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Subject: International Relations

  • How will U.S. exit affect solar alliance

    Why in the News?

    In January 2025, the United States withdrew from 66 international organisations, including the International Solar Alliance (ISA), signalling a clear retreat from multilateral climate cooperation. This is important because the U.S. had joined ISA only in late 2021, and its exit goes against the growing need for global climate finance and technology sharing. Although the U.S. contributed only about 1% of ISA’s total funds, its withdrawal raises concerns about global confidence, leadership, and funding for solar projects, especially in Africa and poorer developing countries.

    What is the International Solar Alliance (ISA)?

    1. Institutional Mandate: Facilitates affordable solar power deployment by reducing project risk, mobilising finance, and accelerating technology adoption.
    2. Establishment: Founded in 2015 and headquartered in India as a joint India-France initiative.
    3. Membership Base: Covers over 120 countries across Africa, Asia, and island states.
    4. Operational Role: Enables access to finance, training, and investor confidence rather than directly building solar plants.

    How significant was the U.S. role within the ISA?

    1. Limited Financial Contribution: Accounts for only about 1% of ISA’s total funding, limiting direct fiscal impact.
    2. Late Entry: Joined the Alliance only in late 2021, indicating limited institutional integration.
    3. Ongoing Continuity: Indian officials indicate existing programmes will continue without disruption.

    Will India’s solar manufacturing sector be affected?

    1. Domestic Manufacturing Strength: India’s solar module manufacturing capacity is projected to reach 144 GW by 2026, up from 25 GW earlier.
    2. Import Dependence Decline: India has reduced reliance on imported solar components, particularly from China.
    3. Market Share Indicator: Indian manufacturers already supply over 70% of domestic solar module demand.
    4. Cost Stability: The U.S. exit does not affect electricity tariffs or domestic solar affordability.

    Will investments in India’s solar projects slow down?

    1. Domestic Demand Driven: Most solar projects are backed by Indian power demand rather than foreign aid.
    2. Contract Stability: Projects operate under long-term contracts with state and central agencies.
    3. Investor Confidence: Strong policy continuity and power sector reforms sustain investor interest.
    4. Employment Trends: Solar job growth remains strong across manufacturing, installation, and operations.

    Where does the real economic risk lie?

    1. Regional Impact Concentration: Africa and poorer developing countries face higher vulnerability.
    2. Finance Dependence: These regions rely heavily on concessional lending and multilateral climate engagement.
    3. Lender Behaviour: Reduced U.S. climate engagement may slow approvals and increase lender caution.
    4. Export Exposure: Indian firms executing overseas solar projects may face indirect slowdown.

    Does the U.S. exit weaken India’s climate diplomacy?

    1. Leadership Continuity: India remains the central driver of ISA’s agenda and operations.
    2. Diplomatic Influence: ISA continues to function as a strategic diplomatic tool in the Global South.
    3. Responsibility Shift: India now bears greater responsibility for financing mobilisation and leadership.

    What lies ahead for solar energy in India?

    1. Grid Integration Challenge: Storage, grid stability, and transmission infrastructure remain key bottlenecks.
    2. Capital Mobilisation: Attracting affordable finance remains critical amid global fragmentation.
    3. Preparedness Indicator: India appears better positioned today than a decade ago to absorb such shocks.

    Conclusion

    The U.S. withdrawal from the International Solar Alliance does not materially weaken India’s domestic solar sector, which is now driven by strong manufacturing capacity and internal demand. However, it exposes the vulnerability of global climate cooperation, particularly for developing countries dependent on multilateral finance. Going forward, India’s leadership within ISA becomes more critical to sustain solar deployment, mobilise climate finance, and uphold collective action in an increasingly fragmented global climate order.

    International Solar Alliance (ISA)

    1. Launch and Leadership: Launched in 2015 by India and France to promote solar energy deployment among tropical countries.
    2. Legal Status: Became a treaty-based intergovernmental organisation in 2017, giving it formal international legitimacy.
    3. Headquarters: Located in Gurugram, India, reinforcing India’s role in global climate governance.
    4. Membership: Comprises 120+ member countries, primarily from Africa, Asia, and Small Island Developing States.
    5. Core Objective: Enables affordable, reliable, and scalable solar energy by reducing project risk and mobilising finance.
    6. Operational Focus: Works through capacity building, technical assistance, and investment facilitation, rather than direct project execution.
    7. Strategic Significance for India: Strengthens South-South cooperation, enhances climate diplomacy, and supports India’s leadership in the Global South.

    PYQ Relevance

    [UPSC 2021] Explain the purpose of the Green Grid Initiative launched at the World Leader Summit of the COP26 UN Climate change conference in Glasgow in November, 2021. When was this idea first floated in the International Solar Alliance [ISA]?

    Linkage: The Green Grid Initiative advances the ISA goal of cross-border renewable energy integration. The U.S. exit highlights India’s continued leadership in sustaining climate multilateralism.

  • Cybercrime and a global governance crisis

    Why in the news?

    The UN adopted the Convention against Cybercrime (December 2024), the first global cybercrime treaty in over two decades. However, India, the U.S., Japan, and Canada have not signed it, exposing deep divisions in global cyber governance. The Convention highlights a growing principles-practice gap, geopolitical mistrust, and a shift towards polycentric global governance.

    Why is the UN Cybercrime Convention considered a milestone?

    1. Institutional First: Establishes the first UN-led multilateral criminal justice instrument on cybercrime in two decades.
    2. Negotiation Scale: Reflects extensive multilateral engagement involving UN member states, civil society, and private sector actors.
    3. Global Scope: Seeks universal applicability beyond regional instruments like the Budapest Convention.
    4. Symbolic Consensus: Secured General Assembly adoption in December 2024 with support from 72 states.

    How does the Convention expose fractures in global cyber governance?

    1. Non-Participation by Major Democracies: India, the U.S., Japan, and Canada declined to sign, signalling legitimacy concerns.
    2. Governance Divide: Highlights divergence between European cyber norms and alternative governance visions advanced by Russia and China.
    3. Legal Uncertainty: Reveals gaps between international legal principles and domestic implementation capacity.
    4. Polycentrism Risk: Signals movement away from universal frameworks towards fragmented governance centres.

    What are the concerns regarding criminal definitions and civil liberties?

    1. Broad Crime Definitions: Expands criminalisation in ways that allow discretionary interpretation.
    2. Rights Implications: Raises risk of misuse against journalists, activists, and political opponents.
    3. Procedural Safeguards: Anchors protections like judicial review to domestic frameworks rather than uniform standards.
    4. Principles-Practice Rift: Consensus on principles masks divergence in enforcement practices.

    Why does India’s reluctance carry strategic significance?

    1. Institutional Autonomy: India resists surrendering control over data governance and lawmaking.
    2. Negotiation Disengagement: Unlike the Budapest Convention, India did not actively shape the UN Convention’s final contours.
    3. Regulatory Trade-offs: Proposals retained greater state control over citizen data, limiting flexibility.
    4. Eroded Influence: Reflects diminished agenda-setting power in global lawmaking over two decades.

    How does AI governance illustrate implementation challenges?

    1. Watermarking Example: India’s push to watermark AI-generated content highlights regulatory innovation.
    2. Platform Mandates: Draft rules require social media platforms to label AI content beyond body-corporate thresholds.
    3. Prescriptive Risk: Over-specification may constrain innovation and compliance feasibility.
    4. Governance Gap: Demonstrates difficulty in operationalising agreed principles.

    What does the Convention reveal about the global order?

    1. Weakened Multilateralism: Declining U.S. financial support to the UN undermines institutional effectiveness.
    2. Security Council Paralysis: Inability to act decisively in Ukraine and Gaza reflects governance fatigue.
    3. WTO Breakdown: Dispute settlement mechanism non-functional since 2019.
    4. Shift to Minilaterals: Reliance on smaller groupings such as Quad and Five Eyes for functional coordination.

    Why is cybercrime governance central to future global cooperation?

    1. Cross-Border Data Flows: Cybercrime enforcement depends on interoperable data-sharing mechanisms.
    2. Trust Deficit: Near-universal recognition of trusted data corridors without operational consensus.
    3. Capacity Constraints: States lack technical and regulatory infrastructure for implementation.
    4. Autonomy Trade-off: Global cooperation increasingly challenges domestic sovereignty.

    Conclusion

    The UN Convention against Cybercrime underscores the limits of consensus-based global governance in a fragmented geopolitical environment. While it symbolises multilateral intent, its effectiveness will depend on bridging institutional capacity gaps, reconciling sovereignty concerns, and aligning legal principles with enforceable safeguards. The future of cyber governance will be shaped less by universal treaties and more by adaptive, trust-based cooperation frameworks.

    Convention against Cybercrime

    1. The UN General Assembly adopted the Convention against Cybercrime in December 2024, marking the first legally binding UN instrument to combat cybercrime through international cooperation. 
    2. Designed to address issues like ransomware, child sexual abuse material, and online scams, it allows for cross-border evidence sharing and capacity building.
    3. The treaty, which opened for signature in 2025, requires 40 ratifications to enter into force. The treaty is scheduled to remain open for signature until December 31, 2026, and will come into effect 90 days after the 40th nation ratifies it.
    4. Adoption & Scope: The treaty was finalized in 2024 to create a global framework for investigating and prosecuting digital crimes, offering a universal approach rather than just regional (like the Budapest Convention).
    5. Controversies: The treaty has faced criticism regarding:
      1. potential misuse of surveillance powers 
      2. insufficient human rights safeguards
      3. could be used by governments to suppress online freedom.

    PYQ Relevance

    [UPSC 2024] Terrorism has become a significant threat to global peace and security. Evaluate the effectiveness of the United Nations Security Council’s Counter-Terrorism Committee (CTC).

    Linkage: It is highly important for GS-II (UN, global governance) and GS-III (cyber security, internal security) due to rising non-traditional security challenges. Just as UPSC asked about the UN Security Council’s Counter-Terrorism Committee (CTC), it can similarly ask about the UN Convention against Cybercrime, since both deal with transnational security threats and weak UN enforcement mechanisms.

  • [24th January 2026] The Hindu OpED: India and the EU- a fit partnership in a divided world

    PYQ Relevance

    [UPSC 2021] “The foreign policy of India has changed from ‘non-alignment’ to ‘multi-alignment’ in recent times.”Examine.

    Linkage: India’s deepening engagement with diverse partners such as the EU alongside the U.S., Russia, and groupings like QUAD reflects a shift from ideological non-alignment to pragmatic multi-alignment driven by strategic autonomy.

    Mentor’s Comment

    As global alliances weaken due to geopolitical tensions, the India–European Union relationship is reaching a crucial turning point. With the highest EU leadership visiting India for the first time together, the partnership is being repositioned from episodic engagement to strategic alignment. This article analyses why the moment is consequential, what is at stake in trade, defence, and climate negotiations, and how the India-EU partnership could shape a new template for strategic autonomy in a polarised world.

    Why in the News

    The President of the European Commission and the President of the European Council are jointly visiting India for India’s 77th Republic Day and co-chairing the 16th India-EU Summit. The opportunity is large, as talks on a long-pending Free Trade Agreement, defence cooperation, and climate-related trade rules are reaching a critical stage.

    Why has the India-EU partnership gained urgency now?

    1. Geopolitical fragmentation: Undermines reliability of traditional alliances and compels diversification of strategic partnerships.
    2. U.S. unpredictability: Creates uncertainty for both India and Europe amid tariff pressures and transactional diplomacy.
    3. China’s assertiveness: Forces recalibration of economic and security dependencies across Eurasia.
    4. Strategic autonomy: Aligns India’s non-aligned pragmatism with Europe’s reassessment of over-dependence on major powers.

    What makes this engagement different from earlier India-EU summits?

    1. Leadership convergence: Joint presence of EU’s top executive and political leadership signals institutional commitment.
    2. Summit co-chairing: Reflects intent to move beyond symbolism towards outcome-driven engagement.
    3. Timing: Coincides with stalled global governance mechanisms and weakened multilateral trust.
    4. Intent alignment: Demonstrates mutual recognition that episodic engagement is no longer sufficient.

    What is at stake in the India-EU Free Trade Agreement (FTA)?

    1. Negotiation maturity: Talks in final stages after repeated stalling since 2007.
    2. Textiles and apparel: Enables tariff reductions to boost India’s exports to Europe.
    3. Pharmaceuticals and chemicals: Leverages India’s competitive manufacturing advantage.
    4. Automobiles and machinery: Expands European access to India’s growing market.
    5. IT and digital services: Facilitates gains through regulatory harmonisation for India’s IT sector.
    6. Economic insurance: Acts as a hedge against trade disruptions and geopolitical shocks.

    How does climate policy complicate trade cooperation?

    1. Carbon Border Adjustment Mechanism (CBAM): Imposes effective 20-35% carbon charges on Indian exports such as steel, aluminium, cement, and fertilisers.
    2. Non-tariff barrier risk: Erodes potential gains from the FTA if left unaddressed.
    3. Climate equity: Raises concerns over fairness for developing economies with lower historical emissions.
    4. Policy balance: Requires Europe to provide transitional relief while retaining climate ambition.

    Why is defence cooperation emerging as a critical pillar?

    1. Security and Defence Partnership: Proposed by EU leadership to expand strategic engagement.
    2. Market access: Opens European defence markets to Indian manufacturers.
    3. Co-production: Aligns with India’s ‘Make in India’ initiative for defence manufacturing.
    4. Technology transfer: Enhances India’s access to advanced European defence technologies.
    5. Maritime coordination: Supports joint exercises and cooperation in the Indian Ocean.

    How does this partnership offer a model for global order?

    1. Respect for sovereignty: Rejects dominance by Beijing, Moscow, or Washington over strategic choices.
    2. Strategic autonomy: Emphasises flexibility and reduced over-dependence on single partners.
    3. Domestic sensitivities: Balances global cooperation with internal political realities.
    4. Multilateral renewal: Positions India and the EU to shape credible alternatives in global governance.

    Conclusion

    The India-EU partnership is at a critical juncture. Shared concerns over global instability and strategic dependence have created momentum for deeper cooperation. Sustaining progress on trade, climate, and defence could turn intent into outcomes; failure would repeat past stagnation.

  • Pax Silica and Global Tech Supply Chains

    Why in the News?

    On 12 December 2025, the United States convened the inaugural Pax Silica Summit to secure Rare Earth Elements (REEs) and strengthen semiconductor and AI supply chains amid rising geopolitical competition.

    What is Pax Silica?

    • A strategic initiative to secure supply chains for semiconductors, AI, and critical minerals
    • Pax means peace and Silica refers to a key material in chip manufacturing
    • Aims to promote peace, prosperity, and trusted digital infrastructure

    Current Status of India

    • India not invited to inaugural summit
    • US Ambassador Sergio Gor announced India will be invited soon

    Why did the U.S. launch Pax Silica amid changing geopolitical realities?

    • Strategic Dependence: The U.S. sought to reduce over reliance on China for Rare Earth Elements and critical inputs essential for advanced technologies and defence. Eg China suspended REE exports to the U.S. during tariff escalations, revealing supply chain vulnerabilities.
    • Weaponisation of Trade: Critical minerals and technologies are increasingly used as tools of geopolitical coercion rather than neutral market goods. Eg China imposed strict licensing and end use restrictions on rare earth magnet exports to India, including bans on defence use.
    • Tech National Security: Semiconductors and AI are now core to economic strength, military capability, and strategic dominance. Eg Shortages of advanced chips during the COVID period disrupted U.S. defence production and AI driven industries.
    • Supply Chain Resilience: The U.S. aims to shift from cost efficiency driven globalisation to resilience driven and trusted supply chains. Eg Pax Silica links Australia’s lithium resources, Japan’s manufacturing strength, and the Netherlands’ lithography technology.

    What value can India add to Pax Silica despite ecosystem gaps?

    • Human Capital: India contributes a large, skilled workforce, strong STEM education base, and growing AI and semiconductor talent, which can support scaling of advanced technologies. Eg Return of U.S. trained Indian engineers due to visa constraints is strengthening India’s domestic AI and chip ecosystem.
    • Market Scale: India offers a fast growing digital economy, large consumer base, and rising AI adoption, making it a critical demand centre for next generation technologies.  
    • Trusted Partnerships: India has proven technology collaboration capacity, supply chain integration experience, and status as a strategic partner rather than a coercive actor. Eg Micron’s semiconductor investment in India and Tata Group’s entry into chip manufacturing demonstrate trusted industrial cooperation.

    How might Pax Silica affect India’s strategic autonomy and policy space?

    • Strategic Autonomy: Joining Pax Silica may increase pressure on India to align more closely with U.S. and its allies, even when India prefers to take independent positions. Eg India may choose not to fully support strict security or sanction policies that do not suit its national interests.
    • Policy Freedom: India will want to keep the freedom to support its own industries through subsidies and government support, which some Pax Silica countries may question. Eg India may continue giving financial support to local chip companies under the Semiconductor Mission, even if partners prefer open markets.
    • Regulatory Control: Common rules under Pax Silica could limit India’s flexibility to work with other countries outside the group.

    Way forward:

    • Calibrated Engagement: India should participate selectively and pragmatically, focusing on technology access and supply chain resilience while avoiding rigid security commitments.
    • Protect Policy Space: India must clearly defend its right to support domestic industries through subsidies, procurement, and phased localisation. Eg Continue incentives under the India Semiconductor Mission while aligning gradually with global standards.
    • Leverage Multi Alignment: India should use Pax Silica to diversify supply chains, not replace existing partnerships, maintaining strategic balance.
    [2012] Recently there has been a concern over the short supply of a group of elements called rare earth metals. Why? 

    1. China, which is the largest producer of these elements, has imposed some restrictions on their export. 

    2. Other than China, Australia, Canada, Chile, these elements are not found in any country. 

    3. Rare earth metals are essential for the manufacture of various kinds of electronic items and there is growing demand for these elements. 

    Select the correct answer using the code given below: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

  • US Exit from World Health Organization

    Why in the News?

    On 23 January 2026, the United States formally withdrew from the World Health Organization after Donald Trump restarted the exit process at the beginning of his second term.

    Background

    • US announced withdrawal on Day 1 of Trump’s second term in 2025 through an executive order
    • Decision based on allegations that WHO failed in handling COVID 19
    • US confirmed it will not rejoin or participate even as an observer

    Financial Dimension

    • US was WHO’s largest single contributor
    • Outstanding unpaid dues around 260 million dollars
    • All US funding to WHO has been stopped
    • Under US law, one year notice is required, but payment obligation is legally disputed

    WHO’s Response

    • WHO Director General Tedros Adhanom Ghebreyesus urged the US to reconsider
    • Warned of global public health fallout
    • WHO may cut up to 25 percent of its workforce due to funding gap
    [2022] In the context of WHO Air Quality Guidelines, Consider the following statements: 

    1. The 24-hour mean of PM 2.5 should not exceed 15 μg/m³ and annual mean of PM 2.5 should not exceed 5 μg/m³

    2. In a year, the highest levels of ozone pollution occur during the periods of inclement weather

    3. PM 10 can penetrate the long barrier and enter the bloodstream

    4. Excessive ozone in the air can trigger asthma

    Which of the statements given above are correct? 

    (a) 1, 3 and 4 (b) 1 and 4 only (c) 2, 3 and 4 (d) 1 and 2 only

  • Ocean Governance – UNCLOS, ISA, High Seas Teaty, etc.

  • Trump launches Board of Peace

    Why in the news?

    The United States has launched a new Board of Peace initiative at the World Economic Forum in Davos, projecting it as a global peace-making body that could rival or even replace the United Nations in the long term.The move is significant because many traditional U.S. allies declined participation, revealing skepticism about its mandate and legitimacy.

    What is the Board of Peace?

    Origin and Initial Mandate

    1. Conceptualisation: Conceived by Donald Trump as part of the second phase of a U.S.-brokered 20-point Gaza ceasefire plan announced in September.
    2. Original Scope: Oversight of demilitarisation, reconstruction, and governance of the Gaza Strip, following devastation caused by Israel’s two-year war.
    3. International Backing: Received formal legitimacy when the United Nations Security Council endorsed the ceasefire plan in November.

    Mandate Expansion and Charter Design

    1. Mandate Expansion: Expanded from a Gaza-specific reconstruction body to a global institution addressing conflicts worldwide.
    2. Charter Language: Defines the Board as an “international organization” promoting stability, peace, and governance in areas affected or threatened by conflict.
    3. Notable Omission: The draft charter circulated with invitations does not reference Gaza, despite Gaza being the original trigger.

    Leadership and Governance Structure

    1. Chairmanship: Trump designated as indefinite chairman, potentially extending beyond his second presidential term.
    2. Institutional Hierarchy: Board positioned above a Founding Executive Board.
    3. Executive Composition: Includes Jared Kushner, Marco Rubio, Steve Witkoff, andTony Blair, indicating executive-driven rather than multilateral governance.

    Membership Model and Access Rules

    1. Term Structure: Standard membership for three-year terms.
    2. Permanent Seats: Available upon payment of USD 1 billion to a peace-building fund.
    3. Governance Implication: Introduces a financial criterion for institutional permanence, distinct from norm-based multilateral systems.

    Why is participation in the Board of Peace contested?

    1. Limited Attendance: Heads of state or senior officials from only 19 countries, plus the U.S., were physically present.
    2. Ally Skepticism: Several close U.S. allies opted out due to uncertainty over mandate, authority, and overlap with existing institutions.
    3. Legislative Constraints: Some countries indicated interest but require parliamentary approval before formal participation.

    How does the Board of Peace relate to the United Nations?

    1. Institutional Overlap: The Board’s functions closely resemble UN peacekeeping and mediation roles.
    2. U.S. Positioning: The President indicated cooperation with the UN while simultaneously questioning its effectiveness.
    3. Long-term Implication: The Board was described as potentially making the UN obsolete, signaling a challenge to the post-1945 multilateral order.

    What role does the Gaza conflict play in this initiative?

    1. Ceasefire Focus: The Board was presented as a mechanism to manage and sustain ceasefires, with Gaza cited as a test case.
    2. Border Opening: Announcement that the Rafah crossing would reopen in both directions after Israeli approval.
    3. Governance Proposal: Oversight of Gaza by a Palestinian committee under U.S. supervision was mentioned as part of post-conflict planning.

    How have major global powers responded?

    1. Russia’s Position: Indicated ongoing consultations and refrained from immediate commitment.
    2. Engagement with Palestine: Russia hosted Palestinian leadership, highlighting parallel diplomatic tracks.
    3. Global Fragmentation: Divergent responses reflect declining consensus on U.S.-led peace initiatives.

    Conclusion

    The launch of the Board of Peace reflects dissatisfaction with existing global peace mechanisms and highlights the limits of unilateral institution-building. The gap between claimed support and actual participation raises questions about its legitimacy and effectiveness, even as ongoing conflicts like Gaza underline the urgency of peace efforts.

    PYQ Relevance

    [UPSC 2024] Terrorism has become a significant threat to global peace and security’. Evaluate the effectiveness of the United Nations Security Council’s Counter-Terrorism Committee (CTC) and its associated bodies in addressing and mitigating this threat at the international level.

    Linkage: The question tests how far UN bodies like the Security Council and its counter-terrorism mechanisms have been effective in maintaining global peace and security. The Board of Peace has been launched because existing UN mechanisms are seen as slow and ineffective.

  • Spain joins Indo-Pacific Oceans Initiative (IPOI)

    Why in the News?

    Spain has formally joined the Indo-Pacific Oceans Initiative, with Spain’s Foreign Minister handing over the Declaration of Accession to S. Jaishankar.

    What is the Indo-Pacific Oceans Initiative (IPOI)?

    • A non-treaty, voluntary, cooperative framework for maritime cooperation
    • Focused on practical collaboration, not military alliances
    • Applicable to like-minded countries in the Indo-Pacific region

    Aim of IPOI

    • Promote a free, open, inclusive, and rules-based Indo-Pacific
    • Address maritime challenges through cooperation and capacity building
    • Balance security, development, and sustainability in maritime domains

    Significance of Spain’s Accession

    • Enhances global and European legitimacy of IPOI
    • Reflects growing Europe Indo-Pacific engagement
    • Strengthens India’s role as a net security provider and agenda-setter
    • Promotes inclusive multilateralism amid rising great power rivalry

    Prelims Pointers

    • IPOI is not a treaty or alliance
    • It is India-led, unlike QUAD which is minilateral
    • Focuses on oceans governance, not territorial disputes
    • Countries participate based on voluntary pillar leadership
    [2017] Consider the following in respect of Indian Ocean Naval Symposium (IONS): 

    1. Inaugural IONS was held in India in 2015 under the chairmanship of the Indian Navy

    2. IONS is a voluntary initiative that seeks to increase maritime co-operation among navies of the littoral states of the Indian Ocean Region

    Which of the above statements is/are correct? 

    (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

  • Building bridges: On Central Bank Digital Currency and BRICS

    Why in the News

    The RBI has suggested that India propose linking BRICS countries’ Central Bank Digital Currency (CBDC) at the 2026 BRICS Summit in India. This signals a shift from limited domestic use of CBDC towards cross-border payments, especially after India’s G20 presidency in 2023 emphasised digital finance cooperation. The move contrasts with India’s successful UPI system and reflects a strategic choice rather than a technological need.

    Central Bank Digital Currency:

    1. It is a digital form of a country’s fiat currency.
    2. It is issued and backed by the central bank
    3. Example: India’s RBI with the Digital Rupee/e₹ that offers the trust of physical cash with digital convenience

    Key Characteristics

    1. Digital Legal Tender: It’s official money in digital form, exchangeable 1:1 with physical cash.
    2. Issued by Central Bank: Directly backed by the central bank, ensuring safety and finality of settlement, unlike private cryptocurrencies.
    3. Digital Wallet: Stored and transacted through a digital wallet on your phone or device.
    4. Retail (CBDC-R) & Wholesale (CBDC-W): Retail is for the public (P2P/P2M), while Wholesale is for specific financial institutions.

    Why Is India Exploring Cross-Border CBDC Linkages?

    1. Limited domestic utility: Reduces relevance of CBDC within India due to UPI’s scale and efficiency.
    2. International payments focus: Repositions CBDC as a tool for cross-border settlements rather than retail payments.
    3. Institutional continuity: Builds upon India’s G20 2023 agenda on crypto and digital payment standardisation.

    How Does RBI’s CBDC Approach Differ from Private Cryptocurrencies?

    1. Sovereign guarantee: Ensures safety and trust absent in private cryptocurrencies.
    2. Non-interest bearing nature: Prevents speculative investment behaviour.
    3. Blockchain utility: Retains advantages of distributed ledger technology without exposure to volatility and fraud.
    4. Regulatory clarity: Enables oversight absent in decentralised crypto systems.

    What Problems in Cross-Border Payments Does CBDC Address?

    1. Transparency deficit: Addresses opacity in international money flows.
    2. Black and laundered money: Creates immutable transaction records.
    3. Traceability: Enables coding of origin and destination points.
    4. Institutional linkage: Allows integration with national identity systems or tax authorities.

    Why Is BRICS a Strategic Platform for CBDC Payments?

    1. Shared constraints: Includes countries facing restricted access to SWIFT.
    2. Payments to sanctioned states: Facilitates transactions with Russia and Iran.
    3. Infrastructure autonomy: Reduces dependence on dollar-centric payment systems.
    4. Mandated compliance: Enables collective rules on identification and reporting.

    What Are the Geopolitical Risks?

    1. Dollar displacement: Triggers strategic concern from the United States.
    2. Tariff retaliation: Faces threat of additional tariffs from the U.S.
    3. Political signalling: Risks being perceived as a challenge to dollar dominance.
    4. Cost-benefit dilemma: Requires evaluation of marginal tariff impact given existing high tariffs.

    What Makes Blockchain Suitable for Cross-Border CBDCs?

    1. Immutable records: Prevents tampering with transaction history.
    2. Programmability: Enables conditional compliance requirements
    3. Auditability: Facilitates regulatory monitoring across jurisdictions.
    4. Efficiency: Reduces friction in settlement mechanisms.

    Challenges Associated with CBDCs

    1. Interoperability: Requires harmonisation of legal and technical standards.
    2. Cybersecurity: Increases exposure to systemic digital risks.
    3. Data governance: Raises concerns over cross-border data sharing.
    4. Geopolitical pushback: Triggers resistance from dollar-centric systems.

    Conclusion:

    India’s push for cross-border CBDC linkages reflects a pragmatic recalibration of its digital finance strategy. With domestic payments efficiently handled by UPI, CBDCs are being repositioned to address gaps in cross-border settlements, transparency, and geopolitical resilience. The success of this approach will depend on interoperability, data governance, and careful management of geopolitical risks while preserving monetary sovereignty.

    PYQ Relevance

    [UPSC 2023] What is the status of digitalization in the Indian economy? Examine the problems faced in this regard and suggest improvements.

    Linkage: The question tests India’s progress in building a digital economy, with emphasis on digital payments. The article shows how UPI’s success limits domestic CBDC use, pushing India to focus on cross-border digital payments instead.

  • [21st January 2026] The Hindu OpED: To compete with China, India may need China

    PYQ Relevance

    [UPSC 2019] “China is using its economic relations and positive trade surplus as tools to develop potential military power status in Asia.” In the light of this statement, discuss its impact on India as her neighbour.

    Linkage: China’s trade surplus enables strategic leverage that affects India’s security and economic autonomy. The article highlights how India’s dependence on Chinese inputs limits effective economic counterbalancing.

    Mentor’s Comment

    This article examines India’s evolving economic engagement with China amid global supply chain reconfiguration. It highlights a strategic paradox: while India seeks to reduce dependence on China, selective Chinese capital and manufacturing linkages may be essential for India’s export competitiveness, industrial upgrading, and integration into global value chains.

    Why in the News?

    India is considering removing the post-2020 restrictions on Chinese FDI imposed after the Galwan clash. This signals a shift away from a security-first approach that sharply reduced Chinese investment. Despite China’s FDI stock falling to 14th place by 2024, India’s trade dependence on China remains high, revealing a contradiction between geopolitical mistrust and India’s need for Chinese capital and components for manufacturing and exports.

    Why were Chinese FDI curbs imposed in 2020?

    1. Security Concerns: Introduced after the Galwan Valley clash to prevent opportunistic takeovers of Indian firms during economic distress.
    2. Policy Instrument: It mandated government approval for FDI from countries sharing land borders with India.
    3. Immediate Outcome: Sharp decline in new Chinese investments despite stable trade volumes.

    How has Chinese FDI in India changed since 2020?

    1. FDI Ranking Decline: China’s rank in India’s FDI inflows fell from 18th (2023) to 22nd (2024).
    2. FDI Stock Position: China’s cumulative FDI stock in India placed it at 14th position in 2024, down from 9th in 2014.
    3. Stock Value: Chinese FDI stock in India stood at approximately $4.25 billion in 2024, significantly lower than Hong Kong ($192 billion) or Singapore ($102.6 billion).

    Does trade data indicate economic decoupling?

    1. Trade Deficit Persistence: India’s trade deficit with China remained above $80 billion.
    2. Import Dependence: China continued to dominate India’s imports of electronics, telecom components, and industrial inputs.
    3. Smartphone Components: Over 60% of smartphone manufacturing components in India originate from China.

    Why is China critical to India’s manufacturing ambitions?

    1. Scale Advantage: China supplies intermediate goods at volumes and prices unmatched by alternative suppliers.
    2. Export Enablement: Chinese inputs support India’s exports to the U.S. and EU, particularly in electronics.
    3. PLI Limitation: Production-Linked Incentive schemes increased assembly but not upstream component manufacturing.

    Can India replace China in global supply chains without China?

    1. Substitution Constraint: No single country can replace China’s integrated supply chain ecosystem.
    2. Regional Spillovers: Vietnam and Thailand rely heavily on Chinese components despite hosting relocated manufacturing.
    3. Cost Impact: Higher tariffs on Chinese inputs raise costs and reduce export competitiveness.

    What does global data suggest about pragmatism over protectionism?

    1. U.S. Case: Despite tariffs, China accounted for over 22% of U.S. smartphone imports in 2024.
    2. EU Dependence: European Union imports from China rose steadily between 2019 and 2023.
    3. Policy Insight: Trade restrictions altered routes but not dependence.

    Conclusion

    India’s economic strategy requires selective engagement rather than exclusion. Chinese FDI and manufacturing linkages can support India’s export growth, technology absorption, and supply chain resilience. A calibrated, security-screened investment framework aligns better with India’s long-term industrial objectives than blanket restrictions.