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DAILY CURRENT AFFAIRS, 03 FEBRUARY 2025

FOREIGN DIRECT INVESTMENT (FDI)

 
 
1. Context
Finance Minister Nirmala Sitharaman on Saturday said the foreign direct investment (FDI) limit for the insurance sector will be raised from 74% to 100%
 
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
  1. 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.

  2. 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
 
 
 
 
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
 
 
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)
 
Source: indianexpress
 
 

SMALL INDUSTRIES

 
 
1. Context
 

The Union Budget proposed many measures to boost Micro, Small, and Medium-scale Enterprises (MSMEs).One of the major measures is revision in classification criteria of MSMEs based on investment and turnover

 
2. Micro Small Medium Enterprises (MSME)
 
Small-scale industries account for nearly 95% of all industrial units and are a crucial component of the nation's economic framework. Mahatma Gandhi emphasized the importance of cottage and small-scale industries for India's progress. As reported by the Ministry of Statistics and Programme Implementation (MoSPI), this sector provides employment to approximately 17.5 million people. Consequently, it plays a vital role in job creation. The sector encompasses a wide array of industries, including modern small-scale enterprises, unorganized traditional industries, and organized large and medium-sized businesses
 
Classification of Industries
Classification/ Industry type Micro Small Medium
Investment Not more than Rs.1 crore Not more than Rs.10 crore Not more than Rs.50 crore
Annual Turnover Not more than Rs. 5 crore Not more than Rs. 50 crore Not more than Rs. 250 crore
 
 
3. Role of Small Industries in Indian Economy
 
  • Expansion of Entrepreneurial Activities: The innovative approaches adopted by small industries have contributed to the growth of entrepreneurial ventures. This expansion has brought more economic sectors into the fold, offering a broader range of goods and services that cater to both domestic and international markets.
  • Industrialization of Rural and Underdeveloped Areas: Small industries have helped reduce regional disparities, promoting a more equitable distribution of wealth and income throughout the nation.
  • Employment Creation: Small industries are crucial to India's economic development, as they generate significant employment opportunities at a much lower capital investment compared to large-scale industries

 

Village Small Industries (VSI)
 
The term "Village and Small Industry (VSI)" is commonly used to refer to unorganized traditional sectors and small-scale industries. The VSI sector is composed of seven sub-sectors: handicrafts, handlooms, Khadi and Village Industries, coir, sericulture, power looms, and small-scale industries
 
 
 
4. Government Initiatives
 
  • Prime Minister’s Employment Generation Programme (PMEGP): The aim of this program is to create employment opportunities by establishing new micro-enterprises, projects, and self-employment initiatives across rural and urban areas of the country. The Khadi and Village Industries Commission (KVIC) serves as the national nodal agency responsible for implementing the scheme, while its execution at the state level is managed by State KVIC offices, State Khadi and Village Industries Boards (KVIB), District Industries Centres (DIC), Coir Board (for coir-related activities), and Banks.
  • Collateral-Free Credit Provision for MSMEs: Banks and other financial institutions, including NBFCs, are mandated to provide collateral-free credit to Micro and Small Enterprises. The scheme ensures that up to ₹5 crore (effective from April 1, 2023) per borrowing unit is covered for collateral-free credit facilities (term loans and/or working capital) extended to micro and small enterprises by eligible lending institutions.
  • A Scheme for Promotion of Innovation, Rural Industry & Entrepreneurship (ASPIRE): The ASPIRE program has been approved for continuation from 2021-2022 to 2025-2026 with a budget allocation of ₹194.87 crore. Updated guidelines issued on January 28, 2022, focus on the following objectives:
  1. Reducing unemployment and generating jobs,
  2. Promoting an entrepreneurial culture in India,
  3. Encouraging innovation to enhance the competitiveness of the MSME sector.
  • Entrepreneurship and Skill Development Programmes (ESDP): This program is designed to inspire youth from diverse social backgrounds, including women, SC/ST communities, disabled individuals, ex-servicemen, and those below the poverty line, to consider careers in self-employment or entrepreneurship.
  • Scheme of Fund for Regeneration of Traditional Industries (SFURTI): The scheme aims to create competitive, sustainable employment opportunities for traditional industries and artisans by organizing them into clusters. It also seeks to enhance the marketability of products produced by these clusters, upgrade the skills of traditional artisans, provide better tools and equipment, strengthen cluster governance with active stakeholder participation, and foster innovative products, advanced technologies, processes, market intelligence, and new models of public-private partnerships.
  • MSME Champions Scheme: This program, set to run from 2021-2022 to 2025-2026, is divided into three components:
  1. MSME-Sustainable (ZED) Certification Scheme
  2. MSME-Competitive (Lean) Scheme
  3. MSME-Innovative (for Incubation, IPR, and Design) Scheme
  • Greening MSME: SIDBI has introduced the "Greening MSME" initiative, which offers financial assistance up to a maximum of ₹20 crore to MSMEs for adopting energy-efficient and environmentally sustainable technologies
 
5. Challenges
 
  • Access to Finance: Access to funding is a major challenge for Indian MSMEs, with the total financing gap expected to reach $400 billion. While closing this gap will take time, targeted green finance initiatives in areas like waste management, electric vehicles, energy efficiency, and renewables can support MSME growth in these sectors.
  • Interest Rates: The Central Government should lower interest rates and make consumer finance, housing loans, and vehicle loans more accessible to stimulate market demand.
  • Climate Commitments and Transitioning to Low-Carbon: Small enterprises are limited to adhering to environmental regulations, while global supply chains increasingly shift to greener processes and products. There is currently no strategic plan to help MSMEs manage the risks associated with this transition.
  • Unorganized Nature: Due to its fragmented structure and the predominance of micro-sized businesses, the MSME sector is one of the most vulnerable in the Indian economy. The COVID-19 pandemic has highlighted this vulnerability, with millions of MSMEs facing closure due to decreased demand caused by lockdowns.
  • Green Transition of MSMEs: MSMEs are more exposed to policy and demand uncertainties, often with greater downside risks. Even if they recognize the benefits of going green, most lack the financial and technical capacity to invest in new initiatives. However, certain government programs can help address these barriers.
  • Incentives and Penalties: Encouraging Small and Medium Enterprises (SMEs) to exceed mere compliance can be achieved by taxing negative externalities and offering subsidies or tax breaks for green investments. Updating environmental legislation should also consider the risks posed by different industries, and these policies should be assessed for their impact on MSMEs before widespread implementation
 
6. Way forward
 

MSMEs should embrace best practices like implementing low-energy strategies, adopting renewable energy sources, improving waste management, ensuring women's safety, and making timely wage payments.

Governments, business associations, civil society organizations, and other stakeholders can play a proactive role in promoting awareness, sharing best practices, and providing training and resources. Financial incentives, such as tax breaks, subsidies, grants, and low-interest loans, can be offered by governments and investors to encourage MSMEs to adopt sustainable practices or invest in sustainable technologies.

Larger companies can support MSMEs in adopting sustainable practices by offering training, technical support, and financial assistance

 

 

For Prelims: Current events of national and international importance

For Mains: GS III - Indian Economy

 

Previous year Questions

1. Consider the following statements with reference to India: (UPSC 2023)
1. According to the 'Micro, Small and Medium Enterprises Development (MSMED) Act, 2006', the 'medium enterprises' are those with investments in plant and machinery between Rs. 15 crore and Rs. 25 crore.
2. All bank loans to the Micro, Small, and Medium Enterprises qualify under the priority sector.
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
 
2. Which of the following can aid in furthering the Government's objective of inclusive growth? (UPSC 2011)
1. Promoting Self-Help Groups
2. Promoting Micro, Small and Medium Enterprises
3. Implementing the Right to Education Act
Select the correct answer using the codes given below:
A. 1 only
B. 1 and 2 only
C. 2 and 3 only
D. 1, 2 and 3
Answer: D
 
Source: Indianexpress
 

INDIA-BANGLADESH 

 
 
 
 
1. Context
 
 
In January, India and Bangladesh exchanged words over security measures at the border, including issues around fencing, with both countries summoning diplomats and sending a message about protocols and past agreements.
 

2. The Evolution of India-Bangladesh Ties

  • The genesis of India's relationship with Bangladesh traces back to the 1971 Bangladesh Liberation War when India played a crucial role in providing military and material support for Bangladesh's fight for independence from Pakistan.
  • However, in the aftermath, relations faced challenges as military regimes took control, leading to a rise in anti-India sentiment in the mid-1970s.
  • Issues such as boundary disputes, insurgency, and water-sharing disputes contributed to the strained ties.
  • The situation persisted for several decades until Sheikh Hasina assumed power in 1996, ushering in a new era in bilateral relations.
  • Under her leadership, a significant milestone was reached with the signing of a treaty on the sharing of Ganga waters.
  • Since then, India and Bangladesh have successfully fostered cooperation in various areas, including trade, energy, infrastructure, connectivity, and defence.

3. India-Bangladesh Economic Ties

  • Over the past decade, bilateral trade between India and Bangladesh has demonstrated consistent growth.
  • Bangladesh has emerged as India's largest trade partner in South Asia, with bilateral trade surging from $10.8 billion in 2020-21 to $18 billion in 2021-2022.
  • However, a slight dip occurred in 2022-23 due to the impact of the pandemic and the Russia-Ukraine war.
  • In return, India stands as Bangladesh's second-largest trade partner, with exports amounting to $2 billion in the Indian markets.
  • In 2022, both countries successfully concluded a joint feasibility study on a Comprehensive Economic Partnership Agreement (CEPA).
  • This agreement, designed to reduce or eliminate customs duties on traded goods and streamline trade norms, is expected to unlock broader social and economic opportunities.
  • The CEPA gains added significance as Bangladesh is poised to lose its Least Developed Country (LDC) status after 2026, thereby forfeiting its duty-free and quota-free market access in India.
  • Dhaka is keen to finalize a Free Trade Agreement (FTA) with New Delhi and simultaneously pursue the China-backed Regional Comprehensive Economic Partnership (RCEP). This dual-track approach raises concerns for India.
 

4. India's Infrastructural Investments in Bangladesh

  • As a significant development partner for Bangladesh, India has been actively contributing to various infrastructure and connectivity projects.
  • Since 2010, India has provided Lines of Credit totalling over $7 billion. A milestone in this collaboration was achieved last year when Prime Minister Modi and Sheikh Hasina inaugurated the Akhaura-Agartala rail link, connecting Bangladesh and the northeast through Tripura.
  • This link grants India access to Chattogram and Mongla ports in Bangladesh, facilitating cargo movement and poised to stimulate small-scale industries while fostering the development of Assam and Tripura.
  • In the energy sector, Bangladesh imports nearly 2,000 megawatts of electricity from India.
  • The BIMSTEC Master Plan for Transport Connectivity is instrumental in connecting major transport projects in India, Bangladesh, Myanmar, and Thailand, thereby establishing a comprehensive shipping network.
  • India's focus is likely to be on the Matarbari Port, situated approximately 100 km from Tripura, being developed by Bangladesh.
  • This port will play a pivotal role in establishing a crucial industrial corridor, connecting Dhaka with the northeastern part of India.
 

5. Navigating Challenges in the India-Bangladesh Relationship

 
  • Several points of tension mark the diplomatic landscape between India and Bangladesh.
  • Foremost among them is the impending Teesta dispute, which holds a central position in the agenda of the Hasina-led government.
  • This dispute revolves around the equitable sharing of Teesta's waters, with Bangladesh seeking a fair distribution.
  • Another source of contention is the Rohingya issue. The Hasina government aims for the peaceful repatriation of Rohingyas to Myanmar, but talks with the military junta have proven unsuccessful thus far.
  • Bangladesh seeks India's cooperation to influence Myanmar, but the Modi government, with ties to the junta, asserts its intention to deport Rohingyas from its mainland.
  • Cross-border terrorism and infiltration pose additional threats to internal security. The rise of majoritarian forces adds complexity to the already intricate landscape.
  • While violence against Muslims has increased in India in recent years, Prime Minister Hasina has consistently condemned these attacks and expressed dissatisfaction with comments by Indian leaders concerning "illegal" immigrants.

 

6. Global Influences on the India-Bangladesh Relationship

  • The Awami League government under Sheikh Hasina has faced vocal criticism from the U.S., particularly concerning "democratic backsliding."
  • In 2021, the Biden administration imposed sanctions on a Bangladeshi anti-crime and anti-terrorism task force, citing human rights violations.
  • Tensions escalated further as the U.S. announced a policy to restrict visas for Bangladeshis deemed responsible for undermining the election process in the country. This external pressure has implications for the global ties of Bangladesh.
  • Adding to India's concerns is the deepening relationship between Bangladesh and China, marked by substantial Chinese investments in infrastructure in recent years.
  • According to the Chinese Ambassador to Bangladesh, China has undertaken the construction of 12 highways, 21 bridges, and 27 power and energy projects in Bangladesh.
  • However, Prime Minister Hasina has asserted that her government is "very much careful" about its partnership with China.
 
7. The Way Forward
 
Despite challenges, the India-Bangladesh relationship boasts strong potential for further growth. Open communication, constructive dialogue, and focus on shared interests are crucial for navigating the complexities and ensuring a prosperous future for both nations.
 
 
For Prelims: India-Bangladesh, Free Trade Agreement, Rohingyas, Teesta River, BIMSTEC, Comprehensive Economic Partnership Agreement
For Mains: 
1.  Assess the role of China's growing influence in Bangladesh and its implications for the India-Bangladesh relationship. How can India navigate this complex geopolitical landscape? (250 Words)
2. Discuss the potential benefits of the BIMSTEC Master Plan for Transport Connectivity for India, Bangladesh, and the broader region. What are the key considerations for effective implementation and ensuring equitable benefits? (250 Words)
 
 
 
Previous Year Questions
 

1. With reference to river Teesta, consider the following statements: (UPSC 2017)

  1. The source of river Teesta is the same as that of Brahmaputra but it flows through Sikkim.
  2. River Rangeet originates in Sikkim and it is a tributary of river Teesta.
  3. River Teesta flows into Bay of Bengal on the border of India and Bangladesh.

Which of the statements given above is/are correct?

(a) 1 and 3 only               (b) 2 only               (c) 2 and 3 only                    (d) 1, 2 and 3

 
2. Consider the following countries: (UPSC 2018)
1. Australia
2. Canada
3. China
4. India
5. Japan
6. USA
Which of the above are among the free-trade partners' of ASEAN? 
A.  1, 2, 4 and 5        B. 3 , 4, 5 and 6        C. 1, 3, 4 and 5          D. 2, 3, 4 and 6
 

3. Increase in absolute and per capita real GNP do not connote a higher level of economic development, if (UPSC 2018)

(a) Industrial output fails to keep pace with agricultural output.
(b) Agricultural output fails to keep pace with industrial output.
(c) Poverty and unemployment increase.
(d) Imports grow faster than exports.

4. The SEZ Act, 2005 which came into effect in February 2006 has certain objectives. In this context, consider the following: (UPSC 2010)

  1. Development of infrastructure facilities.
  2. Promotion of investment from foreign sources.
  3. Promotion of exports of services only.

Which of the above are the objectives of this Act?

(a) 1 and 2 only           (b) 3 only            (c) 2 and 3 only            (d) 1, 2 and 3

 

5. A “closed economy” is an economy in which (UPSC 2011)

(a) the money supply is fully controlled
(b) deficit financing takes place
(c) only exports take place
(d) neither exports or imports take place

 

6. Consider the following pairs:(UPSC 2016)
Community is sometimes mentioned in the news                  In the affairs of
1. Kurd                                                                                       Bangladesh
2. Madhesi                                                                                  Nepal
3. Rohingya                                                                                Myanmar
Which of the pairs given above is/are correctly matched?
A. 1 and 2            B. 2 only              C. 2 and 3                 D. 3 only
 
 
7.  With reference to the BIMSTEC, which of the following statements is/are true? (UPPSC 2022)
1. P. M. Narendra Modi addressed the 5th BIMSTEC Summit on 30th March 2022.
2. 5th Summit of BIMSTEC had been chaired by India.
Select the correct answer from the code given below:
A. Neither 1 nor 2
B. Both 1 and 2
C. Only 2
D. Only 1
 
 
8. Which of the following statement/s is/are true about the three-day international Seminar on 'Climate Smart Farming System' for BIMSTEC countries held during December 11-13, 2019? (UPPSC 2020)
1. It was held at Katmandu, Nepal.
2. It was aimed to have experience sharing for more resilience to climate change through an ecological approach to enable the improvement of tropical small-holding farming systems.
Select the correct answer from the codes given below:
A. Only 1             B. Only 2              C. Both 1 and 2               D. Neither 1 nor 2
 
 
9. The term 'Regional Comprehensive Economic Partnership; often appears in the news in the context of the affairs of a group of countries known as (UPSC 2016) 
A. G20         B.  ASEAN        C. SCO          D. SAARC
 
 
10.  Recently, with which one of the following countries did India sign the 'Comprehensive Economic Partnership Agreement' ? (UPSC CAPF 2022) 
A. Egypt           B.  Israel          C. South Africa           D. United Arab Emirates
 
Answers: 1-B, 2-C, 3-C, 4-A, 5- D, 6-C, 7-D, 8-B, 9-B, 10- D
 
Source: The Hindu
 
 

ARTIFICIAL GENERAL INTELLIGENCE (AGI)

 
 
 
1. Context
 In April 2023, a Chinese hedge fund, High-Flyer, that used Artificial Intelligence (AI) for trading, set up its own AI lab, DeepSeek, to build Large Language Models (LLMs). In less than a year, the AI spin-off developed DeepSeek-v2 that performed well on several benchmarks
 
2. What is artificial intelligence (AI)? 
  • AGI refers to a machine or software capable of executing any intellectual task within the human capacity. AGI aims to replicate human cognitive functions, enabling it to tackle unfamiliar challenges, learn from novel experiences, and apply acquired knowledge innovatively.

  • The primary distinction between AGI and the more prevalent form of AI, termed narrow AI, lies in their breadth and capabilities. Narrow AI is engineered for specific tasks like image recognition, translation, or strategic games like chess, where it can surpass human performance, yet it remains constrained within predefined parameters. Conversely, AGI envisions a broader, more generalized intelligence akin to humans, not confined to singular tasks, which positions it as the pinnacle of AI advancements.

  • The concept of AGI first surfaced in the 20th century through a seminal paper by Alan Turing, renowned as the progenitor of theoretical computer science and artificial intelligence.

  • Theoretically, AGI holds vast potential across diverse domains such as healthcare, education, finance, and commerce.

  • Despite the promising prospects of AGI, it elicits widespread concerns for various reasons. Notably, the immense computational resources required for AGI development raise apprehensions regarding its environmental impact, stemming from energy consumption and e-waste generation. Additionally, AGI adoption could precipitate significant job displacement and exacerbate socioeconomic disparities.

  • AGI deployment may introduce novel security vulnerabilities, and its rapid advancement might outpace regulatory frameworks established by governments and international bodies. Moreover, reliance on AGI could potentially erode fundamental human skills and capabilities. Yet, the most pressing concern surrounding AGI is the possibility of its capabilities surpassing human comprehension, rendering its actions unpredictable and challenging to decipher

3. What are the different categories of AI?
 

Artificial Intelligence (AI) can be categorized into various types based on their capabilities and functionalities.

Here are the main categories:

  • Narrow AI (Weak AI): Narrow AI is designed to perform specific tasks within a limited domain. These AI systems excel at performing one particular task or a set of closely related tasks, but they lack the ability to generalize or adapt to new situations outside their predefined scope. Examples of narrow AI include virtual assistants like Siri or Alexa, recommendation systems, spam filters, and autonomous vehicles.

  • General AI (Strong AI): General AI refers to AI systems with the ability to understand, learn, and apply knowledge across different domains, similar to human intelligence. These systems possess cognitive abilities that enable them to solve a wide range of problems and tasks, adapt to new environments, and learn from experience. True general AI, which is capable of performing any intellectual task that a human can do, remains a theoretical concept and has not yet been achieved.

  • Artificial Superintelligence (ASI): Artificial Superintelligence is an advanced form of AI that surpasses human intelligence in virtually every aspect. ASI would possess cognitive abilities far superior to the most intelligent human beings and could potentially solve complex problems and challenges beyond human comprehension. Achieving ASI remains a subject of speculation and debate in the field of AI research

4. What are the areas of AI application?

AI has a wide range of applications across various sectors and industries. Some of the key areas of AI application include:

  • Healthcare: AI is used for medical image analysis, disease diagnosis, personalized treatment recommendation, drug discovery, patient monitoring, and healthcare management systems.

  • Finance: In finance, AI is employed for algorithmic trading, fraud detection, risk assessment, credit scoring, customer service automation, and investment portfolio management.

  • Education: AI applications in education include personalized learning platforms, intelligent tutoring systems, automated grading systems, adaptive learning tools, and educational content creation.

  • Retail: In retail, AI is used for demand forecasting, inventory management, customer segmentation, recommendation systems, pricing optimization, and supply chain management.

  • Transportation: AI is utilized in autonomous vehicles, traffic management systems, route optimization, predictive maintenance of vehicles, ride-sharing platforms, and logistics optimization.

  • Manufacturing: AI applications in manufacturing include predictive maintenance, quality control, supply chain optimization, robotic automation, production scheduling, and process optimization.

  • Customer Service: AI-powered chatbots and virtual assistants are used for customer support, helpdesk automation, natural language understanding, sentiment analysis, and personalized customer engagement.

  • Marketing and Advertising: AI is used for targeted advertising, content recommendation, customer segmentation, sentiment analysis, campaign optimization, and social media analytics.

  • Cybersecurity: AI is employed for threat detection, anomaly detection, malware analysis, behavior analysis, network security, and incident response in cybersecurity applications.

  • Natural Language Processing (NLP): NLP applications include language translation, sentiment analysis, chatbots, speech recognition, text summarization, and language generation.


What is the Turing test?
 

The Turing test, proposed by British mathematician and computer scientist Alan Turing in 1950, is a test of a machine's ability to exhibit intelligent behavior indistinguishable from that of a human. The test is based on the premise that if a machine can engage in natural language conversation with a human evaluator to the extent that the evaluator cannot reliably distinguish between the machine and a human, then the machine is considered to possess artificial general intelligence (AGI).

Here's how the Turing test typically works:

  • A human evaluator interacts with both a human and a machine (hidden from view) through text-based communication channels, such as a computer terminal.
  • The evaluator engages in a conversation with both the human and the machine, asking questions or engaging in dialogue on various topics.
  • If the evaluator cannot reliably determine which participant is the machine and which is the human based on their responses, then the machine is said to have passed the Turing test.
  • The test does not require the machine to demonstrate understanding or consciousness, only the ability to simulate human-like conversation convincingly.
 
 
5. What are the challenges associated with AGI?
 

Achieving Artificial General Intelligence (AGI) poses numerous challenges, both technical and ethical.

Some of the key challenges associated with AGI include:

  • Complexity of Human Intelligence: Human intelligence is multifaceted and encompasses various cognitive abilities, including perception, reasoning, problem-solving, creativity, and emotional intelligence. Replicating these diverse capabilities in an AI system presents a significant technical challenge.

  • Generalization and Adaptation: AGI systems must be able to generalize their knowledge and skills across different domains and adapt to new environments, tasks, and situations. Achieving robust generalization and adaptation capabilities remains a major research challenge in AI.

  • Ethical and Societal Implications: The development and deployment of AGI raise ethical concerns regarding its potential impact on society, including issues related to job displacement, socioeconomic inequality, privacy, autonomy, and existential risks. Ensuring the responsible and ethical use of AGI is crucial but challenging.

  • Safety and Control: AGI systems could potentially exhibit unpredictable behavior or unintended consequences, posing safety risks to humans and the environment. Ensuring the safety and controllability of AGI systems, including mechanisms for robust error handling and human oversight, is a critical challenge.

  • Explainability and Interpretability: AGI systems are expected to make decisions and take actions autonomously, raising concerns about their transparency and interpretability. Ensuring that AGI systems can provide explanations for their decisions and actions in a human-understandable manner is essential for trust and accountability.

  • Data Quality and Bias: AGI systems rely heavily on data for learning and decision-making, and the quality of the data can significantly impact their performance and behavior. Addressing issues such as data bias, fairness, and representativeness is crucial to prevent AI systems from perpetuating existing societal biases and inequalities.

  • Resource Constraints: Building and training AGI systems require significant computational resources, including high-performance computing infrastructure and large-scale datasets. Overcoming resource constraints while ensuring scalability and efficiency is a practical challenge in AGI research.

  • Interdisciplinary Collaboration: Achieving AGI requires collaboration across various disciplines, including computer science, cognitive science, neuroscience, psychology, philosophy, and ethics. Bridging the gap between these disciplines and integrating diverse perspectives is essential for advancing AGI research effectively

 
 
For Prelims: Current events of national and international importance
For Mains: GS-III: Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.
 
 
Previous Year Questions

1.With the present state of development, Artificial Intelligence can effectively do which of the following? (UPSC CSE 2020)

1. Bring down electricity consumption in industrial units

2. Create meaningful short stories and songs

3. Disease diagnosis

4. Text-to-Speech Conversion

5. Wireless transmission of electrical energy

Select the correct answer using the code given below:

(a) 1, 2, 3 and 5 only

(b) 1, 3 and 4 only 

(c) 2, 4 and 5 only 

(d) 1, 2, 3, 4 and 5

Answer (b)

(b) 1, 3, and 4 only

Explanation:

  1. Bring down electricity consumption in industrial units - AI can optimize energy usage and reduce consumption in industrial settings through predictive maintenance and optimization algorithms.
  2. Create meaningful short stories and songs - While AI can generate text and music, creating truly meaningful and original artistic content remains a challenge.
  3. Disease diagnosis - AI has demonstrated capabilities in disease diagnosis through medical imaging analysis, pattern recognition, and data-driven diagnostics.
  4. Text-to-Speech Conversion - AI can effectively convert text into speech with high accuracy and natural-sounding voice synthesis.
  5. Wireless transmission of electrical energy - While AI may be involved in optimizing energy transmission systems, the direct wireless transmission of electrical energy is primarily a technological and engineering challenge, not directly related to AI capabilities
 
Source: Indianexpress
 

SMALL NUCLEAR MODULAR REACTORS

 

1. Context

A new mode of nuclear power generation soon expected to enter this mix is small modular reactors (SMRs). SMRs are reactors designed to be smaller, more flexible, and easier to build than traditional nuclear setups. Each SMR will produce less than 300 MW of power

2. Small Modular Reactors (SMR)

Small Modular Reactors (SMRs) are a type of nuclear reactor design that offers a more compact and scalable alternative to traditional large-scale nuclear power plants. These reactors are characterized by their smaller size, enhanced safety features, and potential for more flexible deployment. Here are some key features and aspects of Small Modular Reactors:

  • Size and Scalability: SMRs are designed to be much smaller in size compared to conventional nuclear reactors. Their compact nature allows for easier manufacturing, transport, and installation. Additionally, SMRs can be built in a modular fashion, with multiple units deployed together, which offers flexibility in capacity planning and expansion.
  • Enhanced Safety: Many SMR designs incorporate advanced safety features that reduce the likelihood of accidents and mitigate potential consequences. Passive safety systems and inherent design characteristics can make SMRs more resilient in the face of unexpected events.
  • Reduced Environmental Footprint: The smaller size and modular construction of SMRs can lead to a reduced environmental impact in terms of land use, resource consumption, and waste generation. This can be particularly advantageous in regions with limited space or where environmental concerns are paramount.
  • Flexible Deployment: SMRs can be deployed in a wider range of locations compared to traditional large reactors. They can serve diverse purposes, including providing power to remote communities, supporting industrial processes, and complementing renewable energy sources.
  • Standardization and Mass Production: SMR designs often emphasize standardization and simplified manufacturing processes, which could potentially lead to cost savings through mass production and economies of scale.
Image Source: The Hindu

3. Decarbonisation Challenges

  • Transition Challenges: Moving from coal-fired power to clean energy has hurdles. Policymakers agree solar/wind alone won't suffice for affordable energy.
  • Role of Firm Power: Clean energy grids benefit from a stable power source. Adding one firm power tech cuts costs and boosts reliability.
  • Critical Minerals Demand: Clean energy tech needs minerals like lithium, cobalt, etc. Demand might rise 3.5x by 2030, per IEA.
  • Global Challenges: Meeting mineral demand means new mines, especially in China, Indonesia, Africa, and South America. The rapid expansion raises environmental and social concerns.
  • Concentrated Production: Few nations control most mineral production/processing. Geopolitical risks and supply control emerge.
Image Source: The Hindu

4. Nuclear Power's Role in Net-Zero Goals:

  • NPPs contribute 10% of global electricity, curbing 180 billion cubic meters of natural gas demand and 1.5 billion tonnes of CO2 emissions annually.
  • Ensuring Net-Zero Transition: Reduced nuclear power may hinder cost-effective progress towards net-zero emissions.

5. Advantages of Nuclear Power:

  • Reliable Power Generation: NPPs provide constant power, outperforming variable renewable sources like solar and wind.
  • Efficient Land Use: NPPs need less land and offer lower grid integration costs compared to renewables.
  • Co-Benefits: Nuclear power creates high-skill jobs in technology, manufacturing, and operations.

6. Advantages of Small Modular Reactors (SMRs):

  • Enhanced Safety: SMRs have lower core damage frequency and radioactive contamination risk compared to conventional NPPs. Passive safety features reduce the potential for uncontrolled radioactive releases.
  • Seismic Isolation: SMRs incorporate improved seismic isolation for heightened safety during accidents.
  • Spent Fuel Management: SMRs generate less spent nuclear fuel, reducing storage needs.
  • Brownfield Sites: SMRs can be safely placed on brownfield sites with less stringent zoning requirements.
  • Community Engagement: Power-plant organizations can engage communities, as seen in Kudankulam, Tamil Nadu.
  • Coal-to-Nuclear Transition: Deploying SMRs at existing thermal plant sites advances net-zero goals and energy security.

7. Supply and Manufacturing:

  • Low-Enriched Uranium: SMRs typically use low-enriched uranium, available from countries with uranium mines and enrichment facilities adhering to international standards.
  • Factory Manufacturing: SMRs are factory-built and assembled on-site, lowering risks of time and cost overruns.
  • Cost Efficiency: Serial manufacturing reduces costs, streamlines regulatory approvals, and fosters experiential learning.

8. Economic Viability:

  • Long-Term Operation: SMRs operate for over 40 years, offering cost-effective electricity. Costs are projected to decrease significantly after 2035.
  • U.S.-India Collaboration: SMRs included in the U.S.-India statement for potential benefits, with cost reduction anticipated through reputed manufacturers.

9. Efficient Regulatory Regime:

  • Regulaorty Efficiency Needed: Like civil aviation, stringent and efficient regulations are vital for SMR's role in decarbonization.
  • Global Cooperation: Countries embracing nuclear energy should collaborate with regulators and the IAEA to harmonize and expedite approvals for standard SMR designs.

10. Integration with National Grid:

  • Energy Capacity Targets: India's projection: Coal-based power 259,000 MW, VRE 486,000 MW by 2032.
  • Energy Storage Needs: Integrating VRE requires 47,000 MW/236 GWh from batteries and 27,000 MW from hydro facilities.
  • Nuclear Expansion: Nuclear power pivotal for India's net-zero by 2070; private sector investment essential.

11. Legal and Regulatory Changes:

  • Amending Atomic Energy Act: Allow private sector SMR setup while ensuring nuclear fuel and waste control by the government.
  • Establish an Independent Regulatory Board: Law required for a capable regulatory body overseeing nuclear power stages.
  • Security and Ownership: Government control over SMR security; private operation under government oversight.
  • Public Perception: Department of Atomic Energy should enhance public awareness through transparent environmental and health data dissemination.
For Prelims: Nuclear Energy, Small Modular Reactors (SMR), Decarbonisation, International Energy Agency (IEA), lithium, cobalt, National Grid, International Atomic Energy Agency (IAEA), and Co2 emissions.
For Mains: 1. Discuss the potential of Small Modular Reactors (SMRs) in India's journey towards decarbonizing its energy sector. Examine their advantages over conventional nuclear power plants and other renewable sources. (250 Words).
 

Previous year Question

1. In India, why are some nuclear reactors kept under "IAEA Safeguards" while others are not? (UPSC 2020)
A. Some use uranium and others use thorium
B. Some use imported uranium and others use domestic supplies
C. Some are operated by foreign enterprises and others are operated by domestic enterprises
D. Some are State-owned and others are privately-owned
Answer: B
Source: The Hindu

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