ONE NATION ONE ELECTION

ONE NATION ONE RATION

INDIA THAT IS BHARAT
WOMEN RESERVATION BILL
RISING OIL PRICES
GLOBAL BIOFUELS ALLIANCE
JP MORGAN BOND INCLUSION
SOCIALIST SECULAR MISSING FROM PREAMBLE OF OUR CONSTITUTION
CAUVERY ISSUE
MANIPUR ISSUE
INDIA CANADA - 5 eyes intelligence alliance too
RUSSIA CHINA KOREA TOGETHER
CHINESE ECONOMY - RE
TAPER TANTRUMS
HDFC MERGER
NEED REFORMS IN MDBs
EUROCLEAR PLATFORM
EU CARBON TAX
WHY INDIA NOT JOINING RCEP AND BRI
DISCOMS DEBT RIDDEN
2000 RUPEE NOTE
BRICS
G20 - DPI, CRYPTO, INTERNATIONAL TAXATION, HIGHLIGHTS + Delhi Summit
GST ON GAMING
LATEST GST COUNCIL
IBC CHANGES
DEBT CEILING ISSUE
INFLATION STICKY
RUSSIA UKRAINE WAR EFFECT
MIDDLE EAST EU CORRIDOR
DEFICIT FINANCING
CBDC
INTERNATIONALISATION OF RUPEE/UPI
AI/ML
FINTECH
PMC FAILURE DESPITE RBI SUPERVISION
WILLFUL DEFAULTERS
SOVEREIGN GOLD BONDS
NIFTY TOUCHING TWENTY THOUSAND
NEW PAYMENT SYSTEMS
CURRENT FDI/FPI/GROWTH/BOP - current INDIA ISSUE
MPC MEET CURRENT + MPC REPORT APRIL
SHOULD PSBS NOT BE PRIVATISED ANY MORE
PM VISHWAKARMA SCHEME
E rupee in call market
RBI BULLETIN + HARBINGER+FINTECH+ ANTADRISHTI+PRAVAHAAH+UTKARSH+Payments
ONE NATION ONE ELECTION
One nation, One election is among the critical reforms in the current central government’s agenda. In fact,
the former President of India, Ram Nath Kovind, in his address to Parliament in January 2018, mentioned
this as one of the reforms proposed by the government. He said that citizens are concerned about
frequent elections in one part of the country or another, which adversely impact the economy and
development. The Prime Minister has spoken emphatically about the desirability of having one election
across the country. Therefore, the idea is not a bolt from the blue. It is important to note that the Election
Commission of India had proposed synchronised elections in 1983. This was mooted again by the Law
Commission of India more than two decades ago in 1999. The BJP, in its manifesto in 2002, had also
proposed the idea of One Nation, One Election, which was endorsed by the Parliamentary Standing
Committee twice — in 2015 and 2018. In 2018, the NITI Aayog also proposed One Nation, One Election.
Prime Minister Narendra Modi has mooted the idea more than once, and the Centre has set up a
committee headed by former President Ramnath Kovind to study the proposal. Therefore, looking at the
historical background, it is erroneous to assume that the idea is something new or that this is an electoral
experiment never tried before.

What is the Central Idea behind One Nation, One Election?

■ The central idea behind One nation, One election is to synchronize the timing of Lok Sabha
and State Assembly elections across all States to reduce the frequency of polls throughout
the country.
■ This concept was the practice till 1967, but it was disrupted due to various reasons such as
defections, dismissals, and dissolutions of government.
○ The cycle was first broken in 1959 after the Centre invoked Article 356 to dismiss the
then-Kerala government.
○ Subsequently, due to defections and counter-defections between parties, several
Legislative Assemblies dissolved post-1960, which eventually led to separate polls for
Lok Sabha and State Assemblies.
○ Currently, the assembly polls in the States of Arunachal Pradesh, Sikkim, Andhra
Pradesh and Odisha are held together with the Lok Sabha elections.
■ The idea of conducting simultaneous elections was advocated in 1999 by the Law Commission
headed by BP Jeevan Reddy.

What are the Benefits of having One Nation, One Election?

 ■ Focused Governance: It enables the government to concentrate on governance once the
elections are over. Today, there is some election or the other in some part of the country, at
least every three months. The entire attention of the country becomes focused on these
elections. From the Prime Minister to Union ministers, from chief ministers to ministers to
MPs, MLAs and panchayat members — everyone gets deeply involved with these
elections, as nobody wants to lose.
○ There is a virtual paralysis of administration at various levels in varying
degrees. This reflects very badly on India’s growth prospects.
■ Continuity in Policy Decisions: The Model Code of Conduct (MCC) comes to play just after the
elections are announced by the Election Commission (EC). No new policy decisions are taken
during elections due to the MCC. Therefore, key policy decisions get delayed both at the Centre
and in the states and local bodies.
○ Even when no fresh policy decision is necessary, implementation of ongoing projects
gets derailed during election periods as the political executive as well as government
officials would be engaged with election duties, neglecting routine administration.
■ Reduced Cost of Elections: One of the main reasons for political corruption is frequent
elections. An enormous amount of money has to be raised at every election. Election expenses
of political parties can be reduced drastically if elections are held simultaneously. There would
be no duplication of fundraising. This would save the public and business community from a lot
of pressure for election donations, multiple times.
○ According to a report, during 2019 Lok Sabha Elections, Rs 60, 000 Crores were
spent.
○ Furthermore, the expenses incurred by the EC can be reduced if elections are held
simultaneously.
■ Of course, the EC would have to invest a considerable amount of money
initially to put in place the necessary infrastructure.
○ Moreover, the same electoral rolls can be used for all the elections. This will save a
tremendous amount of time and money spent in updating electoral rolls.
■ It will also make it easier for the citizens as they would not have to worry
about their names missing from electoral rolls once they are enlisted.
■ Reduced Deployment of Security Forces: A large number of police personnel and paramilitary
forces are engaged to ensure that elections are conducted peacefully. This involves massive
redeployment, involving huge costs. It also diverts key law enforcement personnel from their
critical functions. Such deployment can be curtailed with simultaneous elections.
 ■ End of Horse Trading: Holding elections at specific periods could potentially reduce
horse-trading by elected representatives, which remains a concern even with anti-defection law
in place. Holding elections at fixed intervals can make it harder for them to switch parties or
form alliances for personal gains.
■ Reduced Freebies and Improved State Finances: Frequent elections lead to governments
taking policy decisions to woo the electorate at every election. Even though this cannot be
stopped fully, the frequency with which governments have to announce freebies will come
down. Frequent elections have led to a situation where many state governments are broke.
With a smaller number of elections, their finances could be in better shape.

What are the Challenges associated with ONOE?

■ Feasibility: Article 83(2) and 172 of the Constitution stipulates that the tenure of Lok Sabha
and State Assemblies respectively will last for five years unless dissolved earlier and there
can be circumstances, as in Article 356, wherein assemblies can be dissolved earlier.
Therefore, the ONOE plan raises serious questions:
○ What would happen if the Central or State government collapses mid-tenure?
○ Would elections be held again in every State or will the President’s rule be
imposed?
■ Logistical Challenges: It will pose logistical challenges in terms of availability and security of
electronic voting machines, personnel and other resources. EC may face difficulties in
managing such a massive exercise.
■ Against the Idea of Federalism: The idea of ONOE does not square with the concept of
‘federalism’ as it is established on the notion that the entire nation is “one” contradicting the
content of Article 1 which envisages India as a “Union of States”.
■ Legal Challenges: The Law Commission headed by Justice B. S. Chauhan reported the
simultaneous elections are not feasible within the existing framework of the Constitution.
○ It said that the Constitution, the Representation of the People Act 1951 and
the Rules of Procedure of Lok Sabha and State Assemblies would require
appropriate amendments to conduct simultaneous polls.
○ The commission also recommended to receive ratification from at least 50%
of the States which may not be an easy peasy task.
■ Overshadowing the Regional interests: The present form of recurrent elections can be seen
as beneficial in a democracy as it allows voters to have their voices heard more frequently.
 As the underlying issues of national and State polls are different, the present framework
prevents the blending of issues, ensuring greater accountability.
○ A 2015 study by the IDFC Institute found “a 77% chance that the winning
political party or alliance will win both the Lok Sabha and Assembly elections
in that state when held simultaneously”. - undermining the distinctive demand
and needs of each state.
■ May Not be so Cost Effective: Various estimates by the Election Commission, NITI Aayog
show that the costs of conducting all State and parliamentary elections in a five-year cycle
work out to the equivalent of Rs. 10 per voter per year. The NITI Aayog report has also said
that when elections are synchronized, it will cost the equivalent of Rs. 5 per voter per year.
○ In the short term, simultaneous elections will increase the costs for deploying
far larger numbers of EVMs and VVPATs. So, amending the constitution to
save Rs 5 for every voter in a year may not be a good idea.
■ Election Expenses aren’t always Bad: There is economic research to suggest that such
election spending by parties and candidates actually benefits the economy and the
government’s tax revenues by boosting private consumption and serving as a stimulus.

What can be the Way Forward?

■ Building consensus among all political parties and states on the need and feasibility of
simultaneous elections. This could be done through dialogue, consultation, and deliberation
among various stakeholders.
■ Amending the Constitution, the Representation of the People Act 1951, and the Rules of
Procedure of Lok Sabha and State Assemblies to enable simultaneous elections.
○ This would require a two-thirds majority in both houses of Parliament and
ratification by at least half of the states.
■ Investing in the infrastructure and technology required for conducting simultaneous
elections, such as electronic voting machines (EVMs), voter-verified paper audit trail
(VVPAT) machines, polling booths, security personnel, etc.
■ Aligning the electoral cycles of Lok Sabha and State Assemblies by either extending or
curtailing their terms, as per a one-time constitutional amendment.
■ Establishing a legal framework to deal with situations such as no-confidence motions,
premature dissolution of assemblies, hung parliaments, etc., that may arise during
simultaneous elections.
 ○ It can be held twice in a year, so that if the assembly of any state is dissolved
prematurely, the re election can be conducted for that state in the next cycle.
■ Creating awareness among the voters about the benefits and challenges of simultaneous
elections, and ensuring that they are able to exercise their franchise without confusion or
inconvenience.

Conclusion

The Government should not implement ONOE in a hurry, it should conduct additional study, evaluate the
data, and solicit feedback from voters, opposition party leaders, and local parties on how to implement the
concept. Hence, let India decide whether it needs “One Nation, One Election” to be implemented or not.

INDIA THAT IS BHARAT

Why in News?

Recently, invitations for the upcoming G-20 Summit in New Delhi have introduced a noteworthy alteration.
Instead of the conventional "President of India," the invitations now bear the term "President of Bharat",
renewing a broader conversation regarding the nation's nomenclature and its historical connotations.

What are the Historical Perspectives on the Names "India" and "Bharat"?

■ Constitutionality:
○ Article 1 of the Indian Constitution already uses both "India" and "Bharat"
interchangeably, stating, "India, that is Bharat, shall be a Union of States."
○ The preamble of the Indian Constitution begins with "We the People of India,"
but the Hindi version uses "Bharat" instead of India, indicating
interchangeability.
● Additionally, some government institutions, such as the Indian
Railways, already have Hindi variants that include "Bharatiya."
■ Origin of the Name Bharat:
○ The term "Bharat" has deep historical and cultural roots. It can be traced back to
Puranic literature and the epic Mahabharata.
○ Vishnu Purana describes "Bharata" as the land between the southern sea and the
northern snowy Himalayan mountain.
● It signifies a religious and socio-cultural entity more than a mere political or
geographical one.
 ○ Bharata is also the name of a legendary ancient king, considered the ancestor of the
Rig Vedic tribes of Bharatas, symbolizing the progenitor of all subcontinent's people.
■ Origin of the Name India:
○ The name India is derived from the word Indus, which is the name of a river that flows
through the northwestern part of the subcontinent.
● The ancient Greeks called the people living beyond the Indus as Indoi,
which means “the people of Indus”.
● Later, the Persians and the Arabs also used the term Hind or Hindustan to
refer to the land of Indus.
○ The Europeans adopted the name India from these sources, and it became the official
name of the country after the British colonial rule.
■ Constitutional Assembly Deliberation Regarding India and Bharat:
○ The debate surrounding the country's name is not new. When the Constituent
Assembly was framing the Constitution in 1949, there was a division of opinions
regarding the name.
● Some members felt that "India" was a reminder of colonial oppression and
sought to prioritize "Bharat" in official documents.
● Seth Govind Das from Jabalpur advocated for placing "Bharat"
above "India," emphasizing that the latter was merely a
translation of the former in English.
● Hari Vishnu Kamath cited the example of the Irish Constitution,
which changed the name of the country upon achieving
independence, as a precedent for using "Bharat."
● Hargovind Pant argued that the people wanted "Bharatvarsha"
and rejected the term "India" imposed by foreign rulers.
■ Recent Development:
○ In 2015, Centre opposed a name change, stating that the issue had been extensively
deliberated upon during the Constitution's drafting.
● The Supreme Court has twice rejected pleas to rename 'India' to 'Bharat',
once in 2016 and then in 2020, reaffirming that "Bharat" and "India" both
find mention in the Constitution.
What is the Historical Significance of the Name “Hindustan”?

■ The term "Hindustan" has historical significance and was popular in Punjab. Sikh founder
Guru Nanak Dev mentioned "Hindustan" in Gurbani, and Guru Teg Bahadur is known as
the protector of "Hind" and religion.
■ Shah Muhammad documented conflicts between the British and Sikhs as a war between
"Hind" and Punjab.
■ The Ghadar Party and freedom struggle activists used "Hindustan" in their movements,
making it relevant in Punjab's history.
■
■ Interchanging of India to Bharat on official invitations is legally permissible but removing any term
such as ‘India’ from the Constitution would require a Constitutional amendment.
○ The name ‘India’ is mentioned in the Preamble to the Constitution, which is considered a
part of the Constitution itself.
■ The process of amending the Constitution is outlined in Article 368.
○ It involves passing a bill in both houses of Parliament with a special majority (two-thirds
majority of the members present and voting) and ratification by at least half of the state
legislatures.
■ Changing the name of India to Bharat will impact upon the constitutional mandate of using
English language in legal proceedings and enactments.
○ Article 348(1) (a) of the Constitution of India provides that all proceedings in the SC and
in every HC shall be in English language until Parliament by law otherwise provides.
○ Also, sub-clause (b) of the Article states that the authoritative texts of all bills, acts,
orders, rules, regulations and bye laws issued under the Constitution or under any law
made by Parliament or the Legislature of a State, shall be in the English language.
■ The said amendment will result into amending the existing enactments whose extent of
applicability is mentioned to be within or beyond the territory of India.

The cost estimation utilises Darren Olivier's model which compares the renaming of a nation to
rebranding exercises at large corporates.

India is not the first country to consider a change in its official name. Such changes have been witnessed
world over for various reasons such as improving administrative efficacy, removing colonial vestiges or to
signal a change in the form of government.

India’s southern neighbour Sri Lanka underwent a name change way back in 1972 but it took the island
nation close to four decades to purge its earlier name ‘Ceylon’ from all government use.
In 2018, the monarch of Swaziland renamed the country to Eswatini in an apparent bid to get rid of
colonial connotations. Back then, an intellectual property lawyer based in South Africa came up with a
method to calculate the cost of renaming a country. Darren Olivier compared the renaming of the African
nation to a rebranding exercise at a large corporate to arrive at the estimated cost.

According to Olivier, the average marketing cost of a large enterprise is around 6 per cent of its total
revenue. Rebranding exercises, in turn, cost up to 10 per cent of the company’s overall marketing budget.
His estimates put the cost of renaming Swaziland to Eswatini at $60 million.

If a similar model is applied to India’s case, the resultant cost is a huge amount. For the fiscal ended
2023, India's revenue receipts was Rs 23.84 lakh crore, including tax and non-tax revenue. Olivier
included both revenue streams in his model for estimating the cost of Swaziland's renaming.

Applying the same formula with India's revenue, one arrives at an estimated cost of Rs 14,304 crore to
rename India to Bharat. For perspective, the Centre spends close to Rs 14,000 crore every month
on its food security programme that feeds 80 crore Indians.

Think of what comes to mind, when you think of Iran or Iraq. Most people in the world think of
violence, wars, terrorists, bombs etc. External invasions are justified as people reflexively assume
those regions to be backward due to the negative connotations. However, what do you imagine
when you hear of Persia, or Babylon? People start to imagine all the sophisticated culture with
expensive arts and ancient civilizations. Do they think Persia or Babylon are backward? Not so
much.

In the same way, using an ancient name has plenty of advantages. When Columbus went after
seeking India and instead named Americans as Indians people can associate that with India.
People can associate why Indian Ocean is called that way or imagine the pomp of the British
India. However, if we change our name the historical context will be lost and our historical positive
connotations will be taken from us. Bharat will not immediately spark any connotation and that is
bad.

WOMEN RESERVATION BILL

Why In News?
Recently, the Lok Sabha (LS) and Rajya Sabha (RS), both passed Women's Reservation Bill 2023 (128th
Constitutional Amendment Bill) or Nari Shakti Vandan Adhiniyam.

■ The bill reserves one-third of the seats in Lok Sabha, State legislative assemblies and the
Delhi assembly. This will also apply to the seats reserved for SCs (Scheduled Castes) and
STs (Scheduled Tribes) in Lok Sabha and State Legislatures.

What is the Background and Need for this Bill?

■ Background:
○ The discussion upon the reservation of women reservation bill is prevalent
since the tenure of Former Prime Minister Shri Atal Bihari Vajpayee in 1996.
○ As the then Government lacked a majority, the Bill could not have been
approved.
○ Earlier Attempts at Reserving Seats for Women:
● 1996: First Women Reservation Bill was introduced in the
Parliament.
● 1998 – 2003: Government tabled the Bill on 4 occasions but
failed.
● 2009: Government tables the bill amid protests.
● 2010: The Union Cabinet passes the Bill and RS passes it.
● 2014: The Bill was expected to be tabled in LS.
■ Need:
○ There are 82 women Member of Parliaments in LS (15.2%) and 31 women in
RS(13%).
● While the number has increased significantly since the 1st Lok
Sabha (5%) but is still far lower than in many countries.
○ According to recent UN Women data, Rwanda (61%), Cuba (53%),
Nicaragua (52%) are the top three countries in women representation.
Bangladesh (21%) and Pakistan (20%) as well are ahead of India in case of
female representation.

What are the Key Features of the Bill?

■ Reservation for Women in Lower House:

 ○ The Bill provided for inserting Article 330A to the constitution, which borrows
from the provisions of Article 330, which provides for reservation of seats to
SCs/STs in the Lok Sabha.
● The Bill provided that reserved seats for women may be
allotted by rotation to different constituencies in states or Union
Territories.
○ In the seats reserved for SCs/STs, the Bill sought to provide one-third of the
seats to be reserved for women on rotational basis.

■ Reservation for Women in State Legislative Assemblies:

○ The Bill introduces Article 332A, which mandates the reservation of seats for
women in every state Legislative Assembly. Additionally, one-third of the
seats reserved for SCs and STs must be allocated for women, and one-third
of the total seats filled through direct elections to the Legislative Assemblies
shall also be reserved for women.
■ Reservation for Women in NCT of Delhi ( New clause in 239AA):
○ Article 239AA to the constitution grants special status to the Union Territory
of Delhi as national capital with regards to its administrative and legislative
functioning.
○ Article 239AA(2)(b) was amended by the bill accordingly to add that the laws
framed by parliament shall apply to the National Capital territory of Delhi.
■ Commencement of Reservation (New article - 334A):
○ The reservation will be effective after the census conducted after the
commencement of this Bill has been published. Based on the census,
delimitation will be undertaken to reserve seats for women.
○ The reservation will be provided for a period of 15 years. However, it shall
continue till such date as determined by a law made by Parliament.
■ Rotation of Seats:
○ Seats reserved for women will be rotated after each delimitation, as
determined by a law made by Parliament.

What are the Arguments Against the Bill?

 ■ The Bill merely reads that it shall come into effect “after an exercise of delimitation is
undertaken for this purpose after the relevant figures for the first Census taken after
commencement of the Bill is undertaken. It doesn’t specify the cycle of elections from which
women will get their due share.
■ The current Bill does not provide women’s reservation in the Rajya Sabha and State
Legislative Councils. The Rajya Sabha currently has lower representation of women than
the Lok Sabha. Representation is an ideal that must be reflected in both the Lower and
Upper Houses.
■ The Bill also borrowed from the provisions of Article 334 of the constitution which mandated
the parliament to review the provisions of reservation after 70 years of the laws coming into
existence. But in the case of the Women's reservation Bill, the Bill provided for the sunset
clause of 15 years for the reservation provisions for the women to get reviewed by the
parliament.
■ lack of space for intersectional inclusion - While the absence of sub-quota for SC/ST
women is a matter of concern, the absence of quota for OBC and minorities would make it
more difficult for the marginalised women to raise their voices.In India, due to the absence of
a caste census, though the actual number of OBC population is not known, the data from
different sources like the school enrolment data by United District Information System for
Education Plus (UDISE+) pegs the OBC population at around 45%. As per the estimation of
the Mandal Commission the OBC population at that time stood at around 52%. In such a
situation, the absence of reservation for OBC women certainly brings flak from the opposition.

RISING OIL PRICES:

Why have oil prices risen? Above all, Saudi Arabia’s decision to cut back how much oil it sends to global
markets has pushed prices higher.

The world’s second-largest oil supplier has slashed production by 1 million barrels a day since July and
decided this month to extend the cut through the end of the year.

Russia, Saudi Arabia’s ally in the OPEC+ oil producers’ coalition, also extended its own cut of 300,000
barrels a month through 2023.
Simply, tighter supply means higher prices.

International benchmark Brent oil traded at just under $94 per barrel Monday, up from $90 before the
extension on Sept. 5 and from $74 before the Saudi cut was first announced. U.S. oil traded at around
$90.50, up from $68 before the Saudi cut.

How high could oil prices go?

Some analysts think oil could hit $100 a barrel based on robust demand and limited supply. But that’s far
from the only view.

Oil prices can be volatile, and while they might briefly top $100 in the coming months, they’re unlikely to
stay there, said Jorge Leon, senior vice president for oil markets at Rystad Energy. He foresees prices in
the low $90s on average in the last three months of the year.

That’s still high historically, he said, supported by “resilient” demand for fuel to drive and fly.

The Saudi cuts were a unilateral move outside the framework of the OPEC+ alliance, meaning the
kingdom can make changes as needed to quickly respond to shifting market conditions.

Leon said the Saudis will review the cuts each month — and could add barrels back if prices spike to
levels that could seriously worsen inflation in countries buying oil. Excessive price increases could mean
central banks worldwide hike interest rates further or keep them higher for longer.

“I don’t think it will be clever for the Saudis to push that hard,” Leon said. “The last thing you want to do is
fuel inflation again with much higher oil prices. That’s going to kill economic growth, and lower growth is
going to mean lower oil demand at the end of the day.”

What other factors affect prices?

A big question is demand for fuel, which is picking up along with rebounding travel following the depths of
the COVID-19 pandemic. A robust U.S. economy increases demand for oil — and the price — while weak
growth in China and Europe has the opposite effect.
“We see the upside potential for the oil price as being virtually used up and if anything envisage setback
potential in view of the weak economy,” said Thu Lan Nguyen, Commerzbank head of commodities
research who foresees oil at $85 per barrel by year’s end. “The oil price is only likely to climb more
lastingly once the economic outlook begins to brighten, which should be the case next year.”

Another factor is financial speculation, and it appears investors are piling into the oil market with bets that
prices will rise.

READ MORE: Important inflation tracker shows small increase in sign of slowing prices

“Much of the price surge beyond $85 per barrel is due to a flood of speculative money, while
fundamentally there is still plenty of oil in the world to meet demand for now,” said Gary Peach, oil
markets analyst at Energy Intelligence.

Plus, more Iranian oil may come on the market as the U.S. “turns a blind eye” on enforcing sanctions to
keep prices from rising further, Leon said. That could add 200,000 to 300,000 barrels a day.

What’s the impact on consumers?

Costlier oil feeds through to higher prices for gasoline and diesel, especially in the U.S., where roughly
half the pump price reflects the cost of crude — the rest is marketing, taxes and other costs.

Crude is a smaller share of gasoline and diesel prices in Europe because fuel taxes are much higher
there.

Average U.S. pump prices are still well below the record $5 per gallon seen in summer 2022. But at $3.85
per gallon, they’re still up 15 cents from a year ago. Oil costs are keeping gas prices high even as driving
demand drops with the end of summer vacations and plentiful gasoline stocks, according to auto club
AAA.

Diesel prices have risen as well, along with higher oil costs and refineries facing shortages of the specific
kinds of crude best for making diesel. Refineries also are choosing to produce jet fuel instead, chasing
profits as air travel rebounds. A gallon of diesel cost $4.58 last week, up from $4.34 a month ago.
That hurts farmers, who use a lot of diesel, and adds to the price of consumer goods transported by truck,
which is pretty much everything.

Diesel supplies got even tighter Friday after Russia said it would halt the export of refined oil products to
hold down fuel prices at home.

How do higher oil prices help Russia?

Oil is Russia’s main moneymaker, so higher prices help the Kremlin pay for its invasion of Ukraine and
weather sweeping Western sanctions aimed at crushing its wartime economy.

The recent rise in oil prices, along with a cutback in the discount that sanctions forced Russia to offer
Asian customers, means Moscow will earn “significantly more revenue from those exports,” said Benjamin
Hilgenstock, senior economist at the Kyiv School of Economics.

The additional revenue could reach an estimated $17 billion this year and $33 billion next year, he said in
an online talk hosted by the Brussels-based European Policy Center.

READ MORE: Biden cancels last oil and gas leases in Alaska’s Arctic Refuge, overturns sales held by
Trump

Russia has lost some $100 billion in oil revenue following a European Union import ban and a
$60-per-barrel price cap imposed by the Group of Seven major economies, which bars Western insurers
and shippers from handling oil priced above that level.

Russia, however, has increasingly found ways around the cap, including using a fleet of ghost tankers
masking their ownership and origin of the crude they carry.

Any additional export earnings help support Russia’s currency and what it can import — including
weapons components.

What are the politics?

U.S. President Joe Biden has faced criticism from Republican lawmakers to encourage more oil drilling
and scrap his support for electric vehicles.

But that criticism largely overlooks the rise in U.S. oil production over the past year. The U.S. Energy
Information Administration reported that oil production averaged 12.8 million barrels a day in June, up 1
million barrels from 12 months ago, close to the levels achieved before the pandemic began in 2020.

Biden has said he considers oil production essential to keep the economy going as a bridge to a future
with EVs and renewable energy.

Still, the White House views the oil market worldwide as being undersupplied, in line with recent OPEC
data that indicates there will likely be a worldwide shortfall of 3 million barrels a day. The administration is
also in touch with domestic and international producers on longtime supply needs, trying to ensure that
the risk of higher oil prices does not disrupt economic growth.

How will high crude oil prices impact the Indian economy? The economic impact of global oil supply
has important implications for India – a net importer of crude oil – to deliver price stability. Moreover,
the oil supply-related news shocks cause a sustained increase in consumer prices and reduce the
domestic output - for a short duration.

1.High import bill

India - a net importer of crude oil which fulfills as much as 85 per cent of its energy needs through
imports, may see a heavier import bill if international crude oil prices keep rising throughout the year. India
produced a total of 2.50 million metric tonnes (MMT) of crude oil in July 2023 - registering a growth of 2.1
per cent compared to the year-ago period, according to Petroleum Planning & Analysis Cell (PPAC).

Crude oil imports decreased by 6.3 per cent and 2.4 per cent during June 2023 and April-July 2023
respectively, compared to the corresponding period of the previous year. The net import bill for oil and gas
was $9.8 billion in July 2023 compared to $15.8 billion in July 2022, according to PPAC.

2. High petrol, diesel prices

Oil marketing companies (OMCs) including Indian Oil, Bharat Petroleum Corp Ltd (BPCL) and Hindustan
Petroleum Corp Ltd (HPCL) may be forced to lift the freeze on petrol and diesel prices on rising
international crude prices.

OMCs did not significantly increase the retail prices last year even after crude reached a peak of $140 per
barrel in March 2022. Due to this, the oil refiners registered losses as petrol and diesel rates have been
unchanged since April 2022.

However the central government can force OMCs to cut petrol and diesel prices as their balance sheets
have largely got repaired due to stronger profits in the current fiscal. Domestic brokerage firm JM
Financials expects the government to cut petrol and diesel prices around Diwali as state elections begin
in November-December 2023.

“OPEC+ is ramping up petrol price pain, triggering fresh and increasing concerns about rising global
inflation - which was just beginning to ease - meaning central banks could possibly push higher-for-longer
interest rates,'' said Nigel Green, CEO, deVere Group, UAE.

“Restricted oil supply leads to higher oil prices, which, in turn, can contribute to higher fuel prices for
consumers and businesses, putting upward pressure on the overall inflation,'' added Green.

3.Depreciation of Indian Currency

High oil prices pushes the US dollar above against its peers, which in turn, is a downside for the Indian
rupee. A stronger dollar can weigh on oil demand by making the fuel more expensive for holders of other
currencies.

The Indian rupee depreciated 14 paise to hit a 10-month low level against the US dollar on Wednesday
tracking losses in Asian peers and a sharp surge in crude oil prices. The Indian currency fell to 83.18 to
the US dollar as against its previous close of 83.04. Rupee opened at 82.02 a dollar.

"The rupee faced weakness, declining by ₹0.07 to 83.13, primarily due to a rally in the dollar index, which
surged above 104.50$. Additionally, the sustained rally in WTI crude oil prices, holding above 85$,
contributed to the rupee's decline,'' said Jateen Trivedi, VP Research Analyst at LKP Securities.

In recent sessions, the rupee's weakness seems to be factoring in the possibility of another rate hike by
the US Federal Reserve. While recent economic data in the US has been supportive of the Fed keeping
rates unchanged, analysts reckon that the persistent pressure from inflation may push the Fed and other
central banks towards considering further rate hikes.
4.High fiscal deficit: Higher crude oil prices will increase the subsidy burden for the central
government. The government bears the difference between the market price and the controlled price
of oil and gas end-products such as kerosene, diesel, liquified petroleum gas (LPG). This is likely to
widen the fiscal deficit - expressed as a percentage of the country's gross domestic product (GDP). As
per recent official data, the government's fiscal deficit, or the gap between spending and receipts met
through borrowings, crossed ₹6 trillion, or a third of the ₹17.9 trillion estimated in the union budget for
FY24. Currently, the fiscal deficit stands at 33.9 per cent of the full year target, aided by strong tax and
non-tax revenue receipts. Overall revenue receipts in the first four months of this fiscal stood at ₹7.6
trillion or 29 per cent of the full year target.

5. India’s BOT: Rising crude oil prices will increase India's dependence on foreign exchange reserves
and external borrowing in order to finance its oil imports. This is likely to expose the Indian economy
to currency fluctuations and financial shocks that arise from the impact of high crude prices. A
stronger US dollar and rising US bond yields makes the Indian currency weaker, which impacts the
trade deals in commodity baskets. The weaker currency suffers losses in such deals as foreign
investors pull away their money during price shocks. Higher crude oil prices will also affect the
country's trade balance and terms of trade with other countries.

6. Inflationary Pressures: The oil supply cuts could worsen the current account deficit by around 0.4
per cent of the GDP. The high retail prices of petrol and diesel would further lead to rise in the price of
domestic commodities as well. The sustained increase in prices is expected to lead to a lower
aggregate demand as households and firms are left with less disposable incomes to spend on
non-energy goods. This is how domestic consumer prices respond to an oil supply news shock.
Surprise changes in oil prices can also influence the price and wage-setting in the economy by
altering the inflation expectations of firms and households, and so, domestic economic activity falls on
impact of such a shock. However, the impact is felt only for a short duration as it reverts to mean
quickly, according to the Reserve Bank of India (RBI).

7.Lower Economic Growth: Higher crude oil prices will increase the cost of production and
transportation for various sectors, affecting their profitability and competitiveness. This will reduce the
disposable income of consumers, affecting their demand for goods and services. Analysts say that
consumer behaviour plays a critical role because when fuel prices rise, consumers may cut back on
discretionary spending, which can impact economic activity. Reduced consumer spending influences
the inflation dynamics, especially in sectors heavily dependent on consumer demand. India is the
fourth-largest global energy consumer behind China, the United States and the European Union.
Higher inflation and lower economic activity will impact the monetary policy. ‘’As rising oil prices are
expected to have a sustained impact on inflation, central banks can be expected to maintain higher
interest rates for longer to control soaring prices,'' said Nigel Green of deVere Group, UAE. “The
decision by the group of oil producing countries will further exacerbate the cost-of-living and
cost-of-business crisis as inflation is given another global boost,'' he concluded.

THE GLOBAL BIOFUELS ALLIANCE:

The Global Biofuel Alliance, which is an initiative by India, aims to expedite the uptake of biofuels
globally by facilitating technology advancements and also intensifying utilization of sustainable
biofuels. The alliance was announced by PM Modi along with the leaders of US, Brazil, Singapore,
Italy, Bangladesh, Argentina, UAE and Mauritius. So what is the significance of the Global Biofuel
Alliance and how can India play a pioneering role in biofuels production and adoption worldwide.

Apart from India, Brazil and the US, the other G20 member countries supporting the initiative are
Argentina, Canada, Italy, and South Africa. Bangladesh, Singapore, Mauritius, and the UAE are the
G20 invitee countries.

The non-G20 interested in joining the alliance are Iceland, Kenya, Guyana, Paraguay, Seychelles, Sri
Lanka, and Uganda and Finland. Further, World Bank, Asian Development Bank, World Economic Forum,
World LPG Organization, UN Energy for All, UNIDO, Biofutures Platform, International Civil Aviation
Organization, International Energy Agency, International Energy Forum, International Renewable Energy
Agency, World Biogas Association are the interested international and multilateral organizations.

The Alliance shall work in collaboration with and complement the relevant existing regional and
international agencies as well as initiatives in the bioenergy, bioeconomy, and energy transition fields
more broadly, including the Clean Energy Ministerial Biofuture Platform, the Mission Innovation Bioenergy
initiatives, and the Global Bioenergy Partnership (GBEP).
International Biofuel Alliance Objectives:

● Promoting the use of sustainable biofuels.

● Development and strengthening of the biofuel market

● Facilitating global biofuel trade.

● Development of Biofuel policy.

What are Biofuels?

● Biofuel is considered pure and the easiest available fuel on planet earth. Biofuels are obtained
from biomass like wood and straw, which are released by direct combustion of dry matter and
converted into a gaseous and liquid fuel.

● Ethanol is a renewable fuel made from various plant materials collectively known as “biomass”.

● Ethanol made from the fermentation of sugarcane juice and molasses is one of the widely used
biofuels because of its clean and affordable nature.

● Biofuel is generally available in all regions of the world, which mainly include fuels like:

● Biodiesel

● Bioethanol

● Bio methanol

● The two most common types of biofuels in use today are bioethanol and biodiesel.

Need for the Alliance:

● Alliance will promote the use of biofuels which will ensure energy security for the country and also
reduce import dependence on crude oil.
 ● The government envisages that biofuel can play a strategic role in this regard by diversifying
India’s energy basket.

● Biofuels will also help in saving forex reserves due to the diversification of the energy basket.

● India is one of the world’s largest producers and exporters of sugarcane. The sugarcane farmers
face distress due to a demand-supply mismatch in the market and wastage.

● In this context, the government promoted the diversion of sugarcane towards ethanol
production under the ethanol blending programme.

● Biofuels also aid in doubling farmers income and boost price discovery.

● Government think tank NITI Aayog also believes that an Alliance will further the role of biofuel in
the global fuel basket.

Conclusion: According to the International Energy Agency, global demand for biofuels is set to grow by 41
billion liters, or 28%, over 2021-2026. In this context, the early move by the Indian government will give an
upper hand in this biofuel sector.

The three founding members of alliance, the US, India and Brazil contribute about 85% of the global
production and the 81% of consumption of ethanol.

Taking to X (formerly Twitter), the prime minister said: "The launch of the Global Biofuels Alliance marks a
watershed moment in our quest towards sustainability and clean energy. I thank the member nations who
have joined this Alliance."

China and oil producers Saudi Arabia and Russia have however decided deciding not to be part of the
alliance. With an eye on the Organization of the Petroleum Exporting Countries (Opec)-plus grouping --
where both Saudi Arabia and Russia are members -- the Indian-conceptualized alliance is being
positioned as a global forum to help boost demand and technology transfer for the production of biofuels
and enhance trade.

India is also looking at increasing its biofuel production through varied sources in a bid to cut its import
dependence for fuel at a time when the ‘Opec+’ grouping has enforced successive production cuts.
According to estimates from the International Energy Agency (IEA), global biofuel production would
need to triple by 2030 to put the world’s energy systems on track toward net zero emissions by 2050.
In its ambitious energy transition journey, India has committed to achieving carbon neutrality by 2070.
India also has an ambitious biofuel roadmap. The government has advanced its target to achieve 20%
ethanol blending in petrol by 2025-26 from an earlier target of 2030. The target of petrol supplies with
10% ethanol blending was achieved in June last year, ahead of the original schedule of November
2022.

Being set up at par with the International Solar Alliance, the biofuel alliance’s focus is on accelerated
adoption of biofuels, creating new biofuels, setting globally recognized standards, identifying global best
practices, and ensuring industry participation.

The global ethanol market was valued at $99.06 billion in 2022 and is predicted to grow at a CAGR of
5.1% by 2032 and surpass $162.12 billion by 2032.

As the roots of Biofuels Industry connects Farms to Factory, this will help alleviate poverty, reduce rural

migration, facilitate more jobs, usher an environment of Skill Development, R&D & partnerships in

technology & manufacturing, enable financial inclusion, boost Sustainable Development Goals and DEI

with larger number of entrepreneurship led by women across the globe, create Circular Economies of

scale, upscale the global GDP, ensure Food Security by making farming lucrative, create avenues for

afforestation and energy plantation, reduce stubble burning while impacting the environment and health

positively, enhance global friendships with G2G, B2B and People-to-People connects as well.

The Initiatives taken by Bharat with International Solar Alliance transformed Renewable Energy Sector

and scaled up our own capacities, while meeting laid down objectives earlier thatn stipulated timelines

and the Biofuels Sector will surely get a definite impetus with the upcoming Global Biofuels Alliance and

sectors of Compressed Bio Gas (Under SATAT Scheme with 5000 LsOI), E2G (2nd Generation Ethanol

for fuel blending in vehicles, just like Brazil) and Sustainable Aviation Fuel (Which Bharat would have to

undertake with obligations as a CORSIA Signatory soon) will grow manifold and contribute towards an

Aaatmanirbhar #NetZero2070 Transition with nearly 250 Million Metric Tonnes of Agricultural Waste

(‘Parali’ of varied feedstocks) to be utilized for multiple uses.

JP MORGAN BOND INDEX

Why in News?

Recently, JPMorgan Chase & Co. will include India in its Government Bond Index-Emerging Markets
(GBI-EM) index from June 2024, anticipating significant inflows to India. This move is expected to widen
the investor base and potentially lead to the appreciation of the Rupee.

What is the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) index?

■ About:
○ The JP Morgan GBI-EM is a widely followed and influential benchmark index
that tracks the performance of local-currency-denominated Sovereign Bonds
issued by emerging market countries.
○ It is designed to provide investors with a representative measure of the fixed
income market within emerging market economies.
○ It Includes government bonds issued by various emerging market countries.
○ The composition may change over time based on eligibility criteria.
■ India’s Inclusion:
○ JPMorgan has identified 23 Indian government bonds with a combined
nominal value of USD 330 billion as eligible for inclusion in the GBI-EM.
○ India's weight is expected to reach the maximum weight threshold of 10% in
the GBI-EM Global Diversified, and approximately 8.7% in the GBI-EM
Global index.
○ India's local bonds will become part of the GBI-EM index and its suite of
indices, which serve as benchmarks for approximately USD 236 billion in
global funds, as per JPMorgan.

What is the Significance of India’s Inclusion in GBI-EM Index?

■ Enhanced Investment Attractiveness:

○ India's inclusion in the GBI-EM index positions India as a coveted investment
destination.
○ It can attract global investors seeking opportunities in emerging markets,
potentially resulting in substantial inflows of USD 45-50 billion over the next
12-15 months.
■ Economic Stability and Financing Ease:
○ It can ease financing constraints related to India's Fiscal and current account
deficits by providing an alternative source of funds.
○ It structurally lowers India's risk premia and funding costs, fostering economic
stability.
● Risk premia refers to the amount by which the return of a risky
asset is expected to outperform the known return on a risk-free
asset.
● Equity market exposure is the best-known risk premium,
rewarding investors for taking exposure to long-only equity
investments.
■ Positive Impact on Various Sectors:
○ Corporate Sector: The inclusion is expected to lower the entire Yield Curve,
reducing the cost of financing for the corporate sector. Narrower corporate
bond spreads will stimulate investment and business growth.
● The Yield Curve is a graphical representation of the interest
rates on debt for a range of maturities.
○ Banking Sector: With lesser pressure to absorb government bonds, banks
can allocate more resources for lending to the private sector, promoting
economic expansion.
○ Infrastructure Development: India's ongoing infrastructure development
initiatives receive a boost as the inclusion provides a sustainable source of
long-term financing through government securities.
■ Currency Appreciation and Stability:
○ The inclusion will lead to an appreciation of the Indian rupee due to
increased investor confidence.
○ A stable exchange rate enhances the attractiveness of investing in India.
■ Market Development and Innovation:
○ Integration into global markets, supported by ongoing reforms and increased
market access, propels market development and encourages long-term
capital inflows.
○ It sets the stage for the introduction of innovative financial products.
■ Par with other Countries:
 ○ India is expected to reach a maximum weightage of 10 % in the GBI-EM
Global Diversified Index, putting it at par with others like China, Brazil,
Indonesia and Malaysia.

What are the Challenges of India’s Inclusion in GBI-EM Index ?

■ Market Fluctuations:
○ Inclusion may introduce volatility in local debt markets, especially during
global economic turmoil or uncertainty, requiring the Reserve Bank of India
(RBI) to manage and stabilize the markets effectively.
○ The RBI will need to carefully manage its monetary policy decisions to
balance the impact of increased foreign investment while also ensuring
domestic economic stability and growth.
■ Geopolitical Risks:
○ High foreign holding of debt exposes Indian markets not only to external
macro-economic shocks but also to geo-political risks. The recent experience
of how Russia was ousted from international currency markets and the
SWIFT (Society for Worldwide Interbank Financial Telecommunications) is a
cautionary tale of how geopolitics can impact financial flows and hence
economic well-being.
■ Currency Management:
○ The inclusion may impact the domestic currency's value, posing challenges
in managing exchange rates and ensuring the rupee remains competitive to
support exports.
■ Transparency and Fiscal Responsibility:
○ It may subject India to increased scrutiny regarding government finances,
necessitating greater transparency and fiscal responsibility in managing the
fiscal deficit.
■ Taxation Challenges:
○ Unresolved tax treatment for foreign investors may deter potential investors,
necessitating clarity and favorable tax policies to attract foreign capital into
Indian government bonds.
 ○ The behavior of foreign investors, especially during global economic

shifts, could result in sudden surges or withdrawals of funds, impacting

market stability and capital flows.

Way Forward

■ There is a need to work on resolving operational challenges related to custody,

settlement, and tax implications to facilitate smooth participation of foreign investors.
■ Strengthen the regulatory environment to ensure market integrity, transparency, and
investor protection, encouraging long-term participation.
■ Strengthen India's economic fundamentals to better withstand global economic shifts and
fluctuations, minimizing risks associated with external factors.

The Story
India has massive ambitions. It wants to become a $5 trillion economy in the next few years. By 2025, it
wants to add over 30,000 km of highways, 400 Vande Bharat trains, over 200 airports and double our port
capacity. By 2030, it plans to leapfrog Japan and Germany to become the third-largest economy in the
world. However, to get there, the government will need to invest massive sums of money across the
board. It needs to spend, spend and spend some more.

Now the government funds its expenses primarily through taxation. But that’s not always enough. More
often than not, it will have to borrow money from investors to keep things chugging along. For the longest
time, the government has raised money by issuing bonds. Bonds are standardised contracts. The
government issues these contracts with a little help from the Reserve Bank of India (RBI). Investors buy
these bonds by lending money. And after some set period of time, the government redeems the bond by
paying investors some extra money on top.

However, most people who subscribe to government bonds in India happen to be domestic investors ―
people from within the country. And this poses an interesting challenge. If you pool all domestic investors
together and put them in a room, you can account for all the capital available. This is the money they can
theoretically invest. But if everybody chooses to invest most of their capital in government bonds, what
will the private sector do?
They will have to compete with the government and they can only do this if they are offering better returns
to investors when they borrow money. This strains their financials. So if the government could borrow
from foreign investors, that would help everyone in the ecosystem. It would help the government. It would
help the private players. And it could help us boost our credibility in the international financial ecosystem.

So can’t foreign investors buy Indian government bonds?

Well, yes and no. For the longest time, the government did allow foreign investors to buy these bonds, but
they had restrictions on the amount of bonds they could buy. And there’s one other thing. When foreign
investors buy government bonds, they have to convert “dollars” to “rupees” and then invest that sum in
India. However, the government also controlled this conversion business. So you could say that they
couldn’t invest freely.

But over the last 4–5 years, there’s been a change in thinking. The government has come to realise that
foreign investments can greatly help India achieve its massive ambitions. They also recognised an
opportunity. Foreign investors don’t usually like to invest in individual government bonds directly. Instead,
they like to buy baskets. Baskets of bonds from many countries. And there are specialised entities that
help these investors track the performance of government bonds across the world.

For instance, JP Morgan has created a basket called the Emerging Markets Bond Index. Here, they
measure the performance of international government bonds issued by emerging market countries like
India. And yet India didn’t feature in their basket or index. They believed Indian government bonds didn’t
meet the stringent requirements they set out. So any investor out there who intended to build a portfolio of
government bonds would routinely leave out Indian government bonds. Because fund managers were
interested in tracking the performance of the index JP Morgan or similar other entities put out. And it didn’t
have Indian government bonds on it. So we missed out on a lot of foreign investments.

However, we’ve been working with entities like JP Morgan to meet these stringent requirements. We have
been working on removing investment limits for foreign investors. We have been trying to simplify our tax
regime. We have been telling them that we wouldn’t interfere with our currency as much. So they won’t
have to worry about converting dollars to rupees anytime they want. And after a bunch of promises and
actions backing them, it seems finally, they’ve seen merit in including Indian government bonds on their
emerging markets bond basket.
A couple of days ago, 23 Indian Government Bonds (IGBs) worth about $330 billion made it to JP
Morgan’s Emerging Market Government Bond Index. These bonds will be included slowly starting June
2024 until they form 10% of the total index 10 months later.

In simple words this means, a lot of foreign fund managers who want to replicate or benchmark their
performance against JP Morgan’s index will start buying Indian government bonds. And experts believe
this could attract as much as $20 billion in foreign capital. Even more, if other entities like Bloomberg or
FTSE Russell start including Indian government bonds in their global index.

The obvious upside is that this makes it easy for the Indian government to borrow money. It could also
make capital available for private entities in India since the Indian government won’t just have to rely on
domestic investors. The flip side is that foreign capital can move out just as easily as it came in. So if
billions of dollars worth of foreign capital moved out in a short span of time it could put the RBI in a
vulnerable position since these investors will all want to exchange rupees for dollars. And the RBI has to
make sure that nothing bad happens to our currency and through it, the economy.

So yeah, at the moment it seems both the government and the central bank believe that the benefits
outweigh the risks and we hope that this paves the way for India’s inclusion in the broader financial
market.

SOCIALIST SECULAR MISSING FROM PREAMBLE OF OUR CONSTITUTION

Why in News?

Recently, some of the Members of the Lok Sabha have claimed that the words “Socialist” and “Secular”
were omitted in the New Copies of the Preamble of the Constitution of India.

■ These two words were originally not a part of the Preamble. They were added by The
Constitution (42nd Amendment) Act, 1976 during the Emergency imposed by then
Prime Minister Indira Gandhi.

What is the Preamble of the Indian Constitution?

■ About:
 ○ Every Constitution has a philosophy. The philosophy underlying the
Constitution of India was summed up in the Objectives Resolution, which
was adopted by the Constituent Assembly on 22nd January, 1947.
○ The Preamble of the Constitution puts in words the ideal contained in the
Objectives Resolution.
○ It serves as an introduction to the Constitution, and contains its basic
principles and goals.
■ The Preamble of the Constitution that Commenced in 1950 read:
○ “WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India
into a SOVEREIGN DEMOCRATIC REPUBLIC and to secure to all its
citizens:
● JUSTICE, social, economic and political;
● LIBERTY of thought, expression, belief, faith and worship;
● EQUALITY of status and of opportunity; and to promote among
them all
● FRATERNITY assuring the dignity of the individual and the
unity of the Nation;
○ IN OUR CONSTITUENT ASSEMBLY this 26th day of November, 1949, do
HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS
CONSTITUTION.”
■ Insertion of the words Socialist and Secular:
○ The words "Socialist" and "Secular" were added to the Preamble through the
Constitution (42nd Amendment) Act, 1976, during the period of
Emergency under Prime Minister Indira Gandhi's government.
○ The insertion of "socialist" aimed to emphasize socialism as a goal and
philosophy of the Indian state, with a focus on eradicating poverty and
adopting a unique form of socialism that involved nationalization only in
specific sectors where necessary.
○ The inclusion of "secular" reinforced the idea of a secular state, treating
all religions equally, maintaining neutrality, and not endorsing any
particular religion as a state religion.

What is the Debate Over Removing Socialist and Secular Words from the Preamble?
 ■ Political Ideology and Representation:
○ Those advocating for the removal argue that the words "socialist" and
"secular" were inserted during the Emergency in 1976.
○ They believe this was an imposition of a particular political ideology and
goes against the principles of representation and democratic
decision-making.
■ Original Intent and Constitution's Philosophy:
○ Critics argue that the original Preamble, as adopted in 1950, didn't include
these words. They emphasize that the Constitution's philosophy already
encompassed the ideas of justice, equality, liberty, and fraternity without
explicitly mentioning socialism and secularism.
○ They argue that these values were always implicit in the Constitution.
■ Concerns of Misinterpretation:
○ Some critics express concerns that the words "socialist" and "secular" might
be misinterpreted or misused, potentially leading to policies and actions
that deviate from their original intent.
○ They argue for a more neutral and flexible approach in the Preamble.
■ Social Implications:
○ The presence or absence of these words can have implications for public
policy, governance, and societal discourse.
○ The term "secular" is particularly significant in a country with a diverse
religious population, and its removal might raise concerns about the state's
commitment to religious neutrality.

Way Forward

■ Foster a well-informed and inclusive public discourse on the implications of these terms in
the Preamble. This should involve academia, civil society, political parties, and citizens
to understand various perspectives and concerns.
■ Facilitate a structured debate within constitutional bodies, such as Parliament, to
deliberate on the significance, interpretation, and historical context of the words "socialist"
and "secular" in the Preamble. Encourage thorough discussions to analyze the implications
of any potential amendment.
 ■ Establish an independent committee of constitutional experts, legal scholars, historians,
and sociologists to study the historical context, constitutional philosophy, and legal
implications of the words "socialist" and "secular" in the Preamble. Their findings can
provide valuable insights.

CAUVERY ISSUE:

The Cauvery water dispute has once again taken center stage, as Tamil Nadu appeals to the Supreme
Court of India for intervention in ensuring the release of 24,000 cubic feet per second (cusecs) from its
reservoir's water by Karnataka.

■ Tamil Nadu also urged the Court to direct Karnataka to ensure the release of 36.76 TMC
(thousand million cubic feet) stipulated for September 2023 as per the Cauvery Water
Disputes Tribunal (CWDT)’s final award of February 2007 that was modified by the SC in
2018.

What Led to Tamil Nadu's Appeal to the Supreme Court?

■ Tamil Nadu's Appeal to SC:

○ The issue arose from Karnataka's refusal to abide by previously agreed-upon
water release quantities.
● Tamil Nadu advocates for the release of 10,000 cusecs of
water for the stipulated 15-day duration. On the other hand,
Karnataka has suggested a reduced water release of 8,000
cusecs for the same 15-day timeframe.
■ Karnataka's Explanation:
○ Karnataka cites poor inflow due to reduced rainfall in Cauvery catchment,
including origin point Kodagu.
● Karnataka highlights a 44% rainfall deficit in Kodagu from
June to August.
○ Karnataka rejects Tamil Nadu's distress-sharing formula demand.
■ Implications:
 ○ Tamil Nadu's farmers await Karnataka's response, as the Mettur reservoir
holds only 20 TMC, lasting ten days.
○ The Supreme Court's decision holds significance in resolving the complex
dispute.
○ Collaborative solutions are crucial for equitable water management and
conflict resolution.

How is the Cauvery Water Being Shared?

■ A carefully crafted monthly schedule governs the distribution of water between Karnataka
and Tamil Nadu, the two riparian states of the Cauvery basin.
○ In a "normal" water year, Karnataka is bound to release 177.25 TMC
(thousand million cubic feet) of water from June to May to Tamil Nadu.
○ This annual quota includes 123.14 TMC allocated during the monsoon
months from June to September.
■ The ongoing southwest monsoon season often triggers disputes when rainfall falls short of
expectations.

Context

● The Supreme Court on Thursday refused to intervene either in favour of Karnataka or Tamil Nadu

in the Cauvery water dispute.

● Instated it banked on the combined expertise of the Cauvery Water Regulation Committee

(CWRC) and the Cauvery Water Management Authority (CWMA) to manage the water sharing

between the two neighbouring states.

Details

Cauvery River

● Cauvery (or Kaveri) is the state's largest river, flowing from Talakaveri in the Brahmagiri hills of

Karnataka's Western Ghats.

● It is known as the Dakshina Ganga (the Ganges of the South) and is regarded as one of India's

holiest rivers.
 ● The source of the Kaveri River is a popular pilgrimage and tourism destination in Coorg, located

in the Bramahagiri Hills near Madikeri.

The tributaries of the Kaveri include:

● Harangi, Hemavathi (origin in western Ghats joins the river Kaveri near Krishnarajasagar),

Lakshmanatirtha,

● Kabini (originates in Kerala and flows eastward and joins the Kaveri at Tirumakudal, Narasipur),

● Shimsha, Arkavati, Suvarnavathi or Honnuholé, Bhavani, Lokapavani, Noyyal, Amaravati

Cauvery Water Dispute

About

● The issue stems from a long-standing disagreement about the distribution of water from the

Cauvery River.

● There are three states and one union territory involved: Tamil Nadu, Kerala, Karnataka, and

Puducherry.

● The disagreement is on how river water should be apportioned among these states for diverse

purposes like as agriculture, drinking water, and industrial use.

History of Dispute

● This disagreement initially arose in 1892, during the reign of Britishers, between the Presidency

of Madras and the Princely State of Mysore.

● Mysore and Madras established an agreement in 1924 that would last for 50 years. As a result, it

was no longer enforced in 1974.

● Without the permission of Tamil Nadu, Karnataka has been diverting water into four newly

constructed reservoirs since 1974.

● This caused conflict in post-independence India.

The establishment of the Cauvery Water Disputes Tribunal and its final decision

● The Cauvery Water Disputes Tribunal (CWDT) was established in June 1990 in compliance with

Section 4 of the Inter-State Water Disputes Act, 1956.

● The CWDT gave its final award in February 2007, after 17 years, outlining the amount of water

that each state should receive at different times of the year.

 ● Given that the total available water in the Cauvery basin throughout the four states is 740 TMC in

a normal year, the Tribunal has apportioned the water as follows:

● Tamil Nadu: 419 TMC (as opposed to 512 TMC),

● Karnataka: 270 TMC (as opposed to 465 TMC),

● Kerala has 30 TMCs, and 7 TMCs in Pondicherry

● The final award set aside 10 TMC for environmental purposes and 4 TMC for inevitable seawater

exits.

● The tribunal ordered the formation of a monitoring authority to manage water releases.

● However, the final decision did not provide a specific methodology in circumstances where there

is a water deficit owing to insufficient precipitation.

● It simply stated that in such cases, the assigned shares should be lowered accordingly.

The following development

● On the direction of the Supreme Court, the administration took another 6 years and notified the

order in 2013.

● Later, the Tamil Nadu government petitioned the Supreme Court for a special leave under Article

136.

● The Tamil Nadu government had sought the court because the Karnataka government had

refused to obey the tribunal's decision.

● Article 136 makes the Supreme Court the highest appellate court.

● It states that, notwithstanding anything in this Chapter, the Supreme Court may grant special

leave to appeal from any judgment, decree, resolution, sentence, or order rendered by any court

or tribunal in India's territory.

● The Supreme Court issued its decision in 2018. The Supreme Court designated Cauvery a

national asset in its decision.

● It upheld the CWDT's finalized water-sharing arrangements.

● According to the ruling, Karnataka would receive 284.75 TMC, Tamil Nadu 404.25 TMC, Kerala

30 TMC, and Puducherry 7 TMC.

● The Centre was also asked to notify the Cauvery Management Scheme.

● The 'Cauvery Water Management Scheme' was announced by the central government in June

2018.
 ● To carry out the decision, it established the 'Cauvery Water Management Authority' (CWMA) and

the 'Cauvery Water Regulation Committee' (CWRC).

Water sharing procedure

● Karnataka, the upper riparian state of the Cauvery basin, has agreed to transfer water to Tamil

Nadu every month.

● According to the timetable, Karnataka will make a total of 177.25 TMC accessible to Tamil Nadu

at Biligundlu in a "normal" water year (June to May).

● From this total, 123.14 TMC will be distributed between June and September, which coincides

with the southwest monsoon season.

● When the monsoon produces less rainfall than expected, the Cauvery issue inevitably flares up

during this time.

The reason behind Tamil Nadu's approach towards the Supreme Court

● At its meeting on August 11, the CWMA requested that Karnataka manage its releases in such a

way that 10,000 cusecs of water were realized at Biligundlu over the next 15 days, beginning

August 12.

● In other words, Karnataka would have to deliver 0.86 TMC per day for a total of 12.9 TMC over

15 days.

● However, what reportedly irritated Tamil Nadu was Karnataka's failure to adhere to the quantity

agreed upon at the previous day's CWRC meeting.

● Karnataka has claimed that low rainfall in the Cauvery basin, which includes Kerala, has resulted

in minimal inflow to its reservoirs

Cauvery Water Regulation Committee (CWRC)

● Later, the Cauvery Water Regulation Committee (CWRC) was formed to implement and monitor

the CWDT's award and to govern water distribution by its terms.

● The committee is responsible for monitoring water releases from Karnataka's reservoirs and

ensuring that the allocated amounts of water are given to Tamil Nadu, Kerala, and Puducherry by

the set formula.

MANIPUR ISSUE:

There have been violent communal clashes in Manipur due to the Manipur High Court (HC) directing
the State to pursue a 10-year-old recommendation to grant Scheduled Tribe (ST) status to the
non-tribal Meitei community.

■ The violence escalated after the All-Tribal Student Union Manipur (ATSUM) organized a
"tribal solidarity rally" against the alleged move to include the Meiteis on the ST list.

What is Manipur’s ethnic composition?

■ The State is like a football stadium with the Imphal Valley representing the playfield at the
centre and the surrounding hills the galleries. The valley, which comprises about 10% of
Manipur’s landmass, is dominated by the non-tribal Meitei who account for more
than 64% of the population of the State and yields 40 of the State’s 60 MLAs.
■ The hills comprising 90% of the geographical area are inhabited by more than 35%
recognised tribes but send only 20 MLAs to the Assembly.
■ While a majority of the Meiteis are Hindus followed by Muslims, the 33 recognised
tribes, broadly classified into ‘Any Naga tribes’ and ‘Any Kuki tribes’ are largely
Christians.

What is the Meitei argument to support demand of ST status?

■ The Scheduled Tribe Demand Committee of Manipur (STDCM) began demanding ST

status for the Meiteis in 2012.
○ The Meiteis were recognised as a tribe before the merger of the State
with the Union of India in 1949. The ST status is needed to “preserve”
the community and “save the ancestral land, tradition, culture, and
language” of the Meiteis.
 ● In 1972, the union territory of Manipur became 19th state of
India.
○ The Meiteis need constitutional safeguards against outsiders, stating
that the community has been kept away from the hills while the tribal
people can buy land in the “shrinking” Imphal Valley (Apprehension of
Meities that creation of Greater Nagalim would lead to shrinking of
Manipur’s geographical area).
■ The Meitein/Meetei have been gradually marginalised in their ancestral land.
○ Their population was 59% of the total population of Manipur in 1951 and has
now been reduced to 44% as per 2011 Census data.
■ The Naga and Kuki movements fuelled Meitei nationalism. Concerns over demographic
change and shrinking of traditional Meitei areas started to surface in the 1970s.
■ During the period 2006-12 came the demand for an Inner Line Permit (ILP) in Manipur,
to bar outsiders. The free movement of the Kuki-Zomi across Manipur’s porous border
with Myanmar fanned fears of demographic change.
○ The growth rate of Manipur’s population had jumped from 12.8% in the
1941-51 period to 35.04% during 1951-61 and to 37.56% in 1961-71 after the
permit system was abolished.
■ In Manipur, the government is the largest employer and the reservation for STs in jobs
amounts to an unfair advantage.
○ Infrastructure development (like railways that would open Manipur further)
has made insecurities worse.

Why are tribal groups against ST status for Meiteis?

■ The Meiteis have a demographic and political advantage and are also more academically
advanced.
○ ST status to the Meiteis would lead to loss of job opportunities and allow
them to acquire land in the hills and push the tribals out.
■ The language of the Meitei people is included in the Eighth Schedule of the
Constitution and many of them have access to benefits associated with the SC, OBC or
EWS status.
 ■ Kukis and Nagas point out that tribal areas are 90% of state’s geographical area, but the
bulk of its budget and development work is focused on the Meitei-dominated Imphal
valley.

The Process of Inclusion in the ST List

■ State governments starts recommendation for inclusion of the tribes in the list of ST.
■ After the recommendation of the state govt, Tribal Affairs Ministry reviews and sends them
to the Registrar General of India, Under the Home Ministry for approval.
■ After approval, it is sent to the National Commission for Scheduled Tribes and then sent to
the Cabinet for a final decision.
■ Once the cabinet finalizes it, then it introduces a bill in the parliament to amend the
Constitution (Scheduled Castes) Order, 1950, and the Constitution (Scheduled Tribes)
Order, 1950.
■ After the amendment bill is passed by both the Lok Sabha and Rajya Sabha, the
President’s office takes the final decision under Articles 341 and 342 of the Constitution.

What led to the recent Unrest?

■ While the forest eviction and demand for ST status for Meiteis have been the most
prominent recent triggers, the divide between the Meiteis and tribals on several issues
has widened over the past decade.
■ Issues in Delimitation Process: In 2020, as the Centre began the first delimitation
process in the state since 1973, the Meitei community alleged that the Census figures
used in the exercise did not accurately reflect the population break-up.
○ Tribal groups (Kuki and Nagas) on the other hand said they had grown to
40% of the state’s population and were underrepresented in the Assembly.
■ Intrusion of Migrants from Neighbour Area: The February 2021 coup in Myanmar has
led to a refugee crisis in India’s Northeast. Meitei leaders have alleged that there has been
a sudden mushrooming of villages in Churachandpur district.
■ The Drugs Problem: Some tribal groups with vested interests are trying to scuttle govt’s
crusade against drugs.
 ○ The anti-drug drive was started by destroying poppy fields. “Illegal settlers”
related to the Kuki-Zomi of Manipur, growing drugs on cleared lands.
■ Recent Unrest: The first violent protest erupted over the eviction of the residents of a Kuki
village.
○ 38 villages in the Churachandpur-Khoupum Protected Forest area (in
Churachandpur and Noney districts) are “illegal settlements” and its
residents are “encroachers (encroaching reserved and protected forests and
wildlife sanctuaries for poppy plantation and drugs business”).
○ Kuki groups have claimed that the survey and eviction is a violation of Article
371C, as kukis are residents of Hill Area.
● Article 371C provides for the creation of a committee of
the Manipur Legislative Assembly consisting of the
members elected from the Hill Areas of the state and Governor
shall have responsibility for proper functioning of that
committee.
● At the State level there is Hill Area Committee constituted
under the Manipur Legislative Assembly (Hill Areas
Committee) order, 1972. The Hill areas Committee comprises
of all MLAs elected from the hill areas of the State as its
members.
○ The state government withdrew from the suspension of operations
agreements with two Kuki extremist groups accused of inciting the
protesters.

Geography of Manipur and History of Violence in Manipur

■ There are 16 districts in Manipur, but the state is commonly thought of as divided into
‘valley’ and ‘hill’ districts. Today’s valley districts of Imphal East, Imphal West, Thoubal,
Bishnupur, and Kakching were part of the erstwhile kingdom of Kangleipak, ruled by
the Ningthouja dynasty.
■ The Manipur valley is encircled by skirts of low hills (hill areas comprise the bulk of
Manipur’s geographical area), live 15 Naga tribes and the Chin-Kuki-Mizo-Zomi group,
which includes the Kuki, Thadou, Hmar, Paite, Vaiphei and Zou peoples.
■ The Kangleipak kingdom, then a British protectorate, was repeatedly raided by Naga
tribes who came down from the northern hills. The British political agent in Manipur
brought the Kuki-Zomi from the Kuki-Chin hills of Burma to protect the valley from
plunder by acting as a buffer between the Meiteis and the Nagas.
○ The Kukis, like the Nagas, were fierce headhunting warriors — and the
Maharaja gave them land along the ridges, where they could act as a shield
for the Imphal valley below.
■ Kuki-Meitei divide: The hill communities (Naga & Kuki) and the Meiteis have had
ethnic tensions since the kingdom era. The Naga movement for independence in the
1950s triggered insurgencies among the Meiteis and Kuki-Zomi. The Kuki-Zomi groups
militarised in the 1990s to demand a state within India called ‘Kukiland’(a state within
India). This alienated them from the Meiteis, whom they had earlier defended.
○ In 1993, Hindu Meiteis clashed with Pangals (Muslims), and also there was
horrific violence between the tribal Nagas and Kukis, which saw more than
a hundred Kukis massacred in a single day by Nagas, and thousands
driven from their homes.
 ■ District of Churachandpur: Kuki-Zomi-dominated Churachandpur (a Myanmar bordered
District) has mostly Christian population. It is the country’s poorest district (as per the
Panchayati Raj Ministry in 2006) and it remains abjectly poor.
○ In 2015, as the Meiteis of the valley protested demanding ILP in Imphal
city, equally intense protests were seen in Churachandpur countering the
demand and protesting the introduction of laws.

Way Forward

■ Need to evaluate the criteria for ST status (to Meities) in line with recommendations given
by several Committees, like:
○ The Lokur Committee (1965) recommended 5 criteria for identification,
namely, primitive traits, distinct culture, geographical isolation, shyness of
contact with the community at large, and backwardness.
○ Bhuria Commission (2002-2004) focused on a wide range of issues from
the 5th Schedule to tribal land and forests, health and education, the
working of Panchayats and the status of tribal women.
○ A High-Level Committee (HLC) in 2013, under chairmanship of Prof.
Virginius Xaxa was constituted to study the 5 critical issues related to tribal
communities: (1) livelihood and employment, (2) education, (3) health, (4)
involuntary displacement and migration, (5) and legal and constitutional
matters.
■ Bring more surveillance along the border areas to prevent the incursion of the migrants
from Myanmar. Strengthening economic and diplomatic ties with neighboring countries can
help enhance regional stability and security.
■ Need to maintain the identity of the people along the border areas to identify the local
residence. Signing Peace settlement agreements with the local insurgent group to maintain
the peace in the region.
■ The repeal of AFSPA, the controversial Armed Forces Special Powers Act 1958, is
necessary to improve the human rights situation in the region. The government should
ensure that the legal system is fair and transparent to prevent the misuse of power by
security forces.
 ■ The government should foster the participation of the people of the region in the
decision-making process to instill a sense of ownership and belonging.

INDIA CANADA ISSUE

Why in News?

Recently, the tensions between India and Canada escalated when the Canadian Prime Minister alleged
Indian involvement in the killing of a Khalistani Leader designated as a terrorist by India, in Surrey in June
2023.

■ India rejected these allegations and accused Canada of sheltering Khalistani Extremists.

What is the Khalistan Movement?

■ The Khalistan movement is a fight for a separate, sovereign Sikh state in present day
Punjab (both India and Pakistan).
■ The demand has resurfaced many times, most prominently during a violent insurgency in
the 1970s and 1980s which paralysed Punjab for over a decade.
■ The movement was crushed in India following Operation Blue Star (1984) and Operation
Black Thunder (1986 and 1988), but it continues to evoke sympathy and support among
sections of the Sikh population, especially in the Sikh diaspora in countries such as
Canada, the UK, and Australia.

What are the Recent Anti-India Activities in Canada?

■ Recent Anti-India Activities:

○ Operation Bluestar Anniversary Parade (June 2023): In Brampton,
Ontario, a parade seemed to celebrate the assassination of former Prime
Minister Indira Gandhi, displaying a blood-stained figure and advocating
revenge for the attack on Darbar Sahib.
○ Pro-Khalistan Referendum (2022): Sikhs for Justice (SFJ), a pro-Khalistan
organization, conducted a so-called "referendum" on Khalistan in
Brampton, claiming significant support.
 ○ Sanjh Savera Magazine (2002): In 2002, the Toronto-based
Punjabi-language weekly Sanjh Savera greeted Indira Gandhi's death
anniversary with a cover illustration celebrating her murder, glorifying those
responsible.
○ The magazine received government advertisements and is now a prominent
daily newspaper in Canada.
■ Indian Concerns Over such Activities:
○ Indian diplomats based in Canada have on numerous occasions said that
Canada’s failure to tackle "Sikh extremism", and the constant harassment
of Indian diplomats and officials by Khalistanis, is a major foreign policy
stress point.
○ The Indian Prime Minister (PM) raised strong concerns about Sikh
protests in Canada with the Canadian PM on the sidelines of a G20
summit in New Delhi.
○ Canada has paused talks on a proposed trade treaty with India.

How will Khalistan Radicalism Impact India-Canada Relations?

■ Strained Diplomatic Relations:

○ The allegations and counter-allegations can strain diplomatic ties, affecting
the overall relationship between the two nations.
○ Trust and confidence may be eroded, making it difficult to collaborate on
various bilateral and international issues.
■ Security Implications for India:
○ The Khalistan movement is considered a security threat to India’s
Sovereignty getting grounds in Foreign Countries.
● In April 2023, India arrested a Sikh separatist Leader for
allegedly reviving calls for Khalistan, sparking fears of new
violence in Punjab.
○ Earlier in 2023, India hit out at Canada for allowing a float in a parade
depicting the assassination of Indira Gandhi, perceiving this to be a
glorification of Sikh separatist violence.
● It is also concerning for India about frequent demonstrations
and vandalism by Sikh separatists and their supporters at
 Indian diplomatic missions in Canada, Britain, the U.S. and
Australia causing threat to Indian Sovereignty and Integrity.
■ Impact on Trade and Economy:
○ Trade relations might suffer as the accusations could affect business
partnerships and investment flows between India and Canada.
○ Businesses may exercise caution or reassess their engagement due to the
heightened political tension.
● India-Canada bilateral trade in goods reached approximately
USD 8.2 billion in 2022, showing a 25% growth compared to
2021.
● The services sector was emphasised as a significant
contributor to the bilateral relationship, with bilateral services
trade valued at around USD 6.6 billion in 2022.
■ Reduced Cooperation on Key Issues:
○ Cooperation on critical global challenges such as climate change,
counter-terrorism, and international security might be adversely impacted.
○ Both countries may find it challenging to align their positions and work
together effectively on these shared concerns.
■ Potential Travel and People-to-People Impact:
○ The escalating tensions could affect travel and interactions between Indian
and Canadian citizens, making it more cumbersome or less appealing to
travel to each other's countries.
■ Reassessment of Immigration Policies:
○ Canada may review or tighten its immigration policies, especially
concerning individuals associated with Khalistani separatism, in response to
India's concerns about sheltering such elements.
■ Long-Term Bilateral Cooperation:
○ The recent tensions could have a lasting effect on long-term bilateral
cooperation and partnerships.
○ Rebuilding trust and reestablishing a constructive relationship might require
substantial efforts and time.
● India established diplomatic relations with Canada in 1947.
India and Canada have a long-standing bilateral
relationship based on shared democratic values, the
 multi-cultural, multi-ethnic and multi religious nature of two
societies and strong people-to-people contacts.

What is the History of Khalistan Movement and Terrorism in Canada?

■ Early Khalistan Movement in Canada:

○ The Khalistan movement traces back to Surjan Singh Gill's establishment
of the 'Khalistan government in exile' office in Vancouver in 1982, with
limited local Sikh support.
■ Connection to Punjab Militancy:
○ The militancy in Punjab during the 1980s had repercussions in Canada.
○ Canada's handling of individuals like Talwinder Singh Parmar, accused of
terrorism in Punjab, was criticized by India.
■ Air India Bombing (1985):
○ Canada witnessed a horrific act of terrorism with the bombing of Air India
Kanishka in June 1985, orchestrated by the Babbar Khalsa, a Khalistani
outfit.

What are the Previous Instances of India-Canada Tensions?

■ Early Tensions (1948):

○ The strained relations trace back to 1948 when Canada supported a
plebiscite in Kashmir, reflecting early discord.
■ 1998 Nuclear Tests:
○ Canada’s recall of its high commissioner to India following India's nuclear
tests marked a significant downturn in relations.
■ Recent Developments:
 ○ PM of Canada expressions of concern regarding India's response to farmers'
protests and his Liberal Party's alliance with the New Democratic Party
(NDP), which endorsed the Khalistan Referendum, further fueled tensions.

Way Forward

■ The Indian government should invest in the economic development of Punjab and
ensure that it gets its fair share of resources, opportunities, and benefits.
■ The government should also address the problems of unemployment, drug abuse,
environmental degradation, and agrarian distress that plague Punjab.
■ The Indian government should ensure justice for the victims and survivors of the violence
and human rights violations that occurred during the Khalistan movement.
■ Both countries should maintain open lines of communication at various levels of
government to discuss concerns and grievances openly.
■ Engage in constructive and respectful dialogue to address the Khalistan issue, clarifying
each other's perspectives, and finding common ground.

Recently, the Canadian government expelled a senior Indian diplomat accusing India for playing a
role in the assassination of a prominent Sikh Canadian leader, Hardeep Singh Nijjar in Canada. In the
aftermath, India swiftly retaliated by issuing a statement that denied any involvement in the issue and
expelled a senior Canadian diplomat.

With these changes happening, let’s dive into the significance of Indo-Canadian relations and what
difficulties they need to work on together to make their bilateral relationship stronger and lasting

What are the Significant Pillars of India Canada Relationship?

■ Political Relations:
○ India established diplomatic relations with Canada in 1947.
○ India and Canada have a long standing bilateral relationship based on
shared principles such as democracy, human rights, rule of law, and
pluralism.
■ Economic Cooperation:
 ○ Until recently,bilateral trade between India and Canada amounted to $6
billion annually, and Indian investment in Canada was valued at over $4
billion.
○ According to Invest India, Canada is the 18th largest foreign investor in
India with an overall investment of about $3,306 million from April 2000 to
March 2023.
○ Over 600 Canadian companies have a presence in India and over 1,000
Canadian companies are actively pursuing business in the Indian market.
○ Both countries are engaged in technical negotiations for a Comprehensive
Economic Partnership Agreement (CEPA) including trade in goods,
services, investment, and trade facilitation.
■ Diaspora Connections:
○ Canada hosts one of the largest Indian diasporas in the world,
numbering 16 lakh people of Indian origin, accounting for more than 3 % of
the total Canadian population and 700,000 Non Residential Indians (NRIs).
■ Education and Innovation:
○ Indian students studying in Canada now comprise approximately 40% of
the entire population of international students in Canada.
○ Canada’s Intellectual Property Office and India’s Department of Industrial
Policy and Promotion (DIPP) agreed to strengthen cooperation in the area
of Intellectual Property Rights (IPR).
■ Strategic Importance:
○ To diversify the Canadian economy, India is a critical partner under its
Indo-Pacific strategy, given the country’s growing economic and
demographic importance in the region.
■ Science and Technology:
○ Department of Biotechnology under IC-IMPACTS program implements
joint research projects in health care, agri-biotech and waste
management.
● IC-IMPACTS (the India-Canada Centre for Innovative
Multidisciplinary Partnerships to Accelerate Community
Transformation and Sustainability) is the first, and only,
Canada-India Research Centre of Excellence.
 ○ The Department of Earth Science and Polar Canada have started a
programme for exchange of knowledge and scientific research on Cold
Climate (Arctic) Studies.
■ Space:
○ ISRO and Canadian Space Agency (CSA) have signed MOUs in the field
of exploration and utilization of outer space.
○ -ANTRIX, the Commercial arm of ISRO, has launched several nanosatellites
from Canada.
○ ISRO in its 100th Satellite PSLV (Polar Satellite Launch Vehicle) launched
in 2018, also flew Canadian first LEO (Low earth Orbit) satellite, from Indian
spaceport Sriharikota.

What are the Challenges of the India Canada Relationship?

■ Cultural Sensitivities:
○ India's leadership has expressed concerns about certain fringe groups within
this community that continue to sympathize with the idea of an independent
Sikh state, known as Khalistan, separate from India.
○ Canada permitted a parade that depicted the 1984 assassination of the
Indian Prime Minister Indira Gandhi by her bodyguards. This portrayal was
seen as glorifying violence by Sikh separatist.
○ Michael Kugelman, director of the South Asia Institute at the Wilson Center
think-tank, says the combination of increasing Sikh activism in Canada,
growing Indian pressure on Ottawa, and Ottawa's unwillingness to address
Indian concerns has “plunged bilateral relations into a deep crisis today.”
■ Visa and Immigration Policies:
○ In recent years, there have been reports of Indian students facing difficulties
obtaining visas to study in Canada, which has caused dissatisfaction and
raised concerns in India.
■ Differing Stances on International Issues:
○ Recently, during the G20 meeting in New Delhi, Canada and India did not
have bilateral talks, but instead met on the sidelines
○ Differing opinions on issues such as the political situation in Kashmir have
strained diplomatic ties.
 ■ Agricultural Trade Disputes:
○ Indian dairy and poultry producers have expressed trade related concerns
over Canadian exports of products such as pulses and canola oil.

What Should be the Way Forward?

■ Addressing Khalistan Issue:

○ Encourage open and inclusive dialogue between all stakeholders
including members of the Sikh community, Indian government
representatives and Canadian officials.
○ Both countries should take legal measures to address any political
extremism.
■ Economic Diversification:
○ Expanding trade beyond traditional sectors to include emerging technologies,
renewable energy, and healthcare can open new avenues for cooperation
and economic growth.
■ Cultural Exchange:
○ Promoting cultural exchange programs, art exhibitions, and film festivals can
foster a deeper understanding of each other's cultures and traditions.
■ Environmental Cooperation:
○ Given the shared commitment to combat climate change, India and Canada
can work together on green technologies, sustainable development, and
renewable energy initiatives.
■ Diplomatic Engagement:
○ Regular high-level diplomatic dialogues and exchanges can help align their
positions on global issues and promote mutual understanding.
■ Security Cooperation:
○ Robust cooperation on counter terrorism issues particularly through the
framework of the JWG on Counter Terrorism

Conclusion
Both India and Canada must endeavor to transcend politically contentious issues and focus on areas of
mutual cooperation and collaboration.The future holds great promise for this dynamic partnership, and
both nations must seize the opportunities it presents.

JAPAN ON THE ISSUE

According to the Japan Times report, Canada needs a “realistic, pragmatic, and interest-based approach"
to how it's engaging in the Indo-Pacific and more broadly on the global stage. Ottawa can no longer
pursue a foreign policy based on an outdated idea of a middle-power identity that is based on
values-oriented diplomacy.

Canada needs to strengthen partnerships with reliable allies and friends such as Japan, South Korea,
Australia, and Singapore, in order to avoid mistakes of the past and to be an effective and dependable
partner in the broader Indo-Pacific region, the report noted.

Japan has not yet agreed to a suggestion to raise the issue of killing of Khalistani separatist Hardeep
Singh Nijjar on Canadian soil at the Quad foreign ministers' meeting in New York on the sidelines of the
UN General Assembly on Saturday.

US intelligence agencies shared context with their Canadian counterparts, contributing to Canada's
determination of India's role in the incident. However, what appears to be the crucial piece of evidence,
intercepted communications involving Indian diplomats in Canada, indicating their involvement in the
plot, was collected by Canadian officials, as confirmed by allied officials, according to the report in the
NYT.

..
Since the Canadian Prime Minister alleged that the Indian Government may have “potential links” to the
killing of a Sikh separatist leader and Khalistan Movement proponent in Canada, the ties between the
two countries are under strain; where his allegations are backed by reports of Five Eyes Alliance.

What is Five Eyes Alliance?

■ About:
○ The Five Eyes is an intelligence alliance comprising nations including
Australia, Canada, New Zealand, the United Kingdom and the US.
 ○ These countries are parties to the multilateral UK-USA Agreement, a treaty
for joint cooperation in signals intelligence.
■ Features:
○ These partner nations exchange a wide spectrum of intelligence within one of
the world's most tightly-knit multilateral agreements as part of the
collaboration.
○ Following its origin, the agency later enlarged its core group to ‘Nine Eyes’
and 14 Eyes alliances as well, encompassing more countries as security
partners.
○ The ‘Nine Eyes’ group expands to cover the Netherlands, Denmark, France
and Norway, whereas the 14 Eyes bloc further includes Belgium, Italy,
Germany, Spain and Sweden.

Why was the Five Eyes Alliance Formed?

■ The alliance’s origins can be traced back to the Second World War. The UK and the US
decided to share intelligence after successfully breaking German and Japanese codes,
respectively.
■ In 1943, the Britain-USA (BRUSA) agreement laid the foundations for what would
become the UK-USA (UKUSA) agreement.
○ BRUSA was signed to share intelligence information between the two
countries to support US forces in Europe
■ Following this, the UKUSA (UK-USA) was signed in 1946. Canada joined it in 1949, and
New Zealand and Australia did so in 1956, forming the alliance.
■ The Agreement was not officially acknowledged though its existence was known about from
the 1980s. But in 2010, the UKUSA agreement files were released.

How does the Five Eyes Alliance Work?

■ Countries often engage with each other on matters of intelligence gathering and security.
■ In recent years, common interests, such as balancing the rise of China, have led to a closer
alignment among the Five Eyes countries.
■ Their closeness has also been attributed to a common language and mutual trust built
over decades of association.
 ■ In 2016, the Five Eyes Intelligence Oversight and Review Council came into being. It
includes the non-political intelligence oversight, review, and security entities of the Five
Eyes countries.

How could Five Eyes Play a Role in the Current India-Canada Issue?

■ Countries like the US, the UK and Australia especially are seen as close to India. They
also have significant Indian and Indian-origin populations within them, similar to
Canada.
○ They have also seen some instances of pro-Khalistan activities in the last
few years. But due to their historical closeness to Canada and the alliance on
one hand, and India,an emerging global power on the other, outright
support for India or Canada is unlikely.
■ Given the state of ties, these countries, particularly the US, could play a mediating role in
the issue once they have clear intelligence and information on the matter.

HDFC merger

The HDFC merger is the proposed amalgamation of HDFC Ltd., India’s premier housing finance
company, with HDFC Bank, India’s leading private sector bank1.
The merger was announced on April 4, 2022, subject to obtaining the requisite consent and approvals
from shareholders and regulators12. The merger was expected to be completed in 15 to 18 months
from the date of announcement12.

The merger became effective from July 1, 2023, after receiving all the necessary approvals1. The
shareholders of HDFC Ltd. received 42 new equity shares of HDFC Bank for every 25 equity shares of
HDFC Ltd. held by them as on the record date of July 13, 20231.

The merger resulted in the creation of India’s third-biggest financial entity in terms of market
capitalisation2. The merged entity has a combined customer base of over 7 crore and a network of over
6,000 branches and 24,000 ATMs across the country1.

The merger aims to create meaningful value for various stakeholders, including customers, employees,
and shareholders, by leveraging the complementary strengths and synergies of both the entities12.
Some of the benefits of the merger are:

Increased scale and product offering: The merged entity offers a full suite of financial services, from
banking to insurance, and mutual funds through its subsidiaries1. It also has a larger net-worth and loan
portfolio, which enables it to underwrite larger ticket loans, including infrastructure loans2.

Balance sheet resiliency: The merger reduces HDFC Bank’s proportion of exposure to unsecured loans
and enhances its capital adequacy ratio2. It also diversifies HDFC Bank’s funding sources and reduces
its cost of funds1.

Revenue and cost synergies: The merger enables cross-selling of banking and housing finance
products to the existing and new customers of both the entities2. It also allows for operational
efficiencies and savings in terms of technology, marketing, and administration costs1.

Some of the challenges or risks associated with the merger are:

Integration issues: The merger involves integrating two different cultures, systems, processes, and
teams, which may pose some operational and managerial challenges2. It may also take some time for
the customers and employees to adapt to the changes in the merged entity1.
Regulatory hurdles: The merger may face some regulatory scrutiny or objections from the Reserve
Bank of India (RBI), the Competition Commission of India (CCI), or other authorities on the grounds of
market dominance, consumer protection, or financial stability. It may also have to comply with some
additional norms or conditions imposed by the regulators as part of the approval process.

Market volatility: The merger may have some short-term or long-term impact on the share prices or
performance of both the entities depending on the market sentiment, valuation, or expectations. It may
also face some competition or pressure from other players in the financial sector who may try to gain
market share or offer better products or services.

Merger acquisition

A merger and an acquisition are two different ways of combining two companies. A merger is a friendly
deal where two companies agree to join forces and create a new entity. An acquisition is a hostile
takeover where one company buys out another company and takes control of its assets and operations.
Both methods have their pros and cons, depending on the situation and the goals of the parties
involved.

Some of the pros of mergers and acquisitions are:

They can increase the growth and market share of the combined entity by expanding its customer base,
product range, and geographic reach.

They can create synergies and efficiencies by reducing costs, eliminating duplication, and leveraging
complementary strengths and resources.

They can diversify the business model and revenue streams by entering new markets, acquiring new
technologies, or adding new capabilities.
They can enhance the competitive advantage and bargaining power of the combined entity by gaining
access to more resources, customers, suppliers, and partners.

They can improve the financial performance and shareholder value of the combined entity by increasing
revenues, profits, cash flows, and returns on investment.

Some of the cons of mergers and acquisitions are:

They can be complex and costly to execute, involving legal, regulatory, financial, operational, and
cultural issues.

They can face resistance and opposition from various stakeholders, such as employees, customers,
regulators, competitors, or shareholders.

They can create integration challenges and conflicts by merging two different cultures, systems,
processes, and teams.

They can dilute the ownership and control of the original shareholders or managers by issuing new
shares or transferring decision-making authority.

They can reduce the flexibility and innovation of the combined entity by imposing rigid structures,
policies, or standards.

Chinese economy Real Estate

Here is a summary of how the Chinese real estate market grew, when it started to go down and why,
what are the problems it is facing now in 2023, and what are the impacts on the economy:
The Chinese real estate market grew rapidly since the late 1970s, when China opened up its economy
and allowed private ownership of land and property. Millions of people migrated from rural areas to
urban centers, creating huge demand for housing and infrastructure. Real estate development became
a key driver of economic growth, investment, and employment in China. By 2020, real estate and
related industries accounted for about one quarter of China’s GDP1.

The Chinese real estate market started to go down in 2021, when the government tightened regulations
on the sector to curb excessive debt, speculation, and corruption. The government imposed a “three red
lines” policy that limited the leverage ratios of property developers, as well as a “three-child policy” that
aimed to boost population growth and long-term housing demand. These policies reduced the
availability and affordability of credit for developers and buyers, leading to lower sales, prices, and
profits23.

The problems that the Chinese real estate market is facing now in 2023 are mainly related to the debt
crisis of some of the largest developers, such as Evergrande and Country Garden. These developers
have accumulated huge amounts of debt over the years, relying on pre-sales and shadow banking to
finance their expansion. However, as the market slowed down and the government tightened oversight,
they faced difficulties in repaying their creditors and completing their projects. This triggered a wave of
defaults, protests, and lawsuits that threatened to spill over to the broader financial system and social
stability45.

The impacts of the Chinese real estate market collapse on the economy are significant and
multifaceted. On one hand, it could drag down economic growth, consumer spending, investment,
employment, and fiscal revenues in China, as well as affect global trade, commodity prices, and
financial markets. On the other hand, it could also create opportunities for structural reforms,
deleveraging, innovation, and redistribution in China’s economy, as well as foster more balanced and
sustainable growth in the long run6 .

The Evergrande problem is a debt crisis that has affected one of China’s largest real estate developers
and has raised concerns about its impact on the Chinese and global economy. Evergrande failed to
meet its debt obligations because it borrowed too much money to expand its business and diversify into
other sectors, while facing a slowdown in the property market and tighter regulations from the
government. Evergrande is not the only developer that has faced financial difficulties, as other
companies such as Fantasia Holdings, Sinic Holdings, and Modern Land have also defaulted or missed
payments on their bonds.

They have faced financial difficulties because of several reasons, such as:

High leverage and debt: Many Chinese real estate developers have borrowed too much money to
expand their business and diversify into other sectors, relying on pre-sales and shadow banking to
finance their projects. This has made them vulnerable to short-term funding stress and default risk,
especially when the market slowed down and the government tightened regulations123.

Slowdown in the property market: The demand and prices for housing in China have declined due to
various factors, such as demographic changes, oversupply, affordability issues, and policy interventions.
This has reduced the sales, profits, and cash flows of developers, as well as their ability to repay their
debts and complete their projects456.

Regulatory tightening: The government has imposed a “three red lines” policy that limits the leverage
ratios of property developers, as well as a “three-child policy” that aims to boost population growth and
long-term housing demand. These policies have reduced the availability and affordability of credit for
developers and buyers, as well as increased the scrutiny and oversight of the sector.

The Chinese property market crisis is a problem for the entire world because it affects the stability and
growth of the global economy. China is the world’s second-largest economy and a major trading partner
for many countries. The property sector is a key driver of China’s economic activity, accounting for
about one quarter of its GDP and employing millions of people. A collapse in the property market could
trigger a domino effect on other sectors, such as construction, manufacturing, consumption, and
finance. This could lead to lower demand, higher inflation, and more defaults in China and abroad123.

The impact of the Chinese property market crisis on the economy is already significant and
multifaceted. According to official data, China’s GDP growth slowed to 4.9% year-on-year in the third
quarter of 2023, the lowest since the pandemic hit in early 2020. The property investment growth also
fell to 1.2% year-on-year in the first eight months of 2023, compared with 7% in the same period of
2022. The property sales volume and prices also declined sharply in many cities, especially in the
lower-tier ones. The crisis has also affected the confidence and sentiment of consumers, investors, and
businesses, as well as the financial stability and social stability of China456.

The Chinese government is taking various measures to rescue the property sector and mitigate the
risks to the economy. Some of the measures include:

Providing credit support and special loans for distressed developers to ensure the completion and
delivery of their projects78.

Reducing the minimum down payment and interest rate for mortgages for first-time and second-time
homebuyers to stimulate demand78.

Encouraging local governments to adjust their housing policies according to their own conditions and
needs79.

Strengthening supervision and regulation of the property sector to prevent speculation, corruption, and
fraud79.

Promoting structural reforms and innovation in the property sector to improve its quality and efficiency.

China’s growth is slowing down because of several reasons, such as:

Aging population: China’s population is now aging rapidly, which means there will be fewer workers to
support the growing number of retirees, placing a strain on the economy and leading to slower
growth12.

Trade tensions: China is facing trade conflicts with major economies such as the US, which are
hampering its exports, investments, and technology development. The US has imposed tariffs and
sanctions on Chinese goods and companies, while China has retaliated with its own measures234.

Property market: China’s property sector, which accounts for about a quarter of its GDP, is facing a
slowdown due to oversupply, affordability issues, and policy interventions. The government has
imposed a “three red lines” policy that limits the leverage ratios of property developers, as well as a
“three-child policy” that aims to boost population growth and long-term housing demand. These policies
have reduced the availability and affordability of credit for developers and buyers, leading to lower
sales, prices, and profits25.

Power shortages: China is experiencing severe power shortages in many regions due to a combination
of factors, such as coal supply disruptions, environmental regulations, rising demand, and grid
bottlenecks. The power cuts have forced many factories, businesses, and households to reduce or
suspend their operations, affecting industrial output, consumer spending, and economic activity25.

Structural reforms: China is undergoing structural reforms and innovation in its economy to improve its
quality and efficiency. The government is trying to shift from a reliance on investment and exports to a
more balanced and sustainable growth model driven by consumption and services. The government is
also cracking down on corruption, fraud, and speculation in various sectors, such as finance,
technology, education, and entertainment. These reforms may have short-term costs but long-term
benefits for the economy.

Recession

Countries are slowing down and feeling recession because of several reasons, such as:
Inflation: Many countries are facing high inflation, which erodes the purchasing power of consumers and
businesses, and reduces their real income and profits. Inflation also forces central banks to raise
interest rates, which increases the cost of borrowing and dampens investment and spending12.

Geopolitical conflicts: Some countries are involved in or affected by geopolitical conflicts, such as the
war in Ukraine, which disrupts trade, energy supplies, and security. These conflicts also create
uncertainty and instability in the global economy, and reduce confidence and cooperation among
countries134.

Pandemic: The COVID-19 pandemic is still not over, and some countries are facing new waves of
infections, variants, and lockdowns. The pandemic has caused massive human and economic losses,
as well as widened inequalities and vulnerabilities in many countries. The pandemic has also hampered
the recovery and resilience of the global economy12.

Structural challenges: Some countries are facing structural challenges in their economies, such as
aging population, low productivity, weak innovation, environmental degradation, and social unrest.
These challenges limit their growth potential and competitiveness, and require long-term reforms and
investments.

Advanced countries like Germany are facing recession now because of several reasons, such as:

Geopolitical turbulence: Germany is affected by the ongoing war in Ukraine, which has disrupted its gas
supplies from Russia, its largest energy provider. This has increased the energy costs and inflation for
Germany, as well as reduced its exports and investments12.

Structural weaknesses: Germany’s economy relies heavily on its manufacturing sector, especially the
automotive industry, which is facing challenges from global competition, technological innovation, and
environmental regulation. Germany also has an aging population and a low birth rate, which limit its
labor force and domestic demand.

Policy uncertainty: Germany’s political landscape has changed after the end of Angela Merkel’s 16-year
tenure as chancellor. The new coalition government led by Olaf Scholz has struggled to implement its
agenda and address the economic issues. The government also faces pressure from the European
Union and other international partners to increase its fiscal spending and reform its tax system.

The global recession is impacting India currently in various ways, such as:

Lower growth: India’s GDP growth is expected to slow down to 6.5% in 2023, compared to 8.4% in
2022, according to the World Bank1. The recession will reduce the demand and prices for India’s
exports, such as textiles, gems, and software services2. It will also affect the inflow of foreign
investment and remittances, which are important sources of income and capital for India3.

Higher inflation: India’s inflation rate is expected to rise to 5.9% in 2023, compared to 5.1% in 2022,
according to the IMF4. The recession will increase the cost of imported goods, such as oil, metals, and
food, which are essential for India’s production and consumption2. It will also weaken the value of the
rupee, which makes imports more expensive and exports less competitive3.

Higher unemployment: India’s unemployment rate is expected to increase to 7.8% in 2023, compared to
7.2% in 2022, according to the UNCTAD. The recession will reduce the demand and output of various
sectors, such as manufacturing, construction, and services, which employ millions of workers in India2.
It will also affect the informal sector, which accounts for about 90% of India’s workforce and is more
vulnerable to economic shocks3.

Higher poverty: India’s poverty rate is expected to rise to 21.9% in 2023, compared to 20.5% in 2022,
according to the World Bank1. The recession will reduce the income and consumption of millions of
people in India, especially the lower-income and lower-middle-income groups2. It will also affect the
access and quality of basic services, such as health, education, and social protection, which are crucial
for human development and well-being.

Internationalisation of rupee
Internationalization of rupee is a process that involves increasing the use of the Indian currency in
cross-border transactions. It means that the rupee can be used for importing and exporting goods and
services, as well as for investing and borrowing in foreign markets. It also means that the rupee can
become a reserve currency, which is held by other countries as part of their foreign exchange
reserves1.

Some of the pros of internationalization of rupee are:

It can reduce the currency risk and cost of doing business for Indian exporters and importers, who do
not have to convert their rupees into other currencies, such as the US dollar or the euro, for their
transactions12.

It can reduce the dependence on foreign currencies and make India less vulnerable to external shocks,
such as fluctuations in exchange rates, monetary policies, or sanctions by other countries12.

It can reduce the need for holding large foreign exchange reserves, which impose a cost on the
economy, and free up more resources for domestic investment and development12.

It can enhance the bargaining power and global stature of India, as the rupee becomes a more widely
accepted and respected currency in the world12.

Some of the cons of internationalization of rupee are:

It can increase the volatility and uncertainty of the rupee, as it becomes more exposed to market forces
and speculative attacks by foreign investors34.
It can increase the burden of foreign debt and liabilities, as India borrows more in rupees from abroad,
and has to repay them with higher interest rates and exchange rates34.

It can affect the balance of trade and exports, as a stronger rupee makes Indian goods more expensive
and less competitive in foreign markets34.

It can require full convertibility of the rupee on the capital account, which means allowing free
movement of capital in and out of India without any restrictions. This can pose challenges for managing
inflation, interest rates, and financial stability34.

The impact of internationalization of rupee for India depends on various factors, such as the level and
pace of internationalization, the state of the domestic economy, the global economic environment, and
the policy responses by the government and the central bank. In general, internationalization of rupee
can bring both opportunities and risks for India’s growth, development, and stability. Therefore, it
requires careful planning, preparation, and coordination among various stakeholders.

The government and the RBI are taking various steps to push the internationalization of the rupee and
make it a more widely used and accepted currency in the world. Some of the steps are:

The RBI has allowed the international settlement of trade in Indian rupees for export and import of
goods and services since July 2022. This means that Indian exporters and importers can use the rupee
to pay and receive for their transactions, without converting it into other currencies, such as the US
dollar or the euro123.

The RBI has also recommended the inclusion of the rupee in the Special Drawing Rights (SDR) basket
of the International Monetary Fund (IMF). The SDR is a reserve asset that can be exchanged for other
currencies by IMF members. The inclusion of the rupee in the SDR basket would enhance its global
recognition and demand45.
The government has encouraged the opening of rupee accounts for non-residents in India and outside,
and integrated payment systems with other countries for cross-border transactions. This would facilitate
the use of the rupee for remittances, investments, and tourism by foreigners24.

The government has also fostered a five-day round-the-clock global rupee market by allowing offshore
branches of Indian banks to offer banking services in rupee. This would increase the liquidity and depth
of the rupee market and enable its trading across different time zones24.

The main reason for pushing the internationalization of the rupee is to reduce the currency risk and cost
of doing business for Indian firms, and to enhance the economic sovereignty and security of India. By
using the rupee for international transactions, India can avoid the fluctuations and uncertainties of other
currencies, especially the US dollar, which is often influenced by geopolitical factors and sanctions. It
can also reduce the dependence on foreign exchange reserves and make India less vulnerable to
external shocks. Moreover, it can boost the confidence and stature of India as a major economic power
in the world.

Some of the other steps that the government and the RBI are taking for making the rupee global are:

The RBI has signed bilateral swap agreements with some countries, such as Japan, Sri Lanka, and
Bhutan, to exchange their local currencies for rupees. This helps to increase the availability and liquidity
of the rupee in those markets and support trade and investment flows12.

The RBI has also issued guidelines for issuing offshore rupee-denominated bonds, also known as
masala bonds, by Indian entities in foreign markets. This helps to diversify the sources and reduce the
cost of funding for Indian firms, as well as to increase the demand and awareness of the rupee among
foreign investors34.

The government has also promoted the use of the rupee in regional and multilateral platforms, such as
the South Asian Association for Regional Cooperation (SAARC), the Bay of Bengal Initiative for
Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), and the BRICS (Brazil, Russia, India,
China, and South Africa). This helps to strengthen the economic and strategic ties with these countries
and enhance the role of the rupee in regional integration5 .

Some of the examples of countries that have agreed to use the rupee for bilateral trade settlement are:

Russia: India and Russia have agreed to use their local currencies for bilateral trade in 2022, aiming to
reduce their dependence on the US dollar and avoid sanctions. India has given nine banks approval to
open “vostro” accounts to help facilitate trade in rupees with Russia .

Iran: India and Iran have agreed to use the rupee for bilateral trade in 2018, due to the US sanctions on
Iran that prevented India from paying in dollars for its oil imports from Iran. India has opened a special
rupee account with UCO Bank to pay for its oil imports from Iran .

Nepal: India and Nepal have agreed to use the rupee for bilateral trade since 1999, under a currency
exchange facility agreement. Nepal can use Indian rupees for its imports from India and other third
countries, as well as for its payments to India. India can also accept Nepalese rupees for its exports to
Nepal .

No, this will not lead to dollar dominance. The dollar is already the dominant currency in the world, as it
is used for most of the international trade and finance transactions. However, some countries are trying
to challenge the dollar’s dominance by using their own currencies or alternative currencies for their
cross-border activities. Some of the reasons why countries are wanting to challenge the dollar are:

To reduce their exposure and vulnerability to the fluctuations and uncertainties of the dollar, which can
affect their economic stability and security123.
To reduce their dependence and subordination to the US policies and sanctions, which can limit their
economic sovereignty and interests123.

To increase their influence and prestige in the global economy and politics, by making their currencies
more widely accepted and respected123.

China is one of the main challengers of the dollar’s dominance, as it has been promoting the use of its
currency, the renminbi (RMB), in its trade and investment with other countries, especially in Asia and
Africa. China has also been developing its own digital currency, the e-CNY, which could provide a more
efficient and convenient way to settle transactions in RMB. China’s motives for challenging the dollar
are mainly to reduce its reliance on the US financial system, to diversify its foreign exchange reserves,
and to enhance its global role and power.

Dedollarization is a process that involves reducing the use of the US dollar as the dominant reserve
currency and medium of exchange in the world. It is possible to some extent, but it is unlikely to
completely dethrone the dollar in the near future. According to some web sources that I used to create
this response, some of the reasons why dedollarization is possible are:

Some countries, especially those that face US sanctions or trade conflicts, are trying to challenge the
dollar’s dominance by using their own currencies or alternative currencies for their cross-border
transactions. For example, China has been promoting the use of its renminbi in its trade and investment
with other countries, especially in Asia and Africa12.

Some countries are also developing their own digital currencies, which could provide a more efficient
and convenient way to settle transactions in their local currencies. For example, China has been
developing its own digital currency, the e-CNY, which could increase the demand and awareness of the
renminbi among foreign investors23.

Some countries are also diversifying their foreign exchange reserves, which are mostly held in US
dollars, by increasing their holdings of other currencies, such as the euro, the yen, or the renminbi. For
example, Russia has reduced its share of dollar reserves from 46% in 2017 to 22% in 202013.
Some of the reasons why dedollarization is not imminent are:

The US dollar still has many advantages over other currencies, such as its liquidity, depth, stability, and
network effects. The dollar is widely accepted and trusted as a store of value and a unit of account in
the global economy123.

The US has a long-standing global network of alliances and partnerships, which support its economic
and political influence and security. The US also has a large and dynamic domestic market, which
attracts foreign investment and innovation123.

There is no clear and viable alternative to the dollar at the moment, as other currencies face their own
challenges and limitations. For example, the euro suffers from political fragmentation and low growth in
the eurozone; the yen faces deflation and demographic decline in Japan; and the renminbi faces capital
controls and transparency issues in China.

UPI going global

UPI is going global by entering into partnerships with other countries and platforms that allow the use of
the Indian currency for cross-border transactions. UPI is a system that enables instant and
interoperable payments between bank accounts using a mobile app. It is operated by the National
Payments Corporation of India (NPCI), which is an initiative of the Reserve Bank of India (RBI) and the
Indian Banks’ Association (IBA).

Some of the ways that UPI is going global are:

UPI has been linked with Singapore’s PayNow, which is a real-time payment system that allows users
to transfer funds using their mobile numbers or national identification numbers. This enables
cross-border payments between India and Singapore at low cost and high speed12.

UPI has also been integrated with France’s Groupe BPCE, which is the second-largest banking group in
France. This allows users to make payments in rupees using their mobile phones in France, as well as
to receive payments from France in India34.

UPI has also signed a pact with UAE’s Instant Payment Platform, which is a real-time payment system
that allows users to transfer funds using their mobile numbers or email addresses. This facilitates
cross-border payments between India and UAE, as well as remittances from UAE to India56.

UPI has also entered into memoranda of understanding (MoUs) with 13 countries, including Malaysia,
Thailand, South Korea, and Japan, for UPI adoption. These MoUs aim to promote cooperation and
collaboration in the field of digital payments and financial inclusion78.

UPI going global helps India in various ways, such as:

It reduces the currency risk and cost of doing business for Indian exporters and importers, who do not
have to convert their rupees into other currencies, such as the US dollar or the euro, for their
transactions9 .

It reduces the dependence on foreign currencies and makes India less vulnerable to external shocks,
such as fluctuations in exchange rates, monetary policies, or sanctions by other countries9 .

It reduces the need for holding large foreign exchange reserves, which impose a cost on the economy,
and frees up more resources for domestic investment and development9 .

It enhances the bargaining power and global stature of India, as the rupee becomes a more widely
accepted and respected currency in the world.
However, UPI going global also faces some challenges, such as:

It increases the volatility and uncertainty of the rupee, as it becomes more exposed to market forces
and speculative attacks by foreign investors .

It increases the burden of foreign debt and liabilities, as India borrows more in rupees from abroad, and
has to repay them with higher interest rates and exchange rates .

It affects the balance of trade and exports, as a stronger rupee makes Indian goods more expensive
and less competitive in foreign markets .

It requires full convertibility of the rupee on the capital account, which means allowing free movement of
capital in and out of India without any restrictions. This can pose challenges for managing inflation,
interest rates, and financial stability .

The impact of UPI going global on India and the world depends on various factors, such as the level
and pace of internationalization, the state of the domestic economy, the global economic environment,
and the policy responses by the government and the central bank. In general, UPI going global can
bring both opportunities and risks for India’s growth, development, and stability. Therefore, it requires
careful planning, preparation, and coordination among various stakeholders.

India has provided hands-on experiences with UPI wallets technology to around 1,000 foreign delegates
attending the G20 Summit in New Delhi. The delegates were given Rs 500-1,000 in their UPI wallets for
doing UPI transactions, highlighting the simplicity and convenience of making payments through this
indigenous method12.

India has also introduced UPI-based payments for inbound travellers from G20 nations in April 2023.
The travellers can obtain UPI One World, which is a prepaid payment instrument integrated with UPI
services, from authorized issuers at locations sanctioned for currency exchange operations. The
travellers can then use UPI One World to make payments in rupees using their mobile phones in India,
as well as to receive payments from India34.
India has also signed bilateral swap agreements with some countries, such as Japan, Sri Lanka, and
Bhutan, to exchange their local currencies for rupees using UPI. This helps to increase the availability
and liquidity of the rupee in those markets and support trade and investment flows .

India has also entered into memoranda of understanding (MoUs) with 13 countries, including Malaysia,
Thailand, South Korea, and Japan, for UPI adoption. These MoUs aim to promote cooperation and
collaboration in the field of digital payments and financial inclusion .

The main reason why India is doing so is to reduce the currency risk and cost of doing business for
Indian firms, and to enhance the economic sovereignty and security of India. By using the rupee for
international transactions, India can avoid the fluctuations and uncertainties of other currencies,
especially the US dollar, which is often influenced by geopolitical factors and sanctions. It can also
reduce the dependence on foreign exchange reserves and make India less vulnerable to external
shocks. Moreover, it can boost the confidence and stature of India as a major economic power in the
world .

UPI one world: This is a prepaid payment instrument integrated with UPI services that can be obtained
by inbound travellers from G20 nations at locations sanctioned for currency exchange operations. The
travellers can use UPI one world to make payments in rupees using their mobile phones in India, as
well as to receive payments from India12.

UPI 123: This is an extension of UPI lite that allows users to make payments quickly and easily by
scanning QR codes. Users can also make payments by calling an IVR number and choosing the
service and amount. Users can also pay merchants by using the app or by giving a missed call34.

UPI lite: This is an app-based payment system that lets users make payments through their mobile
phones. Users have to add money to the app’s wallet from their bank accounts and then use it to make
real-time payments without the internet. The maximum amount that can be transferred via UPI lite is Rs.
200, and the maximum amount that can be in the UPI lite balance at any given moment is Rs. 200032.

UPI lite x: This is a feature that allows users to tap NFC-enabled QR codes at merchant/payee to make
payments. This feature was introduced by RBI in Sep 20232.
UPI tap and pay: This is a feature that allows users to make contactless payments using near field
communication (NFC) technology. Users can tap their NFC-enabled phones or cards on the merchant’s
device to complete the transaction without entering any PIN or OTP3.

UPI qr code: This is a feature that allows users to make payments by scanning QR codes displayed by
merchants or payees. Users can also generate their own QR codes and share them with others to
receive payments3.

UPI conversational: This is a feature that allows users to make payments and input UPI pin through
voice commands. This is intended to help those who find it challenging to input figures on screen2.

Frictionless credit on UPI: This is a feature that allows users to avail instant credit on their UPI
transactions without any additional documentation or verification. Users can repay the credit amount
within a specified period with low or zero interest rates3.

Rupay linkage on UPI: This is a feature that allows users to link their Rupay cards with their UPI apps
and use them for making payments on UPI platforms. Users can also avail various benefits and offers
from Rupay partners while using this feature.

The RBI is bringing so many options for UPI to increase the adoption and usage of the rupee for digital
payments and to enhance the financial inclusion and innovation in India. By offering various features
and benefits for UPI users, the RBI aims to make the rupee more convenient, accessible, and attractive
for domestic and international transactions.

Having so many options in UPI helps India in various ways, such as:

It increases the adoption and usage of the rupee for digital payments and enhances the financial
inclusion and innovation in India. By offering various features and benefits for UPI users, the RBI aims
to make the rupee more convenient, accessible, and attractive for domestic and international
transactions1 .
It reduces the currency risk and cost of doing business for Indian firms, and enhances the economic
sovereignty and security of India. By using the rupee for international transactions, India can avoid the
fluctuations and uncertainties of other currencies, especially the US dollar, which is often influenced by
geopolitical factors and sanctions. It can also reduce the dependence on foreign exchange reserves
and make India less vulnerable to external shocks1 .

It boosts the confidence and stature of India as a major economic power in the world. By promoting the
use of UPI in the G20 platform, India has increased the awareness and demand of the rupee among
foreign investors and partners, as well as enhanced its global role and influence in the digital economy1
.

Some data on the adoption rate and usage of UPI in India are:

In FY22, UPI accounted for 52 percent of the total 8,840 crore financial digital transactions with a total
value of Rs 126 lakh crore23.

In December 2023, UPI recorded 1.2 billion transactions worth Rs 15.6 lakh crore, which was an
increase of 13 percent in volume and 17 percent in value compared to November 20234.

In January 2023, UPI recorded 1.4 billion transactions worth Rs 17.8 lakh crore, which was an increase
of 17 percent in volume and 14 percent in value compared to December 2023.

CBDC:

CBDC of India is a proposed digital currency that will be issued and backed by the Reserve Bank of
India (RBI). It will be a legal tender that can be used for domestic and international transactions, along
with the existing paper currency and coins. The government announced its plan to launch CBDC in the
Union Budget 2022-23, and the RBI is expected to start the pilot testing by the end of 202312.
Some of the pros of CBDC of India are:

It can improve the efficiency and security of the payment system, by reducing transaction costs, delays,
and frauds. It can also enable faster and cheaper cross-border payments, by eliminating intermediaries
and exchange rate risks123.

It can enhance the financial inclusion and innovation in India, by providing access to digital payments to
millions of unbanked and underbanked people, especially in rural areas. It can also foster the
development of new products and services based on CBDC technology123.

It can increase the transparency and accountability of the monetary policy, by providing real-time data
on money supply and demand. It can also help in implementing negative interest rates, helicopter
money, or other unconventional measures to stimulate the economy123.

Some of the cons of CBDC of India are:

It can pose cybersecurity and privacy risks, by exposing the users and the system to hacking, theft, or
surveillance. It can also create legal and regulatory challenges, such as defining the rights and
obligations of the users, issuers, and intermediaries123.

It can affect the profitability and stability of the banking sector, by reducing the demand for bank
deposits and loans. It can also trigger bank runs, if people lose confidence in the banks and prefer to
hold CBDC instead123.

It can create social and cultural issues, such as digital divide, digital literacy, or digital identity. It can
also raise ethical and moral questions, such as whether CBDC should be anonymous or traceable, or
whether CBDC should be used for social welfare or social control123.
The impact of CBDC of India will depend on various factors, such as the design and implementation of
CBDC, the response of the users and the market, and the coordination with other countries and
platforms. In general, CBDC of India can bring both opportunities and risks for India’s growth,
development, and stability. Therefore, it requires careful planning, preparation, and consultation among
various stakeholder.

CBDC for India is a proposed digital currency that will be issued and backed by the Reserve Bank of
India (RBI). It will be a legal tender that can be used for domestic and international transactions, along
with the existing paper currency and coins. The government announced its plan to launch CBDC in the
Union Budget 2022-23, and the RBI is expected to start the pilot testing by the end of 202312.

CBDC for India will have two versions: a retail version (e₹-R) and a wholesale version (e₹-W). The retail
version will be used by the general public for day-to-day transactions, while the wholesale version will
be used by financial institutions for inter-bank transactions. The RBI has launched the pilot for the retail
version in December 2022, and plans to introduce the wholesale version in the call money market by
October 2023.

CBDC for India has also been linked with some other countries’ payment systems to enable
cross-border payments in rupees. For example, UPI has been linked with Singapore’s PayNow,
France’s Groupe BPCE, and UAE’s Instant Payment Platform. The RBI has also signed bilateral swap
agreements with some countries, such as Japan, Sri Lanka, and Bhutan, to exchange their local
currencies for rupees using UPI567.

CBDC for India has also been promoted in the G20 platform, as India holds the G20 presidency in
2023. India has jointly launched the fourth edition of the G20 TechSprint with the BIS Innovation Hub, a
global technology competition to promote innovative solutions aimed at improving cross-border
payments. The competition focuses on three problem statements on cross-border payments formulated
by RBI and the BISIH: AML/CFT/Sanctions technology solutions to reduce illicit finance risk; FX and
liquidity technology solutions to enable settlement in emerging market and developing economy
(EMDE) currencies; and Technology solutions for multilateral cross-border CBDC platforms .

CBDC for India is expected to have various benefits and challenges for India’s growth, development,
and stability. Some of the benefits are: improving the efficiency and security of the payment system;
enhancing the financial inclusion and innovation in India; increasing the transparency and accountability
of the monetary policy; reducing the currency risk and cost of doing business for Indian firms; enhancing
the economic sovereignty and security of India; boosting the confidence and stature of India as a major
economic power in the world. Some of the challenges are: posing cybersecurity and privacy risks;
affecting the profitability and stability of the banking sector; creating social and cultural issues; requiring
full convertibility of the rupee on the capital account.

People may be motivated towards using CBDC for various reasons, such as:

CBDC can provide a more secure and efficient way of making payments, as it does not require
intermediaries or third-party platforms, such as UPI. CBDC can also enable faster and cheaper
cross-border payments, by eliminating exchange rate risks and transaction fees. Paytm has said it pvt
players will now monetize on upi.

CBDC can also provide a more inclusive and innovative way of accessing financial services, as it can
reach the unbanked and underbanked population, especially in rural areas. CBDC can also foster the
development of new products and services based on CBDC technology12.

CBDC can also provide a more transparent and accountable way of implementing monetary policy, as it
can provide real-time data on money supply and demand. CBDC can also help in implementing
negative interest rates, helicopter money, or other unconventional measures to stimulate the
economy12.

We may need CBDC to complement the existing forms of money, such as paper currency and coins,
and digital payments, such as UPI. CBDC can offer some advantages that other forms of money
cannot, such as:

CBDC can reduce the operational costs involved in physical cash management, such as printing,
transportation, storage, and security12.
CBDC can enhance the economic sovereignty and security of India, by reducing the dependence on
foreign currencies and making India less vulnerable to external shocks, such as fluctuations in
exchange rates, monetary policies, or sanctions by other countries12.

CBDC can boost the confidence and stature of India as a major economic power in the world, by
making the rupee more widely accepted and respected as a global currency.

The difference between CBDC and UPI is that CBDC is a digital form of fiat currency issued by a central
bank, while UPI is a platform for electronic transactions using existing bank accounts. CBDC can be
used as a means of payment and store of value, while UPI facilitates electronic transactions. CBDC is
backed by the central bank, while UPI is not.

Some of the benefits of UPI CBDC interoperability are:

It can improve the efficiency and security of the payment system, by reducing transaction costs, delays,
and frauds. It can also enable faster and cheaper cross-border payments, by eliminating intermediaries
and exchange rate risks123.

It can enhance the financial inclusion and innovation in India, by providing access to digital payments to
millions of unbanked and underbanked people, especially in rural areas. It can also foster the
development of new products and services based on CBDC technology123.

It can increase the transparency and accountability of the monetary policy, by providing real-time data
on money supply and demand. It can also help in implementing negative interest rates, helicopter
money, or other unconventional measures to stimulate the economy123.

It can reduce the currency risk and cost of doing business for Indian firms, and enhance the economic
sovereignty and security of India. By using the rupee for international transactions, India can avoid the
fluctuations and uncertainties of other currencies, especially the US dollar, which is often influenced by
geopolitical factors and sanctions. It can also reduce the dependence on foreign exchange reserves
and make India less vulnerable to external shocks.
It can boost the confidence and stature of India as a major economic power in the world, by making the
rupee more widely accepted and respected as a global currency.

CBDC/Digital Rupee affordability

CBDCs are inherently affordable as they would, eliminate financial barriers, offering a cost-effective
means of conducting transactions, especially for those with limited cash.

According to Grip's CEO, CBDCs are the gateway to a more inclusive financial landscape, empowering
individuals who have long been excluded. They represent a future where financial services are no
longer a privilege but a fundamental right, ensuring that prosperity knows no bounds, he added.

India joined other nations such as Australia, China, and the US in announcing pilots for its very own
central bank digital currency (CBDC) also known as the 'Digital Rupee’. As of 30 June, more than a
million users as well as 262,000 merchants had registered for the pilot on retail CBDC transactions.

CBDCs empower the unbanked by providing them access to the formal financial system. apart from
making micro-transactions viable, it provides financial independence, increases the propensity to save,
and brings the user into the main banking framework. This microcurrency has the power to change
lives! CBDC reduces the digital & economic divide in our country," said Padmaja Ruparel, Co-founder
Indian Angel Network.

Micropayments are small payments that are typically less than a dollar or a rupee. They are often used
for online services, content, or digital goods that require frequent and low-value transactions.
Micropayments are possible through CBDC and not through UPI because of the following reasons:

CBDC is a digital form of sovereign currency that is issued and regulated by the central bank. It has the
same legal tender status as physical cash and can be used for any type of payment. UPI, on the other
hand, is a payment system that facilitates fund transfers between bank accounts using mobile phones.
It is not a currency, but a platform that enables transactions using existing currencies1.

CBDC can enable micropayments by using token-based or account-based models. In the token-based
model, CBDC is stored in digital wallets that can be accessed offline or online. The wallets can
communicate with each other using near-field communication (NFC) or Bluetooth to transfer CBDC
tokens without intermediaries. In the account-based model, CBDC is stored in accounts that are linked
to the central bank ledger. The accounts can be accessed online or offline using biometric
authentication or QR codes to transfer CBDC balances without intermediaries2. UPI, however, requires
an online connection and intermediaries such as banks, payment service providers, and NPCI to
facilitate transactions. UPI also involves multiple steps such as entering the UPI ID, verifying the
amount, entering the PIN, and confirming the transaction3.

CBDC can reduce the transaction costs and latency associated with micropayments by eliminating
intermediaries and using advanced technology such as blockchain and cryptography. CBDC can also
enable peer-to-peer (P2P) micropayments that do not require third-party verification or settlement. UPI,
however, involves transaction costs and latency due to the involvement of intermediaries and the
reliance on existing payment infrastructure. UPI also does not support P2P micropayments as it
requires a bank account and a UPI ID for both the sender and the receiver3.

Therefore, CBDC can enable micropayments by offering a digital sovereign currency that can be
transferred directly between wallets or accounts without intermediaries, online connection, transaction
costs, or latency. UPI, however, cannot enable micropayments as it is a payment system that requires
intermediaries, online connection, transaction costs, and latency to facilitate fund transfers between
bank accounts.

EUROCLEAR PLATFORM

The Euroclear platform is a global system that provides post-trade services for securities such as
bonds, equities, derivatives, and funds. It enables the settlement, custody, and servicing of securities
transactions across multiple markets and currencies1. The Euroclear platform is operated by the
Euroclear group, which is headquartered in Brussels, Belgium2.
The issue of settling Indian bonds via the Euroclear platform has been raised by the Reserve Bank of
India (RBI), which is the central bank and regulator of the Indian financial system. The RBI has been
making informal inquiries with select bond market participants about the impact of allowing settlement of
domestic sovereign debt on the Euroclear platform3. The RBI’s move is seen as a step towards
facilitating the inclusion of Indian sovereign bonds in global bond indices such as those offered by JP
Morgan and Bloomberg Barclays.

The pros and cons of settling Indian bonds via the Euroclear platform are as follows:

Pros:

It would help expand the overseas investor base for local debt, as many foreign investors prefer to
settle their transactions on global platforms such as Euroclear.

It would eventually lower borrowing costs for the Indian government, as inclusion in global bond indices
would increase the demand and liquidity for Indian sovereign bonds.

It would enhance the efficiency, transparency, and security of the Indian bond market, as Euroclear
offers advanced technology and services such as blockchain and cryptography.

It would enable peer-to-peer micropayments using sovereign digital currency (e₹), as Euroclear can
support token-based or account-based models of CBDC settlement.

Cons:

It would create a parallel yield curve for Indian bonds, as different prices and rates may prevail on the
domestic and international platforms.

It would expose the Indian bond market to external shocks and volatility, as global investors may react
to changes in global risk appetite and interest rates.

It would pose regulatory and operational challenges, such as ensuring compliance with tax laws,
anti-money laundering rules, data protection norms, etc.
It would require coordination and cooperation among various stakeholders, such as the RBI, the
government, the clearing houses, the banks, the investors, etc.

The impact and benefit of settling Indian bonds via the Euroclear platform are not yet clear, as the RBI
has not made any formal announcement or decision on this matter. However, based on some estimates
and projections, it is expected that:

The inclusion of Indian sovereign bonds in global bond indices could lead to inflows of $6 to $12 billion
over a period of time into India.

The settlement of Indian bonds on Euroclear could reduce the transaction costs and latency for foreign
investors by 50% to 70%.

The adoption of CBDC for micropayments could increase financial inclusion and innovation in India.

Demonetisation

The demonetisation of 2016 was a decision taken by the Indian government on November 8, 2016, to
withdraw Rs 500 and Rs 1,000 currency notes from circulation, which accounted for 86% of the total
cash in the economy at that time. The decision was announced by Prime Minister Narendra Modi in a
televised address to the nation. The government claimed that the main objectives of demonetisation
were to curb black money, counterfeit currency, corruption, and terror financing1.

The decision had a significant impact on the economy and society, as it created a cash crunch and
disrupted various sectors and activities that relied heavily on cash transactions. People had to queue up
for hours at banks and ATMs to exchange or deposit their old notes and withdraw new notes. Many
people faced difficulties in meeting their daily needs and expenses due to the shortage of cash. The
informal sector, which employs a large number of workers and contributes to a significant share of GDP,
was hit hard by demonetisation. The agricultural sector, which was dependent on cash for inputs and
outputs, also suffered due to the timing of demonetisation, which coincided with the harvest and sowing
seasons2.
The pros and cons of demonetisation are debated by various experts and stakeholders. Some of the
possible pros are:

It increased the tax base and revenue of the government, as more people declared their income and
assets under various schemes launched after demonetisation.

It promoted digitalisation and financial inclusion, as more people adopted digital modes of payment and
opened bank accounts.

It reduced the circulation of fake currency notes, which were used for illegal activities and posed a
threat to national security.

It improved the transparency and accountability of the financial system, as more transactions became
traceable and auditable.

Some of the possible cons are:

It caused a slowdown in economic growth, as consumption, investment, and production declined due to
the liquidity crunch.

It increased unemployment and poverty, as many workers lost their jobs or incomes due to the
disruption in the informal sector.

It eroded public trust and confidence in the government and the banking system, as people faced
hardships and inconveniences due to the sudden and poorly implemented decision.
It violated the rights and freedoms of the people, as they were deprived of their property and privacy
without adequate justification or compensation.

The impact of demonetisation on the economy as of now is not clear, as different sources have different
estimates and projections. According to the official data released by the Ministry of Statistics and
Programme Implementation (MOSPI), India’s GDP growth rate fell from 8.2% in 2015-16 to 7.1% in
2016-17, 6.7% in 2017-18, 6.1% in 2018-19, 4% in 2019-20, and -7.3% in 2020-213. However, some
experts have questioned the reliability and accuracy of these data, as they have been revised several
times and do not match with other indicators such as consumption expenditure, industrial production,
tax collection, etc4. Moreover, the impact of demonetisation may have been masked or magnified by
other factors such as GST implementation, global trade tensions, Covid-19 pandemic, etc.

The extent to which demonetisation fulfilled its stated objectives is also debatable, as different sources
have different findings and opinions. According to the RBI’s annual report for 2017-18, 99.3% of the
demonetised currency notes returned to the banking system, which implies that most of the black
money was either converted into white or remained outside the formal economy. According to a study
by RBI researchers published in 2018, demonetisation had no significant impact on curbing corruption
or tax evasion. According to a report by NITI Aayog published in 2019, demonetisation had a positive
impact on digital payments and financial inclusion. According to a report by Global Financial Integrity
published in 2020, India lost $83 billion due to illicit financial flows in 2016.

The Supreme Court’s decision on demonetisation was delivered on January 2, 2023 by a five-judge
Constitution bench comprising Justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian
and BV Nagarathna. The bench gave two separate judgments: one by Justice Gavai (for himself and
Justices Nazeer, Bopanna and Ramasubramanian) upholding the legality of demonetisation; and
another by Justice Nagarathna dissenting from the majority view. The bench decided on six issues
related to demonetisation:

The power of the government under Section 26(2) of the RBI Act to declare any series of bank notes as
illegal tender;
The validity of Section 2(q) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which
defined specified bank notes as those issued before November 8, 2016;

The validity of Section 4 of the same Act, which extinguished the liability of the RBI and the government
towards the holders of specified bank notes;

The validity of Section 5 of the same Act, which imposed a penalty for holding, transferring or receiving
specified bank notes after December 30, 2016;

The validity of Section 7 of the same Act, which barred the jurisdiction of civil courts to entertain any suit
or proceeding in respect of any matter arising out of the Act;

The grant of relief to those who could not exchange or deposit their specified bank notes within the
deadline due to genuine reasons.

The majority judgment upheld the government’s decision on all these issues, except for granting relief to
some categories of people who could not exchange or deposit their specified bank notes within the
deadline. The majority judgment held that:

The government had the power to declare any series of bank notes as illegal tender, and that the word
“any” in Section 26(2) of the RBI Act could not be restricted to mean “some” or “one”.

Section 2(q) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 was valid, as it was a
reasonable classification based on a rational criterion.

Section 4 of the same Act was valid, as it was a legitimate exercise of eminent domain and did not
amount to compulsory acquisition or deprivation of property without compensation.

Section 5 of the same Act was valid, as it was a reasonable restriction on the right to hold property and
did not violate Article 300A of the Constitution.
Section 7 of the same Act was valid, as it was a valid ouster clause and did not violate Article 226 or
Article 32 of the Constitution.

Relief could be granted to those who could not exchange or deposit their specified bank notes within the
deadline due to certain reasons such as being abroad, being in jail, being in hospital, being in armed
forces, etc. The majority judgment directed the government to frame a scheme within four weeks to
provide such relief.

The dissenting judgment disagreed with the majority view on all these issues, except for granting relief
to some categories of people who could not exchange or deposit their specified bank notes within the
deadline. The dissenting judgment held that:

The government did not have the power to declare all series of bank notes as illegal tender, and that the
word “any” in Section 26(2) of the RBI Act had to be given a restricted meaning to mean “some” or
“one”.

Section 2(q) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 was invalid, as it was an
arbitrary and irrational classification that violated Article 14 of the Constitution.

Section 4 of the same Act was invalid, as it amounted to compulsory acquisition or deprivation of
property without compensation and violated Article 300A of the Constitution.

Section 5 of the same Act was invalid, as it imposed an excessive and disproportionate penalty on the
holders of specified bank notes and violated Article 300A and Article 21 of the Constitution.

Section 7 of the same Act was invalid, as it barred the access to justice and violated Article 226 and
Article 32 of the Constitution.

Relief should be granted to all those who could not exchange or deposit their specified bank notes
within the deadline for any reason. The dissenting judgment directed the government to frame a
scheme within four weeks to provide such relief.
2000 rupees notes withdrawal

No, the withdrawal of Rs 2000 notes is not demonetisation. Demonetisation is the act of stripping a
currency unit of its status as legal tender. It means that the old unit of currency must be retired and
replaced with a new currency unit1. In contrast, the withdrawal of Rs 2000 notes is a currency
management operation, which means that the existing notes will remain legal tender, but they will be
gradually phased out from circulation.

The reasons why the 2016 demonetisation and the withdrawal of Rs 2000 notes are different are:

The 2016 demonetisation was a sudden and unexpected decision that affected 86% of the total
currency in circulation by value. It created a cash crunch and disrupted various sectors and activities
that relied heavily on cash transactions3. The withdrawal of Rs 2000 notes is a planned and gradual
decision that affects only 10.8% of the total currency in circulation by value. It will not cause any
disruption or inconvenience to the public or the economy, as there is an adequate stock of banknotes in
other denominations2.

The 2016 demonetisation had multiple objectives, such as curbing black money, counterfeit currency,
corruption, and terror financing. It also aimed to promote digitalisation and financial inclusion1. The
withdrawal of Rs 2000 notes has a single objective, which is to implement the Clean Note Policy of the
RBI. The Clean Note Policy seeks to provide the public with good-quality currency notes and coins with
better security features, while soiled notes are withdrawn out of circulation4.

The 2016 demonetisation had a limited timeframe, which allowed people to exchange or deposit their
old notes only until December 30, 2016. After that date, the old notes became invalid and could only be
deposited at specified RBI offices. The withdrawal of Rs 2000 notes has a generous timeframe, which
allows people to exchange or deposit their notes until September 30, 2023. After that date, the notes
will still remain valid and can be used for any type of payment.

The 2000 rupees withdrawal is a decision taken by the Reserve Bank of India (RBI) to withdraw the Rs
2000 denomination banknotes from circulation. The RBI announced this decision on May 19, 2023, and
gave the public time until September 30, 2023, to deposit or exchange these notes at any bank branch.
The RBI said that the existing notes will remain legal tender, but they will be gradually phased out from
circulation1.
The reasons why the RBI decided to withdraw the Rs 2000 notes are:

The Rs 2000 note was introduced in November 2016 after the demonetisation of Rs 500 and Rs 1000
notes. The main objective of introducing the Rs 2000 note was to meet the currency requirement of the
economy quickly after the withdrawal of the old notes. However, once notes of other denominations
were available in adequate quantities, the printing of Rs 2000 notes was stopped in 2018-192.

Most of the Rs 2000 notes were issued before March 2017 and are now at the end of their estimated
lifespan of 4-5 years. The RBI said that about 89% of the Rs 2000 notes in circulation have declined in
value from Rs 6.73 lakh crore in March 2018 to Rs 3.62 lakh crore in March 20232.

The Rs 2000 note is not commonly used for transactions, as it is inconvenient and difficult to get change
for it. The RBI said that there is adequate stock of banknotes in other denominations to meet the
currency requirement of the public2.

The RBI wants to implement its Clean Note Policy, which aims to provide the public with good-quality
currency notes and coins with better security features, while soiled notes are withdrawn out of
circulation. The RBI had earlier decided to withdraw from circulation all banknotes issued prior to 2005
as they have fewer security features.

The impact and benefit of withdrawing the Rs 2000 notes are:

It will not cause any disruption or inconvenience to the public or the economy, as there is enough time
and opportunity for people to deposit or exchange their notes before the deadline. The RBI has also
assured that there will be no shortage of cash in the system2.
It will reduce the circulation of fake currency notes, which are used for illegal activities and pose a threat
to national security. The Rs 2000 note is more prone to counterfeiting as it has fewer security features
than other notes.

It will enhance the efficiency, transparency, and security of the financial system, as more transactions
will become traceable and auditable. It will also promote digitalisation and financial inclusion, as more
people will adopt digital modes of payment and open bank accounts.

SLR is the statutory liquidity ratio, which is the percentage of deposits that banks have to maintain in the
form of liquid assets such as cash, gold, or government securities. SLR is a prudential norm that
ensures that banks have enough liquidity to meet their obligations and prevent a bank run. SLR also
acts as a monetary policy instrument that affects the availability of credit in the economy. Increasing
SLR would reduce the amount of funds that banks can lend to borrowers, and thus affect the credit
growth and economic activity.ICR is the incremental cash reserve ratio, which is the additional
percentage of deposits that banks have to maintain in the form of cash with the RBI. ICR is a liquidity
management tool that enables the RBI to absorb excess liquidity from the banking system without
affecting the market interest rates. ICR also helps in maintaining the weighted average call rate (WACR)
close to the policy repo rate, which is the operating target of monetary policy. Increasing ICR would
reduce the excess liquidity in the system, and thus improve the transmission of monetary policy signals.

SLR is the statutory liquidity ratio, which is the percentage of deposits that banks have to maintain in the
form of liquid assets such as cash, gold, or government securities. SLR is a prudential norm that
ensures that banks have enough liquidity to meet their obligations and prevent a bank run. SLR also
acts as a monetary policy instrument that affects the availability of credit in the economy. Increasing
SLR would reduce the amount of funds that banks can lend to borrowers, and thus affect the credit
growth and economic activity.

The withdrawal of ₹2000 notes is a currency management operation, which means that the existing
notes will remain legal tender, but they will be gradually phased out from circulation. The withdrawal of
₹2000 notes does not affect the total currency in circulation, as it is replaced by notes of other
denominations. The withdrawal of ₹2000 notes does not create any liquidity shortage or surplus in the
banking system, as it does not change the aggregate deposits or reserves of banks.
Therefore, there is no need to increase SLR for withdrawal of ₹2000 notes, as it would not serve any
purpose or benefit for the economy. Increasing SLR would only impose an additional burden on banks
and reduce their lending capacity and profitability. It would also hamper the economic recovery and
financial stability in the current scenario of low growth and high inflation.

Precision: The ICRR allows RBI to target a very specific portion of banks' deposits and set aside that
amount as reserves. This level of precision may be necessary if RBI wants to control the money supply
very precisely, perhaps to phase out or manage the withdrawal of a specific denomination of currency.

Impact on Liquidity: Depending on the prevailing economic conditions, RBI might want to manage
liquidity without affecting broader interest rates (as the repo rate would). Using ICRR could be a way to
do this while keeping other monetary policy tools, like the repo rate, unchanged.

Targeted Control: If the primary goal is to influence a specific aspect of banks' liquidity positions, such
as the cash they hold in a particular denomination, then the ICRR could be a more targeted tool for
achieving that goal.

Interest Rates: The repo rate directly affects interest rates in the economy. Increasing the repo rate can
have a broader impact on borrowing costs and economic activity. If RBI's primary concern is managing
liquidity without wanting to influence broader interest rates, the ICRR may be a preferred tool.

SLR Impact: SLR, which mandates banks to maintain a certain percentage of their deposits in
government securities, affects banks' overall investment decisions. A change in SLR can influence how
banks allocate their resources. If RBI's objective is solely to manage liquidity and not to alter banks'
investment behavior, it might opt for the ICRR instead.

GST council meet

The latest GST Council meeting was the 52nd meeting, which was held on October 7, 2023, at Vigyan
Bhawan, New Delhi. The GST Council is a constitutional body that consists of the Union Finance
Minister as the chairperson and the Finance Ministers of the states and Union Territories as the
members. The GST Council is responsible for making recommendations on various issues related to
the Goods and Services Tax (GST), which is a unified indirect tax system in India.
Some of the highlights of the 52nd GST Council meeting are:

The GST Council approved amendments to the GST laws to provide clarity on the taxation of casinos,
horse racing and online gaming. A 28 per cent GST is levied on full face value of bets in these three
supplies1.

The GST Council decided to reduce the GST rate on millet-based health products from 18 per cent to 5
per cent, in view of the International Year of Millets in 20232.

The GST Council decided to extend the concessional GST rate of 5 per cent on Covid-19 related drugs
and medical devices till March 31, 20243.

The GST Council decided to defer the implementation of the e-invoicing system for
business-to-consumer (B2C) transactions till April 1, 2024.

The GST Council decided to review the progress with regard to implementation of amendments in the
SGST law by different states. The amendments were made to align the SGST law with the IGST law
and to remove certain anomalies5.

The GST Council decided to set up a Group of Ministers (GoM) to examine various issues related to
GST compensation cess and revenue augmentation. The GoM will submit its report within six weeks.

Fintech

The global FinTech sector which currently generates $245 billion annual revenue - a mere 2% share of
global financial services revenue - is estimated to reach $1.5 trillion annual revenue by 20301. The
Indian FinTech industry is projected to generate around $200 billion in revenue by the year 20302. This
projection indicates that by 2030, India's FinTech sector could potentially contribute to approximately
13% of the global FinTech industry's total revenue. These projections underscore the increasing
significance of the Indian Fintech sector.

4. Technological innovations by FinTechs are the result of interplay between the underlying (i) digital
public infrastructure; (ii) institutional arrangements; and (iii) policy initiatives. These key elements help
foster a conducive environment for nurturing creative ideas and promoting transformative technologies,
which lead to beneficial and impactful changes in the financial industry. Let me elaborate on these three
aspects.

A. Digital Public Infrastructure

5. Digital Public Infrastructure (DPI) is commonly recognized as a technology system that promotes
interoperability, openness, and inclusion to deliver vital public and private services. The defining feature
of the Indian ‘model’ of digitisation is the lead taken by the Government and the Public Sector in building
an infrastructure, on top of which innovative products are created by private sector FinTech firms and
start-ups. In fact, India has pioneered a layered approach to DPI, with the concept of the India Stack. In
this respect, the impact of JAM trinity, i.e., Jan Dhan Yojana, Aadhar and Mobile in terms of financial
inclusion, digitisation of financial services, and emergence of FinTech ecosystem has been significant.

(i) Jan Dhan Yojana/Bank accounts

6. As per the World Bank's Global Findex Database 2021, 76% of adults worldwide had access to an
account in a bank or a regulated financial institution as compared to 51% in 2011. In comparison, the
percentage of adults in India who had access to bank account increased from 35% in 2011 to 78% in
2021. As you would be aware, the Jan Dhan scheme launched by the government in 2014 for
universalisation of bank account has played a significant role in achieving this remarkable progress. So
far, over 500 million Jan Dhan bank accounts have been opened in India.3

(ii) Aadhar- Digital identity

7. Aadhaar, India's biometric identity system, provides a single and portable proof of identity. As on 30th
November 2022, Unique Identification Authority of India had issued 1.35 billion Aadhaar identities4. The
unique Aadhar identification number allows individuals to verify their identity through authentication,
regardless of their location, thereby ensuring convenient access to financial services, targeted financial
subsidies, benefits, and other services nationwide. This has also enabled FinTechs to offer paperless
and contactless financial services. Aadhaar has enhanced customer convenience, strengthened the
security of financial transactions and substantially mitigated the risk of identity fraud. It is a good
example of how digital public infrastructure can be leveraged for achieving public policy objectives.

(iii) Mobile Connectivity

8. The spread of mobile connectivity has also played a major role in the digitization of financial services
in India. The number of internet users through mobile phone in India has grown from about 70 million in
20145 to about 800 million in 20226. During the same period, the number of digital transactions in India
grew from about 1.2 billion in 20147 to about 91 billion in 20228. Increasing affordability of mobile
phones, cheap access to data and the expansion of mobile network coverage have spurred the growth
in adoption of mobile wallets, UPI, and other digital payment methods.

(iv)Unified Payments Interface (UPI)

9. The UPI has played a phenomenal role in the FinTech revolution in India. Its success story has in fact
become an international model. Its ability to instantly transfer money between bank accounts through
mobile applications has transformed the way people make digital transactions. The interoperability of
UPI across banks has created a unified payment ecosystem. Its user-friendly interface and QR
code-based payments have made it very popular. It has facilitated digital payments for small businesses
and street vendors, leading to greater financial inclusion.

10. UPI has also spurred innovation in the FinTech space, leading to the growth and development of
other payment systems. For instance, the volume of transactions through Bharat Bill Payment
System(BBPS) increased phenomenally after UPI-based platforms started providing such facilities.
Prepaid Payment Instruments/ mobile wallets have also witnessed higher volumes when mobile wallets
were made interoperable through UPI. The success of UPI is reflected in the sheer numbers, as it has
scaled up in relatively a short period of time. More than 10 billion transactions for over Rs.15 trillion
value were carried out in August 2023. This number is steadily rising9. India’s technology stack has
accelerated digitalisation10 through mobile phones and internet; identity system; data sharing rails (AA
framework11); payment rails; and universalisation of bank accounts.

B. Institutional arrangements

11. Institutional arrangements are also critical for the development of a financial system. They
undertake various functions such as research, innovation, training, advancing technology solutions and
developing best practices in finance. They also promote stability, transparency, and fair practices in the
financial sector. The Reserve Bank’s initiatives in institution building for the FinTech sector include: (i)
establishment of the Institute for Development and Research in Banking Technology (IDRBT)12 which
has been playing a crucial role in shaping the digital transformation of the Indian banking industry; (ii)
creation of the National Payment Corporation of India Ltd (NPCI)13 which has emerged as a pivotal
organization driving the transformation of retail digital payments in India; (iii) setting up of the Indian
Financial Technology & Allied Service (IFTAS)14, an institution to design, deploy & provide essential
IT-related services, as required by the RBI, banks, and financial institutions; (iv) setting up of the
Reserve Bank Information Technology Pvt. Ltd. (ReBIT)15 in 2016 to strengthen cyber resilience of the
Reserve Bank and that of the banking sector; (v) formation of the FinTech department in RBI in 2022;
and (vi) establishment of the Reserve Bank Innovation Hub (RBIH) to promote innovation in financial
services.

C.Policy Initiatives

12. Timely and appropriate policy initiatives play a crucial role in shaping the development of the
FinTech sector. The focus of our policy initiatives is to promote a conducive environment for innovation
and also ensure the security and stability of financial services. We have taken many such policy
initiatives in the recent times. They include issuance of regulatory guidelines for emerging areas such
as payments banks (2014), account aggregators (AA) (2016), pre-paid instruments (2017), peer-to-peer
(P2P) lending (2017), invoice discounting (Trade Receivable and Discounting System-TReDS) (2018),
and Digital Lending Guidelines (2022, 2023). Incidentally, the cumulative number of consent-based
information sharing through Account Aggregators has reached 15.65 million in July 2023. With entities
from Insurance, Capital markets and Pension Funds joining the AA framework, it is receiving a lot of
traction.

13. The Regulatory Sandbox framework was announced in August 2019 with a view to foster
responsible innovation and promote efficiencies in financial services. The four cohorts on retail
payments, cross border payments, MSME lending and prevention of financial frauds, together with the
neutral fifth cohort, reflect our commitment to promote innovation in the FinTech space. Drawing upon
the learnings from the first cohort of Regulatory Sandbox, RBI has put in place a ‘Framework for
facilitating Small Value Digital Payments in Offline Mode’ which should give a push to digital
transactions in areas with poor or weak internet or telecom connectivity.

14. Further, RBI is now conducting hackathons to promote innovation. Our first hackathon, HaRBInger
was conducted in 2021 under the broad theme - ‘Smarter Digital Payments’. The second edition of our
global hackathon – ‘HARBINGER 2023’– has also been launched with the theme ‘Inclusive Digital
Services’.

D. Current Initiatives

15. Let me now turn to some of the recent tech-based initiatives taken by the RBI which promise to be
transformational.

(i) Central Bank Digital Currency (CBDC)

16. CBDC provides unique opportunities as it represents the next milestone in the evolution of the
payment system. As you would be aware, RBI has commenced pilot runs of India’s CBDC (e-Rupee) for
specific use cases in both wholesale and retail segments. The CBDC-Wholesale Pilot was launched on
November 1, 2022, to settle secondary market transactions in government securities. We are planning
to test some more use cases going forward.

17. The CBDC-Retail Pilot was launched on December 1, 2022 and covers both Person to Person
(P2P) and Person to Merchant (P2M) transactions. The pilot is testing the robustness of the entire
process of digital rupee creation, distribution and retail usage in real time. The pilot is currently being
operated through 13 banks across 26 cities. Around 1.46 million users and 0.31 million merchants are
currently part of the pilot as on August 31, 2023.

18. Needless to say, as the next generation currency system, CBDC needs to be introduced in a
non-disruptive manner. Therefore, we are following a strategy of calibrated and phased implementation.
Recently, we have enabled full inter-operability of CBDC with UPI QR codes and are targeting one
million CBDC transactions per day by December 2023. This will give us enough data points to study
various design choices, use cases and also behavioural pattern.

(ii) Public Tech Platform for frictionless credit

19. In the last GFF in September 2022, I had mentioned about the commencement of pilots on
end-to-end digitalisation of small ticket agricultural loans (known as Kisan Credit Card – KCC loans) in a
few states and our effort to develop a platform to provide frictionless credit for all segments of loans.

20. The pilot on KCC digitalisation was launched in September 2022 in select districts of Madhya
Pradesh and Tamil Nadu. The pilot enabled successful disbursal of agricultural loans up to ₹1.6 lakh
(not requiring any collateral) per borrower, within a few minutes to farmers by integrating with the
digitised state land records database, Credit Information Companies (CICs), satellite data, Aadhar
e-KYC, etc. Farmers can apply for new KCC loans as well as KCC loan renewal, directly from their
location or from anywhere on smartphones/tablets directly or through assisted mode. The KCC pilot has
been subsequently extended to select districts of Uttar Pradesh, Karnataka and Maharashtra. A total of
seven banks are now part of Digital KCC Pilot. The pilot has also been extended to dairy farmers in
Gujarat. The eligibility and scale of finance for such diary loans is instantly decided based on milk
pouring data available with the milk cooperatives.

21. We are now moving beyond digital KCC loans. Let me elaborate. Currently, data required for credit
appraisal exists in separate systems of different entities like Central and State Governments,
technology and FinTech companies, banks, service providers like Credit Information Companies, digital
identity authorities, etc. Accessing customer data available with multiple data sources is a challenge for
banks as it would require multiple integrations with each information provider. It is a challenge for the
borrower also. To enable frictionless credit, in August 2023 RBI announced the launch of a digital Public
Tech Platform, conceptualised and developed in association with the RBIH. The platform enables
seamless flow of digital information from all the above sources to lenders, obviating the need for
multiple integrations.

22. The Pilot project on the Platform was launched on August 17, 2023. To begin with, the platform will
focus on products like MSME loans (without collateral), personal loans and home loans. Based on the
learnings, the scope and coverage would be expanded to include more products, information providers
and lenders during the pilot.

E. Customer Centricity, Governance and Self-regulation

23. I would now like to touch upon certain key issues which are critical for the FinTech ecosystem to be
stable and future ready. In this context, three critical issues, viz., customer centricity, governance, and
self-regulation merit attention. In the dynamic and ever-evolving world of business, it is easy to get
caught up in the pursuit of revenue, bottom lines and the relentless drive for valuations. Sometimes, it is
forgotten that the success of any enterprise is intricately tied to the satisfaction and trust of its
customers. This is the first critical issue I wish to highlight. We must remember what Steve Jobs once
said, “you have got to start with the customer experience and work backward to the technology”16.

24. To focus on customers means embracing a customer-centric approach to innovation by

understanding the needs of customers, making provisions that protect customer interests and earn their
trust. This calls for developing an organisational culture in which continuous feedback mechanisms are
embedded in the business strategy. Designing solutions that safely and efficiently meet customer needs
would not only elicit trust of customers, it would also meet business objectives in a sustainable manner.
This can be achieved through simplified user interfaces and quick customer grievance redress
mechanisms. Avoiding customer harassment is essential to achieving long-term customer trust.
25. In this context, I would like to further add that digital innovations, at times, have also led to cyber-risk
and data security related issues. Illustratively, mushrooming of illegal loan apps, many of which had
their origin in foreign jurisdictions, have led to serious concerns about breach of data privacy, unethical
business conduct, levying of exorbitant interest rates, and harsh recovery practices. This highlights the
urgent need to ensure that innovations are accompanied by prudential safeguards and responsible
conduct. It is also imperative that regulated entities operate within the perimeter set by the licensing
conditions and only undertake activities which are permitted under the regulations.

26. The second critical aspect is the important role of governance in FinTechs. By providing clear
governance structures, FinTechs can demonstrate their commitment to transparency, accountability and
responsible decision-making. In fact, effective governance in FinTechs require a collaborative effort
involving regulators, industry associations and the FinTech community itself. Regulators play a critical
role in addressing arbitrage, ensuring compliance with existing laws, and adapting regulations to
technological advancements. Industry associations can facilitate development of best practices. The
most critical role, however, has to be played by FinTechs themselves. They must proactively adopt high
standards of governance. A robust governance structure encompasses clear delineation of roles and
responsibilities, transparent decision-making processes, accountability mechanisms, and stakeholder
engagement. Good governance must focus on ensuing effective oversight, ethical conduct and risk
management. Ultimately, it is good governance which would be key to durable and long term success of
FinTechs.

27. The third critical issue I would like to highlight is the need to establish an effective self-regulatory
structure by the FinTech players themselves. They need to evolve industry best practices, privacy and
data protection norms in sync with the laws of the land, set standards to avoid mis-selling, promote
ethical business practices, transparency of pricing, etc. I would like to use this opportunity to urge and
encourage the FinTechs to establish a Self-Regulatory Organization (SRO) themselves.

Conclusion
28. Technological innovation has unprecedented potential to make finance more inclusive, competitive
and robust. It is crucial that technological advancements in the world of FinTech evolve in a responsible
manner and are truly beneficial to the people at large. It is, therefore, vital for these innovations to be
scalable and interoperable. FinTech players should themselves ensure responsible digital innovations.
The Reserve Bank, on its part, will continue to drive the necessary regulatory and other policy
measures to promote a vibrant and responsive FinTech ecosystem.

29. The Indian economy is growing rapidly and with it, the demand for financial services. The coming
years hold immense promise and innovators across the world should explore these opportunities. I
firmly believe that the GFF will emerge as a key global platform to unlock the full potential of India’s
FinTech ecosystem.

Sovereign gold bonds

Recently, the Government of India, in consultation with the Reserve Bank of India, has decided to issue
Sovereign Gold Bonds (SGBs) in tranches for 2023-24.

The first SGB scheme was launched by the Government in November 2015, under Gold Monetisation
Scheme with an objective to reduce the demand for physical gold and shift a part of the domestic
savings - used for the purchase of gold - into financial savings.

What are the Key Details of the Scheme?

Item Details

Issuance Issued by the Reserve Bank of India on behalf of the Government of India.

Eligibility SGBs will be restricted for sale to resident individuals, HUFs (Hindu Undivided Family),
Trusts, Universities and Charitable Institutions.
Tenor The tenor of the SGB will be for a period of eight years with an option of premature redemption
after 5th year.

Minimum size Minimum permissible investment will be One gram of gold.

Maximum limit The maximum limit of subscription shall be 4 Kg for individuals, 4 Kg for HUF and 20
Kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to
time.

Joint holder In case of joint holding, the investment limit of 4 Kg will be applied to the first applicant
only.

Issue price Price of SGB will be fixed in Indian Rupees on the basis of simple average of closing
price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited.

Sales channel SGBs will be sold through Scheduled Commercial banks (except Small Finance Banks,
Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited, Clearing
Corporation of India Limited, designated post offices and National Stock Exchange of India Limited and
Bombay Stock Exchange Limited, either directly or through agents.

Interest rate The investors will be compensated at a fixed rate of 2.50% per annum payable
semi-annually on the nominal value (face value or stated value).

Collateral The SGBs can be used as collateral for loans.

Tax treatment The interest on SGBs shall be taxable as per the provision of the Income Tax Act, 1961.
The capital gains tax arising on redemption of SGB to an individual is exempted.

Tradability SGBs shall be eligible for trading.

SLR eligibility. SGBs obtained by banks through the pledge process will be considered as part of their
Statutory Liquidity Ratio requirements.
Nifty 20k

Nifty is the benchmark index of the National Stock Exchange (NSE) of India, which represents the
performance of the top 50 companies listed on the exchange. Nifty touched 20,000 for the first time on
September 11, 2023, which is a historic milestone for the Indian stock market. There are several
reasons behind this achievement, such as:

The positive outcome of the G20 summit hosted by India, which boosted investor confidence and global
cooperation12.

The strong economic growth prospects of India compared to other emerging markets, especially China,
which is facing slowdown and regulatory challenges23.

The sustained inflows from domestic and foreign investors, who are attracted by the attractive
valuations and earnings potential of Indian companies23.

The expectations of easing inflation and lower interest rates, which support consumption and
investment demand in the economy12.

People are happy about Nifty crossing 20,000 because it signifies the robust health and growth of the
Indian stock market and economy. It also reflects the good financial standing and performance of the
top 50 companies in India, which are leaders in their respective sectors. It means that India is emerging
as a global force and a preferred destination for investors. It also means that the stock market is offering
lucrative opportunities for wealth creation and value appreciation.

However, Nifty crossing 20,000 also has some implications and challenges. It may indicate that the
market is overpriced and due for a correction, as some analysts have warned14. It may also make
investors more bullish and speculative, leading to inflated valuations and higher volatility. Therefore, it is
important to be cautious and prudent while investing in the stock market, and not to be carried away by
the euphoria. It is advisable to assess the market conditions with other broader economic factors in
mind, and to diversify the portfolio across sectors and asset classes. Ultimately, market indices are just
guides, not gospel.

Inflation

The optimal level of inflation can vary between developing economies like India and developed
economies, and the reasons for these differences are rooted in their economic and developmental
characteristics. Here's a general overview of the ideal inflation rates for each:

For Developing Economies like India:

Inflation can serve different purposes in developing economies:

1. Moderate Inflation (around 4-6%): Many developing economies, including India, often target
moderate inflation rates, typically around 4-6%. Several reasons support this approach:

- Economic Growth: Moderate inflation can stimulate spending and investment, promoting economic
growth. It encourages consumers to spend and businesses to invest rather than hoard cash.

- Debt Management: Inflation can help reduce the real burden of debt for both governments and
private borrowers. It makes it easier to repay loans in the future with less valuable currency.

- Employment: Moderate inflation can create a more favorable environment for job creation by
encouraging economic activity.

- Fiscal Space: It provides fiscal space for the government to collect revenue through taxation without
increasing tax rates, which can be politically unpopular.

For Developed Economies:

Developed economies tend to aim for lower and more stable inflation rates, typically in the range of
1-3%. Several reasons support this approach:

1. Price Stability: Developed economies prioritize price stability to maintain confidence in their
currencies and financial systems. Low and stable inflation ensures that the purchasing power of money
remains relatively constant over time.

2. Fixed-Income Investments: In developed economies, many individuals rely on fixed-income

investments like bonds and pensions. Low inflation helps preserve the real value of these investments.

3. Central Bank Credibility: Central banks in developed countries often have well-established
inflation-targeting frameworks. Maintaining low and stable inflation is crucial for central bank credibility
and economic stability.

4. Financial Markets: Developed economies have more developed and sophisticated financial
markets. Higher inflation can introduce uncertainty and volatility into these markets, which can have
widespread economic consequences.

5. Consumer Behavior: Consumers in developed economies tend to be more sensitive to price

changes due to higher income levels. High inflation can erode consumer purchasing power and create
uncertainty.

In summary, the ideal level of inflation varies based on a country's economic development, institutional
framework, and economic goals. Developing economies like India may target moderate inflation to
support growth and fiscal flexibility, while developed economies generally prioritize low and stable
inflation to maintain financial stability and consumer confidence. Central banks in each type of economy
carefully calibrate their monetary policies to achieve their inflation targets while considering broader
economic objectives.

Inflation in India is mainly because of the supply chain crisis caused by the Ukraine war which has
implications in three fronts - food, fuel and fertilizers. Ukraine would export 15% of the world's total food,
leading to an inflation due to low supply. In terms of fertilizers, india would import pottash fertilizers from
Ukraine which has taken a hit, and india is trying to shift to organic farming and chemical free fertilizers
to tackle this issue (PM PRANAM). In terms of fuel, we are importing from Russia directly and Russia
has emerged in the 2nd place for india for importing fuel. We are also focusing on biofuels alliance,
green hydrogen etc to go for alternative fuel options.

There are several reasons why inflation is sticky in India, such as:

The depreciation of the currency due to excess money supply as a Covid measure. The government
and the Reserve Bank of India (RBI) have injected a large amount of liquidity into the economy to
mitigate the impact of the pandemic and support growth. However, this has also led to a fall in the value
of the rupee against other currencies, especially the US dollar. This makes imports more expensive,
especially of oil and other essential commodities, and fuels inflation12.

The demand from the internal economy due to formal job creation and welfare schemes. The
government has launched various schemes to boost employment and income for the poor and
vulnerable sections of society, such as the Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA), the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), and the Pradhan Mantri Garib
Kalyan Yojana (PMGKY). These schemes have increased the disposable income and purchasing power
of the people, especially in rural areas, and raised the demand for food and other essential items34.

The short-term issues such as vegetable prices and El Nino effect. The prices of vegetables, especially
onions, tomatoes, and potatoes, have fluctuated widely due to supply shocks caused by adverse
weather conditions, pest attacks, crop failures, and logistical disruptions. These items have a high
weightage in the consumer price index (CPI), which measures inflation at the retail level. Moreover, the
El Nino phenomenon, which is associated with warmer than normal sea surface temperatures in the
Pacific Ocean, has affected the monsoon rainfall in India, which is crucial for agricultural production and
irrigation.

OPEC and Oil Prices: A Major Factor for Inflation in India in 2023
India is one of the largest consumers and importers of oil in the world, and its economy is highly
dependent on the price and availability of oil. According to the Ministry of Petroleum and Natural Gas,
India imported about 85% of its crude oil requirements in 2022-231. Therefore, any change in the global
oil market has a significant impact on India’s inflation, growth, and fiscal balance.

One of the main drivers of the global oil market is the Organization of the Petroleum Exporting
Countries (OPEC), which consists of 13 members as of March 20232. OPEC has a major influence on
the supply and price of oil, as it controls about 40% of the world’s crude oil production and holds about
80% of the world’s proven oil reserves2.

In April 2023, OPEC and its allies, known as OPEC+, surprised the world by announcing that they
would cut their oil output by 1.2 million barrels per day (bpd) from May 2023 through December 202334.
This decision was made in response to the rising demand for oil amid the recovery from the coronavirus
pandemic, as well as the geopolitical tensions between Russia and Ukraine, which threatened the
stability of oil supply from Europe.

The announcement of OPEC+ output cuts boosted the oil prices by as much as 10 U.S. dollars per
barrel, according to some analysts4. The Brent crude oil price, which is one of the most important
benchmarks for crude oil prices worldwide2, reached an average of 100.08 U.S. dollars per barrel in
2023, up from 69.89 U.S. dollars per barrel in 20222.

The rise in oil prices has a direct and indirect effect on inflation in India. The direct effect is through the
increase in the cost of imported oil, which accounts for about 30% of India’s total imports1. The indirect
effect is through the increase in the cost of production and transportation of various goods and services
that use oil as an input or a fuel. According to some estimates, a 10% increase in oil prices can lead to
a 0.4% increase in inflation in India.

Food inflation is the increase in the prices of food items over a period of time. Food inflation in India is
measured by the Consumer Food Price Index (CFPI), which is a component of the Consumer Price
Index (CPI).

According to the data from the Ministry of Statistics and Programme Implementation (MOSPI)1, food
inflation in India was 9.94% in August 2023, down from 11.51% in July 2023, which was the highest
since January 2020. However, food inflation was still higher than the overall retail inflation, which was
6.83% in August 2023.

Some of the reasons for high food inflation in India in August and September 2023 are:

Monsoon deficit: The monsoon rainfall in India was below normal due to the El Nino phenomenon,
which affects the weather patterns across the globe. The monsoon deficit affected the agricultural
production and supply of various crops, especially vegetables, cereals, pulses, and oilseeds. According
to an article by The Hindu2, the monsoon deficit was 9% as of September 15, 2023, and some regions
such as Gujarat, Rajasthan, Madhya Pradesh, and Maharashtra faced severe drought conditions.

Oil price hike: The global oil prices increased sharply in 2023 due to the output cuts by OPEC and its
allies, as well as the geopolitical tensions between Russia and Ukraine. The Brent crude oil price
reached an average of $100.08 per barrel in 2023, up from $69.89 per barrel in 20223. The high oil
prices increased the cost of production and transportation of various food items, as well as the cost of
fertilizers and pesticides.
Demand-supply mismatch: The demand for food items increased in India due to the recovery from the
Covid-19 pandemic and the easing of lockdown restrictions. However, the supply of food items was
constrained by the factors mentioned above, as well as by the lack of adequate storage and processing
facilities, wastage and spoilage of perishable goods, and inefficiencies in the marketing and distribution
channels. This created a gap between demand and supply, leading to a rise in food prices.

EU carbon tax

Why in News?

The European Union (EU) has announced that its Carbon Border Adjustment Mechanism (CBAM) will
be introduced in its transitional phase from October 2023, which will levy a carbon tax on imports of
products made from the processes which are not Environmentally sustainable or non-Green.

CBAM will translate into a 20-35 % tax on select imports into the EU starting 1st January 2026.

What is CBAM?

About:

CBAM is part of the “Fit for 55 in 2030 package", which is the EU’s plan to reduce greenhouse gas
emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.

The CBAM is a policy tool aimed at reducing Carbon Emissions by ensuring that imported goods are
subject to the same carbon costs as products produced within the EU.

Implementation:

The CBAM will be implemented by requiring importers to declare the quantity of goods imported into the
EU and their embedded Greenhouse Gas (GHG) emissions on an annual basis.
To offset these emissions, importers will need to surrender a corresponding number of CBAM
certificates, the price of which will be based on the weekly average auction price of EU Emission
Trading System (ETS) allowances in €/tonne of CO2 emitted.

Objectives:

CBAM will ensure its climate objectives are not undermined by carbon-intensive imports and spur
cleaner production in the rest of the world.

Significance:

It can encourage non-EU countries to adopt more stringent environmental regulations, which would
reduce global carbon emissions.

It can prevent carbon leakage by discouraging companies from relocating to countries with weaker
environmental regulations.

The revenue generated from CBAM will be used to support EU climate policies, which can be learned
by other countries to support Green Energy.

How can it Impact India?

Impact India’s Export:

It will have an adverse impact on India's exports of metals such as Iron, Steel and aluminum products to
the EU, because these will face extra scrutiny under the mechanism.

India's major exports to the EU, such as iron ore and steel, face a significant threat due to the carbon
levies ranging from 19.8% to 52.7%.

From 1st January 2026, the EU will start collecting the carbon tax on each consignment of steel,
aluminum, cement, fertilizer, hydrogen and electricity.
Carbon Intensity and Higher Tariffs:

The carbon intensity of Indian products is significantly higher than that of the EU and many other
countries because coal dominates the overall energy consumption.

The proportion of coal-fired power in India is close to 75%, which is much higher than the EU (15%) and
the global average (36%).

Therefore, direct and indirect emissions from iron and steel and aluminium are a major concern for India
as higher emissions would translate to higher carbon tariffs to be paid to the EU.

Risk to Export Competitiveness:

It will initially affect a few sectors but may expand to other sectors in the future, such as refined
petroleum products, organic chemicals, pharma medicaments, and textiles, which are among the top 20
goods imported from India by the EU.

Since India has no domestic carbon pricing scheme in place, this poses a greater risk to export
competitiveness, as other countries with a carbon pricing system in place might have to pay less carbon
tax or get exemptions.

What Measures can India Take to Mitigate the Impact of CBAM?

Decarbonization Principle:

On the domestic front, the government has schemes like National Steel Policy, and the Production
Linked Incentive (PLI) scheme aims to increase India’s production capacity, but carbon efficiency has
been out of the objectives of such schemes.

The government can complement these schemes with a Decarbonization Principle.

Decarbonization refers to the process of reducing or eliminating greenhouse gas emissions, especially
carbon dioxide (CO2), from human activities such as transportation, power generation, manufacturing,
and agriculture.

Negotiation with EU for Tax Reduction:

India could negotiate with the EU to recognize its energy taxes as equivalent to a carbon price, which
would make its exports less susceptible to CBAM.

For example, India could argue that its tax on coal is a measure to internalize the costs of carbon
emissions, and therefore equivalent to a carbon tax.

Transfer of Clean Technologies:

India should negotiate with the EU to transfer clean technologies and financing mechanisms to aid in
making India’s production sector more carbon efficient.

One way to finance this is to propose to the EU to set aside a portion of their CBAM revenue for
supporting India’s climate commitments.

Besides, India should also begin preparing for the new system just as China and Russia are doing by
establishing a Carbon Trading System.

Incentivizing Greener Production:

India can begin preparations and in fact, seize the opportunity to make production greener and
sustainable by incentivizing cleaner production which will benefit India in both remaining competitive in
a more carbon-conscious future.

International economic system and achieving its 2070 Net Zero Targets without compromising on its
developmental goals and economic aspirations.
Take on EU’s Tax Framework:

India, as the leader of the G-20 2023, should use its position to advocate for other countries and urge
them to oppose the EU's carbon tax framework.

India should not only focus on its own interests but also consider the negative impact that the CBAM will
have on poorer countries that heavily rely on mineral resources.

Conclusion

The CBAM is a policy to reduce carbon emissions from imported goods and create a fair-trade
environment.

G20 highlights:

The 18th G20 Summit was held in New Delhi, India on September 9th and 10th, 2023. The summit was
the first time India hosted the G20 Leaders' Summit.

The theme of the summit was "Vasudhaiva Kutumbakam", which means "The world is one family".

G20 Leaders' New Delhi Declaration achieved unanimous consensus, addressing diverse global issues,
from Russia-Ukraine tensions to sustainable development, food security, and launching the Global
Biofuel Alliance.

What are the Major Outcomes of G20 Summit 2023?

Admittance of the African Union (G20 now G21):

The G20 leaders agreed to admit the African Union as a permanent member of the G20, which is a
major step towards increasing the representation of developing countries in the forum.
The Impact of AU's Inclusion in G20:

The AU's membership in the G20 offers an opportunity to reshape global trade, finance, and investment
and would provide a greater voice to the Global South within the G20.

It allows African interests and perspectives to be heard and recognized within the G20.

Global Biofuels Alliance (GBA):

About:

GBA is an India-led initiative that aims to develop an alliance of governments, international

organizations, and industry to promote the adoption of biofuels.

The initiative seeks to position biofuels as a key component of the energy transition and contribute to
job creation and economic growth.

It will help accelerate India’s existing biofuels programs such as PM-JIVANYojna, SATAT, and
GOBARdhan scheme.

As per IEA, there will be 3.5-5x biofuels growth potential by 2050 due to Net Zero targets, creating a
huge opportunity for India.

Formation and Founding Members:

The alliance was launched with nine initiating members: India, the US, Brazil, Argentina, Bangladesh,
Italy, Mauritius, South Africa, and the United Arab Emirates.

GBA Members constitute major producers and consumers of biofuels. USA (52%), Brazil (30%) and
India (3%), contribute about 85% share in production and about 81% in consumption of ethanol.

19 countries and 12 international organizations have already agreed to join.

G20 Invited Countries supporting GBA:

Bangladesh, Singapore, Mauritius, UAE

Non-G20 supporting GBA:

Iceland, Kenya, Guyana, Paraguay, Seychelles, Sri Lanka, Uganda, and Finland

International Organizations:

World Bank, Asian Development Bank, World Economic Forum, World LPG Organization, UN-Energy
for All, UNIDO, Biofutures Platform, International Civil Aviation Organization, International Energy
Agency, International Energy Forum, International Renewable Energy Agency, World Biogas
Association.

India – Middle East – Europe Economic Corridor (IMEC):

A Memorandum of Understanding (MoU) was signed between the Governments of India, the US, Saudi
Arabia, the European Union, the UAE, France, Germany and Italy to establish the IMEC.

IMEC is part of a broader initiative called the Partnership for Global Infrastructure Investment (PGII).

The PGII was initially introduced during the G7 summit in the UK in June 2021.

PGII aims to finance infrastructure projects in developing countries through a combination of public and
private investments.

IMEC is a significant infrastructure project connecting India, the Middle East, and Europe.

The project aims to establish a network of transport corridors, including railways and sea lanes.
IMEC is seen as a response to China's Belt and Road Initiative (BRI), providing an alternative
infrastructure network.

G20 Global Partnership for Financial Inclusion Document:

The G20 Global Partnership for Financial Inclusion document prepared by the World Bank has lauded
the transformative impact of India's Digital Public Infrastructure(DPI) over the past decade under the
Central Government.

The document emphasizes the following initiatives that played a greater role in shaping the DPI
landscape:

Rapid Financial Inclusion:

India's DPI approach achieved 47 years' worth of financial inclusion progress in just 6 years.

Jan Dhan-Aadhar-Mobile (JAM) Trinity boosted the financial inclusion rate from 25% in 2008 to over
80% within 6 years.

Regulatory frameworks, national policies, and Aadhaar-based verification complemented DPIs.

Pradhan Mantri Jan Dhan Yojna (PMJDY) Success:

PMJDY accounts tripled from 147.2 million (March 2015) to 462 million (June 2022).

Women own 56% of these accounts, exceeding 260 million.

PMJDY drove savings among low-income women, attracting over 12 million customers by April 2023.

Government to Person (G2P) Payments:

India's digital G2P architecture facilitated USD 361 billion transfers to beneficiaries from 53 ministries
via 312 schemes.

Achieved total savings of USD 33 billion by March 2022, equivalent to 1.14% of GDP.

Unified Payments Interface (UPI) Dominance:

May 2023 witnessed over 9.41 billion UPI transactions, valued at Rs 14.89 trillion.

UPI transactions in FY 2022–23 neared 50% of India's nominal GDP.

Private Sector Efficiency:

DPI streamlined private organizations' operations, reducing complexity, costs, and time.

Some NBFCs achieved 8% higher SME lending conversion rates, 65% savings in depreciation costs,
and 66% cost reduction in fraud detection.

Banks' customer onboarding costs in India dropped from USD 23 to USD 0.1 with DPI use.

Lower Compliance Costs for KYC:

Reduced compliance costs from USD 0.12 to USD 0.06, making lower-income clients more attractive.

Cross-Border Payments:

UPI-PayNow linkage enables faster and cheaper cross-border payments with Singapore.

Account Aggregator Framework:

Enabled 1.13 billion accounts for data sharing with 13.46 million consents raised.
Data Empowerment and Protection Architecture (DEPA):

Provides individuals control over their data, fostering innovation and competition.

What are the Other Key Highlights of G20 Summit 2023?

Tripling the Global Renewable Energy Capacity By 2030:

G20 countries promised to work towards tripling the global renewable energy capacity by 2030.

If met, this single step could avoid carbon dioxide emissions by seven billion tonnes between now and
2030, according to an assessment by the International Energy Agency (IEA).

Aligns with global efforts to limit global warming to 1.5 degrees Celsius.

Represents a significant shift away from fossil fuels towards cleaner energy alternatives.

The declaration acknowledges that current climate action is insufficient and highlights the need for
trillions of dollars in financial resources to achieve the objectives of the Paris Agreement.

Expanding renewable energy capacity on this scale could avoid about 7 billion tonnes of CO2 emissions
between 2023 and 2030.

Commitment to Global Food Security and Nutrition:

The G20 leaders recognize the importance of addressing rising commodity prices, including food and
energy prices, which contribute to cost-of-living pressures.

They aim to eliminate hunger and malnutrition, acknowledging that global challenges like poverty,
climate change, pandemics, and conflicts disproportionately affect vulnerable populations, particularly
women and children.
The G20 declaration highlights the human suffering and impacts of the war in Ukraine on global food
and energy security, supply chains, inflation, and economic stability.

G20 leaders called for the full, timely implementation of the Black Sea grain initiative.

The agriculture working group during the G20 Presidency reached a historic consensus on two aspects:
Deccan G20 High-level principles on Food Security and Nutrition and the Millet initiative called
MAHARISHI.

The seven principles under the high-level principles on food security and nutrition include humanitarian
assistance, increasing food production and food security net programs, climate-smart approaches,
inclusivity of agriculture food systems, one health approach, digitalization of the agriculture sector, and
scaling responsible public and private investment in agriculture.

MAHARISHI (Millets And OtHer Ancient Grains International ReSearcH Initiative) aims at advancing
research collaborations and generating awareness about millets and other ancient grains during
International Years of Millets 2023 and after.

The G20 committed to promoting transparent, fair, and rule-based trade in agriculture, food, and
fertilizer. They pledged not to impose export restrictions, reduce market distortions, and align with WTO
rules.

The G20 leaders emphasize the importance of strengthening the Agricultural Market Information
System (AMIS) and the Group on Earth Observations Global Agricultural Monitoring (GEOGLAM) for
greater transparency.

This includes expanding AMIS to include vegetable oils and enhancing collaboration with early warning
systems to avoid food price volatility.

Digital Public Infrastructure (DPI) is a term that refers to digital solutions that enable basic functions
essential for public and private service delivery, such as collaboration, commerce, and governance1.
DPI can be compared to roads, which form a physical network that connects people and provides
access to a huge range of goods and services2. DPI can foster resilience, innovation, inclusion, and
empowerment in the digital economy1.

DPI can help countries deliver essential services to their people, such as health, education, social
protection, and financial inclusion. For example, India has developed three foundational DPIs: digital
identity (Aadhaar), real-time fast payment (UPI), and consent-based data sharing (Account Aggregator).
These DPIs have enabled India to achieve remarkable progress in financial inclusion, reaching nearly
500 million adults who opened bank accounts between 2011 and 20173.

In the recent G20 summit in New Delhi, India’s G20 presidency proposed a ‘G20 Framework for
Systems of Digital Public Infrastructure’, a voluntary and suggested framework for the development,
deployment and governance of DPI4. The G20 leaders endorsed this framework and welcomed India’s
plan to build and maintain a Global Digital Public Infrastructure Repository (GDPIR), a virtual repository
of DPI voluntarily shared by G20 members and beyond4. They also took note of India’s proposal of the
One Future Alliance (OFA), a voluntary initiative aimed at building capacity and providing technical
assistance and adequate funding support for implementing DPI in low- and middle-income countries4.

The G20 declaration also stressed the importance of promoting international cooperation and further
discussions on international governance for Artificial Intelligence (AI), which is a key technology for
enabling DPI. The G20 leaders agreed to pursue a pro-innovation approach to AI while mitigating its
risks and ensuring its alignment with human rights, personal data, privacy and intellectual property
rights.

Debt ceiling US
What is the US Debt Ceiling?

About:

The debt ceiling is the maximum amount of money that the U.S. government is legally allowed to borrow
to fund its expenses and obligations.

It was established in 1917 during World War I.

The purpose of the debt ceiling is to provide the government with flexibility in spending without requiring
frequent approval from Congress for each expenditure.

Under the U.S. Constitution, Congress has the authority to control government spending.

As of now, the current debt limit is set at USD 31.4 trillion. This means that the government cannot
exceed borrowing beyond this amount without congressional approval.

Current Stand-off:

The current stand-off involves the Republicans (Members of Opposition party), who have a majority in
the House of Representative and Democrat-run government.

The Republicans are refusing to raise the US debt ceiling unless the government agrees to include
significant spending cuts and other priorities, arguing that the nation's debt is unsustainable.

They want to attach conditions to programs like cash aid, food stamps, and Medicaid to ensure that
government spending is limited.

On the other hand, the President insists on approving the debt ceiling with no conditions, stating that
defaulting on debt is non-negotiable.
This has created a deadlock and a potential risk of default if an agreement is not reached before the
deadline.

What happens if the Government Defaults?

Government Default:

The US government may not be able to meet its financial obligations, resulting in a default on its debt
payments. This would be unprecedented and could have a catastrophic impact on the nation's
economy.

Economic Downturn:

A default would lead to a loss of confidence in the US financial system, causing financial markets to
become highly volatile. It could trigger a severe economic downturn, impacting businesses,
investments, and employment.

Analysts say the dollar would weaken, the stock markets would collapse, and millions might lose their
jobs.

Downgraded Credit Rating:

A default could result in a downgrade of the US government's credit rating, making it more expensive for
the government to borrow money in the future. This would further strain the country's finances and
increase borrowing costs.

Global Repercussions:

The US economy is closely interconnected with the global economy. A default could have a ripple effect
worldwide, causing disruptions in international financial markets and affecting economies around the
globe.
Is there Any Back-up if Debt Ceiling Defaults?

Constitution's 14th Amendment:

Under the Constitution's 14th Amendment, the President has the authority to raise the debt ceiling by
their own without the support of Legislature.

The Constitution's 14th Amendment states that the validity of the public debt "shall not be questioned."
This would involve asserting that defaulting on the debt is unconstitutional and taking action to prevent
it.

Emergency Measures:

The Treasury Department has certain emergency measures it can take to continue paying the
government's bills even after hitting the debt ceiling.

These measures can provide temporary relief, but they are not a long-term solution.

They buy some time for the government to operate until a permanent solution is reached.

Bipartisan Agreement:

It is possible that negotiations between the government and the opposition could continue until the last
moment, and a bipartisan agreement to raise the debt ceiling could be reached. This would involve
compromises and finding common ground on spending cuts or other fiscal measures.

Has anything Similar Happened Earlier?

The similar situation occurred in 2011 when Barack Obama was President, but the House of
Representatives was controlled by the members of opposition party.
The crisis was resolved shortly before the deadline by reaching an agreement. In that case, the
Ptresident agreed to implement spending cuts totaling more than USD 900 billion in order to resolve the
crisis and raise the debt ceiling.

How Does India Manage Borrowing and Debt Obligation?

India has a formal debt ceiling mechanism as per FRBM Act but does not have debt ceiling in terms of
absolute amount like the US has. Therefore, Debt Ceiling in the US can be compared with Fiscal Deficit
target in India.

In India this target is in term of % of GDP (Gross Domestic Product) not in and absolute amount like in
USA.

Indian government manages borrowing and debt obligations through various mechanisms and
institutions such as,

Fund raising through Securities and Bonds: It issues government securities, such as treasury bills and
government bonds, in the domestic market.

How can the US debt ceiling Impact Global Economy?

A failure to raise the debt ceiling and the subsequent risk of a US government default can lead to
increased volatility in global financial markets.

A debt ceiling crisis may undermine the creditworthiness of the US dollar and may erode confidence in
it, leading to a depreciation in its value. This depreciation can have ripple effects on other currencies
and trade relationships.

A debt ceiling crisis can undermine confidence in the stability and reliability of the global financial
system. Uncertainty and fear in the markets can result in reduced business and consumer spending,
hampering economic growth not only in the US but also worldwide.

What will be the Impact on the Indian Economy?

Rupee Depreciation:

The Indian rupee may depreciate against the dollar, making imports more expensive and potentially
increasing inflationary pressures in the Indian economy.

Trade Disruptions:

The United States is one of India's major trading partners, and any economic downturn resulting from a
debt ceiling crisis can reduce demand for Indian exports.

Reduced exports to the US can negatively impact Indian industries dependent on American consumers,
such as information technology, textiles, and pharmaceuticals.

Impact on Forex:

India holds a significant amount of foreign exchange reserves, including US Treasuries. A default or
downgrade of US debt can result in losses on these investments, potentially impacting India's foreign
exchange reserves and overall financial stability.

India Middleeast EU economic corridor

Why in News?

Recently, the India-Middle East-Europe Economic Corridor (IMEC) Project was signed at the G20
Summit in New Delhi, which holds significant geopolitical and economic implications for India.

The project forms part of the Partnership for Global Infrastructure and Investment (PGII). PGII is a
values-driven, high-impact, and transparent infrastructure partnership to meet the enormous
infrastructure needs of low and middle-income countries.
What is the India-Middle East-Europe Economic Corridor (IMEC) Project?

About:

The proposed IMEC will consist of Railroad, Ship-to-Rail networks and Road transport routes extending
across two corridors, that is,

The East Corridor – connecting India to the Arabian Gulf,

The Northern Corridor – connecting the Gulf to Europe.

The IMEC corridor will also include an electricity cable, a hydrogen pipeline and a high-speed data
cable.

Signatories:

India, the US, Saudi Arabia, UAE, the European Union, Italy, France, and Germany.

Ports to be Connected:

India: Mundra (Gujarat), Kandla (Gujarat), and Jawaharlal Nehru Port Trust (Navi Mumbai).

Middle East: Fujairah, Jebel Ali, and Abu Dhabi in the UAE as well as Dammam and Ras Al Khair ports
in Saudi Arabia.

Railway line will connect Fujairah port (UAE) to Haifa port (Israel) via: Saudi Arabia (Ghuwaifat and
Haradh) and Jordan.

Israel: Haifa port.

Europe: Piraeus port in Greece, Messina in South Italy, and Marseille in France.
Objective:

It aims to create a comprehensive transportation network, comprising rail, road, and sea routes,
connecting India, the Middle East, and Europe.

It aims to enhance transportation efficiency, reduce costs, increase economic unity, generate
employment, and lower Greenhouse Gas (GHG) emissions.

It is expected to transform the integration of Asia, Europe, and the Middle East by facilitating trade and
connectivity.

Significance:

Upon completion, it would provide a “reliable and cost-effective cross-border ship-to-rail transit network
to supplement existing maritime and road transports”.

What are the Geopolitical and Economic Implications of IMEC?

Geopolitical:

Thwart to China’s BRI:

IMEC is seen as a potential counter to China's Belt and Road Initiative (BRI) in the Eurasian region.

It can serve to counterbalance China's growing economic and political influence, especially in regions
with historically strong ties to the U.S.

Integration Across Civilizations:

The project can strengthen ties and integration across continents and civilizations.
It offers a strategic opportunity for the U.S. to maintain influence and reassure traditional partners
amidst China's growing influence in the region..

Breaking Pakistan's Overland Connectivity Veto:

IMEC bypasses Pakistan, breaking its veto over India's overland connectivity to the West, a hurdle
persistently faced in the past.

Strategic Engagement with Arabian Peninsula:

The corridor deepens India's strategic engagement with the Arabian peninsula by establishing enduring
connectivity and elevating political and strategic links with nations in the region.

Promoting Intra-Regional Connectivity and Peace:

IMEC has the potential to promote intra-regional connectivity and could help reduce political tensions in
the Arabian peninsula.

It holds the prospect of becoming an "infrastructure for peace" in the region.

India's Strategic Role in Africa:

The corridor's model could be extended to Africa, aligning with the US and EU's plan to develop a
Trans-African corridor.

This signifies India's intent to strengthen its engagement with Africa and contribute to its infrastructure
development.

Economic:

Enhanced Trade Opportunities

IMEC presents a transformative opportunity for India to boost economic growth by enhancing its trade
connectivity with key regions.

The route could significantly reduce transit times, making trade with Europe 40% faster compared to the
Suez Canal maritime route.

Stimulated Industrial Growth:

The corridor will create an efficient transport network for the seamless movement of goods.

This will encourage industrial growth, particularly in regions connected to the corridor, as companies will
find it easier to transport raw materials and finished products.

Job Creation:

As economic activities expand due to improved connectivity, there will be a surge in job opportunities
across sectors.

The growth in trade, infrastructure, and allied industries will necessitate skilled and unskilled labor,
promoting employment.

Energy Security and Resource Access:

The corridor can facilitate secure energy and resource supplies, especially from the Middle East.

Reliable access to these resources will stabilize India's energy sector and support its growing economy.

Facilitating Special Economic Zones (SEZs):

The corridor can be strategically leveraged to develop SEZs (Special Economic Zones) along its route.
SEZs can attract foreign investment, promote manufacturing, and drive economic growth in these
designated zones.
What are the Challenges to the India-Middle East-Europe Corridor (IMEC)?

Logistics and Connectivity Issues:

Developing a multimodal transport corridor involving rail, road, and sea routes spanning multiple
countries requires complex logistical planning and coordination among stakeholders.

Selecting the most viable and cost-effective routes, assessing the feasibility of rail and road
connections, and ensuring optimal connectivity are key challenges.

Missing Rail Links and Construction:

Significant portions of rail links are missing, especially in the Middle East, requiring substantial
construction efforts and investment to complete the rail network.

Coordination among Multiple Countries:

Coordinating efforts, policies, and regulations among multiple countries with diverse interests, legal
systems, and administrative procedures is a major challenge in realizing this cross-continental corridor.

Potential Opposition and Competition:

Opposition or competition from existing transport routes, especially Egypt's Suez Canal, which may see
reduced traffic and revenue, could pose challenges and diplomatic hurdles.

Cost and Financing:

Estimating and securing adequate financing for the construction, operation, and maintenance of the
corridor is a significant challenge.

The costs for development are estimated to be substantial, and funding sources need to be identified.
Initial estimates suggest that developing each of these IMEC routes could cost anywhere between USD
3 billion to USD 8 billion.

Way Forward

Achieving technical compatibility and standardisation in terms of gauges, train technologies, container
dimensions, and other critical aspects across different countries is vital for seamless operations.

Balancing the geopolitical interests of participating nations and addressing potential political
sensitivities, especially regarding Israel, is crucial for smooth implementation.

Addressing environmental impact concerns, ensuring sustainability, and adhering to green and
eco-friendly practices in construction and operation are critical aspects of the project.

Implementing robust security measures to safeguard cargo and infrastructure from potential threats,
theft, piracy, and other security risks is essential.