An Exclusive Economic Zone (EEZ) is a maritime zone that extends beyond a country's territorial sea and is established by coastal nations according to the United Nations Convention on the Law of the Sea (UNCLOS). The EEZ provides a sovereign state with certain rights regarding the exploration and use of marine resources within that zone.

Key features of an EEZ include:

1. Resource Rights: The coastal state has the exclusive rights to explore, exploit, conserve, and manage natural resources found in the waters, seabed, and subsoil within the EEZ. This includes resources like fish, oil, gas, and minerals.

2. Sovereign Rights: The nation holds sovereign rights for the purpose of exploring, exploiting, conserving, and managing natural resources, both living (like fish) and non-living (such as oil and gas) within the EEZ.

3. Jurisdiction: The coastal state has the authority to regulate various activities within the zone, including scientific research, environmental protection, and the construction of artificial islands or structures for economic purposes.

An EEZ typically extends up to 200 nautical miles (370 kilometers) from the coastline, but it can be modified based on specific geographical conditions or agreements between neighboring countries. It's important to note that while coastal states have rights within their EEZs, other nations have the freedom of navigation and overflight through these zones, as well as the right to lay submarine cables and pipelines in accordance with international law

3.Rights of the country in the EEZ

Within their Exclusive Economic Zone (EEZ), countries have specific rights granted by international law, primarily defined by the United Nations Convention on the Law of the Sea (UNCLOS).

Some of these rights include:

• The coastal state has the exclusive right to explore and exploit natural resources, both living (like fish) and non-living (such as oil, gas, and minerals), within its EEZ
• Nations can conduct various economic activities, including fishing, mining, and the extraction of oil and gas, subject to their own regulations and in compliance with international agreements and environmental conservation principles
• Coastal states have the right to conduct scientific research and surveys related to marine ecosystems, resources, and environmental factors within their EEZ
• Countries are responsible for the conservation and management of the marine environment within their EEZ, ensuring that activities carried out do not harm the ecosystem or endanger marine life
• The coastal state has regulatory jurisdiction over the EEZ, allowing it to establish and enforce laws related to customs, immigration, sanitation, and other matters concerning economic activities and environmental protection within this zone
• Nations can construct artificial islands, installations, and structures for economic purposes within their EEZ, provided they comply with international regulations and environmental safeguards
• While coastal states have exclusive rights to the resources within their EEZ, other countries have the freedom of navigation and overflight through these zones for purposes like shipping, laying cables, and conducting military activities, as permitted by international law

Territorial Waters

The territorial waters of a nation encompass all water regions under its authority, consisting of internal waters, the territorial sea, contiguous zone, the Exclusive Economic Zone (EEZ), and potentially extending to the continental shelf.

Territorial Sea

The territorial sea is a concept in international law that refers to the belt of coastal waters extending from a country's baseline (usually the low-water line along the coast) outwards for up to 12 nautical miles (22.2 kilometers), as recognized by the United Nations Convention on the Law of the Sea (UNCLOS)

Contiguous Zone

The contiguous zone is an area of water that extends beyond a country's territorial sea, stretching up to 24 nautical miles (44.4 kilometers) from the baseline. In this zone, a coastal state can exert limited control for the purpose of preventing or punishing infringements of its customs, fiscal, immigration, or sanitary regulations within its territory or territorial sea. While it allows for certain enforcement measures, it doesn't grant full sovereignty, unlike the territorial sea

5. India and Exclusive Economic Zone (EEZ)

• India has an Exclusive Economic Zone (EEZ) that extends up to 200 nautical miles (370 kilometers) from its coastline.
• Within this zone, India holds exclusive rights for exploring, exploiting, conserving, and managing natural resources, both living and non-living, such as fish, oil, gas, minerals, and other marine resources.
• The EEZ of India is significant, offering opportunities for economic activities like fishing, offshore energy exploration, scientific research, and environmental protection.
• India exercises jurisdictional control over this zone, regulating various activities and safeguarding the marine environment in accordance with international laws, including the United Nations Convention on the Law of the Sea (UNCLOS).
• Additionally, while India has exclusive rights to the resources within its EEZ, other nations have the freedom of navigation and overflight through these waters, respecting India's sovereign rights and complying with international laws and agreements.

Previous Year Questions   1.With reference to the United Nations Convention on the Law of Sea, consider the following statements: (UPSC CSE 2022) 1. A coastal state has the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles, measured from baseline determined in accordance with the convention. 2. Ships of all states, whether coastal or land-locked, enjoy the right of innocent passage through the territorial sea. 3. The Exclusive Economic zone shall not extend beyond 200 nautical miles from the baseline from which the breadth of the territorial sea is measured. Which of the statements given above are correct? A.1 and 2 only B.2 and 3 only C.1 and 3 only D.1, 2 and 3 Answer (D)

 

Source: The Hindu

 

 

FREE TRADE AGREEMENT 

1. Context

In the 12th round of negotiations that concluded earlier this month, India and the European Union managed to close the digital trade chapter “in principle” and made substantial progress on the text dealing with “services and investment”, marking a significant step forward in concluding the Free Trade Agreement (FTA) that both sides aim to sign by the end of this year.

 

2. About the Free Trade Agreement

• A Free Trade Agreement (FTA) is an agreement between two or more countries to reduce or eliminate barriers to trade, such as tariffs, quotas, and subsidies.
• FTAs can also include provisions on other issues, such as investment, intellectual property, and labour standards.
• The goal of an FTA is to promote trade and economic growth between the signatory countries.
• By reducing or eliminating trade barriers, FTAs can make it easier for businesses to export their goods and services to other countries, which can lead to increased production, employment, and innovation.

3. Types of Free Trade Agreement

• Bilateral Free Trade Agreement (BFTA) involves two countries, aiming to promote trade and eliminate tariffs on goods and services between them.  It establishes a direct trade relationship, allowing for a more focused and tailored agreement between the two nations.
• Multilateral Free Trade Agreement (MFTA) Involving three or more countries, an MFTA seeks to create a comprehensive trade bloc, promoting economic integration on a larger scale. It requires coordination among multiple parties, addressing diverse economic interests and fostering a broader regional economic landscape.
• Regional Free Trade Agreement (RFTA) involves countries within a specific geographic region, aiming to enhance economic cooperation and integration within that particular area. It focuses on addressing regional economic challenges and fostering collaboration among neighbouring nations.
• Preferential Trade Agreement (PTA) involves a reciprocal reduction of tariffs and trade barriers between participating countries, granting preferential treatment to each other's goods and services. It allows countries to enjoy trading advantages with specific partners while maintaining autonomy in their trade policies with non-participating nations.
• Comprehensive Economic Partnership Agreement (CEPA) is a broad and advanced form of FTA that goes beyond traditional trade barriers, encompassing various economic aspects such as investment, intellectual property, and services. It aims for a more comprehensive economic partnership, encouraging deeper integration and collaboration between participating countries.
• Customs Union While not strictly an FTA, a Customs Union involves the elimination of tariffs among member countries and the establishment of a common external tariff against non-member nations. It goes beyond standard FTAs by harmonizing external trade policies, creating a unified approach to trade with the rest of the world.
• Free Trade Area (FTA) with Trade in Goods (TIG) and Trade in Services (TIS): Some FTAs specifically emphasize either trade in goods or trade in services, tailoring the agreement to the specific economic strengths and priorities of the participating countries. This approach allows nations to focus on areas where they have a comparative advantage, fostering specialization and efficiency.

4. India's Free Trade Agreements

India is a member of several free trade agreements (FTAs) and is currently negotiating others.  India's FTAs have helped to reduce trade barriers and promote trade and economic growth. They have also helped to attract foreign investment and create jobs. 

• The South Asian Free Trade Agreement (SAFTA) was signed in 1995 by the seven countries of the South Asian Association for Regional Cooperation (SAARC). SAFTA aims to reduce or eliminate tariffs on trade between the member countries.
• The India-Bangladesh FTA was signed in 2010 and came into force in 2011. It is a comprehensive FTA that covers goods, services, and investments.
• The India-Sri Lanka FTA was signed in 1999 and came into force in 2000. It is a comprehensive FTA that covers goods, services, and investments.
• The India-ASEAN Free Trade Agreement was signed in 2002 and came into force in 2010. It is a comprehensive FTA that covers goods, services, and investments.
• The India-Korea Comprehensive Economic Partnership Agreement (CEPA) was signed in 2010 and came into force in 2011. It is a comprehensive FTA that covers goods, services, and investments.
• The India-Japan Comprehensive Economic Partnership Agreement(CEPA) was signed in 2022 and came into effect in 2023. It is a comprehensive FTA that covers goods, services, and investments.
• The India-UAE Comprehensive Partnership Agreement (CEPA) was signed in 2022 and came into effect in 2022. It is a comprehensive FTA that covers goods, services, and investments.
• The India-Australia Economic Cooperation and Trade Agreement (ECTA) was signed in 2022 and came into effect in 2022. It is a comprehensive FTA that covers goods, services, and investments.

• The India-Malaysia Comprehensive Economic Cooperation Agreement (CECA) was signed in 2010 and aims to enhance economic ties by addressing trade in goods and services, as well as investment and other areas of economic cooperation.
• The India-Thailand Free Trade Agreement was signed in 2003 and focuses on reducing tariffs and promoting trade in goods and services between India and Thailand.
• The India-Singapore Comprehensive Economic Cooperation Agreement (CECA) has been operational since 2005, this agreement covers trade in goods and services, as well as investment and intellectual property.
• The India-Nepal Trade Treaty While not a comprehensive FTA, India and Nepal have a trade treaty that facilitates the exchange of goods between the two countries.
• The India-Chile Preferential Trade Agreement was signed in 2006 and aims to enhance economic cooperation and reduce tariffs on certain products traded between India and Chile.

5.  India - UK Free Trade Agreement

5.1. Background

• Both countries have agreed to avoid sensitive issues in the negotiations.
• The interim (early harvest agreement) aims to achieve up to 65 per cent coverage for goods and up to 40 per cent coverage for services.
• By the time the final agreement is inked, the coverage for goods is expected to go up to "90 plus a percentage" of goods.
• India is also negotiating a similar early harvest agreement with Australia, which is supposed to set the stage for a long-pending Comprehensive Economic Cooperation Agreement that both countries have been pursuing for nearly a decade.
• While the commencement of negotiations does mark a step forward in the otherwise rigid stance adopted and when it comes to trade liberalisation, experts point to impediments and the potential for legal challenges going ahead.

5.2. GATT (General Agreement on Trade and Tariffs)

• The exception to the rule is full-scale FTAs, subject to some conditions.
• One rider, incorporated in Article XXIV.8 (b) of GATT, stipulates that a deal should aim to eliminate customs duties and other trade barriers on "Substantially all the trade" between the WTO member countries that are signatories to an FTA.
• For this Agreement, a free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories in products originating in such territories.
• It is often beneficial to negotiate the entire deal together, as an early harvest deal may reduce the incentive for one side to work towards a full FTA.
• These agreements are not just about goods and services but also issues like investment.
• If you are trying to weigh the costs and benefits, it is always better to have the larger picture in front of you.
• In the case of the early harvest agreement inked with Thailand, automobile industry associations had complained that relaxations extended to Bangkok in the early harvest had reduced the incentive for Thailand to work towards a full FTA.
• Early harvest agreements may serve the function of keeping trading partners interested as they promise some benefits without long delays, as India becomes known for long-drawn negotiations for FTAs.
• Government emphasis on interim agreements may be tactical so that a deal may be achieved with minimum commitments and would allow for contentious issues to be resolved later.

 

For Prelims: Free Trade Agreement, India-U.K, Bilateral Free Trade Agreement, G-20 Summit, Agenda 2030, Covid-19 Pandemic, SAARC, General Agreement on Trade and Tariffs, Comprehensive Economic Partnership Agreement, Multilateral Free Trade Agreement, Regional Free Trade Agreement, Preferential Trade Agreement, Customs Union,  For Mains:  1. Evaluate the potential impact of the India-UK FTA on the Indian economy, considering both positive and negative aspects (250 Words) 2. Critically evaluate the significance of Free Trade Agreements (FTAs) in promoting trade and economic growth, considering their potential benefits and drawbacks. (250 Words)

 

 

Previous Year Questions   1. Consider the following countries: 1. Australia 2. Canada 3. China 4. India 5. Japan 6. USA Which of the above are among the free-trade partners' of ASEAN? (UPSC 2018) A. 1, 2, 4 and 5          B.  3, 4, 5 and 6      C.  1, 3, 4 and 5       D.  2, 3, 4 and 6   Answer: C   2. 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. Answer: C 3. The SEZ Act, 2005 which came into effect in February 2006 has certain objectives. In this context, consider the following: (2010) Development of infrastructure facilities. Promotion of investment from foreign sources. 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 Answer: A 4. 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 nor imports take place Answer: D 5. With reference to the “G20 Common Framework”, consider the following statements: (UPSC 2022) 1. It is an initiative endorsed by the G20 together with the Paris Club. 2. It is an initiative to support Low Income Countries with unsustainable debt. Which of the statements given above is/are correct? (a) 1 only         (b) 2 only            (c) Both 1 and 2          (d) Neither 1 nor 2 Answer: C

 

 Source: The Hindu

 

INDIA'S GREEN POWER CAPACITY

 

 

1. Context

 

India has reached a key climate milestone five years ahead of schedule — as of June 30, non-fossil fuel sources account for 50.1 per cent of the country’s installed electricity capacity. When the Paris Agreement on climate change was signed in 2015, India had committed to reaching 40 per cent non-fossil fuel capacity by 2030. This target was raised to 50 per cent in 2022.

 

2. Statistics of Indian green power

 

• In 2015, energy sources like nuclear, large hydroelectric, and renewables contributed only 30% to India’s total installed power capacity. This figure grew to 38% by 2020 and saw a sharp increase over the next five years, mainly due to the surge in solar and wind energy installations.

• By June 2025, India’s overall installed power capacity had reached 485 gigawatts (GW). Out of this, renewable sources — such as solar, wind, small hydro, and biogas — contributed 185 GW, according to a release from the Ministry of New and Renewable Energy (MNRE).

• Additionally, large hydro accounted for 49 GW and nuclear power contributed 9 GW, collectively pushing the share of non-fossil fuel sources slightly above the 50% mark. Thermal power, which primarily relies on coal and natural gas, continued to make up 242 GW — approximately 49.9% of the total capacity. Back in 2015, thermal power had represented about 70% of the energy mix.

• As of 2024, India held the fourth position globally in terms of renewable energy capacity (including large hydro), trailing only behind China, the United States, and Brazil.

• The increasing role of renewable energy in India’s power sector reflects a major transition, largely powered by the rapid growth of solar and wind energy. However, while the installed thermal capacity now forms less than half of the total, thermal energy remains dominant in actual electricity generation. This is because solar and wind power are variable and cannot provide continuous output, resulting in thermal sources still generating over 70% of the electricity.

• Reducing the thermal share in actual energy generation — and achieving the national target of 500 GW of non-fossil fuel capacity by 2030 — will require considerable improvements, starting with a more resilient and stable power grid

 

 

3. Types of Renewable energy

 

 

• Solar Energy: Solar power is obtained by capturing the sun’s rays. It can be converted into electricity through photovoltaic (PV) panels or used to produce heat using solar thermal technologies. Given its limitless availability, solar energy is one of the most accessible renewable sources. Countries like China, the United States, India, and Japan lead globally in solar power generation.

• Hydropower: This energy is produced by utilizing the kinetic force of moving water — typically from rivers, dams, or waterfalls. It is one of the earliest and most extensively adopted forms of clean energy.

• Biomass Energy: Biomass comes from organic matter such as agricultural waste, animal manure, and wood. These materials can be burned or processed into biofuels in liquid or gas form, used for heating, power generation, or transportation. As the feedstock is renewable and can be replenished naturally, biomass is classified as a sustainable energy source.

• Wind Energy: Wind turbines transform the motion of wind into electrical power. Both land-based (onshore) and sea-based (offshore) wind installations contribute significantly to renewable energy in nations such as China, India, and the United States.

• Geothermal Energy: Geothermal power comes from the Earth’s internal heat, which may be accessed through natural hot springs or engineered systems. These underground heat sources, found at varying depths, are used to generate electricity or provide direct heating. Power plants typically use underground steam or hot water to operate turbines and generate electricity.

• Tidal and Wave Energy: These energy forms tap into oceanic movements to produce power. Tidal energy is driven by the gravitational forces of the moon and sun, while wave energy captures the force of sea surface waves to generate electricity

 

4. Nationally Determined Contribution (NDC)

 

 

• On October 2, 2015, India presented its first Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC). By doing so, India became a participant in the UNFCCC and a signatory to the Paris Agreement — a global climate pact adopted in 2015, which follows a five-year cycle of progressively ambitious national climate goals known as NDCs.

• India’s initial NDC outlined two primary objectives: one was to cut the emissions intensity of its GDP by 33–35% by the year 2030 compared to 2005 levels; the other was to ensure that around 40% of its installed electricity capacity would come from non-fossil fuel sources by 2030.

• These targets were revised in August 2022. India increased its emissions intensity reduction target to 45% by 2030 (from the 2005 baseline), and raised its non-fossil fuel energy capacity goal to 50% of the total installed power capacity by the same year.

• Additionally, India has committed to developing 500 gigawatts (GW) of renewable energy capacity by 2030 — a goal declared by Prime Minister Narendra Modi at the COP26 summit in Glasgow. The country is also considering scaling this capacity up to 1 terawatt (TW) by 2035. Moreover, India has pledged to achieve net-zero carbon emissions by the year 2070

 

5. Government schemes which support clean energy

 

 

India has launched several initiatives to accelerate its progress toward renewable energy goals. Key programs supporting this transition include:

 

• PM-KUSUM (Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyan): This initiative encourages the use of solar energy in rural India by supporting the installation of small solar power plants, standalone solar pumps, and the solarisation of existing grid-connected agricultural pumps
• PM Surya Ghar: Muft Bijli Yojana: Introduced on February 15, 2024, this government-backed program aims to offer free electricity to Indian households. It provides financial assistance, covering up to 40% of the cost, for installing rooftop solar panels. The scheme is expected to benefit around one crore families by promoting residential solar energy adoption
• Grid-Connected Rooftop Solar Program (Pradhan Mantri Suryodaya Yojana): This scheme involves setting up solar photovoltaic systems on building rooftops to supply power to the premises. Any excess energy generated can be exported back to the main power grid
•  Green Energy Corridor Scheme: This set of infrastructure initiatives is designed to integrate renewable energy production into India's central power grid, ensuring a smooth and efficient distribution of green electricity
• National Green Hydrogen Mission (NGHM): Launched by the Ministry of New and Renewable Energy, the mission aims to produce 5 million tonnes of green hydrogen annually by 2030. To support this goal, the country plans to add around 125 GW of renewable energy capacity

 

 

For Prelims:  PM-KUSUM, National Green Hydrogen Mission (NGHM), Nationally Determined Contribution (NDC)   For Mains: GS III - Environment and ecology

 

Previous Year Questions   1.What is/are the importance of the ‘ United Nations Convention to Combat Desertification’ ? (UPSC CSE 2016) 1. It aims to promote effective action through innovative national programmes and supportive international partnerships. 2. It has a special/particular focus on South Asia and North Africa regions, and its Secretariat facilitates the allocation of a major portion of financial resources to these regions. 3. It is committed to bottom-up approach, encouraging the participation of local people in combating the desertification. Select the correct answer using the code given below: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 Answer (c)   Statement 1 – Correct: The United Nations Convention to Combat Desertification (UNCCD) does aim to promote effective action through innovative national programs and supportive international cooperation. It encourages countries to develop National Action Programmes (NAPs) with the support of international partnerships. Statement 2 – Incorrect: The UNCCD does not give special focus or preferential financial allocation specifically to South Asia and North Africa. While these regions are heavily affected by desertification, the Convention is global in scope and does not prioritize them in funding allocation through its Secretariat. Statement 3 – Correct: The UNCCD promotes a bottom-up approach, emphasizing the importance of local community involvement in planning and implementing strategies to combat desertification

Source: Indianexpress

 

 

CONSUMER FOOD PRICE INDEX (CFPI)

 

 

1. Context

 

At 2.1% year-on-year, India’s consumer price index inflation in June was below the 2.7% of the United States and 3.6% of the United Kingdom. That gap was wider in food, with the annual price increases at 3% for the US, 4.5% for the UK and minus 1.1% for India

 

2. What is Food inflation?

 

Food inflation refers to the rise in the prices of food items over a period of time. This increase in prices can occur due to various factors and has significant implications for both consumers and the economy as a whole.

Food inflation is usually measured using food price indices, which track the changes in prices of a basket of food items over time. In India, for example, food inflation is a significant component of the Consumer Price Index (CPI)

 

Causes of Food Inflation:

Supply-Side Factors:

• Poor Harvests: Bad weather conditions such as droughts, floods, or other natural disasters can lead to crop failures, reducing the supply of food items and driving up prices.
• Input Costs: Rising costs of inputs like seeds, fertilizers, and fuel can increase the cost of food production, which is then passed on to consumers.
• Supply Chain Disruptions: Issues in transportation, storage, or distribution can reduce the availability of food in markets, leading to price increases

Demand-Side Factors:

• Population Growth: An increasing population leads to higher demand for food, which can drive up prices if the supply doesn't keep pace.
• Income Growth: As incomes rise, especially in developing countries, there is often a shift towards more expensive, protein-rich foods, which can lead to higher demand and prices

 

3. What is the consumer food price index (CFPI)?

 

• The Consumer Food Price Index (CFPI) is a specific measure used to track the changes in the prices of food items consumed by households over time. It is a subset of the broader Consumer Price Index (CPI) and is particularly focused on food-related inflation
• The CFPI is designed to measure the average change over time in the prices paid by consumers for a fixed basket of food items. This index helps in understanding food inflation specifically, as opposed to general inflation
• The CFPI is calculated based on the prices of these food items collected from various regions and markets. The prices are then averaged and compared to a base year to determine the percentage change, which reflects food inflation.
• The weights assigned to different food categories in the CFPI are based on their importance in the average consumer’s food consumption basket
• Like the CPI, the CFPI is anchored to a base year, which is periodically updated to reflect changes in consumption patterns and economic conditions. The base year serves as a reference point for measuring price changes

 

Components: The CFPI includes various categories of food items, such as: Cereals and Products Vegetables Fruits Milk and Milk Products Meat and Fish Oils and Fats Sugar and Confectionery Spices Other Food Products In India, the CFPI is released by the Ministry of Statistics and Programme Implementation (MoSPI) as part of the monthly CPI data. It plays a significant role in understanding the dynamics of food inflation in the country, given the large population and significant share of food in household consumption

 

 

4. How is food inflation impacting the overall health of the economy?

 

Food inflation has a broad impact on the overall health of an economy, influencing both macroeconomic stability and the well-being of individuals. Here’s a detailed analysis of how food inflation affects different aspects of the economy:

Impact on Consumers and Households:

• As food prices rise, households have to spend a larger share of their income on food, leaving less for other essential goods and services. This reduction in purchasing power particularly affects low-income households, leading to decreased overall consumption.
•  Higher food prices can push more people into poverty, especially in developing countries where food constitutes a significant portion of household expenditures. This can exacerbate income inequality and social unrest.
•  Persistent food inflation can lead to malnutrition and food insecurity, as people may be forced to opt for cheaper, less nutritious food. This has long-term health implications, particularly for children, potentially leading to increased healthcare costs and lower productivity in the future.

Impact on Inflation and Monetary Policy:

• Food inflation is a key driver of overall inflation, particularly in economies where food prices have a significant weight in the Consumer Price Index (CPI). High food inflation can lead to higher headline inflation, affecting economic stability.
•  Central banks may respond to rising food inflation by tightening monetary policy (e.g., raising interest rates) to control inflation. While this can help curb inflation, it can also slow down economic growth by increasing borrowing costs and reducing investment.

Impact on Economic Growth:

• As more household income is diverted towards food, there is less spending on other goods and services, which can dampen overall economic growth. This reduction in demand can particularly hurt sectors like retail, entertainment, and durable goods.
• High food prices can lead to increased wage demands as workers seek to maintain their purchasing power. This can raise production costs across various sectors, potentially leading to reduced profitability and lower investment.
• While food inflation might benefit farmers in the short term through higher prices for their produce, it can also lead to higher input costs (e.g., for seeds, fertilizers, and transportation). Additionally, if inflation is driven by supply-side constraints like poor harvests, the overall output of the agricultural sector may decline, harming rural economies.

Impact on Government Fiscal Policy:

• To shield consumers from the effects of rising food prices, governments may increase subsidies on essential food items. While this can provide short-term relief, it can strain public finances and lead to higher fiscal deficits.
• Governments might need to increase spending on social welfare programs, such as food distribution schemes or direct cash transfers, to support vulnerable populations. This can further pressure government budgets.
• Persistent food inflation can lead to public discontent, protests, and political instability, especially in countries where food security is a major issue. Governments may face pressure to intervene in markets, which can sometimes lead to distortions and long-term inefficiencies.

Global Impact:

• Countries that rely heavily on food imports may experience worsening trade balances as food prices rise. This can lead to a depreciation of the national currency, further exacerbating inflation and reducing competitiveness in global markets.
• In an interconnected global economy, food inflation in one country can spill over into others, particularly in regions that share trade links or common agricultural markets.

 

5. Way Forward

 

Food inflation is the result of a interplay of supply and demand factors, global influences, and government policies. While some causes, like poor harvests or global price fluctuations, may be temporary, others, such as climate change and structural inefficiencies, are more persistent and challenging to address. Effective management of food inflation requires a multi-faceted approach, involving improvements in agricultural productivity, better supply chain management, and thoughtful government interventions

 

 

 

For Prelims: Current events of national and international importance   For Mains: GS III - Indian Economy

 

Previous Year Questions   1.Consider the following statements: (UPSC CSE 2020) The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI). The WPI does not capture changes in the prices of services, which CPI does. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. Which of the statements given above is/are correct? (a) 1 and 2 only (b) 2 only (c) 3 only  (d) 1, 2 and 3 Answer (a)   The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI). This statement is correct. The CPI gives a higher weight to food items because it reflects the consumption patterns of households. In contrast, the WPI gives more weight to manufactured goods and is more focused on wholesale prices rather than retail prices. The WPI does not capture changes in the prices of services, which CPI does. This statement is correct. The WPI mainly tracks the prices of goods and does not include services. In contrast, the CPI includes both goods and services, making it a broader measure of inflation. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. This statement is incorrect. The Reserve Bank of India (RBI) uses the CPI as the primary measure of inflation for monetary policy decisions, not the WPI. Mains 1.There is also a point of view that Agricultural Produce Market Committees (APMCs) set up under the State Acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (2014)

Source: Indianexpress

 

CAT BONDS

 

 

1. Context

 

While life insurance is a ubiquitous term in India, disaster risk insurance is not. A low penetration of disaster risk insurance for individual property and livelihoods leaves much of the population exposed to irretrievable damage and loss. Most peoples’ assets and means of income remain largely uninsured. Globally, after the hurricanes of the late-1990s in the U.S., when even re-insurers suffered losses, catastrophe risk was farmed out to financial markets through catastrophe bonds (cat bonds).

 

2. What is a Cat band?

 

• Catastrophe bonds, or cat bonds, are specialized financial instruments that blend elements of insurance and debt. They convert insurance coverage into securities that can be traded in the financial markets.
• By doing so, these bonds shift the burden of disaster-related risks from vulnerable countries not only to traditional global re-insurers but also to the broader financial market, thereby significantly expanding the pool of funds available for post-disaster recovery and rebuilding efforts.
• These instruments are designed to transfer specified risks to investors, allowing for faster disbursement of funds and minimizing counterparty exposure.
• Typically, cat bonds are issued by sovereign governments that act as sponsors. They pay a premium for the coverage, and the insured amount becomes the bond’s principal.
• To mitigate counterparty risk, a third-party intermediary—such as the World Bank, Asian Development Bank, or a reinsurance firm—is involved in issuing the bond.
• In the event of a disaster, investors may lose part or all of their principal, which is why these bonds usually offer higher returns than standard debt securities.
• The interest rates on cat bonds vary depending on the type of risk; for instance, earthquake-related bonds often carry lower premiums (around 1–2%) compared to those linked to hurricanes or cyclones

 

3. Are Cat Bonds Profitable?

 

• Catastrophe bonds, or cat bonds, can be profitable, but they carry a unique set of risks that distinguish them from traditional financial instruments. These bonds are designed to provide high returns to investors in exchange for taking on the risk of a specific natural disaster occurring—such as a hurricane, earthquake, or flood.
• Because of the nature of this risk, the bonds offer higher coupon (interest) rates than standard corporate or government bonds. This makes them especially attractive in low-interest environments where investors are looking for higher yields.
• One of the reasons cat bonds are considered potentially profitable is their low correlation with the broader financial markets. Their performance is not directly influenced by market downturns, inflation, or changes in interest rates.
• Instead, their fate depends almost entirely on whether a predefined catastrophic event occurs within a certain timeframe and geographic area.
• This characteristic makes cat bonds valuable as a diversification tool in large investment portfolios, especially for institutional investors like pension funds or hedge funds.
• However, the potential for profit comes with significant risk. If the specified disaster does not occur, the investor receives attractive returns.
• But if the event does happen—and if it meets the criteria set in the bond agreement—the investor can lose part or even all of their principal. In this sense, cat bonds function somewhat like a bet: either the investor earns a high reward, or they face a considerable loss.
• Another important aspect is the reliance on catastrophe modeling. These models estimate the likelihood and impact of certain events, but if they are flawed or overly optimistic, investors may be exposed to more risk than they anticipated.
• Moreover, cat bonds are not as easily traded as mainstream securities, meaning they can sometimes be harder to sell quickly, which reduces their liquidity

 

4. India and Cat bonds

 

 

• In the era of climate change, the increasing intensity and frequency of natural disasters have made it difficult for insurers and reinsurers to manage risk profitably. This trend is already visible in the United States, where more powerful hurricanes and frequent wildfires are driving up insurance premiums.
• As a result, demand for insurance declines, and the burden of risk ultimately shifts back to disaster-affected individuals. This is where government intervention becomes crucial, especially through the use of financial instruments like catastrophe bonds (cat bonds).
• South Asia, and India in particular, is facing greater vulnerability to extreme weather events such as cyclones, floods, wildfires, and major earthquakes. To shield its public finances from the heavy cost of disaster recovery, India must consider structured approaches to risk transfer.
• Given India’s solid sovereign credit profile and the scale of its disaster exposure, issuing cat bonds through a credible intermediary like the World Bank—using its well-established bond curves—could prove to be a cost-efficient solution.
• Insurance companies often include requirements for disaster risk mitigation in their agreements, and failure to meet such standards can drive up the bond’s interest rates. In this regard, India has already made commendable progress.
• Since the financial year 2021–22, it has been allocating about $1.8 billion annually for disaster mitigation and capacity-building efforts, indicating a proactive approach to risk management.
• Considering India’s economic size and creditworthiness, it is well-positioned to take the lead in launching a regional cat bond for South Asia. Many of the region’s disaster risks remain uninsured, and a collaborative approach could help distribute these risks more evenly.
• The region also presents a diverse hazard landscape, with different countries facing distinct threats based on their geography and vulnerability. For instance, a regional cat bond could be tailored to cover high-impact events like earthquakes in Nepal, Bhutan, and India, or catastrophic cyclones and tsunamis affecting India, Bangladesh, Sri Lanka, the Maldives, and Myanmar.
• A shared financial instrument like this would help lower premium costs, enhance disaster preparedness, and strengthen the region’s collective financial resilience

 

5. Way forward

 

If not properly structured, a catastrophe bond may fail to trigger a payout even in the aftermath of a major disaster. For instance, an earthquake bond set to activate only when a quake of magnitude 6.6 or higher occurs in a specific area might not provide any funds if a 6.5 magnitude earthquake hits and still causes severe destruction. Moreover, in situations where no disaster occurs during the bond’s term, questions may arise about whether the expenditure was justified. Therefore, a more rational approach would be to transparently determine the premium through a formal government process and compare it against historical averages of annual post-disaster recovery costs. This could offer a more balanced assessment of the bond’s value and effectiveness

 

For Prelims: Cat bonds, Asian Development Bank, World Bank   For Mains: GS III - Disaster Management

 

 

Source: The Hindu

 

INDIA JUSTICE REPORT 2025

 

 

1. Context

 

Last month, the fourth edition of the India Justice Report (IJR) 2025 was published, which tracks each state’s structural and financial capability to deliver justice. It was first published in 2019 with the support of Tata Trusts. The 2025 edition was undertaken in partnership with DAKSH, Commonwealth Human Rights Initiative, Common Cause, Centre for Social Justice, Vidhi Centre for Legal Policy, and TISS-Prayas

 

 

2. India Justice Report

 

• The India Justice Report is a comprehensive study that evaluates the capacity and performance of key pillars of the country’s justice system — namely the police, judiciary, prisons, and legal aid.
• First released in 2019 and published by Tata Trusts in collaboration with several civil society partners such as the Centre for Social Justice, Common Cause, and CHRI, the report aims to provide data-driven insights into how effectively states are delivering justice to their citizens.
• The report ranks Indian states based on publicly available government data, using a range of indicators that assess not only the presence of infrastructure and personnel but also factors such as diversity, workload, budget allocation, training, and the accessibility of justice services.
• For example, it looks at vacancies in police forces and courts, the representation of women and marginalised communities, and the availability of legal aid services. It also highlights budgetary allocations and their actual utilisation within each sector.
• One of the major contributions of the India Justice Report is its state-wise ranking, which encourages competition and accountability among states. Larger states and smaller states are ranked separately to ensure a fair comparison. The aim is not only to show where states stand but also to promote improvements through evidence-based policymaking.
• The findings of the report often reveal persistent gaps in the justice system. For instance, many states struggle with high vacancy rates in police and judicial positions, which leads to delayed investigations and prolonged case pendency in courts.
• It also underscores the underutilisation of funds in the justice sector and highlights how access to justice remains uneven, especially for vulnerable populations.
• By providing a detailed and data-backed snapshot of the justice system, the India Justice Report plays a crucial role in pushing for reforms, enhancing transparency, and encouraging collaborative efforts among government bodies, civil society, and the general public to build a more equitable and efficient justice delivery mechanism in India

 

3. India Justice report 2025

 

The India Justice Report underscores several ongoing challenges within India’s justice system across key domains:

• Policing remains urban-centric, with a notable reduction in the number of rural police stations between 2017 and 2023. The police-to-population ratio continues to lag at 155 officers per 100,000 people, well below the sanctioned level of 197. This shortfall often results in delayed investigations and weakened public safety. Bihar serves as a striking example, with only 81 police officers per lakh population.
• In terms of the judiciary, the report reveals a sharp 20% increase in pending cases, which have now crossed the five-crore mark. Court infrastructure struggles to keep up, with shortages in courtroom availability and significant vacancies in both high courts (33%) and district courts (21%).
• District court judges are handling an average caseload of 2,200 cases each, and while the case clearance rate stands at 94%, the overall pace of justice delivery remains slow, eroding public trust in the system.
• Prisons continue to suffer from severe overcrowding, with some facilities operating at more than 400% of their capacity. On average, prisons are at 131% occupancy. A staggering 76% of inmates are undertrials — individuals not yet convicted — and among them, one in four has been incarcerated for one to three years awaiting trial.
• The average daily expenditure per prisoner is just ₹121, reflecting insufficient investment in prison infrastructure, inmate welfare, and reform initiatives, all of which fall short of the standards envisioned under the 2023 Model Prisons & Correctional Services Act. The report also references the findings of the Amitava Roy Committee on prison reforms.
• Regarding legal aid, the report points to issues such as underutilisation of available funds, inefficient staffing patterns, and a decline in community-level legal support services, including village legal services clinics — with only one clinic available for every 163 villages. The legal aid system currently comprises over 41,000 lawyers and 43,000 paralegal volunteers.
• In the area of forensics, the justice system grapples with deep structural limitations, including chronic underinvestment, obsolete equipment, and a shortage of trained personnel. Furthermore, state human rights commissions are often hampered by unfilled senior posts and weak mechanisms for addressing complaints effectively.
• Despite these concerns, the report also highlights several positive developments. The proportion of women judges in the district judiciary has risen to 38%. Additionally, 83% of police stations across India are now equipped with at least one CCTV camera.
• There has also been an encouraging trend of increased government spending to strengthen the foundational capacity of the justice system

 

In the overall ranking of large and mid-sized states under the 2025 edition of the report, Karnataka retained the top position, followed by Andhra Pradesh, which improved significantly from fifth place in 2022 to second. Telangana held steady at third place, while Kerala moved up to fourth. In contrast, Uttar Pradesh and West Bengal remained at the bottom of the rankings, at 17th and 18th positions respectively, showing little change from the previous report.

 

 

4. Rule of Law Index 2024

 

• The India Justice Report 2025 features India’s performance across various global justice and governance indices, including the Rule of Law Index 2024, published by the World Justice Project (WJP). In this index, India was placed 79th out of 142 nations.
• The index evaluates countries using eight core dimensions: checks on government authority, levels of corruption, transparency in governance, protection of fundamental rights, public safety and order, enforcement of regulations, as well as the efficiency of both civil and criminal justice systems.
• With regard to criminal justice, India stood at 89th position. The WJP highlights that a robust criminal justice system is central to upholding the rule of law, as it serves as the standard method for addressing legal grievances and prosecuting offenses against society.
• In the civil justice category, India ranked 111th. This component of the index assesses whether civil justice systems are not only accessible and cost-effective, but also impartial, free from corruption or undue political interference. It further examines the fairness, availability, and functionality of mechanisms such as alternative dispute resolution

 

 

For Prelims: Human Rights, judiciary   For Mains: GS II - Indian Judiciary

 

Source: Indianexpress