• Non-Banking Financial Companies (NBFCs) are financial institutions that provide banking services but do not hold a banking license.
• They are crucial to the financial system as they cater to the financial needs of sectors where traditional banks may not reach or provide services.
• NBFCs offer various financial services such as loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority, leasing, hire-purchase, insurance business, chit business, etc.
• They differ from traditional banks because they cannot accept demand deposits and do not form part of the payment and settlement system like banks do.
• However, they play a significant role in providing credit to individuals, small businesses, and the unorganised sector, thereby contributing to financial inclusion and economic growth. Examples of NBFCs include companies engaged in equipment leasing, hire-purchase finance, vehicle finance, and microfinance

3. Classification of NBFCs

NBFCs can be classified into various categories based on their activities, ownership structure, and regulatory requirements.

Here are some common classifications:

• Asset Financing NBFCs: These NBFCs primarily provide financing for the purchase of assets such as vehicles, machinery, equipment, etc.

• Investment and Credit NBFCs: These NBFCs primarily make investments in securities or extend credit facilities.

• Infrastructure Finance Companies (IFCs): These NBFCs focus on financing infrastructure projects such as roads, ports, power, telecommunications, etc.

• Housing Finance Companies (HFCs): These NBFCs specialize in providing finance for housing and related activities.

• Microfinance Institutions (MFIs): These NBFCs provide financial services, including small loans, savings, and insurance, to low-income individuals and microenterprises.

• Non-Deposit Taking NBFCs: These NBFCs do not accept deposits from the public. They rely on other sources of funding such as borrowings from banks, financial institutions, and capital markets.

• Deposit Taking NBFCs: These NBFCs accept deposits from the public and are regulated more closely, similar to banks, to ensure the safety of depositor funds.

• Systemically Important NBFCs (SI-NBFCs): These are NBFCs whose failure could potentially disrupt the financial system. They are subject to additional regulatory requirements to mitigate systemic risks.

• Core Investment Companies (CICs): These NBFCs are primarily engaged in the business of acquisition of shares and securities and hold not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, bonds, debentures, debt, or loans in group companies.

• Infrastructure Debt Funds (IDFs): These NBFCs are set up to facilitate the flow of long-term debt into infrastructure projects.

• NBFCs need to obtain a Certificate of Registration (CoR) from the RBI to commence or carry on the business of non-banking financial institution.
• RBI imposes prudential regulations on NBFCs to ensure the safety and soundness of their operations. These norms cover aspects such as capital adequacy, income recognition, asset classification, provisioning, liquidity management, and exposure limits.
• NBFCs are required to adhere to a Fair Practices Code (FPC) prescribed by the RBI, which outlines the principles of transparency, fairness, and responsible lending practices.
• NBFCs are mandated to follow KYC norms while onboarding customers, including verification of identity, address, and other relevant information, to prevent money laundering and terrorist financing activities
• NBFCs are required to implement effective AML/CFT measures, including customer due diligence, transaction monitoring, and reporting of suspicious transactions, to mitigate the risks of money laundering and terrorist financing.
• RBI mandates NBFCs to adhere to good corporate governance practices, including the composition of the board of directors, risk management framework, internal controls, and disclosure requirements
•  NBFCs are required to have robust risk management systems in place to identify, assess, monitor, and mitigate various risks such as credit risk, market risk, liquidity risk, and operational risk.
• NBFCs need to submit various regulatory returns and reports to the RBI periodically, providing details of their financial performance, capital adequacy, asset quality, and compliance with regulatory requirements.
• RBI conducts regular inspections and supervisory reviews of NBFCs to assess their financial health, compliance with regulations, and adherence to best practices.
• RBI has the authority to issue directions, impose restrictions, and take corrective actions against NBFCs that fail to comply with regulatory requirements or pose risks to the financial system.

For Prelims: Economy For Mains: GS-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development, and employment.

 

 

Previous Year Questions 1.The RBI acts as a bankers’ bank. This would imply which of the following? (UPSC CSE 2012) 1. Other banks retain their deposits with the RBI. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below : (a) 2 and 3 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3 Answer (d) The central bank, also known as the apex bank, has overarching control over a nation's banking system. It holds the exclusive authority for issuing currency and regulates the money supply within the economy. As outlined in the Reserve Bank of India Act, 1934, the central bank fulfills several key functions: Banking functions: Acting as the banker, agent, and advisor to both the central and state governments, the Reserve Bank handles all banking operations for these entities. It extends advisory services to the government on economic and monetary policy matters and manages the public debt. Furthermore, it functions similarly to a commercial bank for other banks, including providing loans to all commercial banks nationwide. Supervisory functions: The central bank supervises and monitors other banks and governmental entities, guiding them through various economic conditions, especially during periods of inflation or deflation. Promotional functions: In addition to its regulatory role, the central bank undertakes promotional activities such as fostering connections with global economies and managing foreign reserves. These efforts contribute to representing the country's economy on the international stage. Advisory functions: Offering guidance on monetary issues to commercial banks is another essential role of the central bank, ensuring effective monetary policy implementation. 2.With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements: (UPSC CSE 2010) They cannot engage in the acquisition of securities issued by the government. They cannot accept demand deposits like Savings Account. Which of the statements given above is/are correct? (a) 1 only (b) 2 only  (c) Both 1 and 2  (d) Neither 1 nor 2 Answer: (b) Statement 1: They cannot engage in the acquisition of securities issued by the government. This statement is False. NBFCs can invest in government securities like bonds. Statement 2: They cannot accept demand deposits like Savings Account. This statement is True. NBFCs are unlike banks and cannot accept demand deposits that are withdrawable on demand. They can only accept fixed deposits with a predetermined maturity period

Source: Indianexpress

 

 

FOREIGN CONTRIBUTION (REGULATION) ACT 2026

 

 

1. Context

 

On the day it reached out to the Opposition in an attempt to break the deadlock in Parliament where proceedings remain disrupted, the government Wednesday signalled that the Foreign Contribution (Regulation) Amendment Bill, 2026 would not have any penalising retrospective provision.

 

 

2. Foreign Contributions in an Era of Global Interdependence

 

 

• The process of globalisation has significantly enhanced the exchange of people, knowledge, technology and financial resources across countries.
• International philanthropy and development cooperation now play an important role in supporting sectors such as education, healthcare, disaster management, scientific innovation, environmental protection and community welfare worldwide.
• India has likewise benefited from these global partnerships, with numerous organisations receiving foreign funding to implement programmes that promote the nation's social and economic progress.
• At the same time, increasing cross-border financial integration has prompted governments to strengthen oversight of international fund flows.
• The expansion of digital payment systems, global financial networks and transnational funding channels has introduced new challenges related to transparency, accountability, foreign influence and the safeguarding of democratic institutions.
• As a result, many countries have adopted regulatory mechanisms to monitor and manage foreign financial contributions in a transparent and accountable manner.
• Viewed against this broader global backdrop, the Foreign Contribution (Regulation) Act (FCRA) serves as a regulatory framework for governing foreign contributions in India.
• Its objective is not to discourage legitimate philanthropic or developmental activities but to facilitate genuine international cooperation while ensuring that foreign funds are received, utilised and reported in compliance with the country's legal and regulatory requirements.

 

 

3. Foreign Contribution (Regulation) Act (FCRA)

 

 

• The Foreign Contribution (Regulation) Act (FCRA) is the principal legislation that regulates the receipt and utilisation of foreign contributions by individuals, associations, non-governmental organisations (NGOs), trusts and certain entities in India.
• The Act is administered by the Ministry of Home Affairs (MHA) and establishes the legal framework for accepting and managing funds originating from foreign sources.
• Importantly, the FCRA does not prohibit Indian citizens or organisations from accepting legitimate foreign donations, nor is its purpose to curtail the functioning of lawful civil society organisations.
• A large number of registered associations continue to receive foreign funding for activities such as healthcare, education, disaster response, scientific research and humanitarian assistance in accordance with the law.
• Similar to regulatory frameworks adopted in countries such as the United States, the United Kingdom, Australia and Canada, the FCRA primarily functions as a system of registration, transparency and financial disclosure for foreign contributions rather than a mechanism that determines the existence or legitimacy of civil society organisations.

 

In essence, the FCRA performs three key functions: It lays down the eligibility criteria and conditions under which individuals and organisations can receive foreign contributions. It prescribes the procedures for receiving, utilising, maintaining records of and reporting foreign contributions to the authorities. It imposes restrictions on specific categories of foreign-funded activities that may have implications for India's sovereignty, national security, public order or other strategic interests.

 

 

 

4. Core Objectives of the Foreign Contribution (Regulation) Act

 

 

 

The Foreign Contribution (Regulation) Act (FCRA) is founded on a set of fundamental principles that have remained largely consistent since its introduction in 1976, despite subsequent amendments. These principles are intended to promote responsible governance by balancing the benefits of international cooperation with the need to safeguard national interests.

• Transparency

 

• The Act requires every organisation receiving foreign contributions to obtain the necessary registration or permission, receive funds through a designated bank account, and maintain clear records of the contributions.
• Details relating to the source of funds, the amount received and the purpose for which the funds are utilised must be disclosed, ensuring openness in the flow of foreign contributions.

• Accountability

• The FCRA establishes a strong accountability framework by requiring recipients to maintain proper financial records and submit annual audited returns electronically.
• Information regarding donors, the amount of foreign contributions received and their utilisation is officially documented, creating a transparent and traceable record of every transaction.

•  Protection of Sovereignty

• The Act regulates foreign contributions that may have the potential to influence India's sovereignty, democratic institutions, electoral processes, public order or national security.
• These safeguards are intended to preserve the country's constitutional and strategic interests while allowing legitimate developmental and charitable activities to continue.

• Facilitating Legitimate International Cooperation

• Rather than restricting genuine philanthropic initiatives, the FCRA provides a legal framework that supports responsible international collaboration.
• Organisations engaged in sectors such as education, healthcare, poverty alleviation, disaster relief, scientific research, cultural exchange and environmental conservation can continue to receive and utilise foreign contributions in accordance with the prescribed legal requirements.

• Strengthening Public Trust

• By mandating registration, disclosure and regular auditing of foreign contributions, the Act enhances public confidence in the voluntary sector. A transparent regulatory system reassures citizens that foreign funds are being used for their intended purposes while also protecting the interests of beneficiaries, donors and legitimate civil society organisations.

 

 

5. How the Foreign Contribution (Regulation) Act Operates in Practice?

 

 

 

The Foreign Contribution (Regulation) Act (FCRA) lays down a structured and rule-based mechanism for organisations seeking to receive foreign contributions in India. The framework is largely digital, transparent and designed to ensure effective monitoring and accountability throughout the funding process.

• Registration and Prior Permission:
  Organisations intending to receive foreign contributions must either obtain an FCRA registration or seek prior permission for a specific project. Regular registration is generally available to organisations that have been functioning for at least three years, while prior permission is meant for entities seeking funds for a defined purpose. Both processes require the submission of organisational details, verification of office-bearers and disclosure of the proposed activities for which foreign contributions are sought.
• Release of Funds in Phases under Prior Permission:
  For projects receiving substantial foreign contributions under prior permission, funds may be released in multiple instalments. Generally, around 75% of an earlier instalment must be utilised and its expenditure verified before the subsequent instalment is disbursed, thereby strengthening financial oversight.
• Single Designated Banking Channel:
  Every foreign contribution must first be credited to a designated FCRA account maintained at the State Bank of India, New Delhi Main Branch. This serves as a single, traceable entry point for all foreign funds entering the country. After receipt, organisations may transfer the funds to their operational accounts for authorised programme activities while maintaining a complete audit trail.
• Purpose-Specific Utilisation of Funds:
  Organisations are required to clearly specify the objectives for which foreign contributions are being received and utilise the funds only for those declared purposes. The Act also limits administrative expenditure to 20% of the annual foreign contribution, ensuring that the majority of the funds are directed towards programme implementation and beneficiary-oriented activities.
• Annual Reporting and Audit Requirements:
  Every registered organisation is required to submit an annual return in Form FC-4 through the government's online FCRA portal. The return contains audited financial statements, details of foreign donors, the amount received from each donor and a comprehensive account of how the funds have been utilised. This system creates a regularly updated and transparent database of foreign contributions received by organisations in India.
• Five-Year Validity and Renewal:
  An FCRA registration remains valid for five years and must be renewed before its expiry. During the renewal process, the government assesses compliance with reporting obligations and verifies that the organisation continues to function in accordance with its declared objectives. Failure to renew the registration before the expiry date results in its automatic lapse.
• Specified Categories Ineligible to Receive Foreign Contributions:
  The Act identifies a limited group of individuals and entities that are prohibited from accepting foreign contributions. This list, which has remained broadly consistent since the enactment of the legislation, includes election candidates, legislators, judges, government servants, editors and publishers involved in news reporting, and political parties. These restrictions are intended to safeguard the independence and integrity of constitutional and democratic institutions.
• Management of Foreign Contribution Assets after Cancellation or Surrender:
  Where an organisation's FCRA registration is cancelled, surrendered or otherwise ceases to remain valid, the foreign contributions and assets created from such funds vest in a prescribed authority of the State Government under Section 15 of the FCRA, a provision that has been in force since 2010. Over the past decade, the cancellation or cessation of thousands of registrations has resulted in substantial foreign-funded assets remaining without effective management, highlighting the practical challenges associated with implementing this provision

 

 

6. Activities Eligible to Receive Foreign Contributions under the FCRA

 

 

The Foreign Contribution (Regulation) Act (FCRA) permits registered organisations to receive and utilise foreign contributions for a broad range of lawful activities that contribute to public welfare and national development. These activities span multiple sectors and support developmental, humanitarian, educational, cultural and research initiatives. Some of the major eligible sectors are outlined below.

Sector	Illustrative Eligible Activities
Education	Establishment and operation of schools and colleges, vocational skill development, scholarship programmes, educational research, library development, and adult literacy initiatives.
Healthcare	Hospitals, primary healthcare centres, mobile medical units, maternal and child health services, public health awareness campaigns, and programmes supporting persons with disabilities.
Rural Development	Watershed management, agricultural extension services, livelihood generation, sanitation projects, drinking water initiatives, affordable housing, and rural infrastructure development.
Social Welfare	Welfare programmes for children, women, senior citizens and persons with disabilities, rehabilitation initiatives, community development and social empowerment projects.
Environment and Sustainability	Afforestation drives, biodiversity conservation, wildlife protection, renewable energy promotion, pollution control measures and environmental research activities.
Culture and Heritage	Conservation of cultural and historical heritage, promotion of folk and traditional arts, preservation of indigenous knowledge systems, support for traditional crafts, museums and archival institutions.
Relief, Rehabilitation and Humanitarian Assistance	Emergency relief during natural disasters, humanitarian assistance, post-disaster reconstruction, rehabilitation of affected communities and resettlement programmes.
Religious and Faith-Based Welfare	Maintenance of places of worship, religious education, value-based instruction, meditation and spiritual programmes, and preservation of religious and cultural traditions in accordance with applicable laws.
Scientific Research and Innovation	Funding for research institutions, laboratories, collaborative academic projects, scientific publications and dissemination of knowledge through research and innovation activities.

 

 

 

7. Way Forward

 

 

The Foreign Contribution (Regulation) Act (FCRA) provides the legal framework for regulating the receipt and utilisation of foreign contributions in India. It ensures that funds received from foreign sources enter the country through authorised, transparent and accountable channels. The Act requires recipient organisations to maintain proper records, disclose the foreign contributions they receive and report how these funds are utilised. At the same time, it seeks to safeguard India's constitutional institutions and national interests by reducing the risks associated with unregulated foreign financial influence. While maintaining these regulatory safeguards, the FCRA continues to facilitate the work of thousands of organisations engaged in legitimate activities such as education, healthcare, research, humanitarian assistance, environmental conservation and community development across the country

 

 

 

 

For Prelims: FCRA, Rajiv Gandhi Foundation, Rajiv Gandhi Charitable Trust, NGO, Ministry of Home Affairs (MHA). For Mains: 1. What is the Foreign contribution regulation act and discuss the new restrictions introduced by the Foreign Contribution (Regulation) Amendment Act, 2020.

 

 

Previous Year Questions   1.Examine critically the recent changes in the rules governing foreign funding of NGOs under the Foreign Contribution (Regulation) Act (FCRA), 1976. (Please refer GS-II Paper, 2015)

 

Source: Indian Express

 

ARCTIC COUNCIL

 

 

1. Context

 

The Parliamentary committee on External Affairs in its report has recommended that India should appoint a Polar Ambassador and urged the government to seek “full-fledged membership” of the Arctic council so that India can engage in its activities more effectively

 

 

2. Key takeaways

 

 

• India's Position in the Arctic Council

 

• India is among the 13 observer states in the Arctic Council, an intergovernmental forum comprising the eight Arctic nations with sovereign territory in the region. While observer countries can participate in discussions and working groups, they do not possess voting rights or decision-making authority. Their role is also limited in terms of directly funding or independently conducting research activities within the Arctic.

 

• Proposal for a Dedicated Polar Ambassador

 

• The committee emphasized the need for India to appoint a dedicated Ambassador for Polar Affairs, with a rank comparable to similar positions created by other countries.
• According to the committee, such an appointment would demonstrate India's growing commitment to the Arctic and Antarctic in its foreign policy.
• A specialized envoy would also enable India to effectively articulate its positions, strengthen diplomatic engagement, and pursue a more coherent polar diplomacy strategy.

 

• Expanding Research in the Russian Arctic

 

• The Ministry of Earth Sciences highlighted that collaboration with Russia is essential for India to gain a comprehensive understanding of the Arctic region.
• It pointed to the Arctic research station at Chersky in Sakha, northeastern Siberia, as one of the world's leading Arctic research facilities.
• The station undertakes advanced studies in Arctic ecology, geophysics, and atmospheric sciences, while its location on ancient frozen Pleistocene sediments makes it particularly valuable for permafrost research.

 

• Strengthening India's Global South Leadership

 

• The committee further recommended that India formulate a strategy to reinforce its role as a leading voice of the Global South in Arctic affairs. It also proposed closer coordination among Asian observer nations by exploring a quadrilateral framework involving India, Japan, South Korea, and Singapore to advance shared scientific and strategic interests in the region.

 

• Broadening the Scope of India's Arctic Policy

 

• According to the committee, India's Arctic policy should evolve beyond its current emphasis on scientific research and incorporate geopolitical, strategic, and economic dimensions.
• It recommended that issues such as access to critical minerals, including those required for active pharmaceutical ingredients (APIs), air-conditioning components, and other strategic industries, should become an integral part of India's diplomatic engagement and policy discussions concerning the Arctic.

 

3.  What is the Arctic Council?

 

 

• Role and Objectives of the Arctic Council

 

• The Arctic Council serves as the principal intergovernmental forum for fostering cooperation, coordination, and dialogue among the Arctic nations, Indigenous communities, and other residents of the Arctic.
• Its primary focus is on addressing shared regional concerns, particularly those related to sustainable development, environmental conservation, and the protection of the Arctic ecosystem.

• Formation of the Arctic Council

 

• The Arctic Council was formally created on 19 September 1996 through the signing of the Ottawa Declaration by eight Arctic countries—Canada, the Kingdom of Denmark, Finland, Iceland, Norway, the Russian Federation, Sweden, and the United States.
• Its establishment built upon the Arctic Environmental Protection Strategy (AEPS) adopted in June 1991, which laid the foundation for collective efforts to safeguard the Arctic environment.

• Decision-Making Process

 

• The Council functions on the principle of consensus, meaning that every decision, declaration, and official statement requires the unanimous approval of all eight Arctic member states.
• These countries possess sovereign territories within the Arctic region and therefore share the primary responsibility for managing and protecting the lands and waters surrounding the Arctic Ocean in accordance with their domestic laws and international legal obligations.

• Observer Membership

 

• The Arctic Council grants observer status to eligible non-Arctic countries, as well as to international, regional, inter-parliamentary, and non-governmental organizations that can make meaningful contributions to its activities.
• Observers do not participate in decision-making but support the Council's work mainly through active involvement in its specialized Working Groups.

• Arctic Council Strategic Plan (2021–2030)

 

• The Strategic Plan 2021–2030 outlines the Council's long-term vision of the Arctic as a region characterized by peace, stability, and constructive international cooperation.
• It seeks to promote an Arctic that is prosperous, environmentally sustainable, secure, and inclusive, while ensuring that the rights, cultures, and well-being of Indigenous Peoples and all Arctic residents are protected and respected

 

 

4. Strategic Significance of the Arctic Region

 

 

• Importance of the Arctic

 

• The Arctic is the Earth's northernmost region, accounting for nearly 4% of the world's surface area. It is known for its extreme climatic conditions, sparse population, and relatively untapped natural resources.
• Geographically, it occupies a unique position where the continents of North America, Europe, and Asia converge, making it strategically significant.

 

• Emerging Opportunities and Challenges

 

• Rapid Arctic ice melt has become a major concern due to its implications for global climate change. At the same time, the retreating ice has created new economic opportunities by opening shorter maritime shipping routes and improving access to vast reserves of natural resources.
• Unlike Antarctica, where the 1991 Madrid Protocol prohibits mineral resource exploitation, the Arctic has no comparable legal framework providing comprehensive protection against resource extraction.

 

• Resource Wealth and Geopolitical Importance

 

• The Arctic possesses abundant reserves of critical minerals, crude oil, and natural gas, making it an increasingly attractive region for economic activity. As sea ice continues to recede, access to these resources has become easier, raising the prospects of large-scale exploration and extraction.
• Additionally, newly navigable shipping corridors significantly reduce the distance and travel time between Europe and Asia, enhancing the Arctic's strategic and commercial value.

 

• Opening of the Northern Sea Route

 

• Advances in navigation technology, satellite surveillance, and ice-monitoring systems have enabled vessels to travel through waters that were previously inaccessible.
• One of the most significant developments is the Northern Sea Route (NSR), also known as the Northeast Passage (NEP), which connects the Pacific Ocean with the Atlantic Ocean along Russia's Arctic coastline.
• Historically blocked by thick sea ice, this route has become increasingly navigable as climate change has caused the ice cover to shrink and thin.

 

• Rising Global Competition

 

• The growing need to secure energy supplies and critical mineral resources has intensified international interest in the Arctic's largely untapped reserves. Even countries without Arctic territory are seeking a greater role in the region.
• For instance, China, despite not being an Arctic nation, has described itself as a "near-Arctic state."
• In 2018, it introduced the Polar Silk Road initiative to integrate Arctic shipping lanes into its Belt and Road Initiative (BRI).
• These developments have contributed to increasing geopolitical competition and strategic rivalry in the Arctic at a time of rising political divisions among Arctic stakeholders.

 

 

5. How has India’s Arctic policy evolved? 

 

 

• India's engagement with the Arctic has evolved significantly, shifting from a limited observational role to a more proactive presence shaped by its scientific, environmental, economic, and strategic interests in the rapidly transforming polar region. India's association with the Arctic dates back to 9 February 1920, when it became a signatory to the Svalbard Treaty signed in Paris.
• Despite this early connection, India's active involvement began much later. In 2007, it launched its first scientific expedition to the Arctic, followed by the establishment of its permanent research station, Himadri, at Svalbard, Norway, in 2008. India's growing role was further recognized in 2013, when it was granted Observer Status in the Arctic Council.
• To provide a comprehensive framework for its activities in the region, India unveiled its Arctic Policy in 2022, built around six major focus areas:

1. Promoting scientific research and international scientific collaboration.
2. Conserving the Arctic environment and addressing climate-related challenges.
3. Supporting sustainable economic growth and human development.
4. Enhancing transportation networks and regional connectivity.
5. Strengthening governance mechanisms and international partnerships.
6. Developing national capabilities for Arctic research and engagement.

• India's interest in the Arctic is also closely linked to its domestic climate concerns. A 2024 study conducted by the National Centre for Polar and Ocean Research (NCPOR) found that rapid Arctic warming and ice loss can alter upper-atmospheric circulation patterns, including jet streams and Rossby waves.
• These changes have the potential to increase the variability and unpredictability of the Indian Summer Monsoon Rainfall (ISMR), highlighting the direct relevance of Arctic processes to India's climate.
• Beyond scientific cooperation, India has expanded its strategic and economic engagement with the region. Since 2021, it has partnered with Russia to support the development of infrastructure along the Northern Sea Route (NSR), aiming to improve access to energy resources and critical minerals while diversifying supply chains.
• As part of this effort, India is strengthening the Chennai–Vladivostok Maritime Corridor, which became operational in 2024.
• The corridor offers a shorter maritime link between India and Europe through the Arctic, reducing transit time by approximately two weeks compared to conventional shipping routes.

 

6. Arctic Amplification and Atlantification

 

 

• Arctic Amplification

 

• The Arctic is experiencing warming at a rate more than twice the global average, a phenomenon referred to as Arctic amplification. Higher temperatures have increased evaporation and precipitation, leading to the strengthening of atmospheric rivers—long, narrow corridors of concentrated moisture in the atmosphere that transport large volumes of water vapor across vast distances.

 

• Permafrost Thaw and Environmental Impacts

 

• Increasing temperatures are accelerating the thawing of permafrost, releasing iron and other heavy metals that have remained trapped in frozen ground for thousands of years. These substances contribute to the discoloration or "rusting" of rivers, reduce water quality, and negatively affect aquatic ecosystems, habitats, and biodiversity.

 

• Declining Snow Cover and Albedo Effect

 

• Although the Arctic is typically blanketed with snow for much of the year, recent trends indicate rapid snow loss. During the winter of 2025, snow accumulation remained above the historical average, but unusually fast melting occurred during the following spring.
• By June 2025, snow cover had fallen to nearly half of the levels recorded in the 1960s. The reduction in snow exposes darker land and ocean surfaces, decreasing the region's albedo (its ability to reflect sunlight). As a result, more solar radiation is absorbed, creating a feedback loop that accelerates regional warming.

 

• Rapid Decline of Arctic Sea Ice

 

• Arctic sea ice continues to shrink at an alarming pace. In March 2025, which typically marks the annual peak in sea ice extent, satellite observations recorded the lowest maximum extent since monitoring began 47 years ago.
• Even more concerning is the disappearance of the oldest and thickest sea ice—ice that has survived for more than four years—which has declined by over 95% since the 1980s.
• Rising ocean temperatures, retreating glaciers, record-breaking heat, increasingly frequent extreme weather events, and persistent sea ice loss are collectively transforming what was once a permanently frozen region.

 

• Atlantification of the Arctic Ocean

 

• A major consequence of Arctic warming is Atlantification, a process in which the warmer and saltier waters of the Atlantic Ocean penetrate farther into the Arctic Ocean. Primarily driven by climate change, this phenomenon has now extended into the central Arctic.
• It is contributing to ocean warming, greater mixing of water layers, accelerated sea ice decline, shifts in marine ecosystems, and potential disruptions to global ocean circulation patterns.

 

• Ecological and Geopolitical Consequences

 

• The warming Arctic has also increased phytoplankton growth and chlorophyll concentrations, altering marine productivity and influencing fisheries and food security.
• Beyond environmental impacts, these ecological changes are reshaping the Arctic's geopolitical landscape, as expanding access to marine resources and shipping routes intensifies strategic competition among nations.

 

 

For Prelims: Arctic Council, Ottawa Declaration, Madrid Protocol of 1991, Svalbard Treaty   For Mains:  GS II - International Relations and Organisations

 

 

 

Previous Year Questions   (1) Why is India taking a keen interest in the Arctic region? (UPSC CSE, 2018) (2) How do the melting of the Arctic ice and glaciers of the Antarctic differently affect the weather patterns and human activities on the Earth? Explain. (UPSC CSE, 2021)

 

Source: Indianexpress

 

 

 

MONEY BILL

 

 

1. Context

 

The Bill, which cleared Lok Sabha Monday, was passed as a money Bill, a route it had also taken in 2019 when the Supre¬me Court strength was raised to 34. In 2018, a key dissenting opinion in a Supreme Court ruling had described this route as a “fraud on the Constitution.”

 

2. Article 110 of the Constitution deals with what?

Article 110 of the Constitution of India pertains to the definition and procedure of passing a Money Bill in the Parliament. According to this article, a Money Bill exclusively contains provisions dealing with all or any of the following matters:

1. The imposition, abolition, remission, alteration, or regulation of any tax.
2. The regulation of the borrowing of money by the Government of India, including the giving of any guarantee by the Indian government for the purpose of securing a loan or the repayment of any money borrowed by it.
3. The custody of the consolidated Fund or the Contingency Fund of India, the payment of moneys into or the withdrawal of moneys from any such Fund.
4. The appropriation of moneys out of the consolidated Fund of India.
5. The declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or the increasing of the amount of any such expenditure.
6. The receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State.

A Money Bill can only be introduced in the Lok Sabha (House of the People), and it cannot be introduced in the Rajya Sabha (Council of States). The Rajya Sabha can only make recommendations on a Money Bill, and the Lok Sabha can either accept or reject these recommendations. The Rajya Sabha cannot amend a Money Bill, and if it is not returned by the Rajya Sabha within 14 days, it is deemed to have been passed by both houses

3.Who decides if a bill is Money Bill or not?

 

The decision regarding whether a bill is a Money Bill or not rests with the Speaker of the Lok Sabha (House of the People) in the Indian parliamentary system. As per Article 110 of the Indian Constitution, the Speaker is responsible for certifying whether a bill is a Money Bill or not.

Here is the process involved:

• Introduction in Lok Sabha: A bill is introduced in either the Lok Sabha or the Rajya Sabha. If it is introduced in the Lok Sabha and the Speaker is of the opinion that it exclusively deals with matters listed in Article 110, it may be certified as a Money Bill.

• Certification by the Speaker: The Speaker examines the provisions of the bill and determines whether it falls within the definition of a Money Bill as specified in Article 110. If the Speaker certifies it as a Money Bill, the bill is deemed to be so.

• Presentation to Rajya Sabha: After the Speaker's certification, the Money Bill is sent to the Rajya Sabha for its recommendations. However, the Rajya Sabha's powers regarding a Money Bill are limited. It can only make recommendations, and the Lok Sabha is not bound to accept them.

• President's Assent: Once the Lok Sabha passes the Money Bill, it is sent to the President for assent. The President's role is mostly formal, and the President cannot withhold assent to a Money Bill. If the President gives assent, the Money Bill becomes law

4.Key difference between a money Bill and an ordinary Bill

 

Subject	Money Bill	Ordinary Bill
Initiation	Can only be introduced in Lok Sabha (LS).	Can be introduced in either Lok Sabha or Rajya Sabha.
Certification	Requires certification by the Speaker of LS.	Does not require certification by the Speaker.
Scope	Deals exclusively with financial matters listed in Article 110.	Covers a wide range of subjects, including non-financial matters.
Role of Rajya Sabha	Rajya Sabha can only make recommendations, no power to reject or amend.	Rajya Sabha has the power to suggest amendments and can reject the bill.
Timeframe for Rajya Sabha	Rajya Sabha must return it within 14 days; otherwise, it is deemed passed.	Rajya Sabha has the usual time for discussion, amendments, and decision.
President's Assent	President cannot withhold assent; mandatory approval.	President can use discretionary powers, and assent is not mandatory.
Usage and Importance	Primarily deals with financial matters like taxation and government spending.	Encompasses a wide range of legislative subjects, both financial and non-financial.
Examples	Budget-related bills, finance bills, appropriation bills.	Social, economic, or legislative reforms, not necessarily tied to financial matters.

 

5. What is Finance bill?

 

A Finance Bill is a type of legislation presented in a country's parliament that outlines the government's proposals related to taxation, government spending, and other financial matters for a specific fiscal year. The primary purpose of a Finance Bill is to give legal effect to the fiscal policies announced by the government in the annual budget.

Key features of a Finance Bill include:

• Taxation Proposals: The Finance Bill contains provisions related to changes in taxes, duties, and levies. It may introduce new taxes, amend existing tax rates, or provide exemptions.

• Appropriation of Funds: The bill includes details about the allocation and appropriation of funds for various government expenditures. It outlines how the government plans to collect and spend money during the fiscal year.

• Government Spending: The Finance Bill specifies the government's planned expenditures across different sectors, such as education, healthcare, defense, infrastructure, and more.

• Economic Policies: It may contain measures to stimulate economic growth, control inflation, or address other macroeconomic concerns.

• Implementation of Budget Proposals: The Finance Bill is presented in conjunction with the annual budget, and it seeks to implement the financial proposals outlined in the budget speech delivered by the Finance Minister.

• Parliamentary Approval: In many parliamentary systems, the Finance Bill must be approved by the legislature to become law. It goes through the normal legislative process, including debates, committee scrutiny, and voting.

In some countries, including India, a specific type of Finance Bill is known as the "Money Bill." A Money Bill exclusively deals with matters specified in the constitution, such as taxation, borrowing, and expenditure from the consolidated fund. Money Bills have special procedures for introduction and passage, and they require certification by the Speaker of the lower house (e.g., Lok Sabha in India)

 

For Prelims: Money Bill, Financial Bill, Aadhaar Act, Lok Sabha, Rajya Sabha, Finance Act, Supreme Court,  For Mains:  1. What are the constitutional safeguards in place to prevent misuse of the Money Bill? Critically assess the mechanisms to ensure that only appropriate bills are categorized as Money Bills. (250 Words)

 

 

Previous Year Questions   1. Regarding Money Bill, which of the following statements is not correct? (UPSC 2018) 1.  A bill shall be deemed to be a money Bill if it contains only provisions relating to imposition, abolition, remission, alteration or regulation of any tax. 2. A Money Bill has provisions for the custody of the Consolidated Fund of India or the Contingency Fund of India. 3. A Money Bill is concerned with the appropriation of money out of the Contingency Fund of India. 4. A Money Bill deals with the regulation of borrowing of money or giving of any guarantee by the Government of India.   Answer: 3   2. Consider the following statements: (UPSC 2018)  1. Aadhaar card can be used as a proof of citizenship or domicile. 2. Once issued, the Aadhaar number cannot be deactivated or omitted by the Issuing Authority. Which of the statements given above is/are correct?  A. 1 only            B.  2 only           C. Both 1 and 2                 D.  Neither 1 nor 2   Answer: D   3. Consider the following statements: (UPSC 2015) 1. The Rajya Sabha has no power either to reject or to amend a Money Bill. 2. The Rajya Sabha cannot vote on the Demands for Grants. 3. The Rajya Sabha cannot discuss the Annual Financial Statement. Which of the statements given above is/are correct?  A. 1 only           B. 1 and 2 only        C. 2 and 3 only              D. 1, 2 and 3   Answer: B   4. With reference to the Indian judiciary, consider the following statements: (UPSC 2021) 1. Any retired judge of the Supreme Court of India can be called back to sit and act as a Supreme Court judge by the Chief Justice of India with the prior permission of the President of India. 2. A High Court in India has the power to review its own judgement as the Supreme Court does. Which of the statements given above is/are correct? A. 1 only            B. 2 only               C.  Both 1 and 2                D. Neither 1 nor 2   Answer: C

Source: Indianexpress

 

 

MONETARY POLICY COMMITTEE (MPC)

 

 

1. Context

 

 The Reserve Bank of India’s Monetary Policy Committee (MPC) Wednesday kept its key policy repo rate unchanged at 5.25 per cent, opting for caution as volatile crude oil prices, geopolitical tensions in West Asia and an uncertain global outlook cloud the inflation trajectory.

 

2. What is Monetary policy?

Monetary policy refers to the actions and strategies undertaken by a country's central bank to control and regulate the supply of money, credit availability, and interest rates in an economy. Its primary goal is to achieve specific economic objectives, such as price stability, full employment, and sustainable economic growth.

Central banks use various tools to implement monetary policy, including:

Interest Rates: Adjusting the interest rates at which banks lend to each other (known as the federal funds rate in the United States) influences borrowing and spending in the economy.

Open Market Operations: Buying or selling government securities in the open market to regulate the money supply. When a central bank buys securities, it injects money into the system, and when it sells them, it reduces the money supply.

Reserve Requirements: Mandating the amount of reserves banks must hold, affecting their ability to lend money.

By influencing the availability and cost of money, central banks aim to stabilize prices, control inflation, encourage or discourage borrowing and spending, and promote economic growth. However, the effectiveness of monetary policy can be influenced by various factors such as global economic conditions, fiscal policies, and market expectations.

3.What is the primary objective of the monetary policy?

The primary objective of monetary policy typically revolves around maintaining price stability or controlling inflation within an economy. Central banks often set an inflation target, aiming to keep it at a moderate and steady level. Stable prices help in fostering confidence in the economy, encouraging investment, and ensuring that the value of money remains relatively constant over time.

However, while controlling inflation is often the primary goal, central banks might also consider other objectives, such as:

Full Employment: Some central banks have a secondary objective of supporting maximum employment or reducing unemployment rates.

Economic Growth: Encouraging sustainable economic growth by managing interest rates and credit availability to stimulate or cool down economic activity.

Exchange Rate Stability: In some cases, maintaining stable exchange rates might be an important consideration, especially for countries with open economies heavily reliant on international trade.

These additional objectives can vary depending on the economic conditions, priorities of the government, and the central bank's mandate. Nonetheless, ensuring price stability is typically the fundamental goal of most monetary policies, as it forms the basis for a healthy and growing economy.

4. Monetary Policy Committee (MPC)

• In line with the amended RBI Act, 1934, Section 45ZB grants authority to the central government to establish a six-member Monetary Policy Committee (MPC) responsible for determining the policy interest rate aimed at achieving the inflation target.
• The inaugural MPC was formed on September 29, 2016. Section 45ZB stipulates that "the Monetary Policy Committee will ascertain the Policy Rate necessary to meet the inflation target" and that "the decisions made by the Monetary Policy Committee will be obligatory for the Bank."
• According to Section 45ZB, the MPC comprises the RBI Governor as the ex officio chairperson, the Deputy Governor overseeing monetary policy, a Bank official nominated by the Central Board, and three individuals appointed by the central government.
• The individuals chosen by the central government must possess "capabilities, ethical standing, expertise, and experience in economics, banking, finance, or monetary policy" (Section 45ZC)

5.Monetary Policy Committe and Inflation

• The Monetary Policy Committee (MPC) plays a crucial role in managing inflation through its decisions on the policy interest rate.
• When inflation is too high, the MPC might decide to increase the policy interest rate. This action aims to make borrowing more expensive, which can reduce spending and investment in the economy.
• As a result, it could help decrease demand for goods and services, potentially curbing inflation.
• Conversely, when inflation is too low or the economy needs a boost, the MPC might decrease the policy interest rate.
• This move makes borrowing cheaper, encouraging businesses and individuals to spend and invest more, thus stimulating economic activity and potentially raising inflation closer to the target level.
• The MPC's goal is to use the policy interest rate as a tool to steer inflation toward a target set by the government or central bank.
• By monitoring economic indicators and assessing the current and expected inflation levels, the MPC makes informed decisions to maintain price stability within the economy

6. Way forward

With more than half of the current financial year witnessing positive developments in the economy, the full financial year should conclude as projected with a strong growth performance and macroeconomic stability. Yet risks on the downside persist. Inflation is one of them that has kept both the government and the RBI on high alert. Financial flows in the external sector also need constant monitoring as they impact the value of rupee and the balance of payments. A fuller transmission of the monetary policy may also temper domestic demand

 

 

 

 

For Prelims: Economic and Social Development For Mains: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

 

 

Previous Year Questions   1. Consider the following statements:  (UPSC 2021) 1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government. 2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in the public interest. 3. The Governor of the RBI draws his natural power from the RBI Act. Which of the above statements is/are correct?  A. 1 and 2 only    B.  2 and 3 only     C. 1 and 3 only     D. 1, 2 and 3   Answer: C   2. Concerning the Indian economy, consider the following: (UPSC 2015) Bank rate Open Market Operations Public debt Public revenue Which of the above is/are component(s) of Monetary Policy? (a) 1 only   (b) 2, 3 and 4    (c) 1 and 2     (d) 1, 3 and 4 Answer: C 3. An increase in Bank Rate generally indicates: (UPSC 2013) (a) Market rate of interest is likely to fall. (b) Central bank is no longer making loans to commercial banks. (c) Central bank is following an easy money policy. (d) Central bank is following a tight money policy. Answer: (d)  4. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? (UPSC 2017)  1. It decides the RBI's benchmark interest rates. 2. It is a 12-member body including the Governor of RBI and is reconstituted every year. 3. It functions under the chairmanship of the Union Finance Minister. Select the correct answer using the code given below: A. 1 only      B.  1 and 2 only      C. 3 only      D. 2 and 3 only Answer: A

 

Source: Indianexpress

 

 

 

WESTERN GHATS - LANDSLIDES

 

 

1. Context

 

 An unexpected spell of extremely heavy rainfall in early August has triggered flooding in several parts of Kerala, with Kottayam, Pathanamthitta and Alappuzha districts among the worst affected.

 

 

2.What are the possible causes for landslides in Western ghat?

 

• Experts agree that multiple factors contribute to landslides, both natural and human-induced. Nearly half of Kerala’s land—19,301 sq km or 49.7%—is susceptible to landslides, according to the Geological Survey of India (GSI).
• The region’s heavy rainfall and the steep slopes of the Western Ghats make Wayanad particularly vulnerable, with 31.54% of the district at high risk, as per IIT-Delhi research.
• Human activities have heightened the risk of natural disasters; increased construction and changes in agricultural practices are key contributors.
• Wayanad has seen a tourism boom in recent years, with homestays and monsoon tourism gaining popularity. Ecologist Madhav Gadgil highlights the construction of resorts, artificial lakes, and abandoned quarries as inappropriate developments in this sensitive zone.
• Long-term land use changes, beginning with British-era tea plantations and continuing post-Independence, have also played a role.
• A 2022 study in the International Journal of Environmental Research and Public Health reported a 62% decrease in forest cover and an 1,800% increase in plantation areas from 1950 to 2018. Monocropping has led to the destabilization of topsoil previously held by forest roots.
• Climate change has indirectly contributed by altering rainfall patterns in the state. The warming Arabian Sea fosters deep cloud systems, resulting in intense rainfall over short periods.
• Such events have become more frequent even as the number of rainy days during the monsoon has decreased.
• Despite Wayanad receiving 527 mm of rainfall in 48 hours before the landslide, the district has had normal monsoon rainfall averages, while Kerala has experienced deficits, according to the India Meteorological Department.
• The previously cool, humid environment with consistent drizzles and monsoon rains is now characterized by hotter, drier summers and intense monsoon downpours.
• This shift increases landslide risks, as dry soils absorb less water and heavy rains cause runoff, leading to landslides

 

3.What are the natural and man-made factors that triggered large-scale death and destruction in Kerala?

 

Large-scale death and destruction in Kerala have been triggered by a combination of natural and man-made factors:

Natural Factors

• Kerala experiences intense monsoon rains, which can lead to flooding and landslides. The Western Ghats, with their steep slopes, are particularly prone to such events
• The topography of regions like Wayanad, which have a significant slope, makes them highly susceptible to landslides
• Changes in climate patterns have resulted in more intense and concentrated rainfall events, even though the overall number of rainy days has decreased. The warming Arabian Sea has contributed to the formation of deep cloud systems that lead to heavy downpours

Man-Made Factors

• There has been a significant reduction in forest cover due to plantation agriculture and other developmental activities. This loss of vegetation weakens the soil structure, making it more prone to landslides
• Unregulated construction, including resorts, homestays, and other infrastructure, has destabilized the land. Inappropriate development in sensitive zones, such as the construction of artificial lakes and abandonment of quarries, has exacerbated the risk.
• Changes in crop patterns, including the shift to monocropping, have degraded the land. Monocropping loosens the topsoil, which was previously held together by the roots of diverse forest plants
• The rise in tourism, particularly monsoon tourism, has led to increased construction and human activity in vulnerable areas, further destabilizing the environment
• Long-term changes in land use, starting with British-era tea plantations and continuing in the post-independence era, have had a lasting impact on the region's ecological stability

 

4. What are Gadgil Committee reccomendations?

 

The Gadgil Committee, formally known as the Western Ghats Ecology Expert Panel (WGEEP), was established by the Ministry of Environment and Forests of India in 2010 under the chairmanship of ecologist Madhav Gadgil. The committee was tasked with assessing the ecological status of the Western Ghats and providing recommendations for its conservation and sustainable development.

 

Here are some of the key recommendations made by the Gadgil Committee:

 

• Ecologically Sensitive Zones (ESZ): The committee proposed classifying the entire Western Ghats into three zones based on their ecological sensitivity:
  • ESZ 1: Highest sensitivity areas where stringent regulations should apply.
  • ESZ 2: Moderate sensitivity areas with moderate regulations.
  • ESZ 3: Lowest sensitivity areas where the least restrictive regulations would apply
• Ban on Certain Activities in ESZ 1: Activities such as mining, quarrying, and large-scale constructions should be banned in ESZ 1. Deforestation and conversion of public lands for private purposes should also be prohibited.
• Regulation of Developmental Activities: Developmental activities in ESZ 2 and ESZ 3 should be carefully regulated to ensure they do not harm the environment. This includes control over tourism, infrastructure projects, and industrial activities
• Protection of Forests: Emphasis on the conservation and regeneration of natural forests. Plantation activities should be eco-friendly, promoting native species.
• Biodiversity Conservation: Measures to protect the rich biodiversity of the Western Ghats, including the establishment of wildlife corridors and conservation areas.

 

5. Significance of Western Ghats

 

The Western Ghats, a UNESCO World Heritage Site, hold immense ecological, climatic, cultural, and economic significance:

 

• The Western Ghats are one of the world's eight "hottest hotspots" of biological diversity. They host over 7,400 species of flowering plants, 139 mammal species, 508 bird species, 179 amphibian species, 6,000 insect species, and 290 freshwater fish species, many of which are endemic.
• A significant proportion of the species found in the Western Ghats are endemic, meaning they are not found anywhere else in the world. This includes many unique species of plants, animals, and microorganisms
• The region provides crucial ecosystem services, such as water purification, climate regulation, soil stabilization, and carbon sequestration
• The Western Ghats play a critical role in the Indian monsoon system. They intercept the moisture-laden winds from the southwest, causing heavy rainfall on the western side, which supports lush forests and agriculture
• The forests of the Western Ghats act as a climate buffer, moderating temperatures and maintaining regional climate stability
• The Western Ghats are the source of numerous rivers, including the Godavari, Krishna, and Cauvery, which provide water to millions of people in peninsular India. These rivers are crucial for drinking water, irrigation, and hydropower
• The Western Ghats are home to numerous indigenous communities and tribal groups who have lived in harmony with the environment for centuries. These communities have rich cultural traditions and knowledge systems linked to the forests and biodiversity
• Many areas in the Western Ghats are considered sacred by local communities and host numerous temples, shrines, and pilgrimage sites.
• The Western Ghats support diverse agricultural systems, including spice plantations (pepper, cardamom), tea, coffee, and rubber. These crops are economically significant both domestically and for export

 

6.Way forward

 

The Geological Survey of India (GSI) has been appointed as the primary agency for conducting landslide studies and developing an early warning system and protocols for reducing landslide risks. However, according to a senior GSI official, this system is still in the experimental phase and will require an additional four to five years before it is ready for public implementation. Since the start of the 2024 monsoon, regional landslide forecast bulletins have been issued to state and district authorities in Wayanad, mostly indicating a "low" probability of landslides, with a "moderate" probability predicted on July 30, 2024

 

 

 

For Prelims: Western Ghats, Eastern Ghats, Landslides, Flash floods For Mains: GS 1 - Indian Geography

 

Previous year questions

1. Which of the following statements in respect of landslides are correct? (NDA 2022) 1. These occur only on gentle slopes during rain. 2. They generally occur in clay-rich soil. 3. Earthquakes trigger landslides. Select the correct answer using the code given below. A. 1 and 2         B. 2 and 3            C. 1 and 3              D. 1, 2 and 3  Answer: (B) For Mains: 1. Describe the various causes and the effects of landslides. Mention the important components of the National Landslide Risk Management Strategy. (250 words) (2021)

 

Source: The Hindu