Weekly Current Affairs (15th to 21st September 2024) Part - 2 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

GS1/History & Culture

76th Anniversary of Accession of Hyderabad

• On 17 September 2024, the anniversary of the accession of Hyderabad to independent India was marked. Operation Polo was initiated to avert Hyderabad from emerging as a security threat to the Indian Union.

Background of Hyderabad:

• Hyderabad was a substantial landlocked princely state located in South India, encompassing present-day Telangana, Andhra Pradesh, Karnataka, and the Marathwada region of Maharashtra.
• It had a predominantly Hindu population (87%), while its ruler, Nizam Osman Ali Khan, was a Muslim, supported by a Muslim elite.
• The Ittehad-ul-Muslimeen, a pro-Nizam Muslim party, advocated for Hyderabad's independence to maintain its status alongside India and Pakistan.

Nizam's Declaration of Independence:

• In June 1947, the Nizam issued a firman expressing Hyderabad's desire to remain independent following British India’s transfer of power.
• India opposed this, citing Hyderabad's strategic importance for national security.
• A temporary Standstill Agreement was established to maintain the existing situation, but Hyderabad did not accede to India.

Hyderabad’s Moves Toward Independence:

• The Nizam provided Rs. 200 million to Pakistan and stationed a bomber squadron there, raising Indian suspicions.
• Hyderabad banned Indian currency, imported arms from Pakistan, and expanded its military, particularly the Razakars militia.

Role of the Razakars:

• The Razakars, aligned with Ittehad-ul-Muslimeen and led by Qasim Razvi, aimed to protect the Muslim ruling class.
• Their violent suppression of opposition, including atrocities against Hindus and Muslims favoring integration with India, escalated tensions.

Political Agitation:

• Internally, Hyderabad was destabilized by a Communist uprising in Telangana, along with a peasant revolt that the Nizam could not suppress.
• The Hyderabad State Congress, associated with the Indian National Congress, initiated a movement for Hyderabad's integration.

International Appeals:

• The Nizam sought support from Britain and attempted to involve US President Harry Truman and the United Nations, but his efforts were in vain.
• After failed negotiations led by Mountbatten, the Nizam appealed to the UN Security Council in August 1948, fearing an impending Indian invasion.

Operation Polo (Hyderabad Police Action):

• As negotiations with the Nizam stalled, Sardar Patel grew concerned.
• On 13 September 1948, the Indian Army launched "Operation Polo," citing law and order issues within Hyderabad.
• This military operation was termed "Police Action" as it was considered an internal matter of India.
• The Nizam ultimately surrendered after dismissing Prime Minister Mir Laik Ali and his cabinet.

What is the Significance of Hyderabad's Accession to India?

• Unity and Integrity of India: The integration of Hyderabad despite resistance strengthened the unity and stability of the Indian Union.
• Triumph of Secularism: This event marked not only a political victory but also a significant endorsement of secularism, demonstrating the support of Indian Muslims for integration.
• Prevented Further Crisis: The immediate military action preempted a potential insurgency that could have had long-lasting ramifications.
• Use of Force: The situation illustrated that India was willing to use military force to protect its national interests.
• India’s Successful Diplomacy: A combination of military and diplomatic strategies was employed, notably the efforts of V.K. Krishna Menon to restrict arms supply to Hyderabad.

What was the Role of Sardar Patel in Integration of Princely States?

• Role in Interim Government (2 September 1946): Sardar Patel was assigned key portfolios, establishing his pivotal role in India's administration before independence.
• Nehru’s Acknowledgement: In August 1947, Nehru referred to Patel as the "strongest pillar of the Cabinet."
• Collaboration with Lord Mountbatten: Patel worked closely with Mountbatten, using diplomacy to convince princes to join India.
• Creation of States Department (5 July 1947): Patel organized the department to facilitate the accession of states.
• Carrot and Stick Approach: He balanced diplomacy with pressure, exemplified by India halting goods movement to Junagadh, leading to its accession to India.
• Appeal for Friendship and Equality: Patel invited princes to join India as equals, promoting mutual cooperation over separate treaties.
• Integration’s Impact on India’s Territory: Despite territorial losses during Partition, India gained significantly through the integration of princely states.

What was the Role of Other Leaders in Integration of Princely States?

• Mountbatten played a vital role in persuading monarchs to join the Indian Union.
• Nehru adopted a confrontational approach, rejecting the idea of princely state sovereignty.
• C. Rajagopalachari argued that British control over princely states would naturally transfer to India.
• The Congress maintained that princely states were not sovereign entities post-British rule.

Conclusion:

• Sardar Vallabhbhai Patel's effective leadership was instrumental in integrating 562 princely states into India, notably securing Hyderabad’s accession, thereby expanding India's territory and population significantly.

Mains Question:

Q. Evaluate the significance of Hyderabad's accession to India in 1948. Critically analyse the role of Sardar Patel in the successful integration of Hyderabad through Operation Polo?

GS2/Polity

Union Cabinet Approved Simultaneous Elections

• Recently, the Union Cabinet approved a proposal for conducting simultaneous elections throughout the country, synchronizing the elections for the Lok Sabha, state Assemblies, and local bodies across India. This decision followed the submission of a report by a high-level committee led by former President Ram Nath Kovind, which focused on the concept of 'one nation, one election.'

Key Recommendations of the Committee on Simultaneous Elections

• The Constitution should be amended to facilitate simultaneous elections through two proposed bills.
• Bill 1: This bill aims to conduct simultaneous elections for the Lok Sabha and State Assemblies without requiring ratification from the states.
• Bill 2: It proposes that elections for municipalities and panchayats be synchronized with Lok Sabha and state Assembly elections, ensuring local body elections are held within 100 days of these elections.

Required Amendments:

• The committee suggested 15 amendments to the Constitution, including:
• Article 82A: Inserting a new article to outline the process for implementing simultaneous elections.
• Articles 83 and 172: These articles would ensure that the new Lok Sabha or State Assembly formed will serve only the remaining term before another dissolution.
• Article 324A: This proposed new article would allow Parliament to legislate for simultaneous elections at the local level.
• Single Electoral Roll and Election ID: The Election Commission of India (ECI) would create a unified electoral roll and ID in collaboration with State Election Commissions, shifting certain responsibilities to the ECI.
• Hung Assembly or Premature Dissolution: In cases of a hung assembly, fresh elections would be mandated to form a new Lok Sabha or State Assembly.
• Logistics Planning: The ECI must pre-plan election logistics in consultation with State Election Commissions, including manpower, polling personnel, and security arrangements.
• Election Synchronization: The President would set an 'Appointed Date' to mark the start of a new electoral cycle, aligning all state assemblies to conclude at the end of the Lok Sabha's term.

Example: If the next assembly elections in West Bengal (2026) and Karnataka (2028) align with the Lok Sabha elections, they would conclude by May or June 2029.

• Previous Recommendations on Simultaneous Elections
  • The Law Commission in 2018 advocated for simultaneous elections, highlighting benefits like cost savings and less strain on administrative resources.
  • In 1999, the Law Commission recommended simultaneous elections while assessing improvements to the electoral system.
  • The Parliamentary Standing Committee suggested an alternative method for simultaneous elections.
  • NITI Aayog's 2017 paper promoted simultaneous elections for better governance and reduced election frequency.
• About Simultaneous Elections:
  • Simultaneous elections involve conducting elections for the Lok Sabha, all State Legislative Assemblies, and local bodies on the same day.
  • This allows voters to elect representatives across different levels of government in a single voting event.
  • Currently, these elections are staggered, following the individual terms of each elected body.
  • Simultaneous elections do not necessarily imply that voting happens nationwide at one moment; they can occur in phases.
  • This approach is commonly referred to as 'One Nation, One Election.'
• History of Simultaneous Elections:
  • Simultaneous elections were practiced until the fourth general elections in 1967.
  • Frequent dissolution of state governments led to the discontinuation of this practice, resulting in multiple elections each year.
• Need for Simultaneous Elections:
  • Simultaneous elections could reduce costs for conducting elections, which currently amount to about Rs 4,000 crore for Lok Sabha elections alone.
  • Political parties often remain in a constant campaign mode due to frequent elections, affecting effective governance.
  • The Model Code of Conduct restricts the announcement of new policies during election periods, influencing governance.
  • Administrative processes slow down during elections, diverting focus from regular duties.
  • Frequent elections can lead to voter fatigue, making it challenging to ensure voter participation.
• Concerns Associated with Simultaneous Elections:
  • National parties may gain an edge over regional ones, impacting the federal structure.
  • Conducting elections every five years could disrupt the feedback mechanism that elections provide.
  • Questions arise about premature dissolutions when a government loses majority support.
  • Amending key constitutional articles to enable simultaneous elections could be a lengthy process.
  • Simultaneous elections may reduce personal voter engagement methods favored by regional parties.
• Addressing Concerns:
  • Democratic governance ensures politicians remain accountable to their constituents, preventing entrenchment.
  • Various accountability mechanisms exist, diminishing the need for frequent elections to ensure political responsibility.
  • Simultaneous elections may help reduce corruption linked to election expenditures.
  • International examples show that longer terms can be effective, with countries like South Africa, Sweden, and Germany successfully implementing fixed election cycles.
• Conclusion:
  • Simultaneous elections could yield benefits such as lower costs and improved governance but also present challenges, including the need for constitutional changes and potential logistical issues.
  • A balanced approach with stakeholder consultation may help realize the advantages of concurrent elections while addressing the associated concerns.

Mains Question: 
Q. What are the potential benefits and challenges associated with implementing simultaneous elections in India?

GS3/Economy

Need of Reforms in Tea Industry

Why in news?

• Recently, the tea industry has experienced a price increase of approximately 13% for Assam and West Bengal teas due to a significant drop in tea production in 2024. Extreme weather events related to climate change are being identified as the main cause of these production losses, highlighting the urgent need for reforms to ensure sustainable development in the sector.

What is the Current State of the Tea Industry in India?

Recent Trends:

• Drop in Tea Production: Tea production in West Bengal and Assam has declined by about 21% and 11%, respectively, in 2024, resulting in a 13% rise in domestic prices.
• Loss of Premium Products: The crops lost mainly belong to the first and second showers of the monsoon, which are regarded as the highest quality teas, adversely impacting the industry's profitability.
• Export Market Decline: Export prices have decreased by 4% this year, presenting a concerning trend for the industry.
• Pending Subsidies from the Tea Board: The industry has not received due subsidies for developmental initiatives undertaken in recent years, adding financial strain during a period of reduced production.

Other Facts Related to Tea Industry:

• Global Standing: India is the second-largest tea producer globally after China and ranks among the top five exporters, contributing roughly 10% of total global tea exports.
• Tea Consumption in India: India accounts for 19% of global tea consumption, consuming approximately 81% of its tea production domestically, unlike Kenya and Sri Lanka, which export most of their production.
• Producer States: Assam, West Bengal, Tamil Nadu, and Kerala are the major tea-producing states, contributing to 97% of India's total tea production.
• Major Export Types: Black tea constitutes about 96% of India's tea exports, with Assam, Darjeeling, and Nilgiri considered among the finest globally.

What are the Key Challenges in the Tea Industry in India?

• Weather-Driven Decline: Extreme weather has severely impacted tea production, with excessive heat in May 2024 followed by flooding in Assam leading to a drop in production to 90.92 million kgs, the lowest for May in over a decade.
• Expected Rise in Tea Prices: Production disruptions are anticipated to drive tea prices up by as much as 20%, with a reported 47% increase since the beginning of 2024.
• Ban on Pesticides: The government's ban on certain pesticides has increased tea prices due to the higher cost of alternative pest management solutions, although it has boosted demand from countries like Russia and Ukraine.
• Stagnant Internal Consumption: With internal consumption stagnating and a depressed export scenario, an excess of tea is flooding the market, further straining price realization.
• Impact on Small Tea Growers (STGs): STGs, which manage less than one hectare, produce over 55% of India's tea, and they are particularly disadvantaged by production losses and declining export prices.
• Negative Ripple Effect: The struggles of STGs will adversely affect bought leaf factories (BLFs), which rely on these small growers for raw materials.
• Garden Closures in North Bengal: The closure of around 13 to 14 tea gardens in regions like Dooars and Darjeeling has put over 11,000 workers out of jobs, impacting the annual production of approximately 400 million kg from these gardens.

How Climate Change Affects the Tea Industry Globally?

• Excessive Rainfall: While tea plants need rainwater, too much can lead to waterlogging, soil erosion, and damage to slopes, reducing plantation areas.
• Drought Effects: Drought can cause dust accumulation on tea leaves, blocking sunlight and affecting production in countries such as India and China.
• Frost Damage: Frost can be particularly damaging in regions like Rwanda, where it can lead to the loss of leaves.
• Melting of Glaciers: In permafrost regions, ground instability may increase, raising the risk of rock avalanches and landslides, which can harm tea plantations situated on hill slopes.
• Impact on Tea Production and Quality: Global warming is likely to make producing high-quality tea more challenging and expensive, resulting in decreased quality and quantity, thereby raising prices for consumers.

What Steps Need to be Taken to Make the Tea Industry More Viable?

• Minimum Benchmark Pricing: Regulated Tea Gardens (RTGs) and smallholder tea growers (STGs) should collaborate with the government to establish minimum benchmark prices based on a cost-plus model to cover production costs and foster sector growth.
• E-Commerce Integration: Utilizing e-commerce technologies and mobile apps can facilitate direct-to-consumer sales, increasing profit margins for growers.
• Focus on Premium Teas: The industry should prioritize enhancing quality to boost income rather than merely increasing quantity, as demand for premium teas is expected to rise with increasing consumer income.
• Palm Oil as a Complementary Crop: STGs and RTGs should explore diversifying into palm oil production, which is suitable for northeastern tea estates, as it requires less labor and water while offering high returns.
• Learning from Other Countries: Providing farmers with knowledge to sustainably produce high-quality tea is crucial. For example, the Kenya Tea Development Agency (KTDA) has implemented the Farmer Field Schools (FFSs) model for hands-on learning.
• Full Auction System: A full auction system should be introduced to ensure that 100% of bought leaf tea is sold through public auctions, as currently only 40% is auctioned.
• Expanding Export Destinations: The ready-to-drink (RTD) tea market in the Asia Pacific is projected to reach USD 6.67 billion by 2028, growing at an annual rate of 5.73%, providing India an opportunity to capitalize on this market.
• Need of Research and Development (R&D): R&D is essential for improving tea quality, developing climate-resilient varieties, and finding eco-friendly solutions like organic pesticides to tackle challenges posed by climate change.

Mains Question:
Q. Discuss the major challenges facing the tea industry in India. How can policy interventions and technological advancements help address these challenges?

GS3/Science and Technology

Bhartiya Antriksh Station, Moon & Venus Mission and NGLV

Why in news?

• Recently, the Union Cabinet approved four space projects to be undertaken by the Indian Space Research Organisation (ISRO). The newly approved space projects include Chandrayaan-4, Venus Orbiter Mission (VOM), Bhartiya Antriksh Station (BAS), and Next Generation Launch Vehicle (NGLV).

What are the Newly Approved Space Projects?

• Chandrayaan-4: This mission aims to land on the lunar surface, collect samples, store them in a vacuum container, and return them to Earth. It entails spacecraft development, two Launch Vehicle Mk III launches, deep space network support, and various special tests. Notably, it will involve docking and undocking—an operation India has not yet attempted. This mission is a step toward making India self-sufficient in technologies for manned missions, with plans to send humans to the moon by 2040.
• Venus Orbiter Mission (VOM): The objective is to orbit Venus to study its surface, subsurface, atmospheric processes, and the Sun's influence on its atmosphere by exploring its thick atmosphere. This study is significant as Venus is believed to have once been capable of supporting life, similar to Earth. The mission is scheduled for launch in March 2028, coinciding with the period when Earth and Venus are closest together. This mission represents India's second interplanetary endeavor, following the Mars Orbiter Mission in 2014.
• Bhartiya Antriksh Station (BAS): This will be India's own space station dedicated to scientific research. The operationalization of the space station is targeted by 2035, with aspirations for a crewed lunar mission by 2040. Presently, the two existing operational space stations are the International Space Station and China’s Tiangong.
• Next Generation Launch Vehicle (NGLV): The government has also sanctioned the development of a next-generation launch vehicle (NGLV), which will provide three times the payload capacity of the existing LVM3, at a cost that is 1.5 times less. This vehicle is designed to carry up to 30 tonnes to Low Earth Orbit (LEO). In contrast, the current Indian launch vehicles, including SSLV, PSLV, and GSLV, can carry payloads ranging from 500 kg to 10,000 kg for LEO and up to 4,000 kg for Geo-Synchronous Transfer Orbit (GTO).

How will the Space Station Benefit India?

• Microgravity Experiments: A space station will create a unique environment for conducting scientific experiments in microgravity, potentially leading to breakthroughs in materials science, biology, and medicine.
• Innovation: The development and operation of a space station will drive technological advancements and innovations in areas like life support systems, robotics, and space habitats. For example, Chinese cabbage grown on the ISS in the Veggie growth system revealed reduced biomass.
• Leadership and Prestige: Establishing its own space station will bolster India's global leadership in space exploration, highlighting its technological capabilities and enhancing international collaborations. It will also provide Indian companies with greater access to satellite manufacturing and servicing, thereby boosting the aerospace sector.
• Human Spaceflight Experience: Building on the achievements of the Gaganyaan mission, a space station will offer extended opportunities for Indian astronauts, allowing them to gain experience and contribute to long-duration missions.

What are the Challenges in Building and Operating Space Stations?

• Design and Engineering: Advanced engineering is crucial for space stations to support life in harsh conditions. Challenges include ensuring structural integrity, radiation protection, and maintaining stable environments for scientific experiments.
• Life Support Systems: Developing reliable systems for air, water, and waste management is essential. These systems need to function autonomously over long periods, presenting significant technical challenges.
• Affordability for India: Constructing a space station requires a substantial financial investment, including costs for module construction, launch expenses, and life support system development. For comparison, the ISS, which is shared by multiple countries, has cost over USD 150 billion, while a smaller national space station might cost between USD 10-30 billion. ISRO's budget for 2024-25 stands at approximately USD 1.95 billion, significantly lower than NASA's budget of around USD 25 billion.
• Space Race: Collaborating with established space powers may be complicated due to competitive dynamics in space technology, particularly with nations like the US, Russia, and China.
• Crew Health and Safety: Ensuring the physical and psychological well-being of astronauts is crucial. Prolonged exposure to microgravity and isolation can negatively affect health, such as causing bone density loss and altering fluid distribution, leading to increased intracranial pressure and vision issues.
• Supply Chain Management: Regular resupply missions are vital for maintaining the station, necessitating meticulous planning and coordination. Currently, India lacks a fleet of reusable rockets for transporting supplies efficiently.

Conclusion

• The ambitious space program includes the establishment of a space station, the Chandrayaan-4 Moon mission for sample return, and the Venus exploration mission. These initiatives will not only advance scientific research and enhance the understanding of lunar samples but also provide insights into Venus's conditions, potentially revealing parallels to Earth's future. This plan underscores India's increasing significance in space exploration.

Mains Question:

Q. How ISRO’s planned space missions will contribute to scientific research, technological advancement, and international collaboration?

GS3/Environment

Reduction in CO2 from Transport Sector by 2050

Why in News?

• A recent study by the World Resources Institute (WRI) India indicates that India's transport sector has the potential to cut carbon dioxide emissions by as much as 71% by the year 2050 through the adoption of ambitious strategies. This substantial reduction depends on three main strategies: enhancing electrification, improving fuel efficiency standards, and shifting to cleaner transport modes.

What are the Key Findings of the Report?

• Current Emissions and Need for Targets: In 2020, India's transport sector accounted for 14% of the total energy-related CO2 emissions. There is an urgent need to develop a roadmap for emission reductions along with specific targets for this sector.
• Impact on Net-Zero Goals: Meeting high emission reduction targets in the transport sector is essential for India to achieve its net-zero emissions target by 2070.
• Cost-Effectiveness of Decarbonisation: Transitioning to low-carbon transport is identified as the most cost-effective long-term strategy, potentially saving Rs. 12,118 for every tonne of CO2 equivalent reduced.
• Electric Vehicle Mandates: Increasing sales of electric vehicles (EVs) can effectively contribute to emissions reduction, with the potential to abate 121 million tonnes of CO2 equivalent annually. Additionally, decarbonizing electricity generation can further enhance these outcomes.
• Additional Policy Benefits: Implementing a carbon-free electricity standard that includes 75% renewable energy could help achieve a 75% reduction in transport emissions by 2050.
• Future Fossil Fuel Dependency: Without significant changes, fossil fuel consumption in the transport sector is projected to quadruple by 2050 due to growing passenger and freight travel demands.
• Current Emission Sources: Road transport is responsible for 90% of the sector’s emissions, while railways, aviation, and waterways make up a smaller share of energy consumption.

What are the Major Challenges in Achieving Transport Decarbonisation?

• High Dependence on Fossil Fuels: The global transport sector's heavy reliance on fossil fuels like gasoline and diesel complicates the transition to cleaner alternatives. The existing fossil fuel infrastructure is deeply integrated, requiring significant time and resources for overhaul.
• BAU (Business as Usual) Scenario: In a business-as-usual scenario, India's fossil fuel consumption (LPG, diesel, and petrol) is expected to increase fourfold by 2050, driven mainly by rising demand in both passenger and freight transport. Passenger travel is projected to triple, while freight transport is anticipated to increase sevenfold, further escalating fossil fuel consumption.
• Lack of Clean Energy Infrastructure: Insufficient infrastructure for electric vehicle charging, hydrogen refueling, and biofuel availability poses significant barriers to the widespread adoption of clean energy in the transport sector.
• Energy Grid Constraints: The decarbonisation of transport is closely linked to the availability of renewable energy in the power grid. In many areas, electricity generation continues to rely heavily on fossil fuels, limiting the benefits of electrification unless the energy mix is improved.
• Slow Policy Implementation and Regulatory Gaps: The formulation and enforcement of policies for transport decarbonisation often progress slowly. Regulatory frameworks regarding emissions standards, fuel efficiency, and alternative fuels are frequently either lacking or inadequately stringent, hindering progress.
• Consumer Behavior and Market Acceptance: Public hesitance to embrace alternative transportation methods due to unfamiliarity, cost concerns, and perceived inconvenience impedes progress. Behavioral inertia and attachment to traditional vehicles present significant challenges to scaling up clean transport solutions.
• Technological and Supply Chain Barriers: Achieving transport decarbonisation necessitates advancements in battery technology, hydrogen production, and sustainable biofuel production. Supply chain disruptions for critical components, such as lithium and rare earth metals, can complicate the transition further.
• Financing and Investment Constraints: Large-scale decarbonisation of transport requires substantial capital investment in infrastructure, technology, and research and development. In developing countries, limited financial resources and competing development priorities restrict the ability to invest in sustainable transport solutions.
• International Coordination: Effective decarbonisation of the transport sector demands international cooperation; however, varying regulations, standards, and levels of commitment across countries can create barriers to collaboration.

What are the Initiatives India has Undertaken for Energy Transition?

• National Solar Mission: Initiated under the National Action Plan on Climate Change (NAPCC), this mission aims to achieve 100 GW of solar capacity by 2022, which was later adjusted to 280 GW by 2030. It focuses on developing solar energy infrastructure, emphasizing large-scale solar power plants and rooftop installations.
• National Hydrogen Mission (NHM): Launched in 2021, this initiative aims to position India as a global leader in the production and export of green hydrogen. It emphasizes research, production, and deployment of hydrogen as a clean energy source, with plans to fulfill 19% of India's industrial hydrogen demand with green hydrogen by 2070.
• National Biofuel Policy: This policy encourages blending biofuels with conventional fuels to lessen dependence on fossil fuels. India targets a 20% ethanol blending by 2025, advancing the original 2030 goal to facilitate emission reductions in the transport sector.
• Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME): The FAME initiative incentivizes the adoption of electric and hybrid vehicles. FAME-II, launched in 2019, provides subsidies for electric two-wheelers, buses, and charging infrastructure, aiming to promote clean mobility.

Way Forward

• Enhancing Renewable Energy Deployment: India can expedite the deployment of solar and wind energy projects to meet and exceed the 2030 targets. Exploring offshore wind potential can diversify the renewable energy mix and significantly contribute to the energy transition.
• Strengthening Energy Storage Infrastructure: Developing large-scale battery storage solutions is vital for integrating renewable energy and ensuring grid stability. Identifying and utilizing suitable sites for pumped hydro storage can provide additional energy storage capacity.
• Advancing Grid Integration and Modernization: Implementing smart meters and grid automation technologies can improve energy efficiency and facilitate the integration of renewable energy sources.
• Fostering Innovation in Clean Technologies: Increasing investment in research and development (R&D) for emerging clean technologies, including advanced energy storage, can establish India as a leader in the energy transition.
• Strengthening Policy and Regulatory Frameworks: Ensuring stability and clarity in energy policies can attract investments and support the smooth implementation of energy projects. Streamlining regulations to eliminate bottlenecks and offering incentives for renewable energy can accelerate the transition.

Mains Question:

Q. What are the major challenges associated with the decarbonisation of transport, and suggest methods to achieve sustainable energy goals by 2070?

GS2/Governance

FATF Mutual Evaluation Report on India

• Recently, the Financial Action Task Force (FATF) released its evaluation report on India, highlighting the country's substantial advancements in combating illicit financial activities.

Key Highlights of the FATF Mutual Evaluation Report on India

Areas Requiring Improvement:

• Non-Profit Organisations (NPOs): NPOs that are registered as charities and receive tax exemptions may be susceptible to funding terrorism. Enhanced measures are needed to mitigate risks associated with these entities.
• Politically Exposed Persons (PEPs): There are uncertainties regarding the wealth sources, funding origins, and beneficial ownership of domestic PEPs. The government must clarify these ambiguities.
• Designated Non-Financial Businesses and Professions (DNFBPs): There are deficiencies in the regulation of DNFBPs concerning money laundering and terror financing. DNFBPs significantly contribute to India's GDP, with precious metals and stones making up 7% and real estate 5%.

Money Laundering Risks:

• The primary sources of money laundering risks in India stem from illegal activities such as fraud, cyber fraud, corruption, and drug trafficking.
• PMS Vulnerable to Money Laundering: Precious metals and stones are often utilized to transfer substantial amounts of money without an ownership trace. The considerable size of India’s PMS market heightens its vulnerability to these illicit activities, with around 175,000 dealers, yet only 9,500 registered with the Gems and Jewellery Export Promotion Council (GJEPC).
• The FATF report noted that law enforcement may not sufficiently investigate cross-border criminal networks within the PMS sector. Continuous monitoring of fraud and smuggling techniques is critical to combat money laundering.
• There is a pressing need for a better understanding of risks and more comprehensive data on money laundering and terrorist financing (ML/TF) risks associated with gold and diamond smuggling.

Terrorist Financing Threats:

• India faces considerable terrorism threats, especially from groups linked to the Islamic State of Iraq and the Levant (ISIL) and Al-Qaeda, particularly in Jammu and Kashmir. Regional insurgencies in the Northeast and Left-Wing Extremist groups also pose significant risks.
• Although the country focuses on preventing and disrupting terrorist financing, further efforts are essential to ensure successful prosecutions and convictions of those financing terrorism.

Financial Inclusion:

• India has made significant strides in financial inclusion, evident from the increased number of bank account holders and the rise in digital payment usage.
• The simplified due diligence processes for small accounts have enhanced financial transparency and contributed positively to anti-money laundering (AML) and counter-terror financing (CFT) efforts.
• The Jan Dhan-Aadhaar-Mobile (JAM) initiative was acknowledged for promoting digital payments.
• The implementation of Goods and Services Tax (GST) e-invoices and e-bills has improved supply chain transparency.

Action Against Terror Financing:

• Effective actions against terror financing were recognized, particularly efforts by the National Investigation Agency (NIA) and the Enforcement Directorate.

FATF’s Recommendations:

• Pending Trials: India must expedite the resolution of pending money laundering trials and enhance its management of crimes such as human trafficking and drug offenses.
• Targeted Financial Sanctions: The country needs to refine its framework to ensure timely freezing of funds and assets, along with improved communication regarding sanctions.
• Domestic PEPs: There is a need for India to define domestic PEPs in its anti-money laundering legislation and implement enhanced risk-based measures for them.

Implications of FATF’s Mutual Evaluation for India:

• International Collaboration and Asset Recovery: India’s recognition by the FATF strengthens its capability to collaborate with other nations in tracking and recovering illicit assets linked to offenders like Vijay Mallya and Nirav Modi. Enhanced cooperation with global financial watchdogs supports counter-terror financing efforts.
• Improved Access to Global Financial Systems: Positive FATF ratings facilitate India’s access to international financial markets, easing borrowing and attracting investment from global institutions. This recognition backs the global expansion of the Unified Payments Interface (UPI), making it a favored option for cross-border digital transactions.
• Strengthening Investor Confidence: The favorable evaluation boosts India’s credibility and enhances foreign investor confidence in its financial markets, positioning India as an attractive destination for foreign direct investment (FDI).

Conclusion
The FATF Mutual Evaluation Report signifies a critical achievement for India in its battle against illicit finance. Being recognized as a frontrunner in anti-money laundering and counter-terror financing establishes a standard for other countries, while the ongoing need for enhancements in areas such as NPOs and PEPs remains vital. This evaluation places India in a favorable position for future economic growth and international partnerships.

Mains Question:
Q. Discuss the significance of the FATF Mutual Evaluation Report for India's financial integrity and its implications on India.

GS3/Economy

US Federal Reserve's Rate Cut and Implications

• Recently, the United States (US) Federal Reserve cut its benchmark interest rates by 50 basis points, marking its first significant reduction since the onset of the Covid-19 pandemic. This move signals a strategic approach to combat inflation while promoting economic growth.

Why Did the US Federal Reserve Cut Interest Rates?

• Economic Recovery Post-Pandemic: Following the Covid-19 pandemic, the Federal Reserve initially lowered interest rates to stimulate the economy. However, as inflation surged due to factors including global supply chain disruptions from the Russia-Ukraine conflict, the Federal Reserve raised rates to manage rising prices.
• Moderation of Inflation: By mid-2023, inflation began to stabilize, nearing the Federal Reserve's target of 2%. Recent job data indicated that high interest rates adversely affected employment, with U.S. unemployment climbing to 4.2% in August 2024. This raised concerns about a potential recession, prompting the Federal Reserve to focus on job creation alongside maintaining price stability.
• Dual Mandate: The Federal Reserve operates under a dual mandate of ensuring stable prices and achieving maximum employment. As the economic situation evolved, it became evident that a rate cut would aid in balancing these two objectives.

Implications for US:

• By reducing rates, the US aims to address inflationary pressures. Although inflation has moderated, the central bank is intent on maintaining its target rate of around 2%, striving for a “soft landing” for the economy.
• Lower interest rates generally make loans cheaper for individuals and businesses. With rising unemployment, the Fed is prioritizing job creation alongside price stability.
• The rate cut may lower borrowing costs for businesses, potentially leading to increased hiring and economic expansion.

How Inflation and Unemployment are Related?

• Inverse Correlation: Typically, inflation and unemployment have an inverse relationship—when one increases, the other decreases. In times of low unemployment, wage inflation tends to rise as employers offer higher wages to attract workers, which eventually pushes prices up. Conversely, during high unemployment, wage growth remains stagnant, resulting in lower inflation.
• Phillips Curve: This economic theory describes the inverse relationship between an economy's unemployment rate and inflation rate, as initially suggested by A.W. Phillips in the 1950s. The Phillips curve posits that higher demand for labor during periods of low unemployment leads to increased wages, which in turn drives inflation. This model has been widely utilized in monetary policy to balance inflation and employment levels.
  

How will India be Affected by the Federal Reserve Rate Cut?

• Impact on Emerging Markets: The US plays a critical role in the global economy. A lower US interest rate makes investments in countries like India more attractive through carry trades. Carry trade is a strategy where investors (Foreign Institutional Investors) borrow money in the US (where rates are low) and invest it where rates are higher, profiting from the difference.
• Limited Impact: The Chief Economic Adviser of India stated that while the rate cut could lower the dollar cost of capital and enhance liquidity, it should not be viewed as a standalone solution for stimulating the global economy.
• Increased Foreign Investment: Lower US interest rates might encourage global investors to borrow in the US and invest in India. This influx could manifest as Foreign Direct Investment (FDI) or debt from the US, supplying essential capital for the Indian economy.
• Stock Market Sentiment: The rate cut has garnered considerable interest from investors in the Indian stock market, reflecting positive sentiment among investors amidst global uncertainties.
• Crude Oil Prices: When the US dollar weakens, oil becomes less expensive for holders of other currencies, leading to increased demand and potentially higher prices. This rise in oil prices may elevate India's energy import costs and potentially reignite inflation in India.
• Impact on Currency Exchange Rates: A weakening US dollar against other currencies, including the Indian rupee, could negatively impact Indian exporters while benefiting importers.

RBI’s Response

• The Reserve Bank of India (RBI) faces pressure to reduce interest rates; however, it operates under different inflation targets and economic mandates compared to the Federal Reserve.
• The RBI is more focused on Gross Domestic Product (GDP) growth and is not as significantly influenced by US unemployment data.

Mains Question:

Q. Analyze the implications of the US Federal Reserve’s interest rate cut on emerging economies like India.