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DAILY CURRENT AFFAIRS, 06 NOVEMBER 2025

FINANCIAL ACTION TASK FORCE (FATF)

 

1. Context

While instances of stubble burning in Punjab in October were at a five-year low, the area that was actually set afire in three major districts — Amritsar, Taran Taran and Ferozpur — was likely 20% less than last year’s, according to data

2. Financial Action Task Force (FATF)

  • The FATF is an inter-governmental body that sets international standards seeking to prevent international financial crimes that aid terrorism. The FATF  was established in July 1989 by a G-7 summit in Paris to examine and develop measures to combat money laundering.
  • The FATF currently comprises 37 member jurisdictions and two regional organizations European Commission and Gulf Cooperation Council, representing most major financial centers in all parts of the globe. India has been a member of the FATF since 2010. India is also a member of its regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG).
  • Its secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.

3. Mandate of FATF

After the 9/11 attacks, the FATF in October 2001 expanded its mandate to incorporate efforts to combat terrorist financing. In April 2012, it added efforts to counter the financing of the proliferation of weapons of mass destruction. The FATF has developed the FATF recommendations, or FATF standards, which ensure a coordinated global response to prevent organized crime, corruption, and terrorism.

4. FATF Lists

4.1 Grey List
Countries that are considered safe heaven for supporting terror funding and money laundering are put on the FATF Grey list. This inclusion serves as a warning to the country that it may enter the Black list.
Recently Democratic Republic of Congo, Mozambique, and Tanzania are added to the Grey List.
4.2 Black List
Countries known as Non-cooperative countries or Territories are put on the Black list. These countries support Terror funding and Money Laundering activities. The FATF revises the blacklist regularly, adding or deleting entries.
Currently, Iran and the Democratic people's Republic of Korea are under High-risk jurisdiction or Black list. Myanmar was added to the list.
Moved Myanmar is from the "grey list" taken by the military junta since they overthrew the government in a coup last February.

5. Why Pakistan is removed from the Grey List?

  • Deliberations of the FATF are made in complete secrecy, and decisions are meant to be made strictly on the basis of technicalities and procedure, so the greylisting of Pakisthan has to be seen in the totality of the process and measures it has undertaken.
  • Pakistan was also on the "grey list" from 2012-2015 when FATF mandated many steps. Since 2018, it has been handed two action plans, comprising 34 points (27+7), asking Islamabad to bring in laws on money laundering, and anti-terror laws in line with international requirements.
  • Pakistan also had to maintain a database of terror groups operating on its soil and the actions taken against them.

6. Benefits for Pakistan

  • If removed from the grey list Pakistan would essentially receive a reputational boost and get a clean bill of health from the international community on terror financing. 
  • There is research that suggests grey listing negatively impacts the relationship of the concerned countries with the international funders including Banks and financial institutions that take note of FATF rankings as well as existing potential overseas investors in those countries.

7. Indias Response

  • India is a member, and hence party to all FATF decisions that are made by consensus. As a result, it also agreed to the decision to take Pakistan off the list, conceding in a statement that due to the FATF, Pakistan had been "forced to take" some action against well-known terrorists", including those involved in the Mumbai 26/11 attacks.
  • The Narendra Modi Government is preparing for India's turn at FATF scrutiny or MER process, set to begin in early 2023, which it hopes will be a smooth process. In July this year while introducing the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Amendment. 
  • External Minister S. Jaishankar told parliament that India had to take its international commitments on WMD seriously, both at the UN Security Council, and FATF recommendations which had "mandated provisions against financing in relation to WMDs.

For Prelims & Mains

For Prelims: FATF, Grey list, Black List, UN Security Council, Weapons of mass destruction, Asia Pacific Group (APG), Organisation for Economic Cooperation and Development (OECD), and the Eurasian Group (EAG).
For Mains: 1. Discuss the mandate of FAFT on Terror Financing and explain the benefits of Pakistan after removing it from the grey list. 
 
Source: The Hindu
 
 

STUBBLE BURNING

1. Context

Reminding the Punjab government that the fight against stubble burning cannot be political, Recently the Supreme Court asked the States of Punjab, Haryana, Rajasthan and Uttar Pradesh to take urgent steps to stop farm fires which it said are a “substantial” contributor to air pollution in Delhi.

2. What is Stubble?

Stubble refers to the leftover plant material, mainly crop residues, that remains in the field after the primary crop has been harvested. This includes the stems, leaves, and other organic material that is left behind.

Stubble burning is a common agricultural practice where farmers set fire to crop residues, such as straw and stubble, that remain in the field after the main crop (usually paddy or wheat) has been harvested. This practice is typically used as a quick and cost-effective method to clear the field for the next planting season. Stubble burning is particularly prevalent in regions with mechanized farming, where machines like combine harvesters leave behind a significant amount of crop residues.

3. Stubble burning contributes to air pollution

When stubble is burned, it releases a variety of pollutants into the air, including particulate matter, carbon monoxide, nitrogen oxides, and sulfur dioxide. These pollutants can cause several health problems, including respiratory problems, heart disease, and cancer.

Stubble burning is a major contributor to air pollution in many parts of the world. In India, for example, stubble burning is responsible for up to 30% of the air pollution in Delhi during the winter months.

  • Stubble burning generates fine particulate matter (PM2.5 and PM10) that can penetrate deep into the respiratory system, leading to respiratory problems and reduced air quality.
  • The combustion of stubble releases carbon monoxide, which can have adverse health effects when inhaled, particularly in enclosed spaces.
  • Stubble burning produces Volatile Organic Compounds (VOCs), which can react with other pollutants in the atmosphere, contributing to the formation of ground-level ozone, a major air pollutant.
  • Burning stubble emits greenhouse gases like carbon dioxide (CO2) and methane (CH4), contributing to climate change.
  • The combustion of crop residues can release various hazardous chemicals and pollutants, further deteriorating air quality.

4. About the Central Scheme for the Promotion of Agricultural Mechanisation for In-Situ Management of Crop Residue

The Central Scheme on Promotion of Agricultural Mechanisation for In-Situ Management of Crop Residue (AMICMR) is a scheme launched by the Government of India to promote the use of in-situ techniques for managing crop residue. In-situ techniques are those that are used to manage crop residue on the field, rather than burning it. Examples of in-situ techniques include:

  • Mulching is the practice of covering the soil with a layer of organic material, such as straw or leaves. This can help to suppress weeds, retain moisture, and improve soil health.
  • Zero tillage is the practice of planting crops without tilling the soil. This can help to prevent soil erosion and retain moisture in the soil.
  • Direct seeding is the practice of planting seeds directly into the soil, rather than transplanting seedlings. This can help to reduce soil disturbance and prevent the spread of weeds.

The AMICMR scheme provides financial assistance to farmers to purchase machinery that can be used for in-situ management of crop residue. The scheme also provides training and extension services to farmers on how to use these techniques.

The AMICMR scheme is a promising initiative that could help to reduce air pollution caused by stubble burning. However, the scheme needs to be scaled up and made more widely available to farmers to have a significant impact.

5. Conclusion

Stubble burning is a major contributor to air pollution in many parts of the world. However, there are several alternatives to stubble burning, such as in-situ management of crop residue. In-situ management of crop residue is a more sustainable way to manage stubble, as it does not release pollutants into the air and has several benefits for soil health and crop yields.

For Prelims: Stubble burning, air pollution, particulate matter, carbon monoxide, nitrogen oxides, sulfur dioxide, PM2.5, PM10, Volatile Organic Compounds, ozone, carbon dioxide, methane, Climate Change, The Central Scheme on Promotion of Agricultural Mechanisation for In-Situ Management of Crop Residue, 
For Mains: 
1. Critically evaluate the effectiveness of the Central Scheme on Promotion of Agricultural Mechanisation for In-Situ Management of Crop Residue (AMICMR) in addressing the issue of stubble burning in India. (250 Words)
 
 

Previous Year Questions

1. In the cities of our country, which among the following atmospheric gases are normally considered in calculating the value of Air Quality Index? ( UPSC 2016)

  1. Carbon dioxide
  2. Carbon monoxide
  3. Nitrogen dioxide
  4. Sulfur dioxide
  5. Methane

Select the correct answer using the code given below:

(a) 1, 2 and 3 only    (b) 2, 3 and 4 only     (c) 1, 4 and 5 only         (d) 1, 2, 3, 4 and 5

 Answer: B

2. Acid rain is caused by the pollution of the environment (UPSC 2013, 2022)

(a) Carbon Dioxide and Nitrogen

(b) Carbon Monoxide and Carbon Dioxide

(c) Ozone and Carbon Dioxide

(d) Nitrous Oxide and Sulphur Dioxide

 Answer:D

3. Biological Oxygen Demand (BOD) is a standard criterion for (UPSC 2017)

(a) Measuring oxygen level in blood

(b) Computing oxygen levels in forest ecosystems

(c) Pollution assay in aquatic ecosystem

(d) Assessing oxygen levels in high-altitude regions

Answer: C

4. Consider the following: (UPSC 2019) 

1. Carbon monooxide
2. Methane
3. Ozone
4. Sulphur dioxide

Which of the above are released into atmosphere due to the burning of crop/biomass residue? 

A. 1 and 2 only         B.  2, 3 and 4 only            C. 1 and 4 only         D.  1, 2, 3 and 4

Answer: D

5. What is Particulate matter? (BPSC 2016)

A. Solid residue      B. Air pollutant        C. Water pollutant   D. Soil pollutant

E.  None of the above/More than one of the above

Answer: B

6. Carbon monoxide is a poisonous gas because it: (OPSC OAS 2021)

A. Binds to digestive hormones
B. Damages lungs
C. Destroys RBCs
D. Binds to haemoglobin

Answer: D

7. Consider the following statements: (UPSC 2019)

1. Agricultural soils release nitrogen oxides into environment.
2. Cattle release ammonia into environment.
3. Poultry industry releases reactive nitrogen compounds into environment.

Which of the statements given above is/are correct?

A. 1 and 3 only         B. 2 and 3 only          C. 2 only            D. 1, 2 and 3

Answer: D

8. In the context of WHO Air Quality Guidelines, consider the following statements: (UPSC 2022) 

1. The 24-hour mean of PM2.5 should not exceed 15 μg/m³ and annual mean of PM2.5 should not exceed 5 μg/m³.
2. In a year, the highest levels of ozone pollution occur during the periods of inclement weather.
3. PM10 can penetrate the lung barrier and enter the bloodstream. 4. Excessive ozone in the air can trigger asthma.

Which of the statements given above are correct?

A. 1, 3 and 4             B. 1 and 4 only           C. 2, 3 and 4           D.1 and 2 only

Answer: B

9. Which of the following is a VOC? (MP Vyapam Sub Engineer Mechanical 2022)

A. Toulene        B. Water       C. Carbon dioxide         D. Carbon monoxide

Answer: A

10. Which of the following Volatile Organic Compounds (VOCs) are emitted from anthropogenic sources only? (UGC NET 2023)

A. Isoprene       
B. Benzene           
C. Terpene         
D. Methane       
E. Toluene

1. A, B and C Only         2.  B and E Only      3. A and C Only         4. C, D and E Only Answer: 2

11. Which one of the following is associated with the issue of control and phasing out of the use of ozone-depleting substance? (UPSC 2015) 

A. Bretton Woods Conference  B. Montreal Protocol  C. Kyoto Porotocol  D. Nagoya Protocol

Answer: B

12. The increasing amount of carbon dioxide in the air is slowly raising the temperature of the atmosphere, because it absorbs (UPSC 2012) 

A. the water vapour of the air and retains its heat
B. the ultraviolet part of the solar radiation
C. all the solar radiations
D. the infrared part of the solar radiation

Answer: D

13. Which of the following adds/add carbon dioxide to the carbon cycle on the planet Earth? (UPSC 2014)

1. Volcanic action
2. Respiration
3. Photosynthesis
4. The decay of organic matter

Select the correct answer using the code given below

A. 1 and 3 only       B. 2 only      C. 1, 2 and 4 only         D. 1, 2, 3 and 4

Answer: C

14. Which of the following statements are correct about the deposits of 'methane hydrate'? (UPSC 2019) 

1. Global warming might trigger the release of methane gas from these deposits.
2. Large deposits of 'methane hydrate' are found in Arctic Tundra and under the seafloor.
3. Methane in atmosphere oxidizes to carbon dioxide after a decade or two.

Select the correct answer using the code given below:

A. 1 and 2 only     B.  2 and 3 only        C. 1 and 3 only           D. 1, 2 and 3

Answer: D

15. With reference to two non-conventional energy sources called 'coalbed methane' and 'shale gas' consider the following statements: (UPSC 2014)

1. Coalbed methane is the pure methane gas extracted from coal seams, while shale gas is a mixture of propane and butane only that can be extracted from fine-grained sedimentary rocks. 2. In India, abundant coalbed methane sources exist, but so far no shale gas sources have been found.

Which of the statements given above is/are correct?

A. 1 only        B. 2 only        C. Both 1 and 2          D. Neither 1 nor 2

Answer: D

Mains
1. Describe the key points of the revised Global Air Quality Guidelines (AQGs) recently released by the World Health Organisation (WHO). How are these different from its last update in 2005? What changes in India’s National Clean Air Programme are required to achieve revised standards? ( UPSC 2021)
 
Source: Indianexpress
 
 

GRAVITATIONAL WAVES

 

1. Context

On September 14, 2015, researchers using a pair of giant detectors in the U.S. detected gravitational waves for the first time — a century after Albert Einstein predicted their existence  in his general theory of relativity. For their contributions to building these detectors, called the Laser Interferometer Gravitational-wave Observatories (LIGO), Rainer Weiss, Kip Thorne, and Barry Barish were awarded the Nobel Prize for physics in 2017.

2. Gravitational Waves

  • Gravitational waves are ripples in the fabric of spacetime. They are disturbances or waves that propagate through space, similar to waves on the surface of a pond.
  • Gravitational waves are generated by the acceleration or motion of massive objects, such as colliding black holes, merging neutron stars, or the early moments of the universe's formation.
  • According to Eienstein's theory of general relativity, gravity is not simply a force but the curvature of space-time caused by the presence of mass and energy.
  • When massive objects accelerate or undergo changes in motion, they create disturbances in spacetime, which propagate outward as gravitational waves.
  • Gravitational waves carry energy and momentum and can travel through the universe at the speed of light. They stretch and compress spacetime as they pass through, causing the distances between objects to alternatively increase and decrease.
  • However, these changes in spacetime are incredibly small and require highly sensitive instruments to detect them.
  • Direct detection of gravitational waves provides a new way to study of the universe.
  • By observing and analyzing gravitational wave signals, scientists can gain insights into the nature of massive objects, and the dynamics of cosmic events, and test the predictions of general relativity in extreme conditions.
  • Gravitational wave astronomy opens up a new window to explore the cosmos and deepen our understanding of the universe.
Image Source: DW

3. Gravitational Waves: From Einstein to Recent Detection

Einstein's Proposal (1916):

  • Einstein proposed gravitational waves as ripples in spacetime.
  • Described gravity as the distortion caused by matter in space and time.

Direct Detection Achieved (2016):

  • Scientists successfully detected gravitational waves directly.
  • Indirect evidence had been relied upon since the 1970s.

Role of Pulsars in Recent Research:

  • Recent research heavily relied on pulsars, dense remnants of exploded stars.
  • Pulsars spin at extraordinary speeds and provided crucial data.

Generation and Effects of Gravitational Waves:

  • Gravitational waves generated by dense objects in orbital motion.
  • Waves physically stretch and compress space-time as they travel.

Data Collection by NANOGrav Collaboration:

  • Latest report's data collected by NANOGrav Physics Frontiers Center.
  • Comprises over 190 scientists from the United States and Canada.
  • Data collected over a 15-year period.

4. Gravitational Wave Background and Black Hole Discoveries

  • Universe's gravitational wave background is compared to the hum of a large gathering. Individual voices (waves) cannot be distinguished.
  • Gravitational waves generated by distant black holes were initially detected seven years ago.
  • Black holes are incredibly dense objects with intense gravity that traps even light.
  • Gravitational waves can be produced by the motion of black holes and other massive objects.
  • Previous research utilized the Laser Interferometer Gravitational-Wave Observatory (LIGO).
  • Recent discovery provides evidence of gravitational wave hum in a smaller frequency range.
  • Frequencies are significantly smaller (around 10-12 orders of magnitude) than those detected by LIGO. The wavelengths of these waves span light years.
  • The most straightforward explanation involves pairs of supermassive black holes orbiting each other in our cosmic neighborhood.
  • Alternative explanations could involve new physics related to the early stages of the universe near the Big Bang (approximately 13.8 billion years ago).

5. About LIGO

  •  LIGO stands for the Laser Interferometer Gravitational-Wave Observatory. It is a large-scale scientific experiment and observatory dedicated to the detection of gravitational waves.
  • LIGO consists of two identical interferometers located in different parts of the United States, one in Livingston, Louisiana, and the other in Hanford, Washington.
  • Each LIGO interferometer consists of two perpendicular arms, each measuring 4 kilometers (2.5 miles) in length.
  • The interferometers use laser beams split into two and then recombined to create an interference pattern.
  • The interference pattern is extremely sensitive to changes in the length of the arms caused by passing gravitational waves.
  • When a gravitational wave passes through the observatory, it causes minuscule stretching and squeezing of space, which is detected as changes in the interference pattern of the laser beams.
  • LIGO's precise instruments are designed to detect these incredibly tiny changes, allowing scientists to directly observe and study gravitational waves.
  • LIGO's groundbreaking detection of gravitational waves in 2015 confirmed Einstein's predictions and opened up a new era of gravitational wave astronomy.
For Prelims: Gravitational waves, NANOGrav Physics Frontiers Center, Einstein's theory, Black holes, Laser Interferometer Gravitational-Wave Observatory (LIGO).
For Mains: 1. Explain the concept of gravitational waves and their significance in our understanding of the universe. How do they differ from other forms of waves? (250 Words)
 

Previous year questions

1. Consider the following phenomena: (UPSC 2018)
1. Light is affected by gravity.
2. The Universe is constantly expanding.
3. Matter warps its surrounding space-time.
Which of the above is/are the prediction/predictions of Albert Einstein's General Theory of Relativity, often discussed in media?
A. 1 and 2 only
B. 3 only
C. 1 and 3 only
D. 1, 2 and 3
Answer: D
 
2. Recently scientists observed the merger of giant 'black holes' billions of light years away from the Earth. What is the significance of this observation? (UPSC 2019)
A. 'Higgs boson particles' were detected
B. 'Gravitational waves' were detected.
C. Possibility of inter-galactic space travel through a 'wormhole' was confirmed.
D. It enabled the scientists to understand 'singularity'.
Answer: B
 
3. Which of the following statements is/are correct? (UPSC CDS 2017)
1. In June 2016, the LIGO group of scientists announced the detection of a second set of gravitational waves.
2. Gravitational waves were generated due to the merger of two black holes at about 1.4 billion light-years distant.
3. Gravitational waves were inserted due to the collision of two white dwarf stars at about 14 billion light-years distant.
Select the correct answer using the code given below:
A. 1 only
B. 1 and 2 only
C. 2 and 3 only
D. 1, 2 and 3
Answer: B
 Source: The Indian Express
 
 

CONTEMPT OF COURT

 
 
1. Context
 
The recent controversy over the alleged contemptuous and derogatory remarks against the Chief Justice of India and the Supreme Court has not only raised eyebrows, but can also be considered an act of diminishing the ‘authority’ of India’s top court. Moreover, such remarks being spread through media and social media may also be seen as an act of interfering and obstructing the administration of justice, thereby directly damaging the edifice of constitutional morality. This has been the basis for the demand to initiate contempt proceedings.
 
2. What is Contempt of Court?
 
  • The concept of Contempt of Court plays a crucial role in upholding the dignity and authority of the judiciary. It ensures that courts are able to perform their functions without obstruction and maintain the respect essential for the administration of justice.
  • In India, this principle is codified under the Contempt of Courts Act, 1971, which recognizes two broad categories of contempt—civil and criminal.
  • Civil contempt refers to the willful disobedience of any judgment, decree, or direction issued by a court. It may also involve the breach of an undertaking given to the court. For instance, if an individual deliberately fails to comply with a court’s order—such as ignoring a directive to pay court-mandated maintenance or refusing to act on a demolition order—it constitutes civil contempt. The key element here is the willful and intentional nature of the disobedience.
  • On the other hand, criminal contempt goes beyond non-compliance and focuses on actions that obstruct the administration of justice. It includes any publication or act that scandalizes the court, lowers its authority, or prejudices or interferes with judicial proceedings.
  • This form of contempt is aimed at protecting the court’s reputation and preventing any influence—direct or indirect—that could compromise the fairness of a legal process.
  • The judiciary, while equipped with the power to punish for contempt, exercises this authority with restraint. It is used sparingly and only when the court believes that the act in question threatens the integrity of the judicial system.
  • In a democratic society, this balance between protecting the dignity of courts and upholding the right to free speech is essential.
  • The law on contempt seeks to strike that balance, ensuring that while criticism of the judiciary is permissible within reasonable limits, acts that impede justice are not tolerated
 
3. The Role of the Supreme Court in Contempt of Court
 
  • The Supreme Court of India, as the apex judicial body in the country, plays a pivotal role in maintaining the integrity and authority of the judicial system, particularly when it comes to contempt of court.
  • The Court holds the responsibility of ensuring that the dignity of the judiciary is respected and that the legal process remains uninterrupted. To this end, the Supreme Court has been entrusted with the power to punish acts of contempt and to take action when there is an attempt to undermine or obstruct the course of justice.
  • The Supreme Court exercises its power to address contempt of court in two primary ways: preventing interference with judicial proceedings and protecting the reputation and authority of the judiciary.
  • As a guardian of the Constitution, the Court uses its contempt powers to ensure that no individual or entity, whether governmental, private, or public, acts in a manner that could disrupt the delivery of justice or defame the judiciary.
  • One of the key roles of the Supreme Court in contempt cases is to interpret and apply the law in a way that strikes a balance between protecting judicial authority and respecting constitutional rights, especially the freedom of speech.
  • While the Court has the authority to punish contemptuous actions, including imposing fines or imprisonment, it is mindful of its role in a democracy. The Court typically steps in only when contemptuous behavior is blatant and significantly impacts the functioning of justice.
  • For example, if someone openly insults the Court, defies its orders, or attempts to influence ongoing legal proceedings, the Supreme Court has the authority to take action.
  • Additionally, the Supreme Court often serves as a forum for resolving high-profile contempt matters, particularly those involving media publications or public figures. The Court ensures that its judgments are implemented and that actions which may bring the court into disrepute or cause prejudice to the administration of justice are effectively dealt with.
  • Through its oversight, the Supreme Court not only upholds the dignity of the judiciary but also reinforces the principle that no one is above the law, and that judicial authority must be respected at all times.
  • The Court's role in contempt of court cases is essential to maintaining the rule of law, ensuring that justice is served without fear, favor, or obstruction
 
4. What Articles 129 and 142 of the Constitution says?
 

The Constitution of India grants the Supreme Court several powers and responsibilities to ensure the rule of law is maintained across the nation. Two of the significant provisions in this regard are Article 129 and Article 142, which empower the Supreme Court to uphold justice, enforce its orders, and protect the dignity of the judicial process.

Article 129: Power of the Supreme Court to Punish for Contempt of Court

  • Article 129 explicitly states that the Supreme Court has the authority to punish any person for contempt of court. This provision grants the apex court the power to ensure that its dignity and authority are upheld, allowing it to take action when its decisions or the functioning of the judicial system is disrespected or obstructed.
  • The article is vital in preserving the integrity of the judiciary, ensuring that its orders and judgments are followed, and preventing any act that undermines the administration of justice.
  • In essence, Article 129 asserts that the Supreme Court has the inherent jurisdiction to deal with contempt cases, whether civil or criminal, and can impose penalties such as fines or imprisonment if necessary.
  • This power is an essential tool for maintaining the respect and effectiveness of the judicial process in India.

Article 142: Enforcement of Orders and Decrees of the Supreme Court

  • Article 142 provides a broader and more proactive power to the Supreme Court, enabling it to pass any order or decree that it considers necessary to ensure complete justice in a matter.
  • This article empowers the Court to make any order or pass any decree that is beyond the explicit provisions of law, as long as it is in pursuit of justice. It allows the Supreme Court to issue directions that may not strictly adhere to the letter of the law but are deemed essential to prevent injustice and serve the cause of justice in specific cases.
  • Article 142 also plays a key role in the enforcement of the Court's decisions. It ensures that the Supreme Court's orders are fully executed, even when there is no clear legal provision to implement a decision.
  • The article thus helps the Court to act decisively and ensure that its decisions are not merely symbolic but lead to real-world changes, reinforcing its role as the final arbiter of justice in India.
  • In short, Article 142 enhances the powers of the Supreme Court by enabling it to pass orders for the enforcement of its decisions, fill legal gaps, and ensure that justice is done in a timely and effective manner
 
5. Criticism of Contempt of Court Proceedings 
 
 
  • While contempt of court proceedings play a critical role in maintaining the integrity and authority of the judiciary, they have been subject to criticism over the years. Critics argue that, when misused or overextended, contempt laws can pose a threat to democratic values, particularly the freedom of expression and the independence of the press.
  • The debate over contempt of court laws centers on finding a balance between protecting the judiciary and ensuring that fundamental rights are not unduly restricted.
  • One major criticism is that contempt of court proceedings can be used to suppress legitimate criticism of the judiciary. In a democratic society, the right to free speech and the freedom of the press are foundational principles.
  • However, contempt laws, particularly criminal contempt, are sometimes perceived as being invoked to silence individuals or media outlets that critique or question judicial decisions, thus stifling public discourse.
  • Critics argue that this undermines the transparency of the judicial process, as it discourages public debate on court judgments, which is essential for the evolution of law and justice.
  • Additionally, there are concerns that contempt of court laws can be overly broad and vague. The definition of what constitutes contempt is often unclear, which can lead to arbitrary or excessive use of the power to punish individuals.
  • For example, an individual who expresses an opinion about a court’s decision may be charged with contempt if the court deems the expression to be offensive, even if there was no intent to interfere with judicial proceedings. This lack of clear boundaries can result in inconsistent application of the law and the potential for abuse by those in power.
  • Moreover, there is an argument that the judiciary should be self-regulating and not rely heavily on legal provisions to defend its honor. Some believe that judges should be able to withstand public criticism as part of the democratic process, as long as it does not impede the functioning of the court.
  • In this view, contempt proceedings should only be used in cases of direct, serious interference with the judicial process, rather than as a tool to protect the judiciary’s image
  • Another point of contention is that contempt of court laws are often disproportionately applied to those without the means to defend themselves, such as journalists or activists.
  • The cost and complexity of legal proceedings can make it difficult for these individuals to mount an adequate defense, potentially leading to a chilling effect on free expression. This concern is especially pronounced when contempt charges are used to target dissenting voices or those who challenge the status quo.
  • In conclusion, while contempt of court proceedings are essential for ensuring that the judiciary operates without interference, they must be applied with caution and clarity.
  • Overuse or misuse of contempt laws can infringe on fundamental rights and inhibit public discourse, which is a vital aspect of a functioning democracy.
  • Striking the right balance between protecting judicial authority and safeguarding freedoms of speech and expression remains a challenge that needs ongoing attention and scrutiny
 
For Prelims: Indian Polity and Governance-Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues, etc
 
For Mains: General Studies II: Structure, organization and functioning of the Executive and the Judiciary
 
Previous Year Questions
 
1.Consider the following statements: (2022)

1. Pursuant to the report of H.N. Sanyal Committee, the Contempt of Courts Act, 1971 was passed.
2. The Constitution of India empowers the Supreme Court and the High Courts to punish for contempt of themselves.
3. The Constitution of India defines Civil Contempt and Criminal Contempt.
4. In India, the Parliament is vested with the powers to make laws on Contempt of Court.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 1, 2 and 4
(c) 3 and 4 only
(d) 3 only
 
 
Source: Indianexpress
 
 

FREE TRADE AGREEMENT 

1. Context

Agricultural technology sharing and methods to increase output are a “big part” of the negotiations between New Zealand and India on a free trade agreement (FTA), New Zealand’s Minister for Trade and Investment Todd McClay said on Wednesday.
 

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)

  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

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
 
 

NATIONAL GREEN TRIBUNAL

 

1. Context

Defending the Great Nicobar Island mega-infrastructure project at the National Green Tribunal (NGT) on Thursday, the Union government argued that it was fully aware of the project’s likely impact on the biodiversity of the surrounding areas, positing that the main issue was whether the government was “alive to this or not”.

2. What is National Green Tribunal (NGT)?

  • The National Green Tribunal (NGT) is a specialized judicial body established in India to handle cases related to environmental protection and conservation.
  • It was established under the National Green Tribunal Act, of  2010, and its primary objective is to effectively and expeditiously address environmental disputes and promote sustainable development.
  • With the establishment of the NGT, India became the third country in the world to set up a specialized environmental tribunal, only after Australia and New Zealand, and the first developing country to do so.
     
  • NGT is mandated to make disposal of applications or appeals finally within 6 months of the filing of the same.
  • The NGT has five places of sittings, New Delhi is the Principal place of sitting, and Bhopal, Pune, Kolkata and Chennai are the other four.

3. Structure of the National Green Tribunal (NGT)

  • Chairperson: The NGT is headed by a full-time Chairperson who is a retired judge of the Supreme Court of India. The Chairperson is responsible for the overall administration and functioning of the tribunal.
  • Judicial Members: The NGT consists of judicial members who are retired judges of either the Supreme Court or a High Court. These members have extensive legal knowledge and experience in handling environmental matters.
  • Expert Members: The tribunal also includes expert members who possess expertise in areas such as environmental science, ecology, hydrology, and forestry. These members provide valuable technical insights and guidance in the resolution of environmental disputes.
  • The NGT is organized into multiple benches located across different regions of India. These benches are responsible for hearing cases specific to their respective jurisdictions. Each bench is headed by a judicial member and consists of one or more expert members, as required.

4. What are the Important Landmark Judgements of NGT?

The National Green Tribunal (NGT) has delivered several landmark judgments that have had a significant impact on environmental protection and conservation in India. Here are some of the important landmark judgments delivered by the NGT:

  • Vardhaman Kaushik v. Union of India (2013): This case dealt with the issue of groundwater depletion due to illegal extraction by industries in Uttar Pradesh. The NGT directed the closure of industries that were extracting groundwater without proper permissions and ordered the payment of compensation for environmental damage caused.
  • Alembic Pharmaceuticals Ltd. v. Rohit Prajapati & Ors. (2014): In this case, the NGT ordered the closure of an industrial unit in Gujarat for releasing untreated effluents into a water body, causing pollution and harm to the environment and public health.
  • M.C. Mehta v. Union of India (2014): The NGT issued a landmark judgment in this case regarding the pollution of the Yamuna River. It directed several measures to clean and rejuvenate the river, including the establishment of sewage treatment plants and the regulation of industries contributing to pollution.
  • Subhash Chandra Sharma v. Union of India (2015): This case focused on the issue of air pollution caused by solid waste burning in open areas. The NGT imposed a ban on burning waste in open spaces and directed municipal authorities to take measures to manage waste effectively.
  • Raghu Nath Sharma v. State of Himachal Pradesh (2016): The NGT ordered the closure of illegal hotels and structures in the eco-sensitive Rohtang Pass area of Himachal Pradesh to protect the fragile Himalayan ecosystem.
  • Yamuna Muktikaran Abhiyan v. Union of India (2017): This case dealt with the rejuvenation of the Yamuna River and led to the NGT issuing directions to clean and restore the river, including measures to prevent encroachments and pollution.
  • M.C. Mehta v. Union of India (2017): The NGT banned the use of disposable plastic in Delhi and the National Capital Region (NCR) and directed authorities to take steps to prevent the use and sale of such plastic.
  • Shailesh Singh v. Hotel Holiday Regency (2019): In this case, the NGT imposed heavy fines on a hotel in Shimla, Himachal Pradesh, for causing air pollution by running diesel generators without proper emission control measures.
  • Subhash Chandran vs. Tamil Nadu Pollution Control Board (2020): This judgment highlighted the importance of safeguarding coastal areas and wetlands from unauthorized construction and development activities, emphasizing the need for stringent environmental norms.
  • In Re: Report by Comptroller and Auditor General of India (2021): The NGT directed the formulation of guidelines for the regulation of groundwater extraction and management to prevent overexploitation and depletion.

5. What is a dissolved oxygen level?

  • Dissolved oxygen (DO) level refers to the concentration of oxygen gas (O2) that is dissolved in a liquid, typically water.
  • It is a crucial parameter in aquatic ecosystems as it directly affects the survival and well-being of aquatic organisms.
  • In natural water bodies like lakes, rivers, and oceans, oxygen dissolves from the atmosphere through processes such as diffusion and aeration.
  • Aquatic plants, algae, and phytoplankton also contribute to the production of oxygen through photosynthesis. However, the level of dissolved oxygen can fluctuate based on various factors, including temperature, altitude, water flow, pollution, and organic matter decomposition.
  • Dissolved oxygen is essential for aquatic organisms because they rely on it for their respiration process, similar to how animals breathe oxygen from the air.
  • Insufficient levels of dissolved oxygen can lead to hypoxia, a condition where organisms are deprived of the oxygen they need to survive. This can result in stress, reduced growth, reproductive issues, and even mortality in aquatic species.

Different species of aquatic organisms have varying tolerance levels for dissolved oxygen. For example:

  • Fish and other aquatic animals often require dissolved oxygen levels between 4 to 6 milligrams per liter (mg/L) to thrive.
  • Some species of fish, insects, and other aquatic organisms can tolerate lower levels of dissolved oxygen, even below 2 mg/L, while others require higher concentrations.

6. What are chemical oxygen demand and biological oxygen demand?

Chemical Oxygen Demand (COD):

  • COD is a measure of the amount of oxygen required to chemically oxidize and break down organic and inorganic substances present in water.
  • It provides an indication of the total amount of pollutants that can be chemically oxidized by a strong oxidizing agent. COD is expressed in milligrams per liter (mg/L) of oxygen consumed.
  • COD is useful in assessing the overall pollution load in a water sample, including both biodegradable and non-biodegradable substances.
  • It is commonly used for industrial wastewater monitoring, as it provides a rapid estimation of the organic content and potential pollution levels. However, COD does not differentiate between different types of pollutants or indicate the potential impact on aquatic life.

Biological Oxygen Demand (BOD):

  • BOD measures the amount of dissolved oxygen consumed by microorganisms (bacteria) during the biological degradation of organic matter in water.
  • It is a key indicator of the level of biodegradable organic pollutants present in water. BOD is expressed in milligrams per liter (mg/L) of oxygen consumed over a specific time period, usually 5 days (BODâ‚…).
  • BOD is particularly important in assessing the impact of organic pollution on aquatic ecosystems.
  • High BOD levels indicate that a water body may have a significant amount of organic pollutants, which can lead to oxygen depletion as microorganisms break down the organic matter. This oxygen depletion, known as hypoxia, can harm aquatic organisms and disrupt the ecological balance of the water body.

Comparing BOD and COD:

  • BOD primarily measures the biologically degradable organic matter and provides information about the potential impact on aquatic life.
  • COD measures both biologically and chemically degradable pollutants, giving an indication of the overall pollution load and oxygen demand.
  • BOD is a more specific and ecologically relevant parameter, but it takes longer to determine (5 days), while COD can be measured more quickly.
For Prelims: National Green Tribunal (NGT), National Green Tribunal Act, of  2010, Dissolved oxygen (DO), Chemical Oxygen demand (COD), and Biological Oxygen Demand (BOD).
For Mains: 1. Discuss the significance of Chemical Oxygen Demand (COD) and Biological Oxygen Demand (BOD) as critical indicators for assessing water pollution and quality. (250 Words)
 

Previous year Question

1. How is the National Green Tribunal (NGT) different from the Central Pollution Control Board (CPCB)? (UPSC 2018)
1. The NGT has been established by an Act whereas the CPCB has been created by the executive order of the Government.
2. The NGT provides environmental justice and helps reduce the burden of litigation in the higher courts whereas the CPCB promotes cleanliness of streams and wells, and aims to improve the quality of air in the country.
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. The National Green Tribunal Act, 2010 was enacted in consonance with which of the following provisions of the Constitution of India? (UPSC 2012)
1. Right of a healthy environment, construed as a part of the Right to life under Article 21
2. Provision of grants for raising the level of administration in the Scheduled Areas for the welfare of Scheduled Tribes under Article 275(1)
3. Powers and functions of Gram Sabha as mentioned under Article 243(A)
Select the correct answer using the codes given below:
A. 1 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3
Answer: A
Source: The Indian Express
 
 

FOREIGN DIRECT INVESTMENT (FDI)

 
 
1. Context
 
Net Foreign Direct Investment (FDI) into India fell 159% in August, with more money leaving the country than entering it, according to official data. This is the second time this financial year that outflows have exceeded inflows.
 
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
 
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