INTEGRATED MAINS AND PRELIMS MENTORSHIP (IMPM) 2025 Daily KEY
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India–Middle East–Europe Economic Corridor (IMEC) and Municipality Bond its significance for the UPSC Exam? Why are topics like Buddhist circuit,Trickle Down Economics, India, Israel, UAE, and U.S. (I2U2) important for both preliminary and main exams? Discover more insights in the UPSC Exam Notes for October 16, 2025 |
For Preliminary Examination: Current events of national and international Significance like India–Middle East–Europe Economic Corridor (IMEC)
For Mains Examination: GS II - International relations and Organisations
Context:
The recent trade friction with the U.S. has prompted India to intensify its efforts to further diversify its economic interactions with various countries worldwide. While India has signed an agreement with the U.K., it is also negotiating a similar agreement with the EU. In addition to such compacts, India should also proactively develop frameworks such as the India–Middle East–Europe Economic Corridor (IMEC).
Read about:
India–Middle East–Europe Economic Corridor (IMEC)
India, Israel, UAE, and U.S. (I2U2)
Key takeaways:
- The recent trade tensions between India and the United States have pushed New Delhi to expand and diversify its global economic engagements. Alongside the ongoing trade pact with the United Kingdom, India is in advanced negotiations with the European Union for a similar agreement.
- Beyond bilateral trade compacts, India must also focus on developing large-scale connectivity projects such as the India–Middle East–Europe Economic Corridor (IMEC).
- The IMEC envisions enhanced maritime connectivity between India and the Arabian Peninsula, along with the establishment of a high-speed rail network linking UAE ports to Israel’s Haifa port through Saudi Arabia and Jordan.
- From there, goods can be seamlessly transported to and from European markets. The corridor also aims to integrate modern infrastructure components — including a clean hydrogen pipeline, electricity cable, and an undersea digital data link — while strengthening existing port systems.
Historical Background
- In 2023, geopolitical conditions were conducive to realizing the IMEC project. The Abraham Accords had raised hopes for lasting peace in West Asia, as Israel and Arab states worked toward stability and cooperation. Proposals emerged to connect Haifa port with Jordan’s railway system and extend it toward Gulf ports to foster regional connectivity.
- At the same time, India’s partnerships with key Arab states — notably the UAE and Saudi Arabia — grew stronger, while its relations with the United States also improved.
- These converging interests paved the way for the I2U2 grouping (India, Israel, UAE, and the U.S.) and set the stage for the IMEC’s formal announcement during the G20 Summit in New Delhi, with endorsement from several EU nations, including France, Germany, and Italy.
- However, the security scenario in West Asia deteriorated soon after. The October 7 Hamas attacks and Israel’s subsequent military response severely strained Israel’s relations with neighbouring countries, casting doubt on the near-term viability of the IMEC project.
Mediterranean Concerns
- Meanwhile, climate change has opened new maritime routes through the Arctic, offering shorter and cheaper transport options that primarily benefit the U.S., Russia, China, and Northern European countries. This development could shift trade patterns toward Arctic port cities.
- Among IMEC’s European partners, France, which enjoys access to both the Atlantic and Mediterranean, is relatively better placed, whereas Italy — with only Mediterranean access — fears losing out economically.
- For this reason, Italy and other Mediterranean nations view IMEC as crucial for maintaining their relevance in global maritime trade. They argue that sustaining competitiveness demands innovative thinking, new alliances, and deeper engagement with emerging economies like India.
- With its robust and fast-growing $4 trillion economy, India is viewed as an attractive and reliable partner for Mediterranean economies seeking to revitalize trade.
- While it is unclear whether Arctic routes will benefit India directly in terms of transport cost reductions, the Mediterranean remains a vital access point for Indian exports to Europe.
- Europe, with its advanced technology, high per capita income, and educational standards, will continue to be a key trade destination for India. The EU is already India’s largest trading partner, accounting for over $136 billion in trade.
- To strengthen this partnership, both sides must invest in better logistics and connectivity frameworks that ensure resilient and diversified supply chains.
The Importance of IMEC
- Recent geopolitical disruptions have underscored the fragility of global sea lanes. The Houthi attacks in the Red Sea have forced ships to reroute around Africa’s Cape of Good Hope, increasing shipping costs and transit times.
- With the future of the Gaza peace process still uncertain, finding alternative trade routes becomes even more critical for India, West Asia, and Europe.
- As a multi-nation framework, the IMEC offers the flexibility to innovate and adapt to shifting political and security conditions.
- India and Arab countries can leverage this to deepen cooperation and include additional trade hubs — such as ports in Saudi Arabia and Egypt — to expand the corridor’s reach. Strengthening India–Arab economic ties would also counterbalance Pakistan’s attempts to build strategic partnerships in the region.
- While the IMEC faces serious security challenges, its economic promise remains significant. India and Europe should serve as the twin anchors of this initiative, pooling their strengths to foster shared prosperity and stability across the IMEC corridor
Follow Up Question
Mains
1.The India–Middle East–Europe Economic Corridor (IMEC) represents both a strategic and economic opportunity for India amid shifting global trade routes and geopolitical uncertainties. Discuss the significance of IMEC for India’s foreign policy and trade diversification. Also, examine the challenges that may impede its implementation in the current geopolitical context.
(Answer in 250 words)
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This Answer or instructions are only for reference
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1. It is an initiative endorsed by the G20 together with the Paris Club.
2. It is an initiative to support Low Income Countries with unsustainable debt.
Which of the statements given above is/are correct?
(a) 1 only
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Answer (c)
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Why is the fiscal architecture of municipalities flawed?
For Preliminary Examination: Current events of national and international Significance
For Mains Examination: GS III - Economy
Context:
Urban India generates nearly two-thirds of the national GDP, yet its municipalities control less than one per cent of the country’s tax revenue. Indian cities are not generating revenue, not because they are inefficient, but because the fiscal architecture has failed them. Today, municipal finance is dependent on intergovernmental transfers, loans, and schemes. The core of the problem lies in the centralisation of taxation powers.
Read about:
Gross Domestic Product (GDP)
Goods and Services Tax (GST)
Key takeaways:
Urban India contributes close to two-thirds of the nation’s GDP, yet its municipalities manage less than one per cent of total tax revenue. This revenue gap does not stem from inefficiency at the city level, but from a structurally flawed fiscal framework. Municipalities today depend primarily on intergovernmental transfers, loans, and centrally sponsored schemes for survival. The root cause lies in the centralisation of taxation powers, which has stripped cities of their financial independence.
How did cities lose fiscal control?
- The introduction of the Goods and Services Tax (GST) significantly eroded local revenue bases. Traditional municipal revenue streams such as octroi, entry tax, and local surcharges—which once formed nearly one-fifth of city-level income—were absorbed into the GST regime.
- The promised compensatory mechanisms failed to reach municipalities, leaving them even more reliant on State and Central grants.
- Consequently, urban local bodies now function with limited fiscal autonomy and unpredictable income sources, resulting in what may be called a reversal of democratic logic: decision-making remains centralised while service delivery is decentralised.
- Cities are tasked with managing waste, affordable housing, urban mobility, and climate resilience—yet lack the funds to support these mandates.
Can municipal bonds be the answer?
- Policy documents—from NITI Aayog’s urban vision to reform-linked grants—promote municipal bonds as a tool for urban finance. However, the credibility of these bonds remains weak.
- The problem is not only cities’ limited ability to raise capital but also the flawed criteria used to assess their creditworthiness. Ratings are often based narrowly on “own-source revenue” such as property taxes, fees, and user charges, while regular intergovernmental grants are discounted as “non-recurring income.” This approach reinforces the false notion that cities survive on charity.
- In reality, such transfers are constitutional entitlements—a part of the redistributive framework envisioned by the 74th Constitutional Amendment, which recognised municipalities as an equal tier of government.
- Yet, institutions like the World Bank and ADB continue to advocate for “self-reliance” through property taxation and user charges. While reforming property tax systems is necessary, relying solely on them is both inadequate and inequitable.
- Property tax rarely contributes more than 20–25% of a city’s potential revenue, and raising it is politically sensitive.
- Moreover, the “user-pays” model unfairly burdens poorer communities already suffering from poor urban services. Essential services such as clean water, sanitation, and public transport are collective goods, not commodities to be bought and sold.
The way forward
To secure a sustainable urban future, India must democratise its fiscal architecture. Lessons can be drawn from Scandinavian models, where municipalities in Denmark, Sweden, and Norway have the authority to levy and collect local income taxes. This creates fiscal transparency and accountability, as citizens directly see how their taxes fund local services. Importantly, transfers from higher levels of government are treated not as discretionary grants but as shared fiscal responsibilities within a cooperative system.
India needs a reimagined model of fiscal federalism that guarantees predictable, adequate, and untied revenues for urban local bodies—both through their own sources and constitutionally mandated transfers. For municipal bonds to become credible, cities must be allowed to treat grants and shared taxes as legitimate components of income. Credit ratings should also incorporate governance quality—including transparency, audit discipline, and citizen participation—rather than relying solely on financial numbers. Cities could also use part of their GST compensation or State revenue share as collateral to secure borrowing
Follow Up Question
Mains
1.Despite contributing significantly to India’s GDP, urban local bodies remain fiscally constrained due to excessive centralisation of taxation powers. Discuss the challenges of municipal finance in India and suggest measures to strengthen the fiscal autonomy of urban governance.
(Answer in 250 words)
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This Answer or instructions are only for reference
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Buddhism originated in India around the 5th–6th centuries BCE, during what historians describe as the “Second Urbanisation” of the subcontinent — a period of intense social and cultural transformation in the Gangetic plains. The religion arose alongside other non-Vedic movements such as Jainism, offering an alternative to the rigid and ritualistic practices prevalent in orthodox Vedic Hinduism.
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The Buddhist path to liberation is centred on the Three Jewels (Triratna), which encompass:
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PrajñÄ (wisdom or knowledge),
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Śīla (ethical conduct), and
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SamÄdhi (mental concentration or meditation).
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The Piprahwa relics, a significant discovery in Buddhist archaeology, were unearthed in 1898 by William Claxton Peppe during the excavation of a stupa at Piprahwa village in present-day Siddharthnagar district, Uttar Pradesh. These relics — consisting of gems, jewels, and sacred fragments — were recently repatriated to India after an attempted auction at Sotheby’s Hong Kong was halted. The relics had been in the possession of Peppe’s great-grandson, Chris Peppe.
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Believed to have been deposited by the Sakyas, the Buddha’s own clan, the relics include bone fragments, crystal caskets, and gold ornaments. The Peppe collection, now returned to India, contains 349 gem relics and gold objects, while the Indian Museum’s collection features 221 gem relics, six reliquaries, and one coffer.
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The relics are intricately decorated with lotus motifs, foliage designs, and the Triratna symbol, crafted from semi-precious stones such as carnelian, amethyst, topaz, garnet, coral, crystal, shell, and gold.
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At the Mehrauli exhibition, the Ministry of Culture aims to narrate the life and journey of Lord Buddha through archaeological artefacts while highlighting India’s efforts in reclaiming its lost cultural heritage.
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The Sotheby’s auction was prevented through timely intervention and coordinated legal action by the Ministry, which discreetly engaged with both Sotheby’s and the Peppe family over two months to ensure the relics’ return from Hong Kong, a region under strong Chinese influence.
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The successful repatriation marks a new model for heritage recovery, led by a public-private partnership. Industrialist Pirojsha Godrej played a key philanthropic role by financing the acquisition of the relics, allowing these invaluable artefacts to return to their country of origin
1.The recent repatriation of the Piprahwa relics marks a significant moment in India’s efforts to reclaim its cultural heritage. Discuss the historical, religious, and diplomatic importance of such heritage repatriation initiatives for India.
(Answer in 250 words)
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This Answer or instructions are only for reference
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Answer (B)
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- Trickle-down economics is an economic theory that assumes the prosperity of the wealthy and big businesses eventually benefits the broader population.
- The central idea is that when the government adopts policies that favour the rich—such as lowering taxes on high-income groups or corporations, reducing business regulations, and encouraging capital accumulation—these groups will invest more in productive activities.
- The investments, in turn, are expected to stimulate economic growth, create new jobs, and raise incomes for everyone, including those at the lower end of the economic ladder. In simple terms, it assumes that wealth created at the top “trickles down” to the bottom.
- The theory became especially popular during the 1980s under U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher.
- In the United States, it was reflected in the so-called “Reaganomics,” where large tax cuts were offered to corporations and the rich in the belief that this would boost private investment and employment.
- Proponents of this approach argued that entrepreneurs, if given more resources, would expand production, increase demand for labour, and spur economic growth that would benefit all sections of society.
- However, in practice, trickle-down economics has often produced mixed outcomes. Critics argue that instead of the benefits spreading across society, they tend to accumulate among the wealthy.
- This concentration of wealth can increase inequality and reduce the purchasing power of the middle and lower classes, ultimately slowing down overall economic growth.
- Moreover, the reduction in taxes for the rich often leads to a decline in government revenues, which can undermine spending on social welfare, education, and healthcare—sectors that directly benefit the poor.
- In essence, while trickle-down economics relies on the belief that economic benefits flow naturally from the top to the bottom, empirical evidence from many economies shows that these benefits are unevenly distributed.
- The approach highlights a tension between encouraging private wealth creation and ensuring equitable growth.
- Many economists now suggest that instead of waiting for wealth to “trickle down,” governments should adopt a “bottom-up” approach—investing directly in public goods, education, and infrastructure to empower lower-income groups and create a more inclusive form of development
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This Answer or instructions are only for reference
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1.With reference to the concept of Trickle-down Economics, consider the following statements:
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It is based on the idea that benefits given to the wealthy and businesses will eventually benefit the wider population.
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It primarily advocates for higher government spending on welfare schemes to promote income redistribution.
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The concept is closely associated with supply-side economic policies.
Which of the statements given above is/are correct?
(a) 1 and 3 only
(b) 2 only
(c) 1 and 2 only
(d) 1, 2 and 3
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Answer (a)
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