President’s Rule

Consulting the CM Over the Appointment of The Governor

op-ed snap | Polity | Mains Paper 2: Indian Constitution – historical underpinnings, evolution, features, amendments, significant provisions and basic structure

Note4Students
From UPSC perspective, the following things are important:
Prelims level: Office of governor, appointment and associated facts.
Mains level: Issues with the office of the governor
Context
- With the rise in instances of tension, and even standoffs, between State governments and Governors, there is once again a debate on the role of the Raj Bhavan and conduct of Governors, the relation of Governors with the Centre and State government, and whether Chief Ministers should have a say in the appointment of Governors in their respective States.
Role and responsibilities of governor
1. Executive Powers:
- Nominal Head of the government: These powers are exercised by the council of ministers in the name of Governor. Hence Governor is only nominal head and council of ministers is the real executive.
- Head of the state: He is the constitutional head of the state who appoints the leader of majority party as chief minister. He can seek any information from the chief minister. He appoints the advocate general, chairman and members of the respective state public commission.
- Can recommend the emergency: He can recommend the imposition of constitutional emergency in a state to the President. During the period of President’s rule in a state, the governor enjoys extensive executive powers as an agent of the President.
1. Legislative Powers:
- He is part of state legislative.
- No bill can become a law until the governor signs it.
- He can withhold a bill and send it to the President for consideration.
- He can dissolve the State Assembly before the expiry of its term on the advice of the Chief Minister or as directed by the President.
- He causes the annual Budget to be presented in the Vidhan Sabha.
1. Judicial Powers:
- The governor appoints the district judges.
- He is consulted in the appointment of the judges of the High Court by the President
- He can, pardon, remit and commute the sentence of a person convicted by a state court.
1. Financial Powers:
- He causes the annual budget to be laid before the Vidhan Sabha;
- No money bill can be introduced without his prior approval.
1. Discretionary Powers:
- Selection of CM: If no party gets an absolute majority, the Governor can use his discretion in the selection of the Chief Minister;
- Real executive of state: During an emergency he can override the advice of the council of ministers. At such times, he acts as an agent of the President and becomes the real ruler of the state;
- Report to president: He uses his direction in submitting a report to the President regarding the affairs of the state; and
- Withhold the assent: He can withhold his assent to a bill and send it to the President for his approval.
Sarkaria commission’s recommendation on the role of governor
- Chief minister should be involved in appointment: The powers of the President in the matter of selection and appointment of Governors should not be diluted. However, the Governor of a State should be appointed by the President only after consultation with the Chief Minister of that State. Normally the five-year term should be adhered to and removal or transfer should be by following a similar procedure as for appointment i.e., after consultation with the Chief Minister of the concerned State.
- Governor should convey assent or dissent in time: There should be a time-limit say a period of six months within which the Governor should take a decision whether to grant assent or to reserve a Bill for consideration of the President. If the Bill is reserved for consideration of the President, there should be a time-limit, say of three months, within which the President should take a decision whether to accord his assent or to direct the Governor to return it to the State Legislature or to seek the opinion of the Supreme Court regarding the constitutionality of the Act under article 143.
Additional suggestions by NCRWC
- Committee to appoint the governor: National commission to review the Working of the constitution (NCRWC) recommendations were similar to that of Sarkaria commission. NCRWC has suggested that a committee consisting of the Prime Minister, Home Minister, Speaker of the Lok Sabha, and the Chief Minister of the state in question shall nominate the Governor.
Know the basics: Present constitutional arrangement
- The Governor of a State is appointed by the President for a term of five years and holds office during his pleasure.
- Only Indian citizens above 35 years of age are eligible for appointment to this office.
What is the expert’s opinion?
- Vice-president should be involved: Total composition of the committee is of the ruling party at the Centre. It should be the Vice-President, the Speaker of the Lok Sabha, the Leader of the Opposition, and maybe the Chief Minister of the State.
- Governor should be above the chief minister: Getting the Chief Minister involved in the process of selection is not right. The Governor cannot be made to feel that the Chief Minister was one of those responsible for his selection; the Governor has to be above the Chief Minister, be independent, be able to function in a nonpartisan manner, and not be beholden to the ruling party or to the Chief Minister.
- Minimum qualification to be the governor: we have no criteria, no minimum qualifications laid out for a Governor. These are often retirement perks or rewards for unstinting loyalty to a particular party. Governors cannot be called before a court of law. These are things which have to be kept in mind.
- A guide to chief minister: The Governor is supposed to be a friend, philosopher and guide, helping from the back, sorting out issues and resolving disputes, even between political parties. The Governor has to at times advise the Centre on what is happening and what needs to be done. That brings the Centre and the State together.
Conclusion
- Governors’ role is always in contestation when Centre and state have different government. Governor is a political appointee for political purpose. However, governor should respect the constitutional post he holds and perform his duties and responsibilities without any biases and affiliations.
Mains Question

Q. What actions of governors undermines his constitutional position? What are the recommendations of Sarkaria commissions regarding the governor’s office?

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Modern Indian History-Events and Personalities

Forgotten Heroes: Indian Soldiers in World War-II

op-ed snap | | Mains Paper 1: World History

Note4Students
From UPSC perspective, the following things are important:
Prelims level: NA
Mains level: World wars and Indian Soldiers in World wars
Context
- On the eleventh hour of the 11th day of the 11th month of 1918, the guns fell silent over Europe, bringing an end to a brutal first world war that drew in soldiers and contributions from around the world. Indian soldiers and their contribution are not widely recognized in India.
Background of Indian involvement World War II
- Fight against Fascism: Two conflicts and a reticence Indian reticence over these two conflicts arises from the uneasy relationship between the Indian contribution to fighting fascism on a global stage and the nationalist movement for freedom at home.
- Betrayal of nationalistic expectation: The success of the first is seen to have come at the cost of the second. It began with the betrayal of nationalist expectations of greater autonomy for India in return for support during the Great War.
- No consultation with Indian leaders: This was compounded by the bitterness of Viceroy Lord Linlithgow declaring war on Germany on India’s behalf in 1939 without consulting Indian leaders, and further roiled by the pitting of Indian against Indian when Netaji Subhas Chandra Bose’s Indian National Army sided with the Axis Powers in the hope that this might bring freedom.
- Fighting for India and for World: But the failure of Indian independence to follow automatically from India’s participation in the wars does not mean that the war efforts extended colonial rule, or were all about protecting Britain: there was fighting on Indian soil to defend India.
What is Indian soldiers role in World War II
- Support of nationalist leaders: Almost 1.5 million men volunteered to fight in the Great War. Indians mobilized four days after Britain declared war on Germany, with the support of nationalist leaders, including Mahatma Gandhi.
- War in Europe, Asia and Africa: Indians fought with valor and distinction in the trenches of Europe, West Asia and North Africa, earning 11 Victoria Crosses along the way. Of those men, about 74,000 never came home.
- Largest volunteer for war: India raised the largest ever volunteer army, of 2.5 million, for the Second World War. More than 87,000 of those men are cremated or buried in war cemeteries around the world and in India.
- Thirty-one Victoria Crosses: 15 % of the total Victoria crosses went to soldiers from undivided India. Without Indian soldiers, non-combatant labourers, material and money, the course of both conflicts would have been very different as acknowledged by Field Marshal Auchinleck, Britain’s last Commander-in-Chief of the Indian.
The issue of Non-recognition of India’s contribution
- Indian soldiers are honored by Britain: In Britain, the contribution of the Commonwealth including the Indian subcontinent is memorialized in the Commonwealth Memorial Gates that lead up to Buckingham Palace. The Gates commemorate the campaigns where Commonwealth soldiers served with distinction; there is also a canopy inscribed with the names of the Commonwealth recipients of the George and Victoria Crosses.
- Indian soldiers fought the Britain’s war: Much of India’s recent history is encapsulated in these gates, in a spirit of gratitude and equality. Britain, after all, has much to be grateful for, but Indians seem less keen to acknowledge this. British perfidy, however, does not in any way reduce the sacrifices of those who fought for freedom. Those who went abroad to fight alongside white British soldiers returned with the knowledge that they were equal to their colonial masters. In not recognizing and honoring this, we push those men back into colonial subjugation.
- Britain betrayed the hopes of freedom: Some of this ambivalence owes itself to the atrocities of colonial history, which must be acknowledged too. Britain may have handed out 11 Victoria Crosses over the course of the First World War, but it betrayed the hopes of nationalists with the imposition of martial law after the war ended, culminating in the horror of Jallianwala Bagh in April 1919.
Does India fought the war for its own sake?
- Indian fought the Japanese: These were not just European wars to defend foreign lands. India was threatened in the Second World War by advancing Japanese forces who got as far as Burma/Myanmar. They were repulsed in the battles of Imphal and Kohima between March and July 1944. These were brutal battles. In Kohima, the two sides were at one point separated by the width of a tennis court. A Commonwealth cemetery on Garrison Hill, Kohima, contains this epitaph (by John Maxwell Edmonds): ‘When You Go Home, Tell Them of Us, and Say/For Your Tomorrow, We Gave Our Today’.
- Ultimate sacrifice for India’s freedom: The memory of the almost 10 million battlefield deaths in the First World War and the 15 million or more who were killed fighting the Second World War is now honored in countries around the world on November 11, with nationwide silences and the laying of wreaths. Not so much in India apart from in Army cantonments and at the British Consulate in Kolkata even though over 1,61,000 men made the ultimate sacrifice for India’s freedom.
Conclusion
- Seventy-five years after Independence, it is time to honor India’s immense contribution to the world wars and move it from a footnote in another country’s history to the main stage, where it belongs. These were India’s wars too.
Mains Question

Q. What role the Indian soldier played in Second world War? What are the issues regarding non recognition of contribution of Indian soldiers in world wars?

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Minority Issues – SC, ST, Dalits, OBC, Reservations, etc.

Impact of Pandemic on Vulnerable Section: SC, ST and OBC

op-ed snap | Governance | Mains Paper 2: Health & Education,Laws, Institutions & Bodies Constituted For The Vulnerable Sections

Note4Students
From UPSC perspective, the following things are important:
Prelims level: NA
Mains level: Impact of Pandemic on vulnerable sections of the society
Context
- SC/ST and OBC have been impacted disproportionately by the pandemic as various social indicators shows vulnerabilities of this communities.
Impact of pandemic on education
- On the one hand, with policies mandating the promotion of students, promotion rates at the secondary school level rose significantly and repetition rates nosedived during the pandemic years (2020-21 and 2021-22).
- On the other, the inability to attend physical school and the lack of access to digital education caused a massive drop in learning levels after the COVID-19 outbreak.
Impact on education of SC, ST and OBC
- Increasing promotion rate: Notably, the promotion rate among Scheduled Caste (SC) and Scheduled Tribe (ST) students increased sharply after the outbreak. The promotion rate among Other Backward Classes (OBC) students continued to rise unabated.
- Repetition rate declining: The repetition rates too drastically came down in the pandemic years with some 1% students repeating their class across all communities. Notably, the gap in the repetition rate between SC/ST students and general category students declined greatly after the outbreak.
- Declining learning outcomes: While the promotion rate surged and the repetition rate declined, the marks scored by school students in National Achievement Survey (NAS) exams dropped significantly across classes and in most subjects.
- Disproportionate impact: There is a disproportionately greater impact on SC and ST students as their learning outcomes reduced the most while their promotion rates saw the highest degree of rise among all the communities.
Impact on livelihood of vulnerable sections of the society
- High job loss probability: The researchers found that compared to workers from upper castes, the probability of job loss was three times higher for those who are SC and two times higher for OBC workers.
- Comparatively higher unemployment: In December 2019, 39% of upper caste workers were employed and by April 2020, the percentage had dropped to 32%. The fall was more pronounced for SC workers, 44% of whom were employed in December 2019, but only 24% were employed in April 2020. For OBCs and STs the fall was from 40% to 26% and 48% to 33%, respectively.
- Poor education poor Opportunities: According to researchers, the upper castes are endowed with higher human capital, i.e. educational achievement, and are in jobs less vulnerable to pandemic disruption. What is surprising is that the impact on scheduled caste is three times worse. Not only has the pandemic exposed the pre-existing inequities but has amplified them.
How women are affected due to the pandemic?
- Effect on mental health: Women in low-caste women may be at a greater risk for worse mental health outcomes and higher perceived loneliness relative to high-caste women.
- Social exclusion and job losses: Prior research has found that low-caste women have been found to experience greater social exclusion greater job loss and greater barriers to healthcare and thus may experience both worse mental health and higher loneliness.
- Rising loneliness: Women in SC/ST and OBC groups will experience worse mental health, and higher perceived loneliness relative to women in the general caste group. We expect that this difference will be robust even when accounting for sociodemographic factors.
- Victims of systemic disadvantage: Women in general and women of weaker sections in particular, are victims of multiple systemic disadvantages, which exacerbated during the pandemic. Rural women, especially the female wage workers, endured greater socio-economic difficulties as their livelihood opportunities were abruptly halted by the lockdown.
- Visible gendered impact of pandemic: There is nothing natural in the gendered impact of pandemic, but the social norms and behaviour put them at greater risks due to unequal gender preference that is inbuilt in the social structure and culture.
Conclusion
- Pandemic have disproportionately affected the Indian society. Whether it is access to healthcare or vaccination SC, ST and OBC had a disadvantage. Lot of studies and research have assessed the caste specific impact of coronavirus and projected the dismal state of vulnerable groups. Government must look all these data while drafting the future policies for vulnerable communities.
Mains Question

Q. Analyze the learning outcome of SC/ST students after the pandemic. Assess the impact of pandemic on women belonging to SC, ST and OBC community.

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Air Pollution

Urban Pollution

op-ed snap | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

Note4Students
From UPSC perspective, the following things are important:
Prelims level: Pollution related facts
Mains level: Air and Water pollution, Impact on health and measures
Context
- More than 1,10,000 infants are likely to have been killed by air pollution in India in 2019, almost immediately after being born while long-term exposure to outdoor and household air pollution was estimated to be responsible for about 1.67 million annual deaths amongst the adult population in the country.
What is pollution?
- Pollution is the introduction of harmful materials into the environment. These harmful materials are called pollutants. Pollutants can be natural, such as volcanic ash. They can also be created by human activity, such as trash or runoff produced by factories. Pollutants damage the quality of air, water, and land.
Menace of air pollution in urban areas
- Demands for air purifiers: Demand for air purifiers has boomed. Recently, in Delhi, pollution-related curbs were lifted and schools opened, despite air quality continuing to be in the “very poor” category.
- Health related problems: For the majority of urban north Indians who can’t afford air purifiers, life continues amidst dust, cough and breathlessness.
- Children are most affected: Our children in urban localities are growing up with stunted lungs, amidst poverty.
- High percentage of respiratory problems: Eighty per cent of all families in Delhi are noted to be suffering respiratory ailments due to severe pollution.
How we can reduce the air pollution?
- Expand green cover across urban areas to reduce dust pollution: Ahmedabad’s municipal corporation, for instance, has experimented with urban forests, with the city’s 43rd urban forest inaugurated in June 2021 over 20,000 trees have been in 7,625 sq. metres. Chandigarh has about 1,800 parks. Close to 46 per cent of the city was classified as a green area in 2019.
- Use of Miyawaki technique: Civil society could also help in Chennai, the NGO Thuvakkam, with a volunteer force of 1,800, has been able to grow 25 Miyawaki forests, raising over 65,000 trees. Such plantations are now being replicated in other cities including Tuticorin, Vellore and Kanchipuram.
- Push for airshed management: With a focus on understanding meteorological, seasonal and geographic patterns for air quality across a large region. In the US, the passage of the Air Quality Act (1967) saw the state of California being divided into 35 districts which had similar geographic and meteorological conditions and pollution was regulated at the state level. This approach was successful in reducing emissions by 98 per cent from 2010 to 2019.
- Heavy penalty on polluting cars: Inspiration can also be taken from London’s air pollution revolution an Ultra-Low Emission zone has been established in Central London, with hefty daily fees on cars that emit more than 75g/km of pollution.
Water pollution in Indian cities
- Untreated water into freshwater bodies: 72 per cent of urban sewage is untreated in India’s urban freshwater bodies. The Central Pollution Control Board reckons that more than 50 per cent of 351 river stretches (on 323 rivers) are polluted. Over 4,000 septic trucks (with each truck having 5,000 litres of human waste) dispose of their waste in the Ganga every day. In Delhi, about 941 MLPD of raw sewage finds its way to the river, killing off fish and preventing rituals on the banks.
- Riverine Pollution: Riverine pollution causes due to raw sewage overflowing from sewage treatment plants, untreated waste from unauthorized colonies, industrial effluents, sewer water from authorized colonies and inter-state pollution.
- Water scarcity: More than 40 per cent of Indians are expected to face water scarcity by 2050 and close to 35 million will face annual coastal flooding with sea level rise.
- Lack of planning: Apathy prevails as of May 2021, only 16 Indian cities had disclosed their plans to tackle climate change to international institutions, with only eight having actual sustainability-related targets in their urban master plans. Only 43 per cent of all Indian cities surveyed actually sought to address climate change adaption as a topic in their master plans, while only five had a GHG emission reduction target.
Do you know this harsh reality?
- In India, nearly 7 lakh premature deaths are attributed to water pollution
- Globally, 1.5 million children under five years die each year as a result of water-related diseases.
How to fight water pollution?
- Improving sewage treatment plant capacity: ensuring linkages with the drainage network. Mangalore’s City Corporation (MCC) has wastewater treatment plants with end-user linkages. The MCC offered to supply treated water to such industrial end-users in the city’s special economic zone if the latter agreed to fund about 70 per cent of the operations and maintenance cost of the pumps and the sewage treatment plant.
- Developing a sanitation network: The problem of untreated waste and sewer water from unauthorized colonies can be solved by investing in a sewerage network. Consider the example of Alandur, a small suburb of Chennai in 2000, it had no underground sewage lines, with most houses dependent on septic tanks. In the late 1990s, the local municipality in partnership with local resident welfare associations conducted collection drives to gain deposits (ranging from Rs 1,000 to Rs 1,500) for developing a sanitation network.
- Pump house: The project was launched with a push for creating a pump house, setting up over 5,650 manholes and providing sewerage connections to 23,700 households, a sewage treatment plant with a 12 MLD capacity was also set up. Going forward, many other municipalities in Tamil Nadu have sought to adopt this model.
- A systems-based approach should be adopted: along with a push for protecting “blue infra” areas places that act as natural sponges for absorbing surface runoff, allowing groundwater to be recharged. At the household level, we can encourage citizens to take up rainwater harvesting, urban roof terrace greening, urban roof water retention tanks and having a green corridor around residential buildings.
- Water permeable roads: Municipalities could be encouraged to make existing roads permeable with a push for green landscaping and rain gardens. At the city level and beyond, policymakers should push for “sponge cities” and incorporate disaster planning. A mindset shift, in citizenry and policymakers, is urgently needed.
Conclusion
- Urban planning and urban pollution are largely neglected in our governance model. Unplanned cities are facing the various problems. We must embrace the technology to fight the pollution in urban India.
Mains Question

How severe is the problem of Urban pollution? What steps can be taken to fight the urban pollution in India?

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Social Media: Prospect and Challenges

Balancing the Free Speech and Social Media Regulation

op-ed snap | Science Tech | Mains Paper 3: S&T – Applications In Everyday Life,Social Media Networks & Internal Security

Note4Students
From UPSC perspective, the following things are important:
Prelims level: New developments related to regulation of social media
Mains level: social media advantages and challenges
Context
- Recently Facebook, one of the social media giant set up the Oversight Board, an independent body, which scrutinizes its ‘content moderation’ practices.
What are the IT rules of 2021?
- Regulating social media intermediaries (SMIs): World over, governments are grappling with the issue of regulating social media intermediaries (SMIs).
- Addressing the issues of SMI controlling the free speech: Given the multitudinous nature of the problem the centrality of SMIs in shaping public discourse, the impact of their governance on the right to freedom of speech and expression, the magnitude of information they host and the constant technological innovations that impact their governance it is important for governments to update their regulatory framework to face emergent challenges.
- Placing obligations on SMI: In a bid to keep up with these issues, India in 2021, replaced its decade old regulations on SMIs with the IT Rules, 2021 that were primarily aimed at placing obligations on SMIs to ensure an open, safe and trusted internet.
What are the recent amendments?
- Draft amendments in June 2022, the stated objectives of the amendments were threefold.
1. Protecting the constitutional rights: There was a need to ensure that the interests and constitutional rights of netizens are not being contravened by big tech platforms,
2. Grievance redressal: To strengthen the grievance redressal framework in the Rules,
3. To avoid the dominance: That compliance with these should not impact early-stage Indian start-ups.
- This translated into a set of proposed amendments that can be broadly classified into two categories.
1. Additional obligation on SMI: The first category involved placing additional obligations on the SMIs to ensure better protection of user interests.
2. Appellate mechanism: The second category involved the institution of an appellate mechanism for grievance redressal.
Why social media is said to be double-edged sword?
- Moderation of content by platforms: Social media platforms regularly manage user content on their website. They remove, priorities or suspend user accounts that violate the terms and conditions of their platforms.
- Excessive power in government’s hands: In today’s online environment, however, the existing government control on online speech is unsustainable. Social media now has millions of users. Platforms have democratized public participation, and shape public discourse.
- Platforms of democratic freedom: As such, large platforms have a substantial bearing on core democratic freedoms.
- Hate speech on internet: Further, with the increasing reach of the Internet, its potential harms have also increased. There is more illegal and harmful content online today.
- Disinformation campaigns: On social media during COVID19 and hate speech against the Rohingya in Myanmar are recent examples.
What could be the balanced approach between free speech and regulation?
- Government orders must be respected: Government orders to remove content must not only be necessary and proportionate, but must also comply with due process.
- Example of DSA: The recent European Union (EU) Digital Services Act (DSA) is a good reference point. The DSA regulates intermediary liability in the EU. It requires government takedown orders to be proportionate and reasoned.
- Platforms can challenge the governments order: The DSA also gives intermediaries an opportunity to challenge the government’s decision to block content and defend themselves. These processes will strongly secure free speech of online users. Most importantly, an intermediary law must devolve crucial social media content moderation decisions at the platform level.
- An idea of co-regulation: Platforms must have the responsibility to regulate content under broad government guidelines. Instituting such a coregulatory framework will serve three functions.
1. Platforms will retain reasonable autonomy over their terms of service: Coregulation will give them the flexibility to define the evolving standards of harmful content, thereby obviating the need for strict government mandates. This will promote free speech online because government oversight incentivizes platforms to engage in private censorship. Private censorship creates a chilling effect on user speech. In turn, it also scuttles online innovation, which is the backbone of the digital economy.
2. Coregulation aligns government and platform interests: Online platforms themselves seek to promote platform speech and security so that their users have a free and safe experience. For instance, during the pandemic, platforms took varied measures to tackle disinformation. Incentivizing platforms to act as Good Samaritans will build healthy online environments.
3. Outsourcing the content regulation: instituting coregulatory mechanisms allows the state to outsource content regulation to platforms, which are better equipped to tackle modern content moderation challenges.
- Platforms must follow the due process of law: Platforms as content moderators have substantial control over the free speech rights of users. Whenever platforms remove content, or redress user grievance, their decisions must follow due process and be proportionate. They must adopt processes such as notice, hearing and reasoned orders while addressing user grievances.
- Transparency in algorithm: Platform accountability can be increased through algorithmic transparency.
Conclusion
- The GACs must be re-looked because they concentrate censorship powers in the hands of government. A Digital India Act is expected to be the successor law to the IT Act. This is a perfect opportunity for the government to adopt a coregulatory model of speech regulation of online speech.
Mains Question

Q. Social media is a double-edged sword in the realm of free speech. Substantiate. Explain in detail the Idea of coregulation of social media.

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G20 : Economic Cooperation ahead

G20 Presidency: India can be voice for developing world

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: G20 and related facts
Mains level: G20 India's presidency, opportunity and challenges
Context
- Government of India launched the logo, website and theme for India’s presidency of the G20, setting the tone for the country’s G20 presidency, beginning December 1. Modi’s clarion call was “One Earth, One Family, One Future”, aptly underscored by the phrase “Vasudhaiva Kutumbakam”.
What is G-20?
- Formed in 1999, the G20 is an international forum of the governments and central bank governors from 20 major economies.
- It brings together 19 of the world’s major economies and the European Union.
- Its members account for more than 80% of global GDP, 75% of trade and 60% of population
- To tackle the problems or address issues that plague the world, the heads of governments of the G20 nations periodically participate in summits.
- India has been a member of the G20 since its inception in 1999.
Do you know the aims and objective of G20?
- The Group was formed with the aim of studying, reviewing, and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability.
- The forum aims to pre-empt the balance of payments problems and turmoil on financial markets by improved coordination of monetary, fiscal, and financial policies.
- It seeks to address issues that go beyond the responsibilities of any one organization.
- Its members account for more than 80% of global GDP, 75% of trade and 60% of population.
Current Global scenario and India’s G20 Presidency
- War between Russia and west: It must nonetheless countenance a complex geopolitical moment, with tensions between G7 nations and Russia over the war in Ukraine, and growing friction between the US and China.
- India’s efforts to be a meditator: PM Modi’s recent advice to President Putin that “now is not the time for war” is anchored in the ethos of peace and non-violence, the legacy of Buddha and Gandhi.
- Energy crisis: The developmental agenda must receive first billing. Differences over energy diversification and the emerging challenges in trade and technology will need reconciliation.
- Economic crisis: Stagflation in the US, China and Europe threatens to affect the global economic outlook. Policy coherence in macroeconomics and trade is an important imperative.
- Supply chain disruptions: At the “Global Supply Chain Resilience” meeting in October 2021, Modi advocated cooperation on three critical aspects trusted source, transparency and time frame to improve global supply chains. At the SCO Summit this year, he cited the disruption of supply chains due to the Ukraine crisis and spoke of the unprecedented energy and food crises.
What India can show to the world?
- Growing economy and rising stature: India’s G20 presidency coincides with its growing confidence, matched by its rising stature and high economic growth rate.
- India’s digital infrastructure: India’s commitment to digital transformation will be a key element in forging an accessible and inclusive digital public architecture. The country’s exemplary success with the Unified Payments Interface (UPI), Direct Benefits Transfer and Aadhaar authentication in welfare schemes has growing relevance to the developing world.
- Efforts for TRIPS waiver on vaccine: The use of the CoWIN platform enhanced vaccine accessibility and equity. India has made a strong pitch for a TRIPS waiver to ensure equitable access to vaccine production.
- Vaccine assistance to the world: India’s commitment to advancing South-South cooperation is well acknowledged. At the height of the pandemic, India provided 250 million vaccine doses to 101 countries, apart from other medical assistance.
- SAGAR and Blue Economy: India’s global initiatives in recent years such as SAGAR (Security and Growth for All in The Region), “blue economy”, “clean oceans”, and disaster-resilient infrastructure have the potential to gain traction in the G20.
- India as true climate leader: PM Modi’s “Panchamrit” announcements at COP26 — net zero by 2070, non-fossil energy capacity to 500 GW by 2030, 50 per cent of energy requirement through renewables by 2030, reduction of carbon emission by 1 billion tonnes by 2030, and reduction of carbon intensity in the Indian economy to less than 45 per cent by 2030 — established India as a climate leader.
What should be India’s Priority as President of G20?
- Open application programming interface: As economies everywhere move rapidly towards digitalization, it is important to develop a consensus on an open source, open application programming interface (API) and an interoperable framework for public digital platforms on which the private sector can freely innovate. This would help maximize the impact of the digital transformation for the global public good, including new data, measurement tools, indicators of economic growth and the achievement of Sustainable Development Goals (SDGs).
- Promotion of LiFE philosophy: At the COP26 in Glasgow, Modi proposed Mission LiFE, which places individual behavior at the centre of the global climate action narrative. The Mission intends to establish and nurture a global network of individuals known as Pro-Planet People (P3), committed to adopting and promoting environmentally friendly lifestyles. This is based on the idea that responsible individual behavior can undo the damage wrought upon nature.
- Focus on climate financing: At COP27 as well as during its G20 presidency, India will have to focus attention on climate finance, especially a new quantified goal beyond the existing annual $100 billion pledge by Advanced Economies (AEs) to assist developing nations in climate change adaptation and mitigation from 2020 to 2025. The delayed pledge is expected to be fulfilled in 2023 during India’s presidency and from there on, the G20 needs to raise the bar.
- Clean energy partnership: The G20 presidency will provide India with an opportunity to give impetus to several of its initiatives for clean energy partnerships especially in solar, wind and hydrogen with the EU, Japan and the US. It will provide a platform to give a fillip to the idea of, “One Sun, One World, One Grid”, first mooted by Modi at the International Solar Alliance (ISA) in 2018.
- Achieving the Net Zero target: India has the scale and capacity to set a shining example of rapid and decarbonized economic growth to help realize the G20’s global net zero ambitions. A viable international framework for development and international trade in GH2, together with green ammonia and green shipping, is the key. Reliable supplies of critical minerals and technological collaborations for energy storage, including a global battery coalition, could provide answers.
- Nuclear energy as an alternative: Given the nascent support today for civilian nuclear energy in Europe due to energy market volatility, the G20 could work toward an expanded and robust civilian nuclear energy cooperation framework, including for small modular reactors.
- Reforming the multilateralism: Multilateral institutions are perceived today as unrepresentative, ineffective, or worse still, both. The call for a new multilateralism and reassessment of the Global Financial Order to ensure adequate credit enhancement and blended finance for sustainable green transitions reflects a popular global sentiment.
Conclusion
- India’s presidency should represent the widest and most vulnerable constituencies, especially in South Asia. This can truly advance intra-South Asian economic integration, which is so essential for India’s rise.
Mains question

Q. India assumed G20 presidency with a mantra of Vasudhaiva Kutumbakam. In light of this What should be the India’s Priority as President?
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Terrorism and Challenges Related To It

Challenges to International Cooperation on Counter-Terrorism

op-ed snap | Security Issues | Mains Paper 3: Organized Crime & Terrorism

Note4Students
From UPSC perspective, the following things are important:
Prelims level: Bodies and forums associated with Counter terrorism
Mains level: Terrorism and challenges . International cooperation on counter terrorism, India's Role
Context
- India’s decision to host the special session of the United Nations Security Council’s Counter Terrorism Committee (UNSCCTC) last month held in Mumbai and New Delhi, it focused on new and emerging technologies is one of a number of events planned by the Government to give its counterterror diplomacy a greater push.
What is Counter-Terrorism Committee (CTC)?
- The CTC is a subsidiary body of the United Nations Security Council (UNSC).
- The 15-member CTC was established at the same time to monitor the implementation of the resolution.
- In the wake of the 11 September 2001 terrorist attacks in the US, the UNSC unanimously adopted resolution 1373. This among its provisions obliges all States
Read this Key important note: The Delhi Declaration on Terrorism
- On day 2 of the Special Meeting, the Counter-Terrorism Committee (CTC) unanimously adopted the Delhi Declaration on countering the use of new and emerging technologies for terrorist purposes.
- Among the listed items in the Declaration include the decision to continue to work on recommendations on the three themes of the Special meeting and the intention to develop a set of non-binding guiding principles to assist Member States to counter the threat posed by the use of new and emerging technologies for terrorist purposes.
- The declaration aims to cover the main concerns surrounding the abuse of drones, social media platforms, and crowdfunding, and create guidelines that will help to tackle the growing issue.
What are the challenges to build international Consensus on counter-terrorism?
- Narrow Global War on Terrorism (GWOT): The first challenge is that the “Global War on Terrorism” (GWOT), as it was conceived by a post 9/11 United States is over with the last chapter written last year, as the United States negotiated with the Taliban, and then withdrew from Afghanistan.
- Non-cooperation with India by USA and world: GWOT itself was built on an unequal campaign when India had asked for similar help to deal with the IC814 hijacking (December 1999) less than two years prior to the 9/11 attacks (with evidence now clear that those who the Atal Bihari Vajpayee government was forced to release were all terrorists who went on to help with planning, funding or providing safe havens to the al-Qaida leadership), its pleas fell on deaf ears in the U.S., the United Kingdom, the United Arab Emirates (UAE), and of course, Pakistan, all of whom were hit by the same terrorists in later years.
- USA and China Escorting the Pakistan: Even after GWOT was launched, Pakistan’s role as the U.S.’s ally, and China’s “iron friend” ensured that the UNSC designations of those who threatened India the most, including Masood Azhar and Hafiz Saeed, never mentioned their role in attacks in India.
- FATF is becoming toothless: The maximum India received in terms of global cooperation was actually from economic strictures that the Financial Action Task Force (FATF)’s grey list placed on Pakistan — Pakistan was cleared from this in October indicating that the global appetite to punish Pakistan for terrorism has petered out.
- Realpolitik over Global problem: In addition, the weak international reaction to the Taliban’s takeover of Kabul, and its persecution of women and minorities in the country, demonstrate rising fatigue levels in dealing with “another country’s problems”.
- Ineffective UNSC resolutions: The hard reality for India is that the future of counterterrorism cooperation is going to be less cooperative, and counterterror regimes such as the UNSC Resolutions 1267, 1373, etc. rendered outdated and toothless.
How polarized world pose a challenge for fight against terrorism and the questions raised?
- Distraction due to Russia-Ukraine war: War not only shifting the focus from terrorism but is also blurring the lines on what constitutes terrorism. The CTC meeting in Delhi, for example, was disrupted over Russia’s claims that the U.K. helped Ukraine launch drone attacks on Russia’s naval fleet in Sevastopol. The question remains: if drone attacks by Yemeni Houthis on the UAE and Saudi Arabia’s oil infrastructure were condemned as terrorist attacks, why was the line drawn for drone attacks on Russian ships in a port used for loading grain, or a bridge bombing that put so many civilian lives at risk?
- Likely recruitment of Afghan soldiers in Ukraine war: On the other hand, Russia squares up the possible recruitment of the former Afghan republic’s National Army Commando Corps into its war in Ukraine, Would not these commandos who once fought Taliban terrorists, now qualify as terrorists themselves?
- Divided UN security council: Away from the battle field, the polarisation has rendered the body tasked with global peace, paralysed, as the UNSC is unable to pass any meaningful resolutions that are not vetoed by Russia or western members, and China has been able to block as many as five terror designations requested by India and the U.S. Perhaps the biggest opportunity lost due to the UNSC’s other preoccupations has been the need to move forward on India’s proposal, of 1996, of the Comprehensive Convention on International Terrorism (CCIT).
- Convention on International Terrorism is not accepted: While each conference, including the CTC meeting in Delhi, makes passing the CCIT a goal, very little progress has been made on the actual issues such as the definition of terrorism, concerns over human rights law conflicts, and the old debate on ‘freedom fighter vs terrorist’. Despite several changes in the draft made by India in 2016, consensus for the convention is still elusive
What are New and emerging technology in terrorism?
- Drone attacks: Emerging technologies and the weaponization of a number of different mechanisms for terrorism purposes. Drones are already being used to deliver funds, drugs, weapons, ammunition and even improvised explosive devices.
- Possible bio-war: After the COVID19 pandemic, worries have grown about the use of biowarfare, and Gain of Function (GoF) research to mutate viruses and vectors which could be released into targeted populations.
- AI and robotic soldiers: In a future that is already here, the use of artificial intelligence (AI) systems and robotic soldiers makes it even easier to perpetrate mass attacks while maintaining anonymity.
- Cryptocurrency and terror Financing: Terror financing uses bitcoins and cryptocurrency, and terror communications use social media, the dark web and even gaming centres.
India’s opportunity to build global consensus
- India is on forefront since long: India has been at the forefront for a call of global action against terrorism which is increasingly becoming a global phenomenon.
- India will host No money for terror conference: New Delhi will host the third edition of the “No Money for Terror” (NMFT) conference that will look at tackling future modes of terror financing.
- Using Global Counter Terrorism Architecture: In December, when India takes over the United Nations Security Council Presidency for the last time before its two-year term in the Council ends, India will chair a special briefing on the “Global Counter Terrorism Architecture”, looking at the challenges ahead.
Conclusion
- With Taliban taking over Afghanistan, USA and west have practically withdrawn from global fight against terrorism. India’s efforts for global consensus on cross border terrorism is getting harder as world is polarizing. Fight against terrorism will be very arduous task for diplomacy of India.
Mains Question

There is no consensus on global definition of terrorism, discuss. How Indian diplomacy is trying to get global attention and consensus for fight against terrorism?

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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

Declining Consumer Demand and Reluctant Investors

op-ed snap | Economics | Mains Paper 3: Indian Economy,Investment Models

Note4Students
From UPSC perspective, the following things are important:
Prelims level: Not Much
Mains level: Corporate Investment, demand situation and related issues
Context
- In September, Finance Minister Nirmala Sitharaman was anguished that industry was holding back from investing in manufacturing despite a significant cut in corporate tax rates in 2019.
Analyzing the corporate Investment since the pandemic
- Less investment is not the result of losses: The slowdown in corporate investment did not happen because companies were making losses.
- More profit but less investments by corporates: In fact, private companies, boosted by considerable tax cuts, made windfall profits. A State Bank of India analysis shows that tax cuts contributed 19% to the top line of companies during the pandemic. But this did not result in increased investments.
- Dividends to shareholders: Before the pandemic, instead of investing in themselves, companies chose to reward shareholders with higher dividends.
- Investment in equity and debt instead of Infrastructure: During the pandemic, they did not use the profits for paying out dividends; they retained a big chunk of the profits. However, instead of investing in buildings, plants and machinery, they invested in equity shares and debt instruments.
- Corporate cited the slowdown in demand as reason for less investment: So, both before and after the outbreak, they shied away from capital investments. The hesitancy to invest can be explained by a slowdown in the demand side of the economy.
- Corporates didn’t invest in long term returns sectors: Consumer demand started to decline the year before the pandemic and worsened after the COVID19 outbreak. This forced companies to use the increased profits to decrease their debts, pay dividends and invest in financial instruments instead of increasing productivity by making capital investments.
What is The current consumer’s demand situation?
- Average Consumer sentiment index: Private companies invest when they are able to estimate profits, and that comes from demand. The Centre for Monitoring Indian Economy’s (CMIE) consumer sentiment index is still below pre-pandemic levels but is far higher than what was seen 12-18 months ago.
- Buoyant Aggregate demand: RBI’s Monetary policy report dated September 30 says, Data for Q2 (ended Sept) indicate that aggregate demand remained buoyant, supported by the ongoing recovery in private consumption and investment demand. It shows that seasonally adjusted capacity utilization rose to 74.3% in Q1 the highest in the last three years.
- High household savings: Along with household savings intentions remaining high, might hold the key to the investment cycle kicking in.
Statistic on demand and investment
- New investment projects: The new investment projects announced as a % of GDP, since FY18, the share has remained below the 5% mark, compared to over 9% between FY05 and FY22.
- Collection of corporate tax decreased: Corporate tax and income tax collected in India as a % of GDP after the cut in 2019, the share of corporate tax declined dramatically, while the share of income tax gradually increased.
- Double burden on tax payers: The shift in tax burden from the corporates to the people came at a time of job losses and reduced income levels. This pushed more people into poverty.
- Corporate profit increased after tax cut: Profit after tax earned by non-financial private companies in ₹ trillion after the tax cut, the profits of these companies rose to ₹4-5 trillion in the last two financial years from ₹1-2 trillion in many of the previous periods.
- Increase and decrease in dividend to shareholders: Dividends paid by non-financial private companies as a share of profits earned after tax, Payouts to shareholders surged in FY20, the year before the pandemic, but reduced in the following years.
- Profit retention increased: Retained profits as a % of profit after tax surged to 63% in FY22 the highest in a decade (limited companies were analyzed in FY22, so data are provisional).
- Profits are invested in equities: In FY21, the debt-to-equity ratio came down to 0.86 the lowest in at least three decades. In FY22 (provisional data), it came down further to 0.71.
- Year on year decline in capital investment: Year on year change in the investments of non-financial private companies in fixed assets such as buildings, plants, machinery, transport and infrastructure have declined in recent years. But the year on year change in investments in financial instruments such as equity, debt and mutual funds have surged.
Conclusion
- Corporates are holding their pockets in hope of demand rise in future. However, this affects the post-pandemic recovery of economy. IMF and RBI was right to revise their growth forecast this year. Unequal recovery of economy have certainly affected the income levels of middle class. Government has taken a lot of step on supply side (corporate side and banking reform) but no intervention in revival of demand.
Mains Question

Q. Analyze the corporate investment pattern before and after the pandemic? What are the reasons for decline in corporate investment in fixed assets in economy since the pandemic?

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Minority Issues – SC, ST, Dalits, OBC, Reservations, etc.

New Category of Reservation, EWS

op-ed snap | Polity | Mains Paper 2: Indian Constitution – historical underpinnings, evolution, features, amendments, significant provisions and basic structure

Note4Students
From UPSC perspective, the following things are important:
Prelims level: Not much
Mains level: Reservation system, SC Judgments and associated concerns
Context
- The Supreme Court has now upheld the validity of the 103rd constitutional amendment. For instance, economic criterion was provided for this new category of affirmative action.
What is the verdict of supreme court?
- SC/ST Excluded in new clause: The Scheduled Castes, Scheduled Tribes and non-creamy layer Other Backward Classes were excluded from the newly inserted clauses of Article 15(4) and 16(4).
- The ceiling of 50 per cent reservation was breached: The cap of 50% is breached and the individual rather than the group became the basis of backwardness.
Do you know?
- Indra Sawhney Vs. Union of India -Issued 50% Cap on Caste-based reservation: In the case the Supreme Court held that reservation for beneficiaries should not exceed 50% of India’s population. It was this case that issued a cap limit on caste-based reservations.
The Backgrounder: What are concerns over the reservation verdicts so far?
- Judiciary is reluctant supporter of reservation: A closer look at the judicial response to reservation policies from Dorairajan (1951) to MR Balaji (1963) to Indra Sawhney (1992) to M Nagaraj (2006) shows that the Indian judiciary has not been quite supportive of such policies.
- New conditions for new category of reservation: In many cases, it created new conditions in the implementation of such policies by introducing several exclusions/doctrines/rules etc. In fact, Parliament had to amend the Constitution through the 77th amendment to overturn Indra Sawhney judgment against reservation in promotions.
- Reservation in promotion cancelled: The 85th constitutional amendment was passed to undo the Virpal Singh Chauhan (1995) and Ajit Singh (1999) judgments that had introduced the “catch up rule” under which general candidates, who are promoted after SC/ST candidates, will regain their seniority over earlier promoted SC/ST candidates.
- Concerns about dilution of merit: Basically, Indian courts have been emphasising merit and have been concerned about the dilution of “merit”. In several reservation matters, the courts have been more interested in protecting the interests of general categories.
- 90% population is eligible under EWS: As a matter of fact, the EWS reservation is for the erstwhile general candidates: The Rs 8-lakh family income provision covers over 90 per cent of our population.
What is the significance of this recent Judgement?
- New category on economic basis: The majority verdict is right in saying that though reservation on economic basis is new it has not made the Constitution unrecognizable. Justice Trivedi said the legislature best understands the needs of the people. The majority does have a point in holding that the basic structure doctrine does not bind Parliament from laying down the economic criterion. Such a basis does not impinge on the equality code of the Constitution.
- Poverty as an injustice: Justice Maheshwari has quoted a number of judgments in which poverty was mentioned as a fundamental source backwardness. Justice Maheshwari held that poverty is not merely a stage of stagnation but a point of regression.
- Identity of constitution will not change: India’s affirmative action programme far was catering to only historical injustices and social backwardness. The extension of this benefit to others, in the opinion of Justice Maheshwari, won’t change the identity of the Constitution.
- Towards the justice: The court observed that the new reservation is in furtherance of the Preamble’s goal of achieving justice – social, economic and political.
- Consistent with FR’s and DPSP’s: The other judges were also of the view that any provision that is consistent with fundamental rights and directive principles cannot be held to be in the teeth of the basic structure doctrine.
- Constitutional amendment upheld: Constitutional amendments are rarely struck down since this can be done only on the narrow ground of the amendment being violative of the basic structure of the Constitution. Since 1973, when the basic structure doctrine was propounded, over 70 amendments had been passed but only five have so far been struck down. The NJAC was the last one in 2016.
Critical analysis of judgement
- Goes to Individual and not group reservation: Economic disadvantage is individual, unlike caste discrimination. It carries no social stigma. The Court has gone against the earlier precedents on this point, which is why Justice Bhat was not able to persuade himself to agree with this reasoning, particularly when SC/ST/OBC categories have been excluded.
- Argument over level playing field for open category: The majority was of the view that such an exclusion was inevitable for the true operation and effect of new policy. If existing beneficiaries are not excluded, it would amount to excessive benefit and advantage. Justice Maheshwari said that in the vertical reservation provided to these groups also, others are excluded. He said that those who are themselves receiving the benefit of others’ exclusion cannot object to their exclusion in the reservation policy made for others.
- Debate on SC/ST exclusion: Justice Bhat observed that since the bulk of the poorest people belong to SC/ST/OBC groups, their exclusion is not right. The majority was also of the view that Parliament is entitled to experiment with new policies.
- 50% ceiling breached: The majority also cited a number of earlier judgments on the 50 per cent ceiling such as NM Thomas (1976), in which Justices Fazal Ali and V R Krishna Iyer observed that the arithmetical limit cannot be pressed too far. In Vasanth Kumar (1985), Justice Chinnappa Reddy observed that “for a court to say that reservation should not exceed 40 per cent, 50 per cent or 60 per cent would be arbitrary and the Constitution does not permit us to be arbitrary”.
- Indira Sawhney judgement is overturned: Even Indra Sawhney had kept a small window for the government to go beyond the 50 per cent ceiling. The real question is would the Court have permitted such a breach at the all-India level if the same had been done for the existing beneficiaries of the reservation policy.
- justice to general categories is not injustice to others: Justice Maheshwari admitted so when he observed that the 50 per cent limit was for the benefit of general candidates and it causes no injustice to the reserved categories. Justice Bhat, though, felt this may open the floodgates.
Conclusion
- Justice should not only be done but should also be appear to have been done. Economical weaker section reservation was an effort to pacify the dissatisfaction among general categories against reservation. However, the merit system will be compromise or not only time will tell.
Mains Question

Q. Does exclusion of SC/ST from EWS reservation is justifiable? How EWS reservation will impact the merit system in India?

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Banking Sector Reforms

Price regulation of UPI

op-ed snap | Economics | Mains Paper 3: Indian Economy

Note4Students
From UPSC perspective, the following things are important:
Prelims level: UPI,MDR, etc
Mains level: Digital payment ecosystem, pricing mechanism and associated issues
Context
- The recent discussion paper by the RBI on charges in payment systems has triggered widespread public debate, especially on the zero-charge framework for UPI transactions.
Know the basics- What is UPI?
- UPI is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
- The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.
Why RBI wants to intervene?
- Two important reasons:
1. Goals of financial inclusion: Viewing digital payments as a public good and
2. Addressing market failures: Such as the presence of dominant firms or externalities that may arise due to the two-sided nature of this market.
- For both objectives, regulators might want to cap or set to zero the MDR or merchant discount rate (paid by merchants to their payments service provider) or the interchange fee (paid by the acquiring bank to the issuing bank), or both.
What is the present scenario of Pricing UPI?
- Subsidies on operational cost: In the case of UPI, the government subsidizes the operational costs of facilitating UPI transactions, which is reportedly inadequate. In January 2022, the Payments Council of India reported that the industry expected a loss of Rs 5,500 crore.
- Subsidies are inadequate: Even with a public good motive, in the absence of evidence, one cannot assume this to be the best allocation of limited government resources. As per the Indian Digital Payments Report (second quarter of 2022), the average ticket size of P2M transactions (person to merchant) on UPI is Rs 820. RBI’s estimated cost of Rs 2 for processing a Rs 800 transaction, is 0.25 per cent of the transaction value, much lower than the MDR cap set at 0.9 per cent for debit cards and an MDR of 2 per cent being pro- posed for RuPay credit cards on UPI.
- Presently MDR is Zero: A floor MDR of 0.25 per cent is, therefore, not unreasonable. Arguably, these are substitutable services competing for the same pool of merchants. Policymakers must also bear in mind behavioural challenges in moving from zero MDR to a positive MDR. Anchored at a zero MDR since January 2020, merchants, especially ones with thin margins, may hesitate to accept an increase in MDR, even if they benefit on net terms.
How RBI can regulate price?
- Understanding what to regulate: In order to understand how and what to regulate, we borrow from the rationale followed for other two-sided markets that exhibit cross-platform externalities. consumers benefit more if the size of the merchant network accepting a payment instrument (for example, debit cards) is larger and, at the same time, merchants benefit more if many consumers use debit cards.
- Recovering the cost from merchants: Card networks like Visa and Mastercard compete for banks, usually not too many, to issue their cards. Since the acquiring bank must pay the interchange fee, they recover these costs from merchants.
- Regulating the interchange fee: In most jurisdictions, the interchange fee is regulated to prevent banks from charging exploitative rates and the MDR is left to be commercially determined. This is also done for administrative ease, since banks are fewer, while monitoring bank-merchant contracts can be onerous.
- Charging the MDR: In the UPI parallel, involving payment service providers of payers and payees, the remitter and beneficiary banks as well as NPCI, RBI could either regulate the inter change fee between payment service providers or the merchant discount rate charged by them.
- Deciding between MDR and interchange fee: The market for merchant acquisition is usually more competitive and can be left unregulated, and if necessary, the interchange fee between the two payment service providers can be regulated. If both markets are sufficiently competitive, regulation could mean establishing a floor/ cap charge. The decision what to regulate is, therefore, crucial.
- Example of telecom industry: A related example is available in the telecom industry where facilities provision is regulated through the interconnection fee, while retail prices for the relatively competitive telecom services segment are left to the market. For externalities of the two-sided market to be internalized, the choice of instrument must be carefully evaluated.
- Determining the actual price: The next step is to determine the price level, which is a lot trickier. Drawing from economic theory, the optimal level would depend on whether the regulator cares only about consumer welfare (as op- posed to total welfare), and whether the issuing and acquiring banks make positive margins on each transaction.
How digital payment is charged around the world and India’s requirement?
- Example of PIX of Brazil: Pix, a two-year-old interoperable digital payments system in Brazil, provides a good comparison of how price setting might be considered in the UPI context. Pix does not regulate MDR, payment service providers have the freedom to set MDR, though in practice most banks currently don’t charge an MDR, largely to onboard more merchants on their platforms.
- MDR appears less attractive: The indicated cost is R$ 0.01 for each 10 transfers, or 16 paise in Indian rupees for every s10 transactions. This is substantially lower than the costs estimated for India and is also perhaps the reason why payment service providers are not immediately inclined to recover costs through MDR.
- Not hampering the innovation and investment: In general, benefits of regulatory intervention should outweigh the costs of intervening. The costs of intervening not only include the administrative costs, but also potential costs arising from setting the wrong interchange fee or cap, as well as any costs arising from the impact of the intervention on future investment and innovation in the market.
Do you know what is Merchant Discount Rate?
- Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is the sum total of all the charges and taxes that a digital payment entails.
- Simply put, it is a charge to a merchant by a bank for accepting payment from their customers in credit and debit cards every time a card gets swiped in their stores.
- Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.
Conclusion
- Policymakers must collect more data on costs of transfer, user preferences, both merchants and consumers, as well as undertake a thorough analysis of substitutability and competition in the digital payments sector, to put our best foot forward in helping achieve the potential of UPI in India.
Mains Question

Q. Explain the reasons for success of UPI in India? Analyze the Role of UPI in financial inclusion in India?

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Type: op-ed snap

Context

Sarkaria commission’s recommendation on the role of governor

Additional suggestions by NCRWC

Know the basics: Present constitutional arrangement

What is the expert’s opinion?

Conclusion

Context

Background of Indian involvement World War II

What is Indian soldiers role in World War II

The issue of Non-recognition of India’s contribution

Does India fought the war for its own sake?

Conclusion

Context

Impact of pandemic on education

Impact on education of SC, ST and OBC

Impact on livelihood of vulnerable sections of the society

How women are affected due to the pandemic?

Conclusion

Context

What is pollution?

Menace of air pollution in urban areas

How we can reduce the air pollution?

Water pollution in Indian cities

Do you know this harsh reality?

How to fight water pollution?

Conclusion

Context

What are the IT rules of 2021?

What are the recent amendments?

Why social media is said to be double-edged sword?

What could be the balanced approach between free speech and regulation?

Conclusion

Context

What is G-20?

Do you know the aims and objective of G20?

Current Global scenario and India’s G20 Presidency

What India can show to the world?

What should be India’s Priority as President of G20?

Conclusion

Context

What is Counter-Terrorism Committee (CTC)?

Read this Key important note: The Delhi Declaration on Terrorism

What are the challenges to build international Consensus on counter-terrorism?

How polarized world pose a challenge for fight against terrorism and the questions raised?

What are New and emerging technology in terrorism?

India’s opportunity to build global consensus

Conclusion

Context

Analyzing the corporate Investment since the pandemic

What is The current consumer’s demand situation?

Statistic on demand and investment

Conclusion

Context

What is the verdict of supreme court?

Do you know?

The Backgrounder: What are concerns over the reservation verdicts so far?

What is the significance of this recent Judgement?

Critical analysis of judgement

Conclusion

Context

Know the basics- What is UPI?

Why RBI wants to intervene?

What is the present scenario of Pricing UPI?

How RBI can regulate price?

How digital payment is charged around the world and India’s requirement?

Do you know what is Merchant Discount Rate?

Conclusion