💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Bilateral Relations

1. Major World Events
2. India’s Interests in neighbourhood
3. Effects of our Policies

  • India-Oman Relations

    India is laying out the red carpet for Oman’s top defence official Mohammed Nasser Al Zaabi, who will be in India for a four-day official visit.

    India-Oman Relations: A Backgrounder

    • The Sultanate of Oman is a strategic partner of India in the Gulf.
    • Both nations are linked by geography, history and culture and enjoy warm and cordial relations.
    • An Indian consulate was opened in Muscat in February 1955 which was upgraded to a consulate general in 1960 and later into a full-fledged embassy in 1971.
    • The first ambassador of India arrived in Muscat in 1973.

    History of the ties

    • Oman, for many years, was ruled by Sultan Qaboos bin Said al Said, who was a friend of India.
    • Sultan Qaboos, the longest-reigning leader of the modern Arab world, died in January ‘2020 at the age of 79.
    • He was a man who was, as a student, taught by Shankar Dayal Sharma who went on to become the President of India.
    • Sultan Qaboos’s father, an alumnus of Ajmer’s Mayo College, sent his son to study in Pune for some time, where he was former President Shankar Dayal Sharma’s student.

    Economic ties

    • Expatriate community: Oman has over five hundred thousand Indian nationals living there making them the largest expatriate community in Oman. They annually remit $780 million to India.
    • Bilateral trade: In 2010, bilateral trade between India and Oman stood at $4.5 billion. India was Oman’s second-largest destination for its non-oil exports and its fourth-largest source for Indian imports.
    • Energy: India has been considering the construction of a 1,100-km-long underwater natural gas pipeline from Oman called the South Asia Gas Enterprise (SAGE).

    Defense cooperation

    Oman is the first Gulf nation to have formalized defense relations with India.

    • Naval cooperation: The Indian Navy has berthing rights in Oman, and has been utilizing Oman’s ports as bases for conducting anti-piracy operations in the Gulf of Aden.
    • Tri-services base: In February 2018, India announced that it had secured access to the facilities at Duqm for the Indian Air Force and the Indian Navy. Duqm had previously served as a port for the INS Mumbai.
    • Arms trade: The standard issue rifle of the Royal Army of Oman is India’s INSAS rifle.
    • Bilateral exercises: Naseem al-Bahr (Arabic for Sea Breeze) is a bilateral maritime exercise between India and Oman. The exercise was first held in 1993.

    Significance of Oman for India

    • Oman is India’s closest defense partner in the Gulf region and an important anchor for India’s defense and strategic interests.
    • It is the only country in the Gulf region with which all three services of the Indian armed forces conduct regular bilateral exercises and staff talks, enabling close cooperation and trust at the professional level.
    • It also provides critical operational support to Indian naval deployments in the Arabian sea for anti-piracy missions.

    Duqm port and its strategic imperative

    • In a strategic move to expand its footprint in the Indian Ocean region, India has secured access to the key Port of Duqm in Oman for military use and logistical support.
    • This is part of India’s maritime strategy to counter Chinese influence and activities in the region.
    • The Port of Duqm is strategically located, in close proximity to the Chabahar port in Iran.
    • With the Assumption Island being developed in Seychelles and Agalega in Mauritius, Duqm fits into India’s proactive maritime security roadmap.
    • In recent years, India had deployed an attack submarine to this port in the western Arabian Sea.

    Deterrent in ties: Chinese influence in Oman

    • China started cultivating ties with the Arab countries following the former Soviet Union’s invasion of Afghanistan.
    • Beijing has cultivated close ties with Oman and the latter was, in fact, the first country to deliver oil to China.
    • As of today, 92.99 per cent of Oman’s oil exports go to China, making China Oman’s largest oil importer.
    • Oman and China signed an agreement to establish an Oman-China Industrial Park at Duqm in 2016.
    • China has identified Oman as a key country in the region and has been enhancing defence ties with it steadily.

    Way forward

    • India does not have enough energy resources to serve its current or future energy requirements. The rapidly growing energy demand has contributed to the need for long term energy partnerships with countries like Oman.
    • Oman’s Duqm Port is situated in the middle of international shipping lanes connecting East with West Asia.
    • India needs to engage with Oman and take initiatives to utilise opportunities arising out of the Duqm Port industrial city.

     

  • Places in the news: Sittwe Port

    Context

    Notwithstanding the unfortunate developments since the Tatmadaw took over, a recalibration exercise for developing a robust relationship with Naypyidaw is the need of the hour.

    Need for proactive neighbourhood policy with Myanmar

    • Security and economic interests: India should implement an unbiased and proactive “Neighbourhood First” strategy that facilitates the Act East policy crucial for India’s long-term security and economic interests.
    • Myanmar — regardless of who governs its polity — is not only the decisive lynchpin for India’s Act East policy but critical for the economic development and security of India’s Northeast.
    • China factor: Such a policy should take into account the measures that China has taken to arm the Tatmadaw.

    How to support Myanmar?

    • Critical requirements: India should find ways to support Naypyidaw for its critical requirements of systems and platforms like UAVs, surveillance systems and communication equipment.
    • Economic engagement: There is a need for dynamic economic engagement with Myanmar, to expedite the completion of the earlier agreement on the operationalisation of the Sittwe port, the establishment of an oil refinery and joint vaccine production facilities at a cost of $6 billion.
    • People-to-people goodwill: India also needs to proactively employ the existing “people-to-people” goodwill and proximate ties between the two armies.
    • Engage with military leadership to stop highhandedness: India has the singular advantage of acceptability from both factions in Myanmar and it is, therefore, imperative that it takes the lead in engaging with the ruling military leadership, to stop the highhandedness.
    • The visit by India’s Foreign Secretary to Myanmar in the last week of December 2021 was significant.
    • It conveyed the message that India, notwithstanding its commitment to democracy, is amenable to conduct business with the country, regardless of who is in the seat of power.

    Conclusion

    It is of the utmost importance for India to positively engage Naypyidaw and stave off attempts to exploit Myanmar by countries inimical to India’s growth. Any ambiguity or delay in India’s constructive engagement with Myanmar would only serve the interests of anti-India forces.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • India’s challenge in European geopolitics

    Context

    For India, an important strategic priority today is to rebalance the Indo-Pacific. Delhi, however, recognises that this expansive challenge can’t be met by any one power, including the US. A larger European role in securing Asia therefore becomes critical.

    Importance of Russia in balancing China

    • Peace with Russia in Europe might be necessary for America to focus on Asia has been the key motivation behind President Joe Biden’s decision to intensify engagement with Vladimir Putin in the last few months.
    • On the question of Ukraine’s membership of NATO, the US and its European allies have suggested that membership is certainly not imminent; but they are unwilling to say Ukraine will “never” be admitted.

    Contradiction in Europe

    • 1] Europe remains geopolitically unstable: None of the three European settlements of the 20th century — in 1919 after the First World War, in 1945 after the Second World War, and in 1991 after the Cold War — has endured.
    • 2] The difficulty of integrating Russia into a European order: Russia was part of the great power system in Europe through the 18th and 19th centuries.
    • If the 1917 Bolshevik Revolution put Russia and the West at odds with each other, the collapse of the Soviet Union has not resolved the contradiction.
    • 3] Growing tension between the US and Europe: Since the Second World War, Europe has relied on the US for its security.
    • However, Europe has never stopped resenting the American dominance over its geopolitics.
    • The EU’s foreign policy chief, Josep Borrell, has repeatedly objected to the US and Russia deciding the future of Ukraine over European heads.
    • But Russia does not take the EU seriously and is betting on negotiations with the US.
    • 4] Europe still remains a weak security actor:  While the EU has become a powerful economic entity (with its $17 trillion GDP), it remains a weak security actor.
    • Whatever might be the outcome from the gathering conflict over Ukraine, these European contradictions are not going to disappear any time soon.

    Why Europe remains a weak security actor?

    • Dominance of the US and Russia: The ambition to construct a strong geopolitical personality for the EU is hobbled by divisions over the role of Russia and the US in the region.
    • Mutual suspicions: The historically rooted mutual suspicions among European states also plays role.
    • Reluctance to spend on defence: This is compounded by the reluctance to spend more on defence and the inability to develop collective defence arrangements outside of NATO led by the US.

    Suggestions for India

    • The contradictions in Europe demand that Delhi discard its tendency to view the region through the “East versus West” binary.
    • Delhi today could profitably take a leaf out of the book of the Indian national movement.
    • In the late 18th century, as European powers competed for influence in the subcontinent, many Indian princes sought to take advantage of the contradictions between Britain and France.
    • Imperial Germany supported the formation of a nationalist government of India in Kabul in 1915 headed by Raja Mahendra Pratap Singh.
    • Eager to accelerate Indian independence during the Second World War, Netaji turned to Germany and Japan, the world’s newest great power.
    • The sharpening struggle for Indian independence, and more broadly the liberation of Asia between the two World Wars, inevitably involved exploiting the contradictions between different imperial powers.
    •  This was complicated, however, by rapid realignment among the major powers —friends became adversaries and enemies became allies.
    • The Indian and Asian national movements were deeply divided in coping with the shifting great power dynamic.
    • The world enters a similar moment today that could rearrange relations between the US, UK, Europe, Russia, China and Japan.

    Consider the question “What are the contradictions in Europe today? How these contradiction can play role in India’s international relations with the European countries?”

    Conclusion

    Greater engagement with Europe and dealing with its multiple contradictions must necessarily be important elements of India’s international relations today.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • Making sense of Pakistan’s new national security policy

    Context

    The national security policy statement issued last week by the government of Pakistan acknowledges the need for change.

    Why does it matter for India?

    • India’s stakes in a stable Pakistan are higher than anyone else in the world.
    • Therefore, Delhi must pay close attention to the internal debates within Islamabad on the imperatives of major change in Pakistan’s national direction.
    • But as critics in Pakistan insist, the policy offers no clues on how to go about it.
    • The classified version probably has a clear strategy on how to accelerate economic growth, build national cohesion, and revitalise its foreign and security policies.

    Overview of India’s transformation after 1990s

    • The crises that Pakistan confronts today are quite similar to those Delhi faced at the turn of the 1990s.
    • Economic challenge: India’s post-Independence old economic model was on the verge of collapse.
    • Political instability: The era of massive domestic political mandates was over and weak coalitions government were in place.
    • Challenges in International relations: The Soviet Union, India’s best friend in the Cold War, fell off the map and the Russian successor was more interested in integrating with the West.
    • India found that its political ties with all other major powers — the US, Europe, China and Japan — were underdeveloped at the end of the Cold War.
    • Pakistan, meanwhile, was running proxy wars in India even as it mobilised international pressures against Delhi on Kashmir.
    • Within a decade, though, India was on a different trajectory.
    • . Its reformed economy was on a high growth path.
    • India was hailed as an emerging power that would eventually become the third-largest economy in the world and a military power to reckon with.
    • Delhi also cut a deal with Washington to become a part of the global nuclear order on reasonable terms.
    • This involved a series of structural economic reforms, the recasting of foreign policy, and developing a new culture of power-sharing within coalitions and between the Centre and the states.

    The economic transformation of Bangladesh

    • The economic transformation of Bangladesh has been equally impressive.
    • Since Sheikh Hasina returned to power in 2009, Bangladesh focused on economic development, stopped support to terrorism, and improved ties with the larger of its two neighbours — India. 
    • As a result, Bangladesh’s economy in 2021 (GDP at $350 billion) is well ahead of Pakistan ($280 billion).

    How Pakistan missed the opportunity

    • Pakistan chose a different path.
    • Having ousted the Soviet superpower from Afghanistan in the late 1980s, Pakistan was ready to apply the model of cross-border terrorism to shake Kashmir loose from India and turn Afghanistan into a protectorate.
    • Supporting jihadi groups was seen as a low-cost strategy to achieve Pakistan’s long-standing strategic objectives in the neighbourhood.
    • These grand geopolitical obsessions left little bandwidth for the much-needed economic modernisation of Pakistan.
    • Islamabad, which relentlessly pursued parity with Delhi, now finds that the Indian economy at $3.1 trillion is more than 10 times larger than that of Pakistan.

    Factors that explain change in Pakistan’s policy

    • Diminishing role in geopolitics: In the past, Pakistan had much success in pursuing a foreign policy that not only balanced India with the support of the West, but also carved out a large role for itself in the Middle East and more broadly the Muslim world.
    • Today, barring the United Kingdom, Pakistan’s equities in the West have steadily diminished.
    • Weakened ties in the Middle East: Meanwhile, it has weakened its traditionally strong ties in the Middle East with Saudi Arabia and the United Arab Emirates.
    • Weakened ties with the US: Although its all-weather ties with China have gone from strength to strength, the unfolding conflict between Washington and Beijing has put Pakistan in an uncomfortable strategic situation.
    • Pakistan’s support for violent religious extremism has also begun to backfire.
    • A permissive environment for terrorism has now attracted severe financial penalties from the international system.

    India’s changed approach towards Pakistan

    • Delhi, which was prepared to make concessions on Kashmir in the 1990s and 2000s, has taken Kashmir off the table and is ready to use military force in response to major terror attacks.
    • Delhi’s attitude towards Islamabad now oscillates between insouciance and aggression.
    • Unlike in the past, the West is no longer pressuring India to accommodate Pakistan on Kashmir.
    • The US is eager for India’s support in balancing China in the Indo-Pacific.

    Conclusion

    All these shifts together have compelled Pakistan to rethink its policies.  There is no guarantee that the change will be definitive and for the good. But if it is, Delhi should be prepared to respond positively.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • India-Japan friendship can help global peace, prosperity

    Context

    The year 2022 marks the 70th anniversary of the establishment of diplomatic relations between Japan and India.

    Historical background of India-Japan relationship

    • We have a long history of people-to-people exchanges that can be traced back to the sixth century.
    • Buddhism was brought to Japan and, in 752.
    • During Meiji Restoration in the late 19th Century — Japan needed natural resources to modernise its industry.
    • Many Japanese travelled to India to purchase cotton, iron ore, etc.
    • Formal relations between Japan and India began in 1952.
    • After the Second World War, instead of signing the multilateral San Francisco Peace Treaty, India opted for concluding a bilateral peace treaty with Japan, considering that honour and equality should be ensured for Japan to rejoin the international community.
    • But even before the establishment of diplomatic relations, the goodwill between the people of the two countries was deeply rooted through business, academic and cultural exchanges.
    • After 70 years of multi-layered exchanges, the relationship between our two countries grew into a “Special Strategic and Global Partnership”. 

    Future possibilities

    [1] As democratic countries, contribute to global peace and prosperity

    • As democratic countries in Asia, India and Japan can cooperate to contribute to global peace and prosperity.
    • We share political, economic and strategic interests based on the firm foundations of common values and traditions.
    • We are continuing our efforts to build a rules-based free and open international order.

    [2] Cooperation in security

    • There are a plethora of fields that we can cooperate in security issues including cyber security, outer space and economic security.

    [3] Augmenting economic relations

    •  For long, Japan has been the largest ODA (Official Development Assistance) donor to India.
    • One of the most recent and ongoing examples of our collaboration is the Mumbai-Ahmedabad High-Speed Rail project.
    • Japan is also one of the largest investors in India.
    • Both countries have also promoted economic cooperation in other countries to enhance social infrastructure and connectivity.
    • Our economic partnership can further strengthen the economy of the Indo-Pacific, as well as the world economy.

    [4] Cultural exchange

    • Cultural exchanges including literature, movies, music, sports and academics are essential for our relations, enabling a better understanding.

    Consider the question “The year 2022 marks the 70th anniversary of the establishment of diplomatic relations between Japan and India. The future offers enormous possibilities for the partnership. In context of this, examine the future possibilities the two countries can explore.” 

    Conclusion

    India-Japan ties will continue to flourish. Our long history substantiates that.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

    Meiji Restoration in Japan

    • In Japanese history, the political revolution in 1868 that brought about the final demise of the Tokugawa shogunate (military government)—thus ending the Edo (Tokugawa) period (1603–1867)—and, at least nominally, returned control of the country to direct imperial rule under Mutsuhito (the emperor Meiji).
    • In a wider context, however, the Meiji Restoration of 1868 came to be identified with the subsequent era of major political, economic, and social change—the Meiji period (1868–1912)—that brought about the modernization and Westernization of the country.

  • India to seal a Free Trade Agreement (FTA) with UK

    India and the United Kingdom have launched formal Free Trade Agreement (FTA) negotiations with the aim of concluding an early harvest trade agreement over the next few months.

    What is a Free Trade Agreement (FTA)?

    • A FTA is a pact between two or more nations to reduce barriers to imports and exports among them.
    • Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
    • The concept of free trade is the opposite of trade protectionism or economic isolationism.

    Key benefits offered by FTA

    • Reduction or elimination of tariffs on qualified: For example, a country that normally charges a tariff of 12% of the value of the incoming product will rationalize or eliminate that tariff.
    • Intellectual Property Protection: Protection and enforcement of intellectual property rights in the FTA partner country is upheld.
    • Product Standards: FTA enhances the ability for domestic exporters to participate in the development of product standards in the FTA partner country.
    • Fair treatment for investors: FTA provides treatment as favourably as the FTA partner country gives equal treatment for investments from the partner country.
    • Elimination of monopolies: With FTAs, global monopolies are eliminated due to increased competition.

    How many FTAs does India have?

    • India has signed it’s first Free Trade Agreement (FTA) with Sri Lanka in 1998.
    • Likewise, India had FTAs with: Nepal, Bhutan, Thailand, Singapore, ASEAN, Japan and Malaysia.
    • The discussion is going for an FTA with Australia.
    • India has signed Preferential Trade Agreements such as:
    1. Asia Pacific Trade Agreement (APTA) with Bangladesh, China, India, Lao PDR, Republic of Korea, and Sri Lanka
    2. Global System of Trade Preferences (GSTP)
    3. India – MERCOSUR PTA etc. with South American countries

    Back2Basics: Types of Trade Agreements

    (1) Free Trade Agreement – discussed above

    (2) Preferential Trade Agreement

    • In this type of agreement, two or more partners give preferential right of entry to certain products.
    • This is done by reducing duties on an agreed number of tariff lines.
    • Here a positive list is maintained i.e. the list of the products on which the two partners have agreed to provide preferential access.
    • Tariff may even be reduced to zero for some products even in a PTA.
    • India signed a PTA with Afghanistan.

    (3) Comprehensive Economic Partnership Agreement

    • Partnership agreement or cooperation agreement are more comprehensive than an FTA.
    • CECA/CEPA also looks into the regulatory aspect of trade and encompasses and agreement covering the regulatory issues.
    • CECA has the widest coverage. CEPA covers negotiation on the trade in services and investment, and other areas of economic partnership.
    • It may even consider negotiation on areas such as trade facilitation and customs cooperation, competition, and IPR.
    • India has signed CEPAs with South Korea and Japan.

    (4) Comprehensive Economic Cooperation Agreement

    • CECA generally cover negotiation on trade tariff and Tariff rate quotas (TRQs) rates only.
    • It is not as comprehensive as CEPA.
    • India has signed CECA with Malaysia.

    (5) Framework Agreement

    • Framework agreement primarily defines the scope and provisions of orientation of the potential agreement between the trading partners.
    • It provides for some new area of discussions and set the period for future liberalisation.
    • India has previously signed framework agreements with the ASEAN, Japan etc.

    (6) Early Harvest Scheme

    • An Early Harvest Scheme (EHS) is a precursor to an FTA/CECA/CEPA between two trading partners. For example, early harvest scheme of RCEP has been rolled out.
    • At this stage, the negotiating countries identify certain products for tariff liberalization pending the conclusion of actual FTA negotiations.
    • An Early Harvest Scheme is thus a step towards enhanced engagement and confidence building.

     

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • Philippines approves deal for BrahMos Missile

    In the first export order for the BrahMos supersonic cruise missile system, the Philippines has approved a $374.96 mn contract for the purchase of a shore-based anti-ship variant of the missile from India.

    About BrahMos Missile

    • BrahMos missile derives its name from the combination of the names of Brahmaputra and Moskva Rivers.
    •  They are designed, developed and produced by BrahMos Aerospace, a joint venture company set up by DRDO and Mashinostroyenia of Russia.
    • It is a two-stage missile with a solid propellant booster as the first stage and liquid ramjet as the second stage.
    • The cruise missiles like BrahMos are a type of system known as the ‘standoff range weapons’ which are fired from a range sufficient to allow the attacker to evade defensive fire from the adversary.
    • Such weapons are in the arsenal of most major militaries in the world.

    Its capability

    • BrahMos missile flies at a speed of 2.8 Mach or almost three times the speed of sound.
    • It is the main weapon system of the Indian Navy warships and has been deployed on almost all of its surface platforms.
    • An underwater version is also being developed which will not only be used by the submarines of India but will also be offered for export to friendly foreign nations.

    Various versions

    • The versions of the BrahMos that are being tested have an extended range of around 400 km, as compared to its initial range of 290 km, with more versions of higher ranges currently under development.
    • Various versions including those which can be fired from land, warships, submarines and Sukhoi-30 fighter jets have already been developed and successfully tested in the past.
    • The earliest versions of the ship launched BrahMos and land-based system are in service of the Indian Navy and the Indian Army since 2005 and 2007 respectively.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

    Back2Basics:

    Explained: India’s Missile Capability

     

  • The Indo-Pacific opportunity

    Context

    The geopolitics of the Indo-Pacific, which is changing fast. As it moves into 2022, the region will carry the imprint of the past five years, and will have to chart a course through inter-state tensions and crises, using both diplomacy and military preparedness.

    What will shape the geopolitics and geoeconomics of the Indo-Pacific?

    • Key players in the region: The region is central to world economy and peace, and nine countries are key players: the US, China, Japan, India, Germany, the UK, Russia, Australia and France.
    • The geopolitics and geo-economics of the Indo-Pacific will be largely shaped by the interplay of relations among these nations.
    • US-China relations: Of paramount importance is the US-China equation.
    • Expect this relationship to be marked by continually adversarial, competitive and cooperative traits.
    • Beijing’s south/east China policy, aggressive postures towards Taiwan, human rights violations in Xinjiang, the subjugation of Hong Kong’s citizenry and assertive economic outreach in the Indo-Pacific — these will weigh heavily on US-China relations.

    A significant role of groupings and individual nations

    • In this standoff, the role of new groupings and individual nations is significant.
    • Role of Quad: Foremost are the Quad, a strategic partnership between the US, India, Japan and Australia and the militaristic AUKUS (Australia, UK, US). 
    • India-Australia ties: Meanwhile, India and Australia are on track to deepen ties, not only bilaterally but also with the other two Quad powers.
    • The next Quad summit, probably hosted by Japan, will cement the grouping.
    • EU’s role: The EU’s Indo-Pacific strategy, announced last September, aims at increasing its economic and security profile in, and linkages with, the region.
    • UK’s role: Only by being more strategic and less mercantilist, more candid and assertive with China, and more cooperative with partners such as India, can the EU — and its former member the UK — hope to become vital players in the Indo-Pacific.
    • ASEAN, located in the middle of the Indo-Pacific waters, faces the heat of China’s aggression and the sharpening great power rivalry.
    •  It must enhance its realism and shed its tendency of wishing away problems.

    Suggestions for India

    • 1]Strengthen the Quad – especially by ensuring that the grouping fulfils its commitment to deliver at least one billion vaccine doses to Indo-Pacific nations by December 2022.
    • India must protect its established relationship with Russia, and show some resilience in dialogue with Beijing.
    • 2] Enhance relations with ASEAN nations: It must enhance cooperation with key Southeast Asian partners —Indonesia, Vietnam, Philippines and Thailand — while humouring ASEAN as a grouping.
    • 3] Give attention to African and Indian Ocean island states: The eastern and southern planks of Africa and the Indian Ocean island states need continued high policy attention and financial resources.
    • A clear economic and trade agenda to follow the flag in this vital region, is certain to yield long-term dividends.

    Consider the question “Indo-Pacific will present India strategic and economic opportunities that India must not miss. However, the region will have to chart a course through inter-state tensions and crises. Comment.”

    Conclusion

    India has done well by fulfilling its humanitarian duties during the pandemic. Learning how to convert them smartly into economic and strategic opportunities in its periphery is the focused task for the nation in 2022.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • India extends $900 mn aid to Sri Lanka

    India has confirmed a $400 million currency swap with Sri Lanka while deferring another $500 million due for settlement to the Asian Clearing Union (ACU).

    What is the news?

    • Sri Lanka is facing a severe dollar crunch that economists say might lead to a default on external debt and create a food shortage in the imports-reliant island nation.
    • In this regard, the Reserve Bank of India has extended currency swap facilities of $900 million to Sri Lanka.

    What are Currency Swaps?

    • A currency swap, also known as a cross-currency swap, is an off-balance sheet transaction in which two parties exchange principal and interest in different currencies.
    • Currency swaps are used to obtain foreign currency loans at a better interest rate than could be got by borrowing directly in a foreign market.

    Practice question for mains:

    Q. What are Currency Swaps? Discuss the efficacy of Currency Swap Agreements for enhancing bilateral cooperation in Indian context.

    How does it work?

    • In a swap arrangement, RBI would provide dollars to a Lankan central bank, which, at the same time, provides the equivalent funds in its currency to the RBI, based on the market exchange rate at the time of the transaction.
    • The parties agree to swap back these quantities of their two currencies at a specified date in the future, which could be the next day or even three months later, using the same exchange rate as in the first transaction.
    • These swap operations carry no exchange rate or other market risks, as transaction terms are set in advance.

    Why does one need dollars?

    • FPIs investors look for safer investments but the current global uncertainty over COVID outbreak has led to a shortfall everywhere in the global markets.
    • This has pulled down foreign exchange reserves of many small and developing countries.
    • This means that the government and the RBI cannot lower their guard on the management of the economy and the external account.

    Benefits of currency swap

    • The absence of an exchange rate risk is the major benefit of such a facility.
    • This facility provides the flexibility to use these reserves at any time in order to maintain an appropriate level of balance of payments or short-term liquidity.
    • Swaps agreements between governments also have supplementary objectives like the promotion of bilateral trade, maintaining the value of foreign exchange reserves with the central bank and ensuring financial stability (protecting the health of the banking system).

    Back2Basics: Asian Clearing Union (ACU)

    • The ACU with headquarters in Tehran, Iran, was established on December 9, 1974, at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    • The primary objective of ACU was to secure regional co-operation as regards the settlement of eligible monetary transactions among the members of the Union/
    • It now aims to provide a system for clearing payments among the member countries on a multilateral basis.
    • The unit of settlement of ACU transactions is a common unit of account of ACU, and the unit is equivalent to one USD, and the Asian Monetary Unit may be denominated as ACU dollars and Euro.

    Must read:

    [Burning Issue] India – Sri Lanka relations in recent times

     

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • Pakistan’s New Security Policy

    Peace with India and its immediate neighbors is set to be the central theme of Pakistan’s first-ever National Security Policy.

    Why has this news made headlines?

    • Pakistan’s (official) policy now leaves the door open for trade with India even without the settlement of the Kashmir issue – provided there is headway in bilateral talks.
    • Earlier, Kashmir used to be at the centre-stage of all Pakistani outcry.

    New Security Policy

    • The country’s new policy would act as an umbrella document, to be used as a guideline for Pakistan`s foreign, international and defence related policies.
    • The five-year-policy document, which will span 2022-26, is being touted by the Pakistan government as the country’s first-ever strategy paper of its kind.

    Key highlights

    • Focus on trade: The 100-page policy document has also put out elaborate plans to open trade and business ties with India.
    • Silent on Kashmir: Kashmir issue with India has been identified as a ‘vital national policy’ issue for Pakistan.
    • No public discussion: Only a part of the national security policy will be made public.
    • Defying hostility with India: The document states that Pakistan is not seeking hostility with India for the next 100 years.
    • Curbing militancy: The new policy also deals with the issue of militant and dissident groups and advocates dialogue with ‘reconcilable elements.’
    • No re-conciliation with India: There are no prospects of rapprochement with India under the current government.
    • Others: On the internal front, the new policy identifies five key areas of population/migration, health, climate and water, food security and gender mainstreaming.

    Significance of such policy

    • Pakistan and India have mostly been at loggerheads with each other throughout history.
    • During the first term of Narendra Modi in 2014, the relations took a positive turn when he announced his intentions to have cordial relations with Pakistan.
    • He had also visited Islamabad in 2015 unannounced to attend a marriage ceremony in Ex-PMs family.
    • However, the relations deteriorated following the horrific 2016 Uri attacks.

    Way ahead

    • Pivotal equations between India and Pakistan will continue to be dominated by Kashmir, the ongoing proxy war and terrorism.
    • It is unlikely that this prevailing equilibrium is likely to be reset by this classified policy document. That too overnight.
    • The India-centric security obsession will remain the core of this policy.

     

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)