald Trump’s foreign policy has exposed a challenge for India as serious as the 1991 Balance of Payments (BoP) crisis, this time centred on commerce, critical minerals, computer chips, and AI infrastructure rather than a single macroeconomic emergency.

How does 2026 mirror 1991, and how does it differ?

1. Financial position is stronger, but growth is not: India’s finances in 2026 are far more robust than in 1991, yet GDP growth remains at 6%, consistent with the 30 year average but well below the 8% benchmark, as the rupee depreciated and Foreign Institutional Investors (FIIs) moved capital out.
2. A Gulf war shock recurs: Just as the 1990-91 Gulf War pushed up India’s import bill in 1991, the West Asia conflict in 2026 has driven energy shortages and inflation.
3. The security backstop has changed form, not disappeared entirely: In 1991, the Soviet collapse removed India’s counterweight to China and the US; in 2026, Washington’s retreat from alliances and interest in a “G-2” accommodation with Beijing again leaves India without a reliable security backstop.
4. China’s lead has widened, not narrowed: China’s GDP was only slightly larger than India’s by 1991; by 2026 it stands at US$20 trillion against India’s US$4 trillion, and at current growth rates the gap will widen from US$16 trillion to US$24 trillion by 2050.

What makes the “four Cs” challenge harder to fix than the 1991 crisis?

1. Commerce and manufacturing: Manufacturing has stagnated despite 30 years of policy encouragement, unlike the relatively simple structural reforms that resolved the 1991 crisis.
2. Critical minerals and rare earths: India has reserves but has not adequately mapped or mined them, and processing capacity is a separate unresolved challenge, with dependence on China ranging from 50% to nearly 100% across minerals and metals.
3. Computer chips: NITI Aayog estimates that 90% to 95% of India’s semiconductor demand will still be met by imports until 2035.
4. AI infrastructure: India has strengths in AI adoption and AI talent but little presence in the AI value chain itself.

What is the deeper tension the piece does not resolve?

1. Geopolitical alignment is unresolved: The piece poses, without answering, whether India should pursue a “hide-and-bide” strategy with both the US and China, or attempt a more ambitious reset with Beijing modelled on how China itself used American imports, investment, and innovation after 1972.
2. Pakistan’s positioning has hardened: Pakistan is again “triumphalist,” deeply integrated with China’s military, and was a mediator between the US and Iran in 2026, echoing its 1991 alignment with the winning side of the Cold War.

Conclusion

India has absorbed the immediate economic shock of the Iran war, but the underlying four Cs problem (commerce, critical minerals, chips, and AI) is structurally harder than the 1991 crisis and cannot be fixed by macroeconomic reform alone. The piece calls for a coordinated national effort on the scale of a Manhattan Project, while leaving India’s broader geopolitical alignment between the US and China explicitly unresolved.

Back2Basics

1. India Semiconductor Mission (ISM): The Union government’s programme to build domestic semiconductor design, fabrication, and packaging capacity, aimed at reducing India’s near total reliance on imported chips.
2. Critical Minerals Mission: The government’s initiative to secure critical mineral supply chains essential for clean energy, electronics, and defence technologies, given India’s dependence on imports, particularly China, for processing capacity.

PYQ Relevance

[UPSC 2025] India aims to become a semiconductor manufacturing hub. What are the challenges faced by the semiconductor industry in India? Mention the salient features of the India Semiconductor Mission.

Linkage: The PYQ examines challenges in building India’s semiconductor ecosystem and reducing dependence on strategic technology imports. The article situates semiconductors within the broader “four Cs” challenge, arguing that strengthening domestic chip manufacturing is vital for India’s long-term economic and strategic resilience.

Why in the News:

The Union Budget 2026 to 2027 made no allocation for the Chabahar Port, against Rs 400 crore in the previous year, while US military strikes damaged Chabahar’s maritime control tower and the US sanctions waiver that had allowed Indian operations expired on April 26, 2026. Together, these developments place India’s decade long connectivity investment in jeopardy just as the strategic importance of the corridor has increased.

Why is Chabahar strategically indispensable for India, not merely commercially useful?

1. Operating structure: India Ports Global Ltd (IPGL) operates the Shahid Beheshti Terminal under a 10 year renewable agreement with Iran’s Ports and Maritime Organisation, while Iran operates the Shahid Kalantari Terminal.
2. Bypassing Pakistan: Chabahar provides India’s only direct route to Afghanistan and Central Asia without depending on Pakistan, which does not permit Indian goods to transit through its territory.
3. Part of INSTC: Chabahar serves as India’s gateway into this corridor.
   • Term: International North South Transport Corridor (INSTC): A multi modal transport corridor connecting India, Iran, Russia, Europe, and Central Asia, aimed at reducing transport time and cost.
4. Counterweight to Gwadar: Chabahar acts as a strategic counterbalance to China developed Gwadar Port in Pakistan, located about 140 km away.
5. Value to Iran: Chabahar is Iran’s only oceanic port with direct access to the Indian Ocean outside the Strait of Hormuz, making it crucial for developing Sistan Baluchistan Province.

How have US sanctions constrained India’s operational control even before the current war?

1. Sanctions origin: After withdrawing from the Iran Nuclear Deal (JCPOA) in 2018, the United States imposed sanctions on Iran but granted a special waiver for Chabahar to facilitate humanitarian assistance and trade with Afghanistan.
2. Waiver instability: The waiver was withdrawn in September 2025, restored for six months in October 2025, and expired on April 26, 2026, without renewal.
3. Pre-emptive restructuring: To avoid penalties under the May 2024 agreement, India prepaid its US$120 million investment in the Shahid Beheshti Terminal and transferred its operational stake to local entities.

Does prepayment and stake transfer protect India’s interests, or concede control precisely when the corridor’s value is rising?

1. Loss of direct control: India is gradually losing direct operational control over Chabahar following the expiry of the sanctions waiver. The Ministry of External Affairs (MEA) has stated only that discussions with relevant stakeholders are continuing.
2. Defensive rather than assertive posture: The MEA confirmed that the India operated terminal was not damaged during the US strikes near the control tower, but this addresses only physical safety, not operational continuity.
3. Regional balance shift: The expiry of the waiver strengthens the strategic position of China and Pakistan, the very competitors Chabahar was intended to balance.

What does the absence of Budget funding signal about India’s near term commitment?

1. Funding withdrawal: Chabahar received Rs 400 crore in the previous Union Budget, but no allocation was made in the Union Budget 2026 to 2027.
2. Strategic consequence: Weakening India’s engagement with Chabahar risks undermining its only non Pakistan connectivity corridor to Afghanistan and Central Asia, affecting long term regional connectivity plans.

Conclusion:

Chabahar remains a strategic asset for India by providing an alternative route to Afghanistan, Central Asia, and the International North South Transport Corridor (INSTC) while balancing the influence of Gwadar Port. However, US sanctions, the Iran conflict, the expiry of the sanctions waiver, and the absence of fresh budgetary support have weakened India’s operational position. Although India has safeguarded its financial commitments through restructuring, restoring strategic influence over the project will depend on future geopolitical developments and the sanctions regime.

Why in the News:

The war that began with the killing of Iran’s Supreme Leader on February 28, together with the fifth year of the Russia Ukraine war, is disrupting India’s energy costs, Strait of Hormuz navigation, and diplomatic balancing, echoing the twin 1990 to 1991 shocks of the Gulf War and the collapse of the Soviet Union. The parallel is used to argue that India’s current foreign policy debate repeats an old pattern of ideological sympathy overriding interest based assessment of unstable partners.

What is the current disruption, and how does it parallel 1990 to 1991?

1. The 1990 to 1991 shocks: Iraq’s invasion of Kuwait in August 1990 sent oil prices soaring, disrupted remittances, and aggravated India’s Balance of Payments (BoP) crisis. Within months, the Soviet Union, India’s principal Cold War partner, collapsed.
2. The present disruption: The Iran war has raised energy costs and disrupted navigation through the Strait of Hormuz. A June US-Iran Memorandum of Understanding that briefly eased tensions proved premature as the conflict escalated again.
3. Ukraine’s unresolved war: The Russia Ukraine war has entered its fifth year without settlement. While Russia is not disintegrating as the Soviet Union did, the mounting costs of the war raise questions about its future.
4. Immediate US pressure: Proposed US sanctions legislation, associated with the late Senator Lindsey Graham, seeks punitive tariffs on China, India, and other importers of Russian oil. President Donald Trump has also called for extending similar measures to Iranian oil, increasing pressure on India’s energy diplomacy.
5. India’s changed capacity: India is now better positioned than in 1991 due to its larger economy, greater diplomatic influence, and broader strategic partnerships, though it is also more exposed to global shocks.

How did ideological sympathy distort India’s reading of unstable partners in 1991, and how does the same pattern recur now?

1. Contradictory 1991 conduct: India evacuated its citizens from the Gulf, sought to preserve ties with Iraq and the Arab world, and simultaneously allowed American aircraft to refuel, while Foreign Minister I. K. Gujral publicly embraced Saddam Hussein.
2. Establishment sympathy misplacing priorities: Sections of India’s political and foreign policy establishment viewed Saddam Hussein’s confrontation with the United States as more significant than his annexation of Kuwait.
3. Similar rigidity toward Gorbachev: Some foreign policy voices criticised Mikhail Gorbachev for engaging with the West and even welcomed the August 1991 coup attempt by Soviet hardliners.
4. Present day repetition: Sympathy for Iran is often rooted in its opposition to the United States rather than an objective assessment of its domestic system. Debate on Russia is frequently personalised around Vladimir Putin and influenced by memories of Soviet era support, limiting analysis of Russia’s evolving relations with China, Europe, and the United States.

What three lessons does 1991 offer for managing the current disruption?

1. No balance of power is permanent: International politics is inherently uncertain. India’s foreign policy should prepare for discontinuity as much as continuity.
2. Debate is a strategic asset: A policy community dominated by consensus may overlook emerging risks. India needs stronger expertise on Russia, Iran, and Central Asia, along with institutions that encourage independent and contrarian analysis.
3. Domestic reform is the ultimate strength: India’s recovery in 1991 is attributed primarily to economic reforms, with diplomacy playing a supporting role. The same lesson applies today: domestic economic resilience is the foundation of effective foreign policy.

Conclusion:

The article argues that India’s foreign policy should be guided by national interest rather than ideological preferences or historical sentiment. Just as delayed recognition of geopolitical change complicated India’s response in 1991, excessive reliance on past assumptions may hinder its response to today’s crises involving Iran and Russia. The central lesson is that economic reform, strategic adaptability, and evidence based policy analysis remain the strongest tools for navigating an increasingly uncertain international order.

Why in the News

The India UK Comprehensive Economic and Trade Agreement came into force on July 15, securing zero duty access for 99% of Indian exports to the UK and setting a target of doubling bilateral trade to over $100 billion by 2030. The agreement pairs near universal tariff liberalisation with calibrated protection for sensitive sectors, raising the question of whether its gains will materialise automatically or depend on further domestic action.

What did India actually secure, and where did it hold the line?

1. Headline access: Zero duty access for 99% of Indian exports to the UK, with tariffs ranging from 70% on processed foods to 12% on textiles reduced to zero.
2. Labour intensive sectors: Textiles, leather, footwear, marine products, and gems and jewellery, all price sensitive, are expected to benefit most directly.
3. Steel safeguard: India negotiated arrangements addressing the UK’s new steel measures effective July 1, aimed at protecting commercial interests and minimising market disruption.
4. Calibrated EV opening: Electric vehicle imports are subject to tariff rate quotas with phased tariff reduction, balancing consumer access against domestic manufacturing support.
5. Protected sectors: India retained safeguards in agriculture and dairy.
6. Procurement access: Indian firms gain the ability to bid for UK government procurement contracts, particularly in infrastructure services and consulting.

What does CETA offer beyond tariff cuts on goods?

1. Services mobility: Expanded access for Indian IT, education, healthcare, financial and professional service providers.
2. Education tie up: The agreement enables UK institutions to establish campuses in India.
3. Future ready provisions: Digital trade, labour, gender, intellectual property, and innovation provisions are intended to help Indian firms integrate into UK and global value chains.
4. Investment base: The UK is already India’s sixth largest investor, contributing about 5% of cumulative FDI equity inflows into India since April 2000.

Do CETA’s gains accrue automatically, or do they depend on what Indian industry does next?

1. Conditional benefit: To maximise gains, Indian industry must invest in quality upgradation, standards compliance, and sustainability rather than rely on tariff access alone.
2. Mobility is not self executing: Indian companies need to actively use mobility provisions to build presence, partnerships, and long term capabilities in the UK services market.
3. MSME gap: Opportunities in processed foods, textiles, handicrafts, and IT enabled services require industry bodies to guide MSMEs on compliance, regulatory requirements, and procurement access.

How does CETA fit within India’s broader trade strategy?

1. Domestic policy alignment: The agreement is framed as reinforcing the Atmanirbhar Bharat vision and complementing Make in India and Digital India through expanded market access, services exports, and mobility.
2. Template claim: The deal is projected as a benchmark for India’s future trade agreements at a time of rising global regulatory barriers.
3. Trilateral potential: The UK’s membership in the CPTPP, combined with the proposed India EU trade agreement, is cited as creating complementary opportunities for Indian firms to diversify exports and integrate into wider regional value chains.
4. Bilateral target: Both countries have set a goal of doubling bilateral trade to over $100 billion by 2030.

Conclusion

CETA transforms a conventional tariff reduction agreement into a broader framework for market access, services mobility, and investment cooperation between India and the UK, while preserving safeguards for agriculture, dairy, and electric vehicles. Its success will depend not only on the agreement itself but also on Indian industry’s ability, especially MSMEs, to improve quality, meet international standards, and effectively utilise the new opportunities it creates.