STRAIT OF HORMUZ
1. Context
The United States-Israel versus Iran war and the effective closure of the Strait of Hormuz since February 28 have triggered arguably the greatest global energy supply shock in history, eclipsing even those of 1973 and 1979.
2. What is the Strait of Hormuz?
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The Strait of Hormuz is a strategically significant and narrow maritime passage situated between Iran and Oman, serving as a link between the Persian Gulf, the Gulf of Oman, and the Arabian Sea. The U.S. Energy Information Administration (EIA) has labeled it as the world’s most vital oil transit chokepoint, through which nearly 20% of global liquid petroleum fuels and a substantial portion of LNG trade pass. In May, more than 45% of India’s crude oil imports were estimated to have transited through this strait. Given that India is the third-largest consumer of crude oil globally and imports over 85% of its oil needs, the strait plays a crucial role in its energy security.
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Data from the commodity analytics firm Kpler indicates that, as of June, India has been importing over 2.2 million barrels per day (bpd) of crude oil from Russia, which constitutes more than 41% of its total oil imports.
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While oil imports from the U.S. have shown a steady rise, supplies from West Asian nations such as Iraq, Saudi Arabia, the UAE, and Kuwait have remained relatively consistent. Many of these shipments were likely planned prior to the recent escalation in tensions between Israel and Iran, and therefore, may not reflect the impact of the current geopolitical developments.
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Over the past two to three years, India has notably adjusted its oil import strategy. Russia has emerged as India’s top crude supplier, overtaking traditional exporters from West Asia. Importantly, Russian oil bypasses the Strait of Hormuz, as it is mainly transported via alternative sea routes like the Suez Canal and Red Sea, and sometimes through the Cape of Good Hope or Pacific Ocean routes.
3.Why is Strait of Hormuz Critical?
- The Strait of Hormuz is commonly considered the most critical maritime chokepoint in the world. It links the Persian Gulf with the Gulf of Oman and the Indian Ocean, serving as a major export corridor for regional oil producers.
- At its narrowest point, it measures only about 21 nautical miles (38 km) across. Under typical conditions, nearly 21 million barrels of oil—around one-fifth of global consumption—flow through it daily.
- Alongside crude oil, substantial quantities of liquefied natural gas from Qatar and the UAE are transported via this passage.
- A significant share, close to 80%, is destined for Asian markets, making countries like India, China, Japan, and South Korea heavily reliant on this route.
4. Other Major Global Chokepoints
- Apart from Hormuz, international trade depends on a few other strategically vital maritime passages, including the Strait of Malacca, Bab el-Mandeb Strait, Suez Canal, and Panama Canal.
- The Strait of Malacca lies between the Malay Peninsula and Indonesia’s Sumatra island and represents the shortest maritime route connecting the Indian Ocean with the South China Sea. This makes it indispensable for trade flows linking West Asia, Africa, and East Asia.
- The Bab el-Mandeb Strait is positioned between the Arabian Peninsula and the Horn of Africa.
- It serves as the southern entrance to the Red Sea, a necessary transit point for vessels heading toward the Suez Canal and onward to the Mediterranean, thereby forming a crucial segment of Asia–Europe trade routes.
- The Suez Canal, a man-made channel across Egypt, connects the Red Sea to the Mediterranean Sea, significantly reducing travel time by eliminating the need to circumnavigate Africa.
- Further west, the Panama Canal cuts through the Isthmus of Panama, linking the Atlantic and Pacific Oceans. This strategic shortcut facilitates trade between Asia, the Americas, and Europe, removing the necessity of sailing around South America
5. Why is the Strait of Hormuz strategically important for India?
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India’s current oil procurement approach already demonstrates a diversified and risk-mitigated strategy, especially in light of uncertainties in West Asian oil routes, with Russian crude now making up the largest share of India’s import basket.
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After recent U.S. air strikes targeting Iranian nuclear sites, Iran’s parliament passed a resolution on Sunday advocating the closure of the Strait of Hormuz, a vital corridor for global oil transportation. The final decision on this move now lies with Iran’s Supreme National Security Council.
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Although Iran has repeatedly issued threats in the past to shut the strait, it has never acted on them. Even in the present context, industry analysts consider the likelihood of an actual blockade to be low. Nevertheless, the increased risk perception surrounding the potential closure is expected to trigger global alarm, including in India, by raising concerns over the security of oil and gas supplies and potentially driving up global energy prices.
6. How does the Israel-Iran conflict pose a threat to global oil and gas flows?
- The Israel-Iran conflict poses a significant threat to global oil and gas flows due to the geopolitical sensitivity and strategic location of the region. At the heart of this issue lies the Strait of Hormuz—a narrow but crucial maritime passage through which nearly 20% of the world’s petroleum and a substantial share of liquefied natural gas (LNG) are transported.
- Iran borders this strait and has, over the years, repeatedly threatened to block it during periods of heightened tension, including in response to military actions or sanctions.
- When hostilities between Israel and Iran escalate—such as through air strikes, proxy conflicts, or cyber warfare—it increases the likelihood of retaliation from Iran that could involve disrupting maritime traffic in the Strait of Hormuz.
- Even if Iran does not fully close the strait, the mere threat or perception of such an action is enough to cause volatility in global energy markets. Tanker insurance rates rise, shipping routes are reconsidered, and countries heavily dependent on oil imports, like India, become increasingly vulnerable to supply disruptions and price shocks.
- Furthermore, any military conflict in this region risks damaging key infrastructure such as refineries, pipelines, or export terminals in the broader West Asian region.
- This would constrain oil production and distribution, affecting both the availability and price of crude oil and gas worldwide. Global markets respond quickly to these risks, often resulting in immediate spikes in prices due to concerns over supply security.
- In summary, the Israel-Iran conflict amplifies the risk to global oil and gas flows by potentially destabilizing a region that is central to global energy supply chains. It heightens fears of supply disruptions, increases market speculation, and threatens the economic stability of energy-importing countries, making it a matter of both geopolitical and economic concern
7. Way Forward
The flow of vessels through major international chokepoints is largely regulated by the United Nations Convention on the Law of the Sea. According to its provisions, straits that are used for global navigation fall under the concept of “transit passage,” which permits ships and aircraft from all countries to move through them freely, continuously, and without interference.
At the same time, coastal states bordering these straits are allowed to introduce regulations related to safety or environmental protection. However, they are not permitted to block passage or apply discriminatory restrictions on specific vessels. While this freedom of navigation is widely accepted in international law, its practical implementation often depends on the naval capabilities of states and the level of cooperation among them
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For Prelims: Strait of Hormuz, Persian Gulf, Energy Information Administration (EIA), liquefied natural gas (LNG)
For Mains: General Studies II: Effect of policies and politics of developed and developing countries on India’s interests.
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Previous Year Questions
1.Which one of the following straits is nearest to the International Date Line? (UPSC CSE 2008) (a) Malacca Strait (b) Bering Strait (c) Strait of Florida (d) Strait of Gibraltar Answer (b) The International Date Line (IDL) roughly follows the 180° longitude, which lies in the Pacific Ocean, deviating slightly to accommodate international boundaries. The Bering Strait lies between Russia and Alaska, and it is very close to the 180° meridian, making it the closest strait to the International Date Line. Here's why the other options are incorrect:
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Source: Indianexpress
CRITICAL MINERALS
1. Context
In late June, the Centre declared the winning bidders for mining rights in six blocks of critical minerals, including graphite, phosphorite and lithium, for which India largely relies on imports. These are the first private players awarded such rights under the revamped Mines and Minerals law
2. What are Critical Minerals?
Critical minerals are raw materials that are essential for economic and national security, but whose supply may be at risk due to geological scarcity, geopolitical issues, trade policy, or other factors
Critical minerals are typically defined by governments or organizations based on their importance to the economy and the potential risks to their supply
- Rare Earth Elements (REEs): neodymium, dysprosium, terbium
- Lithium
- Cobalt
- Graphite
- Gallium
- Indium
- Tungsten
- Platinum Group Metals (PGMs)
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3. Why are critical minerals important?
- Minerals such as copper, lithium, nickel, and cobalt, along with certain rare earth elements, are considered critical due to their essential role in the global transition to greener and cleaner energy sources.
- According to the International Energy Agency (IEA), the demand for lithium surged by 30% in 2023, with nickel, cobalt, graphite, and rare earth elements experiencing growth between 8% and 15%, collectively valued at $325 billion.
- The IEA's Global Critical Minerals Outlook 2024 report indicates that achieving the world's goal of limiting global warming to 1.5 degrees Celsius within a net-zero emissions framework will necessitate a significant increase in demand for these minerals.
- By 2040, copper demand is projected to rise by 50%, nickel, cobalt, and rare earth elements by 100%, graphite by 300%, and lithium by 800%, which is vital for battery production.
- Developing sustainable supply chains for these minerals is therefore crucial. In India, the absence of readily available reserves has led to complete import dependence for minerals such as lithium, cobalt, and nickel.
4. What is being done to spur production?
- Although India possesses natural reserves of several critical minerals, they remain largely unexplored and untapped. For example, despite holding 11% of the world's ilmenite deposits, which is the primary source of titanium dioxide used in numerous applications, India still imports a billion dollars' worth of titanium dioxide annually, as noted by former Mines Secretary Vivek Bharadwaj.
- Additionally, the "lucky" discovery of lithium reserves in the Union Territory of Jammu and Kashmir (J&K) by the Geological Survey of India (GSI) while exploring for limestone has raised hopes for achieving some level of self-sufficiency in lithium. Announced in February as India's first lithium find, these reserves are estimated at 5.9 million tonnes, prompting the government to expedite their extraction.
- Recognizing the risks of relying on a limited number of countries for these minerals and their processing, the central government amended the Mines and Minerals (Development and Regulation) Act, 1957 in August 2023 to allow mining concessions for 24 critical and strategic minerals.
5. Way Forward
The list of what's considered "critical" can vary by country and change over time based on technological developments and geopolitical situations. The management of critical minerals is an ongoing challenge that requires balancing economic needs, environmental concerns, and geopolitical realities
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For Prelims: Critical minerals, Ministry of Mines, carbon emissions, cleaner energy, lithium, cobalt, nickel, graphite, tin, copper, Selenium, Cadmium, Centre of Excellence on critical minerals, Australia's CSIRO, Geological Survey of India,
For Mains:
1. What are critical minerals? Discuss their significance for a country's economic development and national security. Explain how the identification of critical minerals helps in reducing import dependency and ensuring resource security. (250 Words)
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Previous Year Questions
1. With reference to the mineral resources of India, consider the following pairs: (UPSC 2010)
Mineral 90%Natural sources in
1. Copper Jharkhand
2. Nickel Orissa
3. Tungsten Kerala
Which of the pairs given above is/are correctly matched?
A. 1 and 2 only B. 2 only C. 1 and 3 only D. 1, 2 and 3
Answer: B
2. Recently, there has been a concern over the short supply of a group of elements called 'rare earth metals.' Why? (UPSC 2012)
1. China, which is the largest producer of these elements, has imposed some restrictions on their export.
2. Other than China, Australia, Canada and Chile, these elements are not found in any country. 3. Rare earth metals are essential for the manufacture of various kinds of electronic items and there is a growing demand for these elements.
Which of the statements given above is/are correct?
A. 1 only B. 2 and 3 only C. 1 and 3 only D. 1, 2 and 3
Answer: C
3. In India, what is the role of the Coal Controller's Organization (CCO)? (UPSC 2022)
1. CCO is the major source of Coal Statistics in Government of India.
2. It monitors progress of development of Captive Coal/Lignite blocks.
3. It hears any objection to the Government's notification relating to acquisition of coal-bearing areas.
4. It ensures that coal mining companies deliver the coal to end users in the prescribed time. Select the correct answer using the code given below:
A. 1, 2 and 3 B. 3 and 4 only C. 1 and 2 only D. 1, 2 and 4
Answer: A
4. Which of the following statements best describes the term 'Social Cost of Carbon'? It is a measure, in monetary value, of the (UPSC 2020)
A. long-term damage done by a tonne of CO2 emission in a given year.
B. requirement of fossil fuels for a country to provide goods and services to its citizens, based on the burning of those fuels.
C. efforts put in by a climate refugee to adapt to live in a new place.
D. contribution of an individual person to the carbon footprint on the planet Earth.
Answer: A
5. Direction: It consists of two statements, one labelled as ‘Statement (I)’ and the others as ‘Statement (II)’. You are to examine these two statements carefully and select the answer using the codes given below: (UPSC ESE 2018)
Statement (I): Green energy refers to one which does not harm the ecosystem of planet earth. Statement (II): All renewable energy is green energy.
A. Both Statement (I) and Statement (II) individually true and Statement (II) is the correct explanation of Statement (I)
B. Both statement (I) and Statement (II) are individually true, but Statement (II) is not the correct explanation of Statement (I)
C. Statement (I) is true, but Statement (II) is false
D. Statement (I) is false, but Statement (II) is true
Answer: C
6. Which type of battery is used in the recently launched world's first fully electric cargo ship by change? (Delhi Police Constable 2017)
A. Lead Acid B. Manganese C. Lithium ion D. Nickel metal hydride
Answer: C
7. White gold is an alloy of (UPSC CAPF 2022)
A. gold, nickel and palladium
B. gold, cobalt and palladium
C. gold, titanium and platinum
D. gold, magnesium and palladium
Answer: A
8. Graphene is frequently in news recently. What is its importance? (UPSC 2012)
1. It is a two-dimensional material and has good electrical conductivity.
2. It is one of the thinnest but strongest materials tested so far.
3. It is entirely made of silicon and has high optical transparency.
4. It can be used as 'conducting electrodes' required for touch screens, LCDs and organic LEDs. Which of the statements given above are correct?
A. 1 and 2 only B. 3 and 4 only C. 1, 2 and 4 only D. 1, 2, 3 and 4
Answer: C
9. Graphite and diamonds are__________. (WBCS Prelims 2020)
A. isotopes B. isomers C. isotones D. allotropes
Answer: D
10. Consider the following statements: (UPSC 2020)
1. Coal ash contains arsenic, lead and mercury.
2. Coal-fired power plants release sulphur dioxide and oxides of nitrogen into the environment. 3. High ash content is observed in Indian coal.
Which of the statements given above is/are correct?
A. 1 only B. 2 and 3 only C. 3 only D. 1, 2 and 3
Answer: D
11. Which of the following can be found as pollutants in the drinking water in some parts of India? (UPSC 2013)
1. Arsenic
2. Sorbitol
3. Fluoride
4. Formaldehyde
5. Uranium
Select the correct answer using the codes given below.
A. 1 and 3 only B. 2, 4 and 5 only C. 1, 3 and 5 only D. 1, 2, 3, 4 and 5
Answer: C
12. In the context of solving pollution problems, what is/are the advantage/advantages of the bioremediation technique? (UPSC 2017)
1. It is a technique for cleaning up pollution by enhancing the same biodegradation process that occurs in nature.
2. Any contaminant with heavy metals such as cadmium and lead can be readily and completely treated by bioremediation using microorganisms.
3. Genetic engineering can be used to create microorganisms specifically designed for bioremediation.
Select the correct answer using the code given below:
A. 1 only B. 2 and 3 only C. 1 and 3 only D. 1, 2 and 3
Answer: C
13. Due to improper/indiscriminate disposal of old and used computers or their parts, which of the following are released into the environment as e-waste? (UPSC 2013)
1. Beryllium
2. Cadmium
3. Chromium
4. Heptachlor
5. Mercury
6. Lead
7. Plutonium
Select the correct answer using the codes given below.
A. 1, 3, 4, 6 and 7 only B. 1, 2, 3, 5 and 6 only
C. 2, 4, 5 and 7 only D. 1, 2, 3, 4, 5, 6 and 7
Answer: B
14. When was the Geological Survey of India (GSI) of India founded? (UPRVUNL Staff Nurse 2021)
A. 1851 B. 1951 C. 1871 D. 1931
Answer: A
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Source: The Hindu
LONG-PERIOD AVERAGE (LPA)
1. Context
India is likely to receive below-normal rainfall during August, with precipitation expected to be less than 94% of the long period average, the India Meteorological Department said on Friday
Image source: The Indian Express
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2. About Long Period Average (LPA)
- The IMD predicts a “normal”, “below normal”, or “above normal” monsoon in relation to a benchmark “long period average” (LPA)
- According to the IMD, the “LPA of rainfall is the rainfall recorded over a particular region for a given interval (like month or season) average over a long period like 30 years, 50 years, etc”
- The IMD’s prediction of a normal monsoon on Thursday was based on the LPA of the 1971-2020 period, during which India received 87 cm of rain for the entire country on average
- The IMD has in the past calculated the LPA at 88 cm for the 1961-2010 period, and at 89 cm for the period 1951-2000
- While this quantitative benchmark refers to the average rainfall recorded from June to September for the entire country, the amount of rain that falls every year varies from region to region and from month to month
- Therefore, along with the countrywide figure, the IMD also maintains LPAs for every meteorological region of the country this number ranges from around 61 cm for the drier Northwest India to more than 143 cm for the wetter East and Northeast India
- LPA of the southwest monsoon rainfall over Kerala: 556 mm, 659 mm, 427 mm and 252 mm for the months of June, July, August, and September respectively
- Broken down monthwise for the entire country, the LPA figures for the season are 16.36 cm for June, 28.92 cm for July, 26.13 cm for August, and 17.34 cm for September
3. Need of LPA
- The IMD records rainfall data at more than 2,400 locations and 3,500 rain-gauge stations
- Because annual rainfall can vary greatly not just from region to region and from month to month, but also from year to year within a particular region or month, an LPA is needed to smooth out trends so that a reasonably accurate prediction can be made
- A 50-year LPA covers for large variations in either direction caused by freak years of unusually high or low rainfall (as a result of events such as El Nino or La Nina)
- As well as for the periodic drought years and the increasingly common extreme weather events caused by climate change
4.IMD Calculations
Quantitatively, the monsoon seasonal (June to September) rainfall is likely to be 99% of the LPA with a model error of ± 5%. The LPA of the season rainfall over the country as a whole for the period 1971-2020 is 87 cm
The IMD maintains five rainfall distribution categories on an all-India scale. These are:
- Normal or near normal, when the percentage departure of actual rainfall is +/-10% of LPA, that is, between 96-104% of LPA
- Below normal, when departure of actual rainfall is less than 10% of LPA, that is 90-96% of LPA
- Above normal, when actual rainfall is 104-110% of LPA
- Deficient, when departure of actual rainfall is less than 90% of LPA
- Excess, when the departure of actual rainfall is more than 110% of LPA
5. About India Meteorological Department
- The beginnings of meteorology in India can be traced to ancient times. Early philosophical writings of the 3000 B.C. era, such as the Upanishadas, contain serious discussion about the processes of cloud formation and rain and the seasonal cycles caused by the movement of earth round the sun
- Varahamihira's classical work, the Brihatsamhita, written around 500 A.D., provides a clear evidence that a deep knowledge of atmospheric processes existed even in those times
- It was understood that rains come from the sun (Adityat Jayate Vrishti) and that good rainfall in the rainy season was the key to bountiful agriculture and food for the people
- Kautilya's Arthashastra contains records of scientific measurements of rainfall and its application to the country's revenue and relief work. Kalidasa in his epic, 'Meghdoot', written around the seventh century, even mentions the date of onset of the monsoon over central India and traces the path of the monsoon clouds
- Meteorology, as we perceive it now, may be said to have had its firm scientific foundation in the 17th century after the invention of the thermometer and the barometer and the formulation of laws governing the behaviour of atmospheric gases
- It was in 1636 that Halley, a British scientist, published his treatise on the Indian summer monsoon, which he attributed to a seasonal reversal of winds due to the differential heating of the Asian land mass and the Indian Ocean
- India is fortunate to have some of the oldest meteorological observatories of the world. The British East India Company established several such stations, for example, those at Calcutta in 1785 and Madras (now Chennai) in 1796 for studying the weather and climate of India
- The Asiatic Society of Bengal founded in 1784 at Calcutta, and in 1804 at Bombay (now Mumbai), promoted scientific studies in meteorology in India
- A disastrous tropical cyclone struck Calcutta in 1864 and this was followed by failures of the monsoon rains in 1866 and 1871
- In the year 1875, the Government of India established the India Meteorological Department, bringing all meteorological work in the country under a central authority
- The first Director General of Observatories was Sir John Eliot who was appointed in May 1889 at Calcutta headquarters
- The headquarters of IMD were later shifted to Shimla, then to Poona (now Pune) and finally to New Delhi
- From a modest beginning in 1875, IMD has progressively expanded its infrastructure for meteorological observations, communications, forecasting and weather services and it has achieved a parallel scientific growth
- IMD has always used contemporary technology. In the telegraph age, it made extensive use of weather telegrams for collecting observational data and sending warnings
- Later IMD became the first organisation in India to have a message-switching computer for supporting its global data exchange.
- One of the first few electronic computers introduced in the country was provided to IMD for scientific applications in meteorology
- India was the first developing country in the world to have its own geostationary satellite, INSAT, for continuous weather monitoring of this part of the globe and particularly for cyclone warning
- IMD has continuously ventured into new areas of application and service and steadily built upon its infrastructure in its history of 140 years
- It has simultaneously nurtured the growth of meteorology and atmospheric science in India. Today, meteorology in India is poised at the threshold of an exciting future
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For Prelims: IMD, Long Period Average, El Nino, La Nino
For Mains: 1.What characteristics can be assigned to monsoon climate that succeeds in feeding more than 50 percent of the won population residing in Monsoon Asia? (UPSC GS 1 2017
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Previous Year Questions:
1.La Nina is suspected to have caused recent floods in Australia. How is La Nina different from El Nino? (UPSC 2011 )
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer (D)
2.The seasonal reversal of winds is the typical characteristic of (UPSC 2014 )
A. Equatorial climate
B. Mediterranean climate
C. Monsoon climate
D. All of the above climates
Answer (C)
3.With reference to ‘Indian Ocean Dipole (IOD)’ sometimes mentioned in the news while forecasting Indian monsoon, which of the following statements is/are correct? (2017 Prelims)
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer (B)
4.Consider the following statements: (2015)
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer (B)
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Source: India Meteorological Department, indianexpress
INDEX OF INDUSTRIAL PRODUCTION (IIP)
1. Context
The data on the Index of Industrial Production (IIP), released by the Ministry of Statistics and Programme Implementation, showed that the index’s growth in June was the fastest since July 2024, a 23-month high. The index had grown 5.1% in May 2026
2. About the Index of Industrial Production (IIP)
- The Index of Industrial Production (IIP) is a macroeconomic indicator that measures the changes in the volume of production of a basket of industrial goods over some time.
- It is a composite index that reflects the performance of the industrial sector of an economy.
- The IIP is compiled and released by the Central Statistical Organisation (CSO) in India.
- The IIP is calculated using a Laspeyres index formula, which means that the weights assigned to different industries are based on their relative importance in a base year. The current base year for the IIP is 2011-12.
- The eight core sector industries represent about 40% of the weight of items that are included in the IIP.
- The eight core industries are Refinery Products, Electricity, Steel, Coal, Crude Oil, Natural Gas, Cement and Fertilizers.
- It covers 407 item groups included into 3 categories viz. Manufacturing, Mining and Electricity.
- The IIP is a useful tool for assessing the health of the industrial sector and the overall economy.
- It is used by policymakers, businesses, and investors to track trends in industrial production and make informed decisions.
3. Significance of IIP
The IIP is a significant economic indicator that provides insights into the following aspects
- The IIP reflects the growth or decline of the industrial sector, which is a major contributor to overall economic growth.
- The IIP measures the level of industrial activity, indicating the production volume of various industries.
- The IIP serves as a guide for policymakers to assess the effectiveness of economic policies and make informed decisions.
- Businesses use the IIP to assess market conditions, make production plans, and evaluate investment opportunities.
- The IIP influences investor sentiment as it reflects the overall health of the industrial sector.
4. Service Sector and IIP
- The IIP does not include the service sector. It focuses on the production of goods in the industrial sector, such as manufacturing, mining, and electricity.
- The service sector is measured by a separate index, the Index of Services Production (ISP).
- The IIP data is released monthly by the Central Statistical Organisation (CSO) in India.
- The data is released with a lag of six weeks, allowing for the collection and compilation of information from various industries.
5. Users of IIP Data
The IIP data is used by a wide range of stakeholders, including:
- Government agencies and central banks use the IIP to assess economic conditions and formulate policies.
- Companies use the IIP to evaluate market trends, make production decisions, and assess investment opportunities.
- Investors use the IIP to gauge the health of the industrial sector and make investment decisions.
- Economic analysts and researchers use the IIP to study economic trends and develop forecasts.
- The IIP is widely reported in the media and is of interest to the general public as an indicator of economic performance.
6. Manufacturing Drives Industrial Production Growth
- Factory output gained on the back of a 9.3 per cent increase in manufacturing, which accounts for 77.6 per cent of the weight of the IIP (Index of Industrial Production).
- Manufacturing output had grown by 5 per cent in July and had contracted by 0.5 per cent in August 2022.
- In absolute terms, it improved to 143.5 in August from 141.8 in July and 131.3 in the year-ago period.
- As per the IIP data, seven of the 23 sectors in manufacturing registered a contraction in August, with furniture, apparel, and computer and electronics among the significant non-performers.
- Among the performing sectors, fabricated metal products, electrical equipment and basic metals fared better.
- Garments and chemicals witnessed negative growth. This can be attributed to lower growth in exports as these two are export-dependent.
- The electronics industry also witnessed negative growth, which again can be linked to existing high stocks and lower export demand.
- In terms of the use-based industries, consumer durables output returned to positive territory for the second time this fiscal with 5.7 per cent growth in August, reflecting a pickup in consumption demand.
- However, it came on the back of a 4.4 per cent contraction in consumer durables output in the year-ago period.
- Primary, infrastructure/ construction, and capital goods recorded double-digit growth rates in August at 12.4 per cent, 14.9 per cent and 12.6 per cent, respectively.
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For Prelims: The Index of Industrial Production (IIP), Central Statistical Organisation,
For Mains:
1. Discuss the significance of the Index of Industrial Production (IIP) as an economic indicator and its role in assessing the health of the industrial sector and the overall economy. (250 Words)
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| Previous Year Questions
1. In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a combined weight of 37.90%. Which of the following are among those Eight Core Industries? (UPSC CSE 2012)
1. Cement
2. Fertilizers
3. Natural gas
4. Refinery products
5. Textiles
Select the correct answer using the codes given below:
A. 1 and 5 only B. 2, 3 and 4 only C. 1, 2, 3 and 4 only D. 1, 2, 3, 4 and 5
Answer: C
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Source: indianexpress
QUANTUM COMPUTING
1. Context
Could the next breakthrough in cancer treatment come from combining artificial intelligence (AI) with quantum computing? Researchers at the Technical University of Denmark (DTU) have taken an early step by using a photonic quantum computer to improve how an AI model designs peptides, which help the immune system recognise diseased or infected cells.
2. About quantum computing
- Quantum computing is a rapidly-emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.
- IBM Quantum makes real quantum hardware a tool scientists only began to imagine three decades ago available to hundreds of thousands of developers.
- Engineers deliver ever-more-powerful superconducting quantum processors at regular intervals, alongside crucial advances in software and quantum-classical orchestration.
- This work drives toward the quantum computing speed and capacity necessary to change the world.
- These machines are very different from the classical computers that have been around for more than half a century.
Image Source: IBM
3. Need for quantum computers
- For some problems, supercomputers aren’t that super. When scientists and engineers encounter difficult problems, they turn to supercomputers.
- These are very large classical computers, often with thousands of classical CPU and GPU cores. However, even supercomputers struggle to solve certain kinds of problems.
- If a supercomputer gets stumped, that's probably because the big classical machine was asked to solve a problem with a high degree of complexity. When classical computers fail, it's often due to complexity
- Complex problems are problems with lots of variables interacting in complicated ways.
- Modelling the behaviour of individual atoms in a molecule is a complex problem, because of all the different electrons interacting with one another.
- Sorting out the ideal routes for a few hundred tankers in a global shipping network is complex too.
4. Quantum computers work
- Quantum computers are elegant machines, smaller and requiring less energy than supercomputers.
- An IBM Quantum processor is a wafer not much bigger than the one found in a laptop.
- And a quantum hardware system is about the size of a car, made up mostly of cooling systems to keep the superconducting processor at its ultra-cold operational temperature.
- A classical processor uses bits to perform its operations. A quantum computer uses qubits (CUE-bits) to run multidimensional quantum algorithms.
4.1. Superfluids
- A desktop computer likely uses a fan to get cold enough to work.
- Quantum processors need to be very cold about a hundredth of a degree above absolute zero.
- To achieve this, we use super-cooled superfluids to create superconductors.
4.2. Superconductors
- At those ultra-low temperatures, certain materials in our processors exhibit another important quantum mechanical effect: electrons move through them without resistance. This makes them "superconductors."
- When electrons pass through superconductors they match up, forming "Cooper pairs."
- These pairs can carry a charge across barriers, or insulators, through a process known as quantum tunnelling.
- Two superconductors placed on either side of an insulator form a Josephson junction.
4.3. Control
- Our quantum computers use Josephson junctions as superconducting qubits.
- By firing microwave photons at these qubits, we can control their behaviour and get them to hold, change, and read out individual units of quantum information.
4.4. Superposition
- A qubit itself isn't very useful. But it can perform an important trick: placing the quantum information it holds into a state of superposition, which represents a combination of all possible configurations of the qubit.
- Groups of qubits in superposition can create complex, multidimensional computational spaces. Complex problems can be represented in new ways in these spaces.
4.5. Entanglement
- Entanglement is a quantum mechanical effect that correlates the behaviour of two separate things.
- When two qubits are entangled, changes to one qubit directly impact the other.
- Quantum algorithms leverage those relationships to find solutions to complex problems.
5. Making quantum computers useful
- Right now, IBM Quantum leads the world in quantum computing hardware and software. It is a clear and detailed plan to scale quantum processors, overcomes the scaling problem, and build the hardware necessary for quantum advantage.
- Quantum advantage will not be achieved with hardware alone.
- IBM has also spent years advancing the software that will be necessary to do useful work using quantum computers.
- They developed the Qiskit quantum SDK. It is open-source, python-based, and by far the most widely-used quantum SDK in the world.
- The Qiskit Runtime is the most powerful quantum programming model in the world.
- Achieving quantum advantage will require new methods of suppressing errors, increasing speed, and orchestrating quantum and classical resources.
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For Prelims: Quantum computing, supercomputers, Qiskit Runtime, IBM, National Mission on Quantum Technologies and Applications, superconductors,
For Mains:
1. What is Quantum computing? Discuss the need for Quantum Computers in emerging countries like India. (250 Words)
2. What are quantum computers and how are they different from conventional computers? Where does India stand in the race to build quantum computers that can realise their full potential? (250 Words)
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Previous Year Questions
1. India's first Supercomputer is (TSPSC AEE 2015)
A. Aditya
B. Param Yuva
C. Param
D. Vikram-100
Answer: C
2. What is the full form of IBM? (SSC Steno 2017)
A. International Business Machine
B. Indian Beta Machine
C. Integral Business Machine
D. Internal Beta Machine
Answer: A
3. Which one of the following is the context in which the term "qubit" is mentioned? (UPSC 2022)
A. Cloud Services
B. Quantum Computing
C. Visible Light Communication Technologies
D. Wireless Communication Technologies
Answer: B
4. Quantum computing uses (ACC 124 CGAT 2021)
A. Qubit
B. Bits
C. Bytes
D. Qubytes
Answer: A
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Source: IBM
KEN-BETWA RIVER LINKING PROJECT
1. Context
Madhya Pradesh police personnel went to the banks of the Barana river stream in Kupi village of Chhatarpur district on July 19 and cleared a protest site where hundreds of villagers, mostly tribal people, had been demonstrating for two weeks against the Union government’s ₹44,000 crore Ken-Betwa Link Project, India’s first river-linking project, and two irrigation projects of the State government
2. About Ken-Betwa Link Project
- It is the first project under the National Perspective Plan for the interlinking of rivers.
- It envisages transferring water from the Ken river to the Betwa river, both tributaries of the Yamuna.
- The Ken-Betwa Link Canal will be 221 km long, including a 2 km long tunnel.
- The project has two phases with mainly four components.
- Phase-I will involve one of the components Daudhan Dam complex and is subsidiary units such as Low-Level Tunnel, High-Level Tunnel, Ken-Betwa Link Canal, and powerhouses.
- Phase II will involve three components Lower Orr Dam, Bina Complex Project, and Kotha Barrage.
| According to the Jal Shakti Ministry, the project is expected to provide annual irrigation of 10.62 lakh hectares, supply drinking water to about 62 lakh people, and generate 103 MW of hydropower and 27 MW of solar power. |
- As per an official statement issued after the Cabinet approval on Wednesday, the total cost of the Ken-Betwa link project has been assessed at Rs.44,605 crores at 2020-21 price levels.
- The Union Cabinet has approved central support of Rs.39,317 crores for the project, covering a grant of Rs.36,290 crores and a loan of Rs.3,027 crores.
- The statement further said that the project is proposed to be implemented in 8 years with “state-of-the-art technology.
3. Special Purpose Vehicle (SPV)
- A Special Purpose Vehicle (SPV) for the project is called Ken-Betwa Link Project Authority (KBLPA) will be set up to implement the project.
- The Centre has set in motion the process of creating the National Interlinking of Rivers Authority (NIRA) is an independent autonomous body for planning, investigation, financing, and implementation of the interlinking of river (ILR) projects in the country.
- The NIRA will have the power to set up SPV for individual link projects.
Ken-Betwa project agreementOn March 22, 2021, a memorandum of agreement was signed between the Ministry of Jal Shakti and the governments of Madhya Pradesh and Uttar Pradesh to implement the Ken-Betwa Link Project (KBLP).
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4. Conceptualiztion of the project
- The idea of linking Ken with Betwa got a major push in August 2005, when a tripartite memorandum of understanding for the preparation of a detailed project report (DPR) was signed between the Centre and the two states.
- In 2008, the Centre declared KBLP a National Project. Later, it was included as part of the Prime Minister’s package for the development of the drought-prone Bundelkhand region.
- In April 2009, it was decided that the DPR will be prepared in two phases.
- In 2018, a comprehensive DPR including phase-I, II, and additional areas proposed by Madhya Pradesh was also prepared.
- It was sent to Uttar Pradesh, Madhya Pradesh, and the Central Water Commission in October 2018.
- The memorandum of agreement was signed to implement the project.
5. Benefits from Project
- The project lies in Bundelkhand, a drought-prone region, which spreads across 13 districts of Uttar Pradesh and Madhya Pradesh.
| According to the Jal Shakti Ministry, the project will be of immense benefit to the water-starved region, especially the districts of Panna, Tikamgarh, Chhatarpur, Sagar, Damoh, Datia, Vidisha, Shivpuri and Raisen of Madhya Pradesh, and Banda, Mahoba, Jhansi and Lalitpur of Uttar Pradesh. |
- It will pave the way for more interlinking of river projects to ensure that scarcity of water does not become an inhibitor for development in the country.
Image source: The Indian Express6. The Panna Tiger Reserve
- According to the National Water Development Agency under the Jal Shakti Ministry, the Daudhan dam, to be built on the Ken river, will be 77 meters high and its gross capacity will be 2,853 million cubic meters.
- According to the NWDA, the reservoir of Daudhan dam will involve “a submergence of 9000 ha area, out of which 5803 ha comes under Panna Tiger Reserve.
- The latter includes 4141 ha of forest area which is about 7.6% of the total Panna Tiger Reserve area”.
- To mitigate adverse impacts on Panna Tiger Reserve, as decided by NTCA,
- Landscape Management Plan to decide mitigation strategy concerning KenBetwa Link entrusted to Wildlife Institute of India, Dehradun, and is in its final stage.
- In addition to above three wildlife sanctuaries, viz Nauradehi, Rani Durgawati of MP and Ranipur WLF of UP are planned to be integrated with PTR for the proper conservation of Wild Life under Tiger Reserve.
7. The concept of river linking in India
- In the past, several river-linking projects have been taken up.
- For instance, the Periyar Project, under which the transfer of water from the Periyar basin to the Vaigai basin was envisaged, was commissioned in 1895.
- Other projects such as Parambikulam Aliyar, Kurnool Cudappah Canal, Telugu Ganga Project, and Ravi-Beas-Sutlej too were undertaken.
- In the 1970s, the idea of transferring surplus water from a river to a water-deficit area was mooted by the then Union Irrigation Minister Dr. K L Rao.
- Himself an engineer, he suggested the construction of a National Water Grid for transferring water from water-rich areas to water-deficit areas.
- Later, Captain Dinshaw J Dastoor proposed a Garland Canal to redistribute the water from one area to another.
- However, the government did not pursue these two ideas further.
- It was not until August 1980 that the Ministry of Irrigation prepared a National Perspective Plan for water resources development envisaging interbasin water transfer.
- The NPP comprised two components: Himalayan Rivers Development; and Peninsular Rivers Development. Based on the NPP, the National Water Development Agency (NWDA) identified 30 river links 16 under the Peninsular component and 14 under the Himalayan Component.
- Later, the river-linking idea was revived during the Atal Bihari Vajpayee regime.
- The Ken-Betwa Link Project is one of the 16 projects under the peninsular component.
8. Clearances for a river-linking project
Various types of clearances are required, such as techno-economic clearance (given by the Central Water Commission);
- Forest clearance, and environmental clearance (Ministry of Environment & Forests);
- Resettlement and rehabilitation plan of tribal population (Ministry of Tribal Affairs) and
- Wildlife clearance (Central Empowered Committee).
For Prelims & Mains
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For Prelims: river-linking projects, Ken-Betwa Link Project, Himalayan Rivers Development; and Peninsular Rivers Development, National Water Development Agency, Jal Shakti Ministry, The Panna Tiger Reserve, NitiAayog. Yamuna river, Ken-Betwa Link Project Authority (KBLPA),
For Mains:
1. Discuss the significance and hurdles of the Ken-Betwa River Link Project (250 Words)
2. What is River linking and discuss the significance of the River linking system in India (250 Words)
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Source: PIB and The Indian Express
MANGROVES
1. Context
In the Sundarbans, hundreds of acres of mangrove forests have been lost to encroachments, including the construction of shallow fish ponds. West Bengal Environment and Forest Minister Manoj Kumar Oraon, who recently visited an island where over 100 hectares of mangroves have been encroached on
2. What are Mangroves, and where are they situated in India?
- Mangroves are a special category of vegetation made up of salt-tolerant trees and shrubs that typically grow in coastal zones where freshwater from rivers and streams mixes with seawater — specifically in estuarine and intertidal environments.
- These plants are known for their specialized breathing or aerial roots and thick, waxy leaves, and they belong to the category of flowering plants.
- Mangroves flourish in regions that receive high annual rainfall ranging from 1,000 to 3,000 mm and have temperatures between 26°C and 35°C.
- A remarkable feature of mangroves is their method of reproduction. Their seeds, called propagules, begin germinating while still attached to the parent plant — a process termed vivipary.
- Once matured, these seedlings fall into the water and eventually establish themselves in muddy, sediment-rich environments. This adaptation enhances their survival in highly saline and unstable coastal conditions.
- Species like the red mangrove (Rhizophora), Avicennia marina, and the grey mangrove are among the commonly found varieties. These ecosystems are typically found in marshes and swamps and are classified as littoral forests, thriving in saline or brackish waters along coastal belts.
Mangrove Distribution in India
- Mangrove forests are found across 123 countries and territories, predominantly within tropical and subtropical latitudes.
- According to the Indian State of Forest Report (ISFR) 2023, India’s mangrove cover stands at approximately 4,992 square kilometers, making up about 0.15% of the nation’s total geographical area.
- West Bengal leads with the most extensive mangrove area, particularly in the Sundarbans. Gujarat ranks second, with about 1,177 sq. km, especially concentrated around the Gulf of Kutch and Gulf of Khambhat. Within Gujarat, Kutch district alone accounts for nearly 794 sq. km, the highest in the state.
- Other Indian states with significant mangrove ecosystems include Andhra Pradesh (notably in the Godavari-Krishna delta), Kerala, and the Andaman and Nicobar Islands.
- The Sundarbans, extending across India and Bangladesh, represent the largest continuous mangrove forest on the planet and have been designated a UNESCO World Heritage Site.
- This biodiverse region is home to iconic species such as the Royal Bengal tiger and Gangetic dolphin. In contrast, Bhitarkanika, the second largest mangrove area in India, is well known for hosting Olive Ridley turtles and saltwater crocodiles, both considered ecologically significant and vulnerable species
3. Significance of Mangroves
Mangroves play a vital role in both ecological balance and economic sustainability, offering numerous benefits across multiple dimensions:
- Coastal Protection (Natural Bio-shields):
Mangroves serve as a natural buffer against coastal hazards. Often termed ‘bio-shields’, these dense root systems absorb and reduce the intensity of storm surges, tidal waves, and high winds. They effectively minimize soil erosion and protect vulnerable coastlines from the impacts of climate-induced disasters. - Carbon Sequestration:
These forests are highly effective carbon sinks, meaning they absorb more carbon dioxide than they emit. According to UNESCO, one hectare of mangrove can store approximately 3,754 tonnes of carbon, equivalent to removing over 2,650 vehicles from the road for a year. - Unlike other trees that release stored carbon when they die, mangroves trap carbon in the underlying soil, where it can remain locked for thousands of years, even if the vegetation above is destroyed. This makes mangroves uniquely effective in combating global warming and contributing to long-term climate stability
- Livelihood and Economic Contributions:
Being located in coastal areas, mangroves are closely tied to the livelihoods of local communities. Activities such as fishing, aquaculture, collection of honey, non-timber forest produce, and small-scale boating are directly supported by these ecosystems. - Furthermore, mangroves support the growth of commercially valuable species like fish, shrimps, and prawns, making them critical for the blue economy
- Biodiversity Hotspots:
Mangrove ecosystems are teeming with life and support complex, interdependent communities. They act as nursery grounds for marine species, shelter for terrestrial animals like monkeys, deer, and birds, and feeding grounds for a variety of organisms. - Their flowers provide nectar for honeybees, while the dense vegetation offers refuge for endangered and migratory species alike. Some mangrove zones even support unusual inhabitants such as kangaroos in other parts of the world
4. Threats to Mangroves
- As per UNESCO, mangrove forests—despite their ecological and economic importance—are vanishing at a rate three to five times faster than other global forest types. This alarming trend has far-reaching environmental and socio-economic consequences. Over the past four decades, global mangrove cover has been reduced by half.
- Multiple human-induced pressures such as deforestation, pollution, and the construction of dams significantly endanger these ecosystems.
- Additionally, climate change has emerged as a critical threat, intensifying the risks through rising sea levels and the increased frequency of extreme weather events like storms and cyclones.
- Studies suggest that as sea levels rise, mangroves naturally migrate inland. However, this landward shift is increasingly being obstructed by urban development, human settlements, and industrial infrastructure, leaving the mangroves with no space to adapt.
- This "coastal squeeze" could eventually lead to their irreversible decline, hampering both conservation and restoration efforts.
- According to research based on the IUCN Red List of Ecosystems, nearly one-third (33%) of the world’s mangrove habitats are currently at risk due to the impacts of climate change.
- The study highlights that preserving healthy mangrove ecosystems is vital to climate resilience, as they can better adapt to rising seas and provide natural protection to inland areas from storm surges, hurricanes, and cyclones
5. Government initiatives to safeguard mangroves
- Mangrove ecosystems are under significant stress due to rapid urban expansion, conversion of coastal areas for agriculture and shrimp farming, and the detrimental effects of rising sea surface temperatures. Additionally, unsustainable tourism activities have further exacerbated the degradation of these fragile habitats.
- On a positive note, the role of mangroves in climate change mitigation and adaptation is increasingly being acknowledged worldwide. Among notable international efforts are the Mangroves for the Future (MFF) initiative and the Mangrove Alliance for Climate, both of which focus on conservation and resilience-building.
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Government Initiatives In India, several government-led programmes have emerged to promote mangrove protection. These include:
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Despite these efforts, there is a pressing need to go beyond schemes and adopt a multi-pronged conservation strategy. This includes:
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6. Way forward
Identifying local and regional challenges is essential to developing targeted solutions. Ultimately, there is a need for a unified global action plan with clearly defined objectives to ensure the long-term survival of mangrove ecosystems and promote a sustainable and climate-resilient future
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For Prelims: IUCN Red List of Ecosystems, Mangroves for the Future (MFF), Mangrove Ecosystems and Their Distribution in India
For Mains: GS III - Environment and ecology
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Previous Year Questions
1.Which one of the following regions of India has a combination of mangrove forest, evergreen forest and deciduous forest? (UPSC CSE 2015) (a) North Coastal Andhra Pradesh (b) South-West Bengal (c) Southern Saurashtra (d) Andaman and Nicobar Islands
2.With reference to the mangroves, consider the following statements: 1. They act as a buffer between the ocean and the land. 2. They prevent erosion by absorbing wave action. 3. Mangroves require carbon dioxide for their roots to survive. 4. Pichavaram Mangrove Forest is located in West Bengal. How many of the statements given above is/are correct? (a) Only one (b) Only two (c) Only three (d) All four 3.With reference to the Sundarbans mangrove forest, consider the following statements: 1. It lies on the delta of the Ganges, Brahmaputra and Meghna rivers on the Bay of Bengal. 2. It is a World Heritage site which was inscribed in 1987. 3. It lies on the India-Myanmar border. 4. It is the world’s second-largest contiguous mangrove forest. How many of the statements given above is/are correct? (a) Only one (b) Only two (c) Only three (d) All four Answers: 1-d 2-b 3-b Mains Discuss the causes of depletion of mangroves and explain their importance in maintaining coastal ecology. (UPSC CSE 2019) |
Source: Indianexpress
FOREIGN DIRECT INVESTMENT (FDI)
1. Context
Net foreign direct investment (FDI) inflows turned negative once again in May with outflows exceeding inflows by $74 million, according to the latest Reserve Bank of India data.
2. FDI in India
- India's net foreign direct investment (FDI) inflows experienced a decline, decreasing by nearly 31% to $25.5 billion during the first 10 months of the 2023-24 fiscal year. The Finance Ministry attributed this decline to a broader trend of slowing investments in developing countries, while expressing optimism for a potential increase in investments in the current calendar year.
- Although global FDI flows overall saw a 3% rise to approximately $1.4 trillion in 2023, economic uncertainty and elevated interest rates impacted global investment, resulting in a 9% decrease in FDI flows to developing nations, as outlined in the Ministry's February assessment of economic performance.
- Reflecting the global trend of reduced FDI flows to developing countries, gross FDI inflows to India also experienced a slight decline, from $61.7 billion to $59.5 billion during the period from April 2023 to January 2024. In terms of net inflows, the corresponding figures were $25.5 billion versus $36.8 billion. The decrease in net inflows was primarily attributed to an increase in repatriation, while the decline in gross inflows was minimal.
- While a modest uptick in global FDI flows is anticipated for the current calendar year, attributed to a decrease in inflation and borrowing costs in major markets that could stabilize financing conditions for international investment, significant risks persist, according to the Ministry. These risks include geopolitical tensions, elevated debt levels in numerous countries, and concerns regarding further fragmentation of the global economy
3. Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) refers to the investment made by individuals, businesses, or governments from one country (the home country) into another country (the host country) with the objective of establishing a lasting interest or significant degree of influence in the foreign business or enterprise
Key Aspects:
- FDI involves the transfer of funds and resources from one country to another. This capital inflow can help stimulate economic growth in the host country by providing funds for investment in infrastructure, technology, and other areas.
- FDI often leads to the creation of jobs in the host country. When foreign companies establish subsidiaries or invest in existing businesses, they typically hire local employees, which can help reduce unemployment and improve living standards
- Foreign investors often bring advanced technologies, processes, and management practices to the host country. This technology transfer can enhance the host country's productivity, competitiveness, and industrial capabilities
- FDI can provide access to new markets for both the host country and the investing company. Foreign investors can tap into the host country's consumer base, while the host country gains access to the investing company's global distribution networks.
- FDI can contribute to overall economic development in the host country by promoting industrialization, improving infrastructure, and fostering innovation and entrepreneurship.
4.FDI Routes in India
India has several routes through which Foreign Direct Investment (FDI) can enter the country. These routes are regulated by the Reserve Bank of India (RBI) and the Department for Promotion of Industry and Internal Trade (DPIIT), and they define the conditions, limits, and sectors in which FDI is allowed
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Automatic Route: Under the automatic route, FDI is allowed without the need for prior approval from the RBI or the government. Investors only need to notify the RBI within a specified time frame after the investment is made. This route is available for most sectors, except those that are prohibited or require government approval.
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Government Route: In sectors or activities that are not covered under the automatic route, FDI requires government approval. Investors must apply for approval through the Foreign Investment Facilitation Portal (FIFP) or the Foreign Investment Promotion Board (FIPB), depending on the sector.
4.1. Examples
- Under the automatic route, FDI of up to 100% is allowed for manufacturing of automobiles and components.
- For the manufacturing of electric vehicles (EVs), 100% FDI is allowed under the automatic route.
- In single-brand retail trading, 100% FDI is allowed, with up to 49% allowed under the automatic route. Beyond 49%, government approval is required.
- Multi-brand retail trading (supermarkets and department stores) with FDI is permitted in some states, subject to certain conditions and restrictions. The FDI limit is typically capped at 51%.
- FDI in the insurance sector is allowed up to 74%, with up to 49% under the automatic route. Beyond 49%, government approval is needed
- In the telecom sector, 100% FDI is allowed, with up to 49% under the automatic route. Beyond 49%, government approval is required
- In the defense sector, FDI up to 74% is allowed under the automatic route, with government approval required for investments beyond 49%
- In most segments of the media and broadcasting sector, including print and digital media, 100% FDI is allowed, with up to 49% under the automatic route
4.2.Sectors where FDI Prohibited
- FDI is prohibited in the atomic energy sector, which includes activities related to the production of atomic energy and nuclear power generation.
- FDI is generally prohibited in the gambling and betting industry, which includes casinos and online betting platforms
- FDI is not allowed in the lottery business, except for state-run lotteries
- FDI is prohibited in chit funds, which are traditional Indian savings and credit schemes.
- Nidhi companies are non-banking finance companies (NBFCs) that facilitate mutual benefit funds. FDI is typically not permitted in these entities
- While FDI is allowed in single-brand retail trading, it is generally prohibited in multi-brand retail trading of agricultural products. Some states have allowed it under specific conditions, but this remains a highly regulated area.
- FDI is not allowed in the trading of transferable development rights (TDRs) pertaining to the construction of real estate
5. Foreign Portfolio Investors (FPIs)
Foreign Portfolio Investors (FPIs) refer to foreign individuals, institutions, or funds that invest in financial assets in a country, such as stocks, bonds, mutual funds, and other securities. FPIs are distinct from Foreign Direct Investors (FDIs), who typically make long-term investments in companies and assets to establish a lasting interest
Key Aspects:
- FPIs invest in a country's financial markets, primarily by buying and selling securities traded on stock exchanges and fixed-income instruments like bonds and government securities
- FPIs often seek to diversify their investment portfolios by spreading their investments across different asset classes, sectors, and countries. This diversification helps manage risk and enhance returns
- FPIs have the flexibility to buy and sell securities in the secondary market, providing liquidity to the market and contributing to price discovery
- FPIs typically have a shorter investment horizon compared to Foreign Direct Investors (FDIs). They may engage in short-term trading or hold securities for a few months to a few years.
- FPIs are subject to regulatory frameworks and restrictions in the countries where they invest. These regulations are designed to ensure that foreign investments do not pose undue risks to the local financial markets and economy.
6.Foreign Portfolio vs. Foreign Direct Investment
| FPI (Foreign Portfolio Investment) | FDI (Foreign Direct Investment) |
| FPI involves the purchase of financial assets such as stocks, bonds, mutual funds, and other securities in a foreign country. These investments are typically made with the intention of earning returns on capital and do not result in significant control or ownership of the underlying businesses | FDI entails making an investment in a foreign country with the primary objective of establishing a lasting interest and significant control or influence over a business enterprise or physical assets. FDI often involves the acquisition of a substantial ownership stake (typically at least 10%) in a company or the establishment of new business operations. |
| FPI is generally characterized by a shorter investment horizon. Investors in FPI may engage in trading and portfolio rebalancing activities, and their investments are often more liquid. The focus is on earning capital gains and income from investments. | FDI is characterized by a longer-term commitment. Investors in FDI intend to engage in the day-to-day management or decision-making of the business, contribute to its growth and development, and generate profits over an extended period. |
| FPI investors typically have little to no influence or control over the companies in which they invest. They are passive investors who participate in the financial markets and rely on market dynamics to drive returns. | FDI investors actively participate in the management and decision-making of the businesses they invest in. They often seek to exercise control over company operations and strategy, which may include appointing board members or key executives. |
| FPI investments are often made through financial instruments like stocks, bonds, and securities. Investors may use instruments like mutual funds or exchange-traded funds (ETFs) to gain exposure to foreign markets | FDI investments involve a direct equity stake in a company, either through share acquisition or the establishment of a subsidiary or branch in the host country. FDI can also involve the purchase of real assets such as land, factories, or infrastructure |
| FPI can provide short-term capital inflows, but it may be more susceptible to market volatility and sudden capital outflows. It may not have as direct an impact on job creation and economic development as FDI. | FDI often contributes to long-term economic development by creating jobs, stimulating infrastructure development, transferring technology and expertise, and enhancing the competitiveness of local industries |
| FPI investments are subject to regulations that vary by country and may include foreign ownership limits, reporting requirements, and tax considerations. | FDI is subject to regulations that can be more stringent and may involve government approval, sector-specific conditions, and investment protection measures |
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For Prelims: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc
For Mains: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
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Previous Year Questions
1. Both Foreign Direct Investments (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. (UPSC CSE 2011)
Which one of the following statements best represents an important difference between the two?
A.FII helps bring better management skills and technology, while FDI only brings in capital
B.FII helps in increasing capital availability in general, while FDI only targets specific sectors C.FDI flows only into the secondary markets, while FII targets primary market
D.FII is considered to the more stable than FDI
Answer (B)
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Source: indianexpress
