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  • Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

    The Future of the US Dollar As a World Reserve Currency

    op-ed snap | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: common currency and reciprocal trading

    Mains level: Speculations over the US Dollar as world reserve and viability of alternatives

    US Dollar

    Central Idea

    • The status of the US dollar as the world reserve currency has been a topic of speculation, especially as China, India, and Russia explore alternative currencies for international trade. However, the demise of the dollar as the world reserve currency is unlikely to happen anytime soon.

    Rise of the dollar: Historical Context

    • The rise of the dollar as the world’s preferred currency aligns with the rise of the US as one of the world’s strongest economies with a deep financial system and stable government.
    • Though the position of the dollar has been challenged over time by the Great Britain Pound, the euro, and other currencies, the dollar has maintained its dominance.

    What is the current status of Dollar as forex reserve?

    • According to reports from the International Monetary Fund, the dollar’s share of foreign exchange reserves has fallen over time from 80% in the 1970s to about 60% in 2022.
    • The euro has made up for about 20% of the remaining 40% room created by this fall.
    • Smaller currencies such as the Australian and Canadian dollars, Swedish krona, and South Korean won have claimed their share in the portfolios of various countries’ foreign exchange reserves making up most of the remaining gap of 20%, with Chinese currency taking up the rest.

    How Dollar maintained its dominance as a reserve currency?

    • The strength of the U.S. economy: The U.S. has one of the world’s strongest economies, with a deep financial system and a stable government. This has contributed to the popularity of the dollar as a preferred currency for international trade and as a reserve currency.
    • Demand for dollar-denominated assets: Many countries hold U.S. government debt as a hedge against currency fluctuations affecting the valuation of their reserves. Additionally, many currencies are pegged to the U.S. dollar and some countries use the dollar as their own currency. This has meant that a huge proportion of U.S. dollars reside outside the U.S.
    • The dollar premium: The U.S. government debt is in high demand worldwide, which allows it to issue debt at the lowest interest rate. This relaxes the fiscal constraint substantially, boosting the debt-issuing government’s capacity to borrow more without having to deal with the negative effects of such borrowing on the domestic economy. This phenomenon is often referred to as the dollar premium.
    • No serious competition: Although the position of the dollar as the world currency has been challenged from time to time by other currencies, no currency has emerged as a serious contender. The only serious competitor at this point is the euro, which stands second but at quite a distance.

    Facts for prelims

    Common Currency or Reciprocal Trading Arrangement?

    • A common currency or reciprocal trading arrangement refers to an agreement between two or more countries to use a common currency or to trade with each other using their own currencies without the involvement of a third-party currency, such as the US dollar.
    • The purpose of such an arrangement is to increase trade among the participating countries and reduce the reliance on a single currency for international transactions.
    • The idea of a common currency or reciprocal trading arrangement has been discussed among various countries, including China, India, and Russia, as an alternative to the US dollar-dominated international financial system.

    What are the Factors supporting the US Dollar?

    • Status as Reserve Currency: The US Dollar is still the world’s most dominant reserve currency, which means that central banks and governments around the world hold significant quantities of it as part of their foreign exchange reserves.
    • Large Financial Market: The US has one of the largest and most liquid financial markets in the world, which makes it an attractive destination for foreign investment.
    • Safe Haven Status: The US Dollar is often seen as a safe haven during times of global economic uncertainty, due to the perceived stability of the US economy and political system.
    • Demand for US Treasury Bonds: The US government issues Treasury bonds, which are widely held by foreign governments and investors as a low-risk investment.
    • Petrodollars: The US Dollar is used as the currency of choice for global oil trading, which means that countries that buy oil from the OPEC countries must hold US Dollars to pay for it. This leads to a constant demand for US Dollars.
    • Military and Political Influence: The US has a significant military and political influence on the world stage, which gives it leverage in global trade negotiations and financial institutions such as the IMF and World Bank.

    US Dollar

    Challenges facing the US Dollar

    • Increased global competition: As more countries try to shift away from the US dollar, there is increased competition from other currencies such as the euro, the Chinese renminbi, and even cryptocurrencies. This could potentially reduce the demand for the US dollar.
    • Rising US debt levels: The US has been running persistent budget deficits and adding to its national debt for many years. This could lead to inflation and a loss of confidence in the US dollar, particularly if investors begin to worry about the US government’s ability to service its debt.
    • Geopolitical risks: Political tensions and instability around the world could also undermine the US dollar’s status as the world’s reserve currency. For example, sanctions imposed by the US on other countries could prompt them to look for alternatives to the US dollar in international trade.
    • Emerging technologies: The rise of digital currencies and blockchain technology could challenge the dominance of traditional currencies, including the US dollar. If cryptocurrencies become more widely accepted, they could potentially weaken demand for the US dollar as a global reserve currency.

    Future of the US Dollar

    • Despite the challenges, the US dollar is likely to remain the dominant reserve currency for the foreseeable future due to its widespread use in international trade, its deep and liquid financial markets, and its historical stability.
    • The euro and other currencies may continue to gain ground, but are unlikely to displace the dollar anytime soon.
    • The growing use of digital currencies, such as Bitcoin, may also pose a challenge to the traditional reserve currency system in the future, but it remains to be seen how this will play out.

    Facts for prelims: Concept box from civilsdaily

    What is mean by closed capital account?

    • A closed capital account is a situation where a country has restrictions on the flow of capital in and out of its borders. This means that the government regulates and limits the movement of funds across its borders.
    • Closed capital accounts are often implemented to protect the domestic economy from external shocks and to maintain the stability of the local currency.
    • China, for example, has a relatively closed capital account as it imposes strict controls on capital inflows and outflows.

    Conclusion

    • The run of the US dollar as an international reserve currency is far from over. The only serious contender at this point is the euro, which stands second but at quite a distance. The possibility of the Chinese currency or any other common currency becoming a serious contender is thin and distant at this point. The current system may not be optimal and should be improved, but expecting a common currency between China, India, and Russia or any such reciprocal trading arrangement to replace the US dollar would be an exaggeration.

    Mains Question

    Q. The status of the US dollar as the world reserve currency has been a topic of speculation, especially as China, India, and Russia explore alternative currencies for international trade. In this light discuss the challenges faced by US dollar and viability of reciprocal trading arrangements.

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    The Rising Demand for De-Dollarisation

     

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  • Internal Security Architecture Shortcomings – Key Forces, NIA, IB, CCTNS, etc.

    The Maoist Insurgency: Challenges and The Way Forward

    op-ed snap | Security Issues | Mains Paper 3: External State & Non-State Actors: Challenges To Internal Security.,Various Security Forces, Agencies & Their Mandates

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Security agencies and anti Naxal guards

    Mains level: Insurgency, challenges and way ahead

    Insurgency

    Central Idea

    • The recent ambush of the convoy in Chhattisgarh’s Dantewada district resulting in the deaths of 10 personnel of the District Reserve Guards (DRG) highlights that the Maoist insurgency remains a significant threat in India. The Home Minister has repeatedly given the impression that the end of the Maoist problem is near, but history has shown otherwise.

    What is mean by Insurgency?

    • Insurgency refers to a violent uprising against the established government or authority of a country, typically carried out by a group of individuals or an organization that seeks to challenge the existing political, economic, or social order.
    • It often involves armed conflict, sabotage, and other forms of violence aimed at destabilizing the government or seizing power.
    • The ultimate goal of an insurgency is to overthrow the existing government and establish a new political system that is more in line with the insurgents’ ideology or goals

    Rise of Insurgency India

    • The Communist Party of India (Marxist) split in 1967, with a section of the party rejecting the electoral path and advocating for armed struggle to overthrow the Indian state.
    • The Naxalbari uprising in West Bengal in 1967, where a group of peasants led by Charu Majumdar and Kanu Sanyal revolted against the local landlords and police. The uprising was brutally crushed by the state, but it gave birth to the Naxalite movement.
    • The formation of the Communist Party of India (Marxist-Leninist) in 1969, which became the political front of the Naxalite movement.
    • The formation of the People’s War Group in Andhra Pradesh in 1980, which became one of the most active Naxalite groups in the country.
    • The merger of the People’s War Group with the Maoist Communist Centre in 2004, to form the Communist Party of India (Maoist), which is the largest Naxalite group in India today.
    • The expansion of the Naxalite movement from West Bengal and Andhra Pradesh to other states, including Chhattisgarh, Jharkhand, Bihar, Odisha, and Maharashtra, among others.
    • The violent attacks by Naxalites on the state and central police forces, government officials, politicians, and civilians, resulting in the loss of thousands of lives over the years.

    Facts for prelims

    District Reserve Guards (DRG)

    • District Reserve Guards (DRG) is a special unit of the police force in some Indian states, primarily in Chhattisgarh, that is trained and equipped to combat Naxalite and Maoist insurgency.
    • DRG personnel are typically drawn from local tribal communities and are familiar with the local terrain, which makes them effective in fighting the insurgency.
    • They are provided with specialized training in guerrilla warfare, jungle warfare, and use of modern weaponry.
    • The DRG is often at the forefront of anti-Naxalite operations and is considered a vital component of the Indian government’s efforts to counter the Maoist insurgency in the country.

    What are the flaws in the anti-Naxal strategy?

    1. Outsourcing operations to central armed police forces:
    • In most states, there is a tendency to outsource the operations against Naxals to the central armed police forces.
    • This strategy is flawed because unless the local police, who know the language and terrain, take the lead in anti-Naxal operations, the problem would linger.
    1. Imposed development paradigm:
    • The development paradigm pursued since independence has always been imposed on the tribal communities and has been insensitive to their needs and concerns. As a result, government plans have ended up in destroying their social organization, cultural identity, and resource base and generated multiple conflicts.
    • The tribals want schools and hospitals, but they neither need nor want capital-intensive plants or factories, which are inevitably accompanied by deforestation and displacement.
    1. Insensitivity towards tribal communities:
    • The development paradigm pursued since independence has always been imposed on the tribal communities and has been insensitive to their needs and concerns. As a result, government plans have ended up destroying their social organization, cultural identity, and resource base and generated multiple conflicts.
    1. Lack of an overall strategic plan:
    • There is no overall strategic plan against the Naxals. States have been carrying out anti-Naxal drives according to their individual understanding.
    • Territorial domination is essential, and security forces are able to achieve that, but that should be followed by the administrative apparatus establishing its network in the affected areas.
    1. Absence of peace talks:
    • The government should seriously think of applying the healing touch. If it can have peace talks with the Nagas and several other insurgent outfits in the Northeast, there is no reason why it should not take the initiative to have a dialogue with the Maoist leadership. This would not be seen as a sign of weakness on the contrary, it would be taken as a magnanimous gesture.

    The way ahead to address the Naxal insurgency in India

    • Multi-pronged approach: The government should adopt a multi-pronged approach to address the Naxal problem that includes development initiatives, security measures, and dialogue with the Naxal leadership.
    • Focus on development: The government should focus on development initiatives in Naxal-affected areas that are tailored to meet the needs of the local population. This includes building infrastructure like schools, hospitals, and roads, creating employment opportunities, and addressing land rights issues.
    • Empowering local police: The state police should be empowered to take the lead in anti-Naxal operations as they have a better understanding of the local language and terrain.
    • Humanitarian approach: The government should adopt a humanitarian approach in dealing with the problem. The use of excessive force should be avoided, and care should be taken to ensure that the local population is not adversely affected.
    • Dialogue with Naxal leadership: The government should initiate a dialogue with the Naxal leadership to address their grievances and concerns. This would help in building trust and confidence between the two sides and pave the way for a peaceful resolution of the problem.
    • Coordination among states: The states should coordinate their efforts to address the Naxal problem. The sharing of intelligence, resources, and best practices would go a long way in addressing the issue.
    • Strengthening of institutions: The government should strengthen institutions like the police, judiciary, and administrative machinery to ensure that they are better equipped to deal with the problem.
    • Long-term vision: A long-term vision should be adopted to address the Naxal problem. This requires sustained efforts over a period of time to ensure that the problem is effectively tackled.

    Conclusion

    • India’s Maoist insurgency problem is not one that can be solved by just law and order enforcement. It is crucial to address the underlying social and economic aspects of the problem. The government should acknowledge the flaws in its anti-Naxal strategy and undertake a comprehensive approach to solve the problem. It must ensure that the local police take the lead in anti-Naxal operations, and the development policies must be sensitive to the needs and concerns of the tribal communities. Initiating peace talks with the Maoist leadership could also go a long way in resolving the issue.

    Mains Question

    Q. The recent events of violent attacks on security forces highlights that the Maoist insurgency remains a significant threat in India. In light of this discuss what are the flaws in anti-Naxal strategy and what is needed to address the Naxal insurgency in India?

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    Village Defence Guards (VDG): A sense of security and confidence

     

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  • Liquor Policy of States

    Legalizing Cannabis Cultivation and Decriminalizing Drug Use

    op-ed snap | Governance | Mains Paper 2: Governance, Transparency & Accountability, Citizens Charters

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Cannabis cultivation and its applications

    Mains level: legalizing cannabis cultivation and issues of criminalizing drug users

    Cannabis

    Central Idea

    • Himachal Pradesh is reportedly considering legalizing cannabis cultivation, joining Uttarakhand, Gujarat, and Madhya Pradesh. The criminalisation of cannabis cultivation and drug use in India under the Narcotic Drugs and Psychotropic Substances (NDPS) Act 1985 has resulted in long pre-trial incarceration, stigmatisation of users, and poor rehabilitation prospects. A public health approach could help address drug dependence and reduce the burden on the criminal justice system.

    What is Cannabis?

    • Cannabis, also known as marijuana among other names, is a psychoactive drug from the Cannabis plant used primarily for medical or recreational purposes.
    • The main psychoactive component of cannabis is tetrahydrocannabinol (THC), which is one of the 483 known compounds in the plant, including at least 65 other cannabinoids, including cannabidiol (CBD).
    • It is used by smoking, vaporizing, within the food, or as an extract.

    Prospects of legalizing Marijuana

    1. Health benefits:
    • The cannabinoids found in Cannabis is a great healer and has found mentioned in Ayurveda.
    • It can be used to treat a number of medical conditions like multiple sclerosis, arthritis, epilepsy, insomnia, HIV/AIDS treatment, and cancer.
    1. Ecological benefits:
    • The cannabis plant and seeds apart from being labelled a super-food as per studies is also a super-industrial carbon-negative raw material.
    • Each part of the plant can be used for some industry. Hemp currently is also being used to make bio-fuel, bio-plastics and even construction material in certain countries. The cosmetic industry has also embraced Hemp seeds.
    1. Marijuana is addiction-free:
    • An epidemiological study showed that only 9% of those who use marijuana end up being clinically dependent on it.
    • The ‘comparable rates’ for tobacco, alcohol and cocaine stood at 32%, 15% and 16% respectively.
    1. Good source of Revenue:
    • By legalizing and taxing marijuana, the government will stand to earn huge amounts of revenue that will otherwise go to the Italian and Israeli drug cartels.
    • In an open letter to US President George Bush, around 500 economists, led by Nobel Prize winner Milton Friedman, called for marijuana to be “legal but taxed and regulated like other goods.
    1. A potential cash crop:
    • The cannabis plant is something natural to India, especially the northern hilly regions. It has the potential of becoming a cash crop for poor marginal farmers.
    • If proper research is done and the cultivation of marijuana encouraged at an official level, it can gradually become a source of income for poor people with small landholdings.
    1. Prohibition was ineffective:
    • In India, the consumption of synthetic drugs like cocaine has increased since marijuana was banned, while it has decreased in the US since it was legalized in certain states.
    • Moreover, these days, it is pretty easy to buy marijuana in India and its consumption is widespread among the youth. So it is fair to say that prohibition has failed to curb the problem
    1. Marijuana is less harmful:
    • Marijuana consumption was never regarded as a socially deviant behaviour any more than drinking alcohol was. In fact, keeping it legal was considered as an enlightened view.
    • It is now medically proven that marijuana is less harmful than alcohol.

    All you need to know about Narcotic Drugs and Psychotropic Substances (NDPS) Act 1985

    • The Narcotic Drugs and Psychotropic Substances (NDPS) Act is an Indian law that prohibits the production, manufacture, possession, transportation, sale, and consumption of narcotic drugs and psychotropic substances.
    • The Act was enacted in response to the US-led global war on drugs in the 1970s.
    • The NDPS Act has been amended several times since its enactment, with the most recent amendment being in 2014.
    • The Act defines different categories of drugs and prescribes different punishment for different offenses.
    • The Act has been criticized for its strict provisions, especially for small-scale drug users, who are often imprisoned and face difficulty accessing rehabilitation and de-addiction centers. In recent years, there have been calls for decriminalizing small-scale drug use and treating drug consumers as victims rather than offenders.

    Why criminalizing drug users is not a good option?

    • Pre-trial incarceration and stigmatization: Criminalization means long pre-trial incarceration and stigmatization of drug users, who are often from socially and economically vulnerable backgrounds.
    • Lack of access to de-addiction centres: Many drug users lack access to de-addiction centres, which makes their rehabilitation difficult.
    • Difficulty in rehabilitation: Putting drug users behind bars makes their rehabilitation difficult and exposes them to the risk of becoming peddlers.
    • Overburdened criminal justice system: Over-criminalisation of drug users clogs already burdened courts and adds to the workload of overworked investigating agencies.
    • Squandering public resources: Public resources that could have been deployed to set up a robust rehabilitation network are squandered away in the process.
    • Ineffective in deterring drug use: Criminalisation was intended to deter the use of drugs. However, drug dependence has increased over the years across the world.
    • Undermining social well-being: The over-criminalisation of drug users undermines their social well-being, which perpetuates the cycle of addiction and crime.

    Steps to address the negative impact of criminalizing drug users

    • Decriminalization: The government should consider decriminalizing the possession of small quantities of drugs for personal consumption, as recommended by the Ministry of Social Justice and Empowerment. This will treat drug users as victims rather than culprits and facilitate their rehabilitation.
    • Public health approach: The government should adopt a public health approach to address drug use as a public health issue. This involves providing healthcare services to drug users, focusing on their well-being and rehabilitation, rather than just punishing them.
    • Differentiating between peddlers and consumers: The government should differentiate between drug peddlers and drug consumers and take different approaches to dealing with them. While drug peddlers should be punished, drug users should be treated as victims and provided with rehabilitation services.
    • Setting up a robust rehabilitation network: The government should allocate resources to set up a robust rehabilitation network for drug users. This will help address the root cause of drug use and reduce its negative impact on society.
    • Public awareness campaigns: The government should conduct public awareness campaigns to educate people about the negative impact of drug use on health and well-being. This will help reduce the demand for drugs and prevent drug use among the population.

    Facts for prelims

    What is CBD oil?

    • CBD oil is a type of oil that contains cannabidiol (CBD), a non-psychoactive compound found in the cannabis plant.
    • CBD oil is made by extracting CBD from the plant and diluting it with a carrier oil such as hemp seed oil or coconut oil.
    • It is used for a variety of purposes, including reducing anxiety, relieving pain, and improving sleep.

    Conclusion

    • The criminalization of drug use in India has not deterred drug dependence and has resulted in a burden on the criminal justice system. A public health approach could help address drug dependence and reduce the stigma associated with drug use. India could learn from the examples of countries like Portugal and Canada and the state of Sikkim.

    Mains Question

    Q. Recently more and more states are considering legalizing cannabis cultivation. In light of this discuss the benefits of its cultivation and impact of criminalizing drug users in India.

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    Himachal Pradesh considering legalizing Cannabis Cultivation

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  • G20 : Economic Cooperation ahead

    India’s Leadership of G-20 and SCO: Challenges and Realities

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India,India & Its Neighborhood – Relations

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: India's presidency of international groupings

    Mains level: Current geopolitical climate, India's g20 presidency, challenges and way ahead

    Central Idea

    • India’s year-long presidency of the G-20 and leadership of the Shanghai Cooperation Organization (SCO) should not create unrealistic expectations about the dividends India can reap from these summits. The current geopolitical climate is characterized by a high level of distrust and tensions running high and the threat of conflict looming large. The need for India is to proceed with caution during its presidency.

    Overview of the current geopolitical climate

    • Tensions and distrust between the US-led camp and China/Russia-led camp pose a threat of global conflict.
    • China is on a major diplomatic-cum-strategic offensive across Asia, particularly in West Asia, and is flexing its naval and military muscle in the East and Southeast Asian seas.
    • India is facing challenges due to China’s offensive and its efforts to widen the arc of conflict with India.
    • The situation in Ukraine is fraught, with the US and its allies providing advanced weaponry and training to Ukrainian troops, while Russia is receiving support from its allies.
    • India’s ties with Russia are not necessarily anchored in defense cooperation, and India is looking more to the West, especially the US, for state-of-the-art weaponry.
    • India needs to proceed with caution while holding the presidency of the G-20 and the SCO and balance the contradictory demands of the two institutions and the Global South.

    Reasons for the distrust between the two camps; United States and China/Russia

    • Economic competition: The US and China are in a race for economic and technological supremacy, with both countries vying for dominance in fields such as artificial intelligence, 5G networks, and cybersecurity. This has led to tensions between the two countries.
    • Military competition: The US and China are also in a race for military supremacy, with both countries investing heavily in their armed forces and developing advanced weapons systems. This has led to concerns about a potential arms race between the two countries.
    • Territorial disputes: China has territorial disputes with several countries in the region, including India, Japan, Vietnam, and the Philippines. This has led to tensions and concerns about China’s expansionist policies.
    • Human rights issues: The US and other Western countries have criticized China and Russia for their human rights records, including issues such as the treatment of Uighur Muslims in China and the treatment of political dissidents in Russia. This has led to tensions between these countries and the West.
    • Political influence: The US has accused China and Russia of attempting to interfere in its political processes, including the 2016 US presidential election. This has led to concerns about the countries’ intentions and their influence in other countries.
    • Strategic competition: The US and China/Russia have differing visions for the international order, which has led to strategic competition and tensions between them. The US seeks to uphold the current order, while China and Russia seek to challenge it and establish a new order that reflects their interests and values.
    • COVID-19 pandemic: The COVID-19 pandemic has further exacerbated tensions between the US and China, with both countries blaming each other for the outbreak and its spread.

    Issues for India specifically with China

    • Border disputes: India and China have long-standing border disputes, which have led to multiple conflicts over the years. The recent clashes in the Galwan Valley in June 2020 resulted in the deaths of Indian and Chinese soldiers and have further escalated tensions between the two countries.
    • China’s aggressive behavior: China’s assertive stance and expansionist policies in the South and East China Seas, as well as its attempts to limit India’s influence in the Indian Ocean Region, have led to tensions between the two countries.
    • China’s regional initiatives: China’s regional initiatives such as the China-Pakistan Economic Corridor (CPEC) and the China-Indian Ocean Region Forum are of concern to India as they may limit India’s strategic and economic interests in the region.
    • The Quad: China sees India’s partnership in the Quad (an informal strategic grouping of India, Australia, Japan, and the US) as a threat to its regional ambitions, and has openly criticized the grouping.
    • Cyber warfare and hybrid tactics: India is also concerned about China’s ability to engage in cyber warfare and hybrid tactics, including the adoption of cyber tactics and the ‘politics of water’ by re-directing the Himalayan rivers.

    Other turmoil’s in India’s immediate neighborhood

    • Afghanistan: The situation in Afghanistan appears to be steadily worsening and is now beginning to affect nations on its periphery. India has lost all traction with the Taliban in Afghanistan.
    • Pakistan: The relations between India and Pakistan are strained due to various reasons, including cross-border terrorism.
    • Sri Lanka: The political situation in Sri Lanka has been unstable in recent years, and it has caused concerns for India.
    • Nepal: The political situation in Nepal has been unstable in recent years, with frequent changes in government and disagreements over the new constitution. India has also had strained relations with Nepal over various issues, including border disputes.
    • Myanmar: The military coup in Myanmar in February 2021 has led to widespread protests and violence, causing concerns for India’s security in its Northeast region as well as affecting India’s strategic interests in the region.

    Way ahead

    • Identifying commonalities: India should focus on identifying areas of commonality between the G-20, the SCO, and the Global South, such as sustainable development, climate change, and economic cooperation, and work towards promoting these goals in each forum.
    • Prioritizing issues: India should prioritize the issues that are most important to its national interests, such as regional security and economic development, and work towards finding solutions that are mutually acceptable to all parties.
    • Engaging with all parties: India should engage with all parties in each forum, including the major powers, to ensure that its voice is heard and its interests are taken into account.
    • Building coalitions: India should work towards building coalitions with like-minded countries within each forum, such as other developing countries, to promote its interests and priorities.
    • Developing strategic partnerships: India should develop strategic partnerships with key players in each forum, such as China and Russia in the SCO, to promote regional stability and cooperation.

    Conclusion

    • India needs to be aware of the persisting challenges it faces, tone down the high expectations being generated of reaping a rich dividend from helming the G-20 and the SCO, and proceed with caution. It must chart a course that balances the contradictory demands of the G-20 and the SCO and even more so that of the Global South. India should not claim to have attained its goal of being a global power, as there are many obstacles that have to be overcome before India can achieve its predetermined goal.

    Mains Question

    Q. The current geopolitical climate is characterized by a high level of distrust and tensions running high and the threat of conflict looming large. In light of this discuss the issues for India specifically with China and how other turmoil’s in immediate neighborhood compounding the problems for India.

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    India could lead the G20 agenda in a unique way

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  • Digital India Initiatives

    Smart Meters to Bring a Revolution in the Power Sector

    op-ed snap | Economics | Mains Paper 3: S&T – Applications In Everyday Life

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Digitalization of power sector

    Mains level: Power sector reforms, challenges and measures

    Smart Meters

    Central Idea

    • India is replacing conventional electric meters with prepaid smart meters to bring a revolution in the power sector. The majority of smart meter users have begun to experience some of the technology benefits. However, the low uptake of smart meter apps and access to detailed electricity bills are some of the road bumps that need to be solved.

    What are Smart Meters?

    • Smart meters are next-generation digital electricity meters that measure energy consumption and communicate this information back to the utility company in near real-time.
    • Unlike traditional electric meters that require manual reading, smart meters automatically send readings to the utility company, enabling a two-way communication between the meter and the utility.

    A study on Smart Meters

    • A recent study by the Council on Energy, Environment and Water (CEEW) found that the majority of smart meter users have already begun to experience some of the technology benefits.
    • The study covered about 2,700 urban households that use prepaid or postpaid smart meters across six States.
    • Half the users reported improvements in billing regularity, and two-thirds said paying bills had become easier.
    • Around 40% of users alluded to multiple co-benefits such as a greater sense of control over their electricity expenses, a drop in instances of electricity theft, and improved power supply to the locality.
    • In fact, 70% of prepaid smart meter users said they would recommend the technology to their friends and relatives.
    • These findings give confidence that India’s smart metering transition is heading in the right direction.

    Advantages of Smart Meters over traditional electric meters

    • Accurate billing: Smart meters enable accurate billing as they eliminate the need for estimated bills, providing customers with accurate and transparent information about their energy usage.
    • Near real-time data: Smart meters provide near real-time data on energy consumption, enabling customers to monitor their usage and make informed decisions about their energy consumption.
    • Dynamic pricing: Smart meters have the potential to enable dynamic pricing, where electricity tariffs vary depending on the time of day, season or other factors, incentivizing customers to use energy when it’s cheaper and reducing demand during peak hours.
    • Improved energy management: Smart meters allow utilities to better manage energy supply and demand, reduce power outages, and integrate renewable energy sources more effectively.
    • Energy theft detection: Smart meters can help detect and respond to energy theft, reducing losses for utilities and ensuring a fair distribution of energy costs.
    • Customer control: Smart meters provide customers with more control over their energy consumption, allowing them to better manage their energy usage and reduce their bills.

    Challenges in the Smart Meter Deployment

    • High installation costs: The upfront cost of installing smart meters can be significant, and may be a barrier to adoption for utilities or customers.
    • Technical challenges: Installing and integrating smart meters into existing grid infrastructure can be technically complex, requiring significant upgrades to communication networks and other equipment.
    • Data privacy and security: Smart meters collect and transmit sensitive customer data, raising concerns about data privacy and security.
    • User adoption: Encouraging customers to adopt smart meters can be a challenge, particularly if they are unfamiliar with the technology or if there is a lack of education around the benefits of smart meters.
    • Interoperability: Ensuring that smart meters are interoperable with different communication protocols and standards can be a challenge, particularly in areas with multiple utility providers.
    • Regulatory challenges: The regulatory environment can also be a challenge, particularly if regulations around smart meters are unclear or if there is resistance from stakeholders such as utility providers or consumer groups.

    Ways to improve smart meter deployment

    • Education and awareness: Utilities and governments can run awareness campaigns to educate customers about the benefits of smart meters, and how they can help reduce energy consumption and save money. These campaigns should target different socio-economic groups, and provide actionable tips and information on how to use smart meters to their advantage.
    • Co-ownership and collaboration: Utilities and government bodies should collaborate to ensure a smooth installation and recharge experience for users, and leverage smart meter data for revenue protection and consumer engagement. Discoms (distribution companies) should take the driving seat and co-own the program with Advanced Metering Infrastructure Service Providers (AMISPs) who are responsible for installing and operating the AMI system.
    • Innovative and scalable data solutions: Discoms, system integrators, and technology providers should collaborate to devise innovative and scalable data solutions to effectively use smart meter data to unlock their true value proposition. This would require an ecosystem that fosters innovation in analytics, data hosting and sharing platforms, and enables key actors to collaboratively test and scale new solutions.
    • Empower consumers: Policymakers and regulators must strengthen regulations to empower consumers to unlock new retail markets. They must also enable simplification and innovation in tariff design and open the retail market to new business models and prosumagers (producers, consumers, and storage users). Regulations should be put in place concerning phase-out of paper bills, arrear adjustment, frequency of recharge alerts, buffer time, rebates, and data privacy.
    • Interoperability: It is crucial to ensure that smart meters are interoperable with different communication protocols and standards. This can be achieved through standardization, certification, and testing programs.
    • Pilot programs and learning opportunities: Utilities and governments can run pilot programs to test new smart meter technologies and business models, and learn from the results to scale up successful models.

    Smart Meters

    Conclusion

    • India is on a unique journey of meeting its growing electricity demand while decarbonizing its generation sources. Smart meters comprise a critical part of the transition toolbox, by way of enabling responsible consumption, efficient energy management, and cost-effective integration of distributed energy resources. A user-centric design and deployment philosophy will be crucial for the success of India’s smart metering initiative. With the effective implementation, India can improve smart meter deployment and user satisfaction, making the smart-meter revolution a reality.

    Facts for prelims:

    Electricity Regulatory Commissions (ERCs):

    • ERCs are independent statutory bodies established by the government to regulate the generation, transmission, distribution, and trading of electricity in a particular state or region.
    • The primary role of ERCs is to protect the interests of electricity consumers by ensuring that electricity is supplied to them at reasonable and affordable rates while ensuring the financial viability of the electricity sector.
    • ERCs also have the power to issue licenses to power generation and distribution companies, set tariffs, and adjudicate disputes between stakeholders in the electricity sector.

    Mains Question

    Q. India is replacing conventional electric meters with prepaid smart meters to bring a revolution in the power sector. In this light discuss advantages and challenges of deploying smart meters. How India can improve smart meter deployment and user satisfaction, making the smart-meter revolution a reality?

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  • Foreign Policy Watch: India-Middle East

    CEPA is the Growth Engine For India-UAE Bilateral Trade

    op-ed snap | International Relations | Mains Paper 2: India & Its Neighborhood – Relations

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: India-UAE relations and latest developments

    Mains level: One year of India-UAE CEPA, its significance and impact

    CEPA

    Central Idea

    • The India-UAE Comprehensive Economic Partnership Agreement (CEPA) signifies a deep, fraternal, and strategically important relationship between the two countries that goes beyond just economic cooperation. The success of the agreement in stimulating economic growth and providing investment opportunities has unlocked new possibilities for multi-sectoral collaboration and partnerships

    Background: India-UAE relationship

    • Historical ties: The India-UAE relationship has been shaped by centuries of cultural and economic engagement on the Indian Ocean’s network of exchange. The two countries share historical ties that go back to pre-modern times, with Arab traders having visited the west coast of India since the fourth century AD.
    • India’s third-largest trading partner: The UAE emerged as India’s third-largest trading partner, highlighting the two countries’ positive outlook towards economic cooperation.
    • Trade partnership strengthened with oil: The India-UAE partnership was forged first on the trade of traditional items, and then strengthened with oil. It found a formal dimension after the creation of the UAE Federation in 1971, and then accelerated in the 1990s when a liberalised India embraced the opportunity to export to the UAE and markets beyond.
    • Relationship is today more than an economic partnership: It speaks to the Emirates’s deep, fraternal, and strategically important relationship with India, reinforcing the UAE’s position as a key partner in India’s foreign policy. The two countries share strong cultural and people-to-people ties, with a significant Indian diaspora in the UAE.
    • key partner in India’s development agenda: The UAE has been a key partner in India’s development agenda, including investments in the oil and gas sector, renewable energy, and infrastructure. The UAE has also been supportive of India’s efforts in combating terrorism and enhancing security cooperation.

    India- UAE Comprehensive Economic Partnership Agreement (CEPA)

    • The India-UAE Comprehensive Economic Partnership Agreement (CEPA) is a bilateral trade agreement that aims to strengthen economic ties between the two countries.
    • The CEPA covers a wide range of subjects, including trade in goods, trade in services, investment, intellectual property rights, and competition policy.
    • The CEPA has been in the making for several years, with negotiations starting in 2017 and the agreement finally coming into force on May 1, 2022. The agreement builds on the decades of mutual enterprise between the two countries, with the UAE emerging as India’s third-largest trading partner.

    How India- UAE CEPA benefits both the countries?

    • Increased trade: The CEPA is expected to significantly increase trade volumes between India and the UAE, with the potential to create new investment opportunities and increase business partnerships. This will help both countries to diversify their trade relationships beyond their traditional trading partners.
    • Diversified trade: The CEPA covers a wide range of subjects, including trade in goods, trade in services, investment, intellectual property rights, and competition policy, allowing for a more diversified trade relationship between the two countries.
    • Access to new markets: The CEPA is inspiring innovators and investors, catalysing SMEs, startups, and India Inc to make decisive inroads into new markets, particularly the Emirati market, and from there to the Middle East, Africa, and Europe. This will benefit both countries in terms of access to new markets and opportunities.
    • Support for entrepreneurship: The CEPA provides support for startups in both India and the UAE, enabling them to explore growth and diversification into each other’s markets, as well as other markets in the region and beyond. The India-UAE Startup Bridge will also enable them to attract investment from venture capitalists and angel investors.
    • Addressing developmental challenges: The CEPA provides a trade lens to tackle issues such as energy and food security, agriculture, and sustainability, making it a strategic catalyst in addressing vital developmental challenges.

    CEPA

    Facts for prelims: UPI in UAE

    • Indian travelers can now seamlessly make payments in the UAE using the UPI-based apps.
    • National Payments Corporation of India (NPCI) has partnered with the Mashreq Bank’s NEOPAY to enable UPI-based payments in the Gulf Nation.
    • UPI payments will only be possible in UAE shops that have NEOPAY terminals. The user should have a bank account with an Indian bank account along with a mobile app like BHIM that supports UPI payments.
    • Currently, UPI payments are accepted in Bhutan and Nepal. It is likely to go live in Singapore by the end of this year.
    • Back in 2021, the UPI services were launched in Bhutan in collaboration with its central bank, the Royal Monetary Authority.

    Way ahead?

    • Looking ahead, the India-UAE CEPA presents a unique opportunity to further deepen economic and strategic ties between the two countries. Some of the key steps that can be taken to build on the success of the CEPA include:
    • Strengthening infrastructure: India and the UAE can collaborate to strengthen infrastructure, including ports, airports, and logistics networks, to facilitate the movement of goods and people between the two countries.
    • Enhancing cooperation in emerging sectors: The two countries can explore cooperation in emerging sectors such as renewable energy, artificial intelligence, and fintech, among others, to promote innovation and economic growth.
    • Promoting investment: Both India and the UAE can take steps to promote investment in each other’s markets, including through the creation of investment promotion agencies, bilateral investment treaties, and other measures.
    • Strengthening cultural ties: Cultural exchanges and people-to-people contacts can be further enhanced to deepen the historical and cultural ties between the two countries.
    • Addressing developmental challenges: The CEPA provides a platform for addressing key developmental challenges faced by both countries, such as energy and food security, sustainability, and agriculture. Further efforts can be made to leverage this platform to achieve meaningful progress in these areas.

    Conclusion

    • The UAE-India CEPA has unlocked new possibilities for multi-sectoral collaboration and partnerships, leading the nations to build competitive, resilient, sustainable, and vibrant economies.

    Mains Question

    Q. India-UAE completed its one year of Comprehensive Economic Partnership Agreement (CEPA) implementation. In this background discuss impact on the Bilateral Trade.

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  • Urban Transformation – Smart Cities, AMRUT, etc.

    Aspirational Cities Programme (ACP): A Step in the Right Direction

    op-ed snap | Governance | Mains Paper 1: Population & Associated Issues

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Maharashtra's Aspirational Cities Programme

    Mains level: Urbanization challenges and measures

    ACP

    Central Idea

    • Maharashtra’s Aspirational Cities Programme (ACP) aims to address the challenges of rapid urbanisation by adopting a holistic approach to urban governance. The ACP is set to focus on improved governance, address persistent civic issues, and increase funding avenues for the urban local bodies. The success of the ACP could have a significant impact on Maharashtra’s economy and lead to ease of living in urban areas.

    Urban population of India

    • According to the Census of India 2011, the urban population of India was 377 million, which accounted for 31.16% of the total population. Around 590 million people would live in the cities by 2030.
    • While cities constitute about 3 per cent of the land in the country, they generate 70 per cent of the Gross Domestic Product (GDP) and contribute substantially to economic growth and opportunities.
    • There is a robust relationship between the index of cities’ liveability and the country’s GDP per capita suggesting that long-term growth is only feasible if the city attributes in terms of providing equitable access to basic services, residences, and improved economic management are woven seamlessly through digital service delivery platforms.

    Challenges of urbanization in Maharashtra

    • Deficient Infrastructure: Maharashtra’s cities are grappling with issues of deficient infrastructure, such as inadequate roads, public transport, water supply, and waste management systems.
    • Air Pollution: Urbanization has led to an increase in air pollution in Maharashtra’s cities, primarily due to vehicular emissions and industrial activities.
    • Social Inequities: The growth of informal settlements and slums in Maharashtra’s cities has led to social inequities, with the urban poor lacking access to basic services, such as healthcare, education, and housing.
    • Mobility and Migration: Maharashtra’s cities continue to face the challenge of frequent mobility and migration, with an inward net movement of people for better livelihood opportunities.
    • Vulnerabilities to Disasters and Climate Change: Rapid urbanization has increased the vulnerability of Maharashtra’s cities to disasters and climate change, such as floods and heatwaves.
    • Poor Urban Planning: Many of the challenges faced by Maharashtra’s cities are a result of poor urban planning, with a lack of coordination between various government departments and inadequate implementation of policies and programmes.

    What is Aspirational Cities Programme (ACP)?

    • The Aspirational Cities Programme (ACP) is an initiative of the Government of Maharashtra aimed at addressing the challenges of rapid urbanization in the state by adopting a holistic approach to urban governance.
    • The ACP has identified 57 cities that have been proposed for the programme. Service level benchmarking will be done for the cities based on the data collected on the Performance Assessment System of the Government of Maharashtra.
    • The performance of the 57 selected cities would be monitored and ranked quarterly through a standard digital monitoring platform with indicators on the themes of urban infrastructure, education, urban services, skill development, and climate change.
    • The ACP is based on three priority areas: inclusive urban development, scientific data methods for assessing and monitoring outcomes, and citizen participation in civic affairs.

    ACP

    The Maharashtra government’s Aspirational Cities Programme (ACP) focuses on three priority areas

    1. Inclusive Urban Development: The ACP aims to bring an integrated approach to urban programming that involves all development sectors. This is aimed at ensuring that the benefits of urban development reach all sections of society, including the most vulnerable.
    2. Scientific Data Methods: The ACP seeks to adopt scientific data methods for assessing and monitoring the outcomes of both state and central schemes. This will provide a better understanding of the impact of various policies and programmes on the ground.
    3. Citizen Participation: The ACP aims to enhance the voice and participation of citizens in civic affairs through physical and digital means. This is aimed at ensuring that governance is citizen-centric and responsive to the needs and aspirations of the people.

    Other key features of Maharashtra’s ACP

    • Improved Governance: The ACP is set to focus on improved governance, address persistent civic issues, and increase funding avenues for the urban local bodies. This is aimed at ensuring that the governance of cities is efficient, transparent, and accountable.
    • Service Level Benchmarking: Service level benchmarking will be done for the cities based on the data collected on the Performance Assessment System of the Government of Maharashtra. This will enable the state government to monitor and rank the performance of the 57 selected cities quarterly through a standard digital monitoring platform.
    • Provision of Adequate Potable Tap Water: The ACP agenda includes provisioning adequate potable tap water to all households by taking advantage of the ambitious Jal Jeevan Mission.
    • Reformed Property Tax: The ACP aims to reform property tax by delinking it from the reasonable rental value method and adopting the market value of the property as a base for assessment.

    Facts for prelims

    What is Urban 20 (U20)?

    • Within the G20 ecosystem, a city diplomacy initiative called the Urban 20 (U20) was launched in December 2017.
    • As one of the formal Engagement Groups under G20, the U20 forum was meant to collectively raise critical urban issues of G20 cities during the G20 negotiations.
    • Despite U20’s concerted efforts to run parallel to G20, the absence of any written constitution, procedures, or formal agreement has made U20 unable to effectively address the aspirations and concerns of cities.

    Conclusion

    • It is time to accept the reality that New India is moving from its villages to the cities, and therefore, the need for renewed thinking and policies that are citizen-centric. The ACP is an example of a policy that puts people first as part of urban development. This effort by the Government of Maharashtra is strategically contextualised with the Viksit Bharat vision for India in 2047.

    Mains Question

    Q. New India is moving from its villages to the cities which highlights the need for renewed thinking and policies that are citizen-centric. In light of this discuss how Maharashtra’s Aspirational Cities Programme (ACP) could help to address the challenges of urbanization

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  • G20 : Economic Cooperation ahead

    SAI20 and India’s Presidency of G20

    op-ed snap | Economics | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: SAI20 engagement group and India’s presidency

    Mains level: SAI20 and CAG's leadership and sustainable economic growth

    SAI20

    Central Idea

    • Under India’s presidency, the G20 leaders will be focusing on collective progress, equity, and inclusive growth, with the summit theme of One Earth, One Family, One Future. India’s commitment to green development, circular economy, and lifestyle behavior changes aim to achieve the 2030 Sustainable Development Goals. The Comptroller & Auditor General of India (CAG) will chair SAI20, the Engagement Group for Supreme Audit Institutions (SAls) of G20 countries in Goa in June.

    Top Priority areas for SAI20 deliberations Under India’s presidency

    • The Comptroller & Auditor General of India (CAG) will chair SAI20 in Goa in June this year.
    • Two priority areas have been selected for SAI20 deliberation:
    1. Blue economy
    2. Responsible Artificial Intelligence

    What is SAI20?

    • SAI20 stands for Supreme Audit Institutions (SAIs) of G20 countries.
    • It is a forum where SAIs from G20 countries can engage with each other to share their experiences and expertise in auditing public policies and governance practices.
    • The group meets annually to discuss important issues related to public auditing and to develop joint initiatives to promote good governance and accountability in their respective countries.

    What is Blue Economy?

    • Blue Economy is defined by the World Bank as the Sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of the ecosystem.
    • Gunter Pauli’s book, The Blue Economy: 10 years, 100 innovations, 100 million jobs” (2010) brought the Blue Economy concept into prominence.
    • The UN first introduced blue economy at a conference in 2012 and underlined sustainable management, based on the argument that marine ecosystems are more productive when they are healthy. In fact, the UN notes that the Blue Economy is exactly what is needed to implement SDG 14, Life Below Water.
    • The term ‘blue economy’ includes not only ocean-dependent economic development but also inclusive social development and environmental and ecological security.

    Key functions and significance of Supreme Audit Institutions (SAIs)

    • Independent audits: SAIs conduct independent audits of government finances and operations to ensure that public funds are being used in accordance with the law, and that government agencies are operating effectively and efficiently.
    • Promoting transparency and accountability: SAIs promotes transparency and accountability by making audit reports publicly available, and by providing information to the public about government spending and operations.
    • Improving governance: By identifying weaknesses and inefficiencies in government operations, SAIs can help to improve governance and promote more effective use of public resources.
    • Supporting the legislative branch: SAIs supports the legislative branch by providing information and analysis that can help lawmakers make informed decisions about government programs and policies.
    • Ensuring compliance with laws and regulations: SAIs ensure compliance with laws and regulations by reviewing government operations and financial statements to ensure that they comply with applicable laws and regulations.
    • Fostering international cooperation: Through international organizations such as the International Organization of Supreme Audit Institutions (INTOSAI), SAIs collaborates and share best practices with their counterparts in other countries to promote good governance and accountability globally.

    Facts for prelims

    What is Compendium of Asset Accounts of Natural Resources?

    • The Compendium of Asset Accounts of Natural Resources is a comprehensive report prepared by the Comptroller and Auditor General of India (CAG) in line with the United Nations system of Environmental and Economic Accounts.
    • It is the first-ever country-wide compendium of natural resource accounting methodologies and provides a guide for the Indian government to utilize natural resources optimally.
    • The report covers various aspects of natural resources such as forests, minerals, water, and land, and includes accounts of physical quantities, values, and transactions related to these resources.
    • The main objective of the compendium is to improve the management of natural resources and promote sustainable development.

    SAI20

    How CAG can lead the SAI20 engagement group?

    • Setting the agenda: The CAG can set the agenda for SAI20 deliberations, identifying priority areas for discussion and ensuring that they align with the broader goals of the G20 and the United Nations.
    • Providing technical expertise: The CAG can provide technical expertise in auditing and public finance management, which can help other SAIs in the group to develop their capacity and improve their performance.
    • Developing audit toolkits: The CAG can take the lead in developing audit toolkits, which can help SAIs in the group to assess development in coastal stretches, track marine water quality, and promote sustainable development.
    • Building consensus: The CAG can work towards building consensus among SAIs in the group, promoting constructive dialogue and agreement on how to improve auditing of performance in specific areas of ocean-based activities.
    • Strengthening accountability: The CAG can use SAI20 to promote transparency, accountability, and good governance in ocean-based activities, which can help ensure that economic growth benefits are shared fairly across generations.

    Conclusion

    • The toolkits being prepared by SAI20 under the leadership of the CAG of India will be presented at the SAI20 Engagement Group meet, which will provide a unique opportunity for constructive dialogue and agreement to improve auditing of performance in specific areas of ocean-based activities. This collaborative effort would not only build capacity for auditors across SAI20 member countries but also help regional auditing communities by providing a common and replicable auditing tool.

    Mains Question

    Q. The Comptroller & Auditor General of India (CAG) will chair SAI20 (Supreme Audit Institutions) of G20 countries this year. In this light discuss the role of SAI 20 and How CAG can lead the engagement group for sustainable economic growth?

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    Blue Economy: India’s G20 Presidency Offers An Opportunity

     

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  • Financial Inclusion in India and Its Challenges

    Contributory Guaranteed Pension Scheme (CGPS): A Considerable Alternative

    op-ed snap | Economics | Mains Paper 2: Government Scheme/Policies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: OPS, NPS and CGPS

    Mains level: Contributory Guaranteed Pension Scheme (CGPS) Analysis

    Scheme

    Central Idea

    • The debate on pensions is heating up as several state governments announce their reversion to the old pension scheme (OPS). However, economists have frowned upon this move, citing two major reasons. Firstly, since the state has to bear the full burden of pensions, it may become fiscally unsustainable in the long run. Secondly, an unsustainable rise in pension allocation in the budget can come at the cost of other welfare expenditures allocated to the poor and marginalized sections.

    What is mean by pension?

    • A pension is a retirement plan that provides a stream of income to individuals after they retire from their job or profession. It can be funded by employers, government agencies, or unions and is designed to ensure a steady income during retirement.

    What is Old Pension Scheme (OPS)?

    • The OPS, also known as the Defined Benefit Pension System, is a pension plan provided by the government for its employees in India.
    • Under the OPS, retired government employees receive a fixed monthly pension based on their last drawn salary and years of service.
    • This pension is funded by the government and paid out of its current revenues, leading to increased pension liabilities.

    Scheme

    What is the National Pension System (NPS)?

    • The Union government under PM Vajpayee took a decision in 2003 to discontinue the old pension scheme and introduced the NPS.
    • The scheme is applicable to all new recruits joining the Central Government service (except armed forces) from April 1, 2004.
    • On the introduction of NPS, the Central Civil Services (Pension) Rules, 1972 was amended.

    What are two arguments against reverting to the old pension scheme?

    • Fiscal Unsustainability: Since the State has to bear the full burden of pensions, it will become fiscally unsustainable in the medium to long run.
    • Trade-Off with Welfare Expenditure: Such an unsustainable rise in pension allocation in the Budget can only come at the cost of other more pressing welfare expenditures allocated to the poor and marginalized sections.

    The commonality between the two arguments

    • Both arguments assume that the fiscal revenues are fixed, which is not necessarily the case if the government has its priorities right.
    • Both arguments assume that unsustainable rise in pension allocation in the Budget can only come at the cost of other more pressing welfare expenditures allocated to the poor and marginalized sections.

    Scheme

    Why Public sector workers are asking for a guaranteed pension in place of the NPS?

    • Fluctuating pension returns: The NPS is market-based, which means that the pension returns fluctuate according to the returns prevailing in the market. This creates uncertainty and makes it difficult for employees to plan for their post-retirement life.
    • Guaranteed pension: Public sector workers are looking for a guaranteed pension that will provide them with a fixed amount after retirement. This will ensure a stable and predictable post-retirement life for them.
    • Employee contribution: In the new contributory guaranteed pension scheme (CGPS), a large part of the pension will be funded by the employees themselves. This is in contrast to the old pension scheme (OPS) where no contribution was required from the employees.
    • Protection against market fluctuations: The CGPS provides protection to employees against market fluctuations. If the market return happens to be higher than the guaranteed pension, the State gets to pocket the difference. On balance, the additional burden on the CGPS may be marginal compared to the NPS.
    • Burden-sharing: The CGPS ensures that the burden of uncertainty does not fall on employees alone. In the OPS, elite workers gain at the cost of their brethren lower on the income ladder. However, in the CGPS, the burden is only the employer’s contribution part, exactly as in the NPS.

    Potential disadvantages of a CGPS

    • Higher contribution burden on employees: Under the CGPS, employees will continue to contribute a fixed percentage of their basic pay towards their pension. This may put a higher burden on them compared to the current system, where their contribution fluctuates based on market returns.
    • Additional administrative burden: Implementing a new pension scheme like CGPS may involve additional administrative burden and costs for the government, which could be challenging to manage efficiently.
    • Uncertainty of market returns: While the CGPS guarantees a fixed pension amount, it does not provide any certainty on the market returns. If the market returns are lower than expected, the government will have to bear the burden of paying the difference between the guaranteed pension and the actual pension.

    Facts for prelims: CGPS vs NPS

    Parameter Contributory Guaranteed Pension Scheme (CGPS) National Pension scheme (NPS)
    Type of Scheme Guaranteed Pension Scheme Market-linked Pension Scheme
    Contributions Made by both employee and employer Made by the employee only
    Pension Amount Guaranteed 50% of the last drawn salary, adjusted for inflation Market-linked, varies according to returns
    Risk Risk is shared by both employee and employer Risk is borne entirely by the employee
    Burden on exchequer Burden is only on the employer’s contribution part Burden is on the entire pension amount
    Upside State gets to pocket the excess if the market return is higher No upside for the State
    Fiscal sustainability Can be sustainable with proper rationalisation of taxes Unsustainable in the medium to long run

    Way ahead

    • The government could consider implementing the Contributory Guaranteed Pension Scheme (CGPS) as an alternative to the New Pension Scheme (NPS) for public sector workers.
    • The CGPS would allow the state to pocket any excess returns from the market, rather than bearing the entire burden of uncertain market returns as in the NPS.
    • The government should consider rationalizing taxes, such as implementing inheritance and wealth taxes, to increase its revenue and reduce its dependence on fixed fiscal revenues.
    • The government should set up a special task force to rationalize pensions and address the issue of pension sustainability in the long run.
    • A possible downside to the CGPS is that it may require a higher contribution from employees, which could affect their take-home pay during their working life. However, this could be addressed by offering tax breaks or other incentives to encourage employees to contribute to the scheme.

    Conclusion

    • The current debate on pensions in India has brought forth the need for a well-designed and sustainable pension scheme that can cater to the needs of public sector workers while being fiscally responsible. The CGPS presents a viable alternative to the OPS and the NPS providing public sector workers with a guaranteed pension after they retire while also being largely funded by the employees themselves. While there may be some challenges in implementing the CGPS, with proper planning and execution, the CGPS could serve as a model for sustainable and equitable pension schemes that can support the growing needs of an ageing workforce in India.

    Mains question

    Q. The debate on pensions is heating up as several state governments announce their reversion to the old pension scheme. Do you think Contributory Guaranteed Pension Scheme (CGPS) presents a viable alternative to the OPS and the NPS?

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    Reversal To Old Pension Scheme (OPS): Potential Impact

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  • Foreign Policy Watch: India-Pacific Island Nations

    Pacific Island Countries (PICs): India’s Development Diplomacy

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Pacific Island countries

    Mains level: Geostrategic significance of Pacific Island countries and India's development diplomacy

    Pacific

    Central Idea

    • Indian Prime Minister Narendra Modi’s visit to Papua New Guinea (PNG) has strategic importance as it marks the Third Forum for India-Pacific Islands Cooperation (FIPIC), which India is co-hosting along with PNG in Port Moresby. India’s involvement with the region is crucial from a geostrategic perspective as it is viewed by the US as a means to counter China in the Indo-Pacific. In this context, India is gradually tuning itself towards the Pacific Island Countries (PICs) by building development partnerships on critical issues.

    Pacific

    Forum for India-Pacific Islands Cooperation (FIPIC)

    • The Forum for India-Pacific Islands Cooperation (FIPIC) is a multilateral grouping that aims to enhance India’s relations with the Pacific Islands region. It was launched in November 2014 during Indian Prime Minister Narendra Modi’s visit to Fiji.
    • The FIPIC includes 14 Pacific Island countries, namely Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
    • The forum serves as a platform for India to engage with the Pacific Island countries on issues such as climate change, renewable energy, disaster management, health, and education, among others.
    • The forum also provides an opportunity for India to strengthen its strategic presence in the Indo-Pacific region and counter China’s growing influence in the region.

    Why should India focus on Pacific Island Countries (PICs)?

    • Strategic location: The PICs are strategically located in the South Pacific and inhabit almost one-sixth of the world’s population. These islands have occupied common spheres of influence and interest for major superpowers like the US, France, Japan, Australia, and the United Kingdom (UK).
    • Resource-rich region: The PICs are inherently resource-rich in natural minerals and hydrocarbons. They are known for massive biodiversity, diverse ocean life, and extensive mangroves.
    • Countering China: China’s foray into the region in the form of resource extraction, increasing naval presence in the South China Sea, and investments under the Belt and Road Initiative (BRI) has unnerved the neighbourhood. India’s engagement with the Pacific nations is viewed by the US as a means to counter China in the Indo-Pacific.
    • Diplomatic importance: India’s engagement with the PICs is significant for diplomatic reasons, as it can increase India’s influence in the Indo-Pacific region. India’s foreign policy considerations are progressively being structured around the notion of diplomacy for development. This India Way of foreign policy fits well for the larger Global South.
    • Development partnerships: India can build development partnerships with PICs on critical issues including climate resilience, digital health, renewable energy, and disaster risk reduction.
    • Economic opportunities: The PICs offer economic opportunities for India, especially in the areas of green transition and climate change, technology transfer, capacity building, encouraging trade and commerce, etc.

    Pacific

    Facts for prelims: PIC’s

    Region Countries Resources Strategic Importance Physical Location
    Melanesia Fiji, Papua New Guinea, Solomon Islands, Vanuatu Minerals, timber, fish, gold, copper, oil, gas Natural resources, biodiversity, proximity to shipping lanes 1°N to 14°S, 124°E to 168°E
    Micronesia Federated States of Micronesia, Kiribati, Marshall Islands, Nauru, Palau Fish, phosphate, coconut products Strategic military location, control of the Pacific Ocean, climate change impacts 1°N to 11°N, 130°E to 176°E
    Polynesia American Samoa, Cook Islands, French Polynesia, Niue, Samoa, Tonga, Tuvalu, Wallis and Futuna Fish, forestry, agriculture, tourism Tourism, cultural significance, strategic military location 14°S to 27°S, 123°W to 162°E

    What is Development Diplomacy?

    • Development diplomacy is a foreign policy approach that emphasizes cooperation and partnership on development issues with other countries as a means of achieving shared goals and promoting mutual interests.
    • The focus is on building relationships with other nations based on shared values and common objectives, rather than on traditional notions of power and influence.
    • Development diplomacy recognizes the interdependence of nations in an increasingly globalized world, and seeks to create win-win partnerships that benefit all parties involved.

    key initiatives taken by India under Development diplomacy in Papua New Guinea (PNG)

    • Line of Credit: India has offered a $100 million Line of Credit (LoC) to Papua New Guinea for infrastructure development.
    • Climate resilience: India has partnered with PNG for a project aimed at developing climate-resilient agriculture. Under this project, Indian experts are sharing their expertise on climate-resilient agriculture practices and technology transfer.
    • Healthcare: India has offered training for healthcare professionals in PNG, and has also provided medical equipment and supplies.
    • Education: India has offered scholarships to students from PNG to study in India, as well as providing vocational training for PNG youth.
    • Renewable energy: India has partnered with PNG to promote the use of renewable energy sources such as solar and wind power.
    • Capacity building: India has provided training for PNG government officials in areas such as public administration, governance, and disaster management.
    • Trade and commerce: India have sought to enhance trade and investment relations with PNG, including through the promotion of Indian businesses and the facilitation of PNG investment in India.

    Conclusion

    • India’s involvement with the Pacific Island Countries (PICs) is crucial from a geostrategic perspective, as it is viewed by the US as a means to counter China in the Indo-Pacific. India’s unique approach to development cooperation fits well for the larger Global South, and it can be a possible pathway for advancing Southern-driven partnerships in the PICs. With the G20 Presidency giving India leverage as an important economy in world politics, the FIPIC can be viewed as a suitable opportunity for New Delhi to realign itself in the emerging world order.

    Mains Question

    Q. What do you understand by mean Development diplomacy? Why India should increase its focus on pacific island countries?

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    Also read:

    The Small Island Developing States (SIDS) in Indian Ocean region (IOR)

     

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