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DAILY CURRENT AFFAIRS, 27 NOVEMBER 2025

ARTIFICIAL GENERAL INTELLIGENCE (AGI)

 
 
 
1. Context
 
  Underlining that India’s approach to Artificial Intelligence (AI) is anchored on access, skilling and responsible deployment, Prime Minister Narendra Modi said Sunday that the world needs a “global compact on AI”, which should include effective “human oversight, safety-by-design, transparency”, and strict prohibitions on the use of AI for “deepfakes, crime, and terrorist activities”.
 
2. What is artificial intelligence (AI)? 
  • AGI refers to a machine or software capable of executing any intellectual task within the human capacity. AGI aims to replicate human cognitive functions, enabling it to tackle unfamiliar challenges, learn from novel experiences, and apply acquired knowledge innovatively.

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

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

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

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

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

3. What are the different categories of AI?
 

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

Here are the main categories:

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

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

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

4. What are the areas of AI application?

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

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

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

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

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

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

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

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

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

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

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


What is the Turing test?
 

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

Here's how the Turing test typically works:

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

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

Some of the key challenges associated with AGI include:

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

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

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

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

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

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

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

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

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

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

1. Bring down electricity consumption in industrial units

2. Create meaningful short stories and songs

3. Disease diagnosis

4. Text-to-Speech Conversion

5. Wireless transmission of electrical energy

Select the correct answer using the code given below:

(a) 1, 2, 3 and 5 only

(b) 1, 3 and 4 only 

(c) 2, 4 and 5 only 

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

Answer (b)

(b) 1, 3, and 4 only

Explanation:

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

PARIS AGREEMENT

1. Context

In a demonstration of the new-found assertiveness of the developing countries after having obtained a reasonably satisfactory outcome at the COP30 climate meeting in Belem, Brazil, India told the developed nations that their agenda on climate change could not be imposed on rest of the world, and that attempts to “overturn the architecture of the Paris Agreement” would not be allowed to succeed.

2. What is Paris Agreement?

  • Paris Agreement is a multinational agreement that was signed as part of the UNFCCC with the intention of reducing and mitigating greenhouse gas emissions.
  • 196 nations ratified the climate change agreement at the Conference of the Parties (COP 21) in Paris in December 2015. It is an international agreement that is binding on all parties involved.
  • Achieving the long-term temperature goal was the purpose of the Paris Climate Accord. To attain a world without greenhouse gas emissions by the middle of the century, nations strive to peak global greenhouse gas emissions as soon as possible.
  • The Paris Climate Accord's major objective is to keep global warming well below 2° Celsius and ideally below 1.5° Celsius in comparison to pre-industrial levels.
  • The Paris Agreement is a watershed moment in the multilateral climate change process because it brings all nations together for the first time in a binding agreement to undertake ambitious efforts to combat climate change and adapt to its effects.

3. COP21

  • To keep the rise in the average world temperature to well under 2°C above pre-industrial levels. To continue making efforts to keep global warming to 1.5°C over pre-industrial levels, knowing that doing so would greatly lessen the dangers and effects of climate change.
  • The Agreement also mentions achieving the global peaking of emissions by the middle of the century while taking into account the fact that developing nation Parties will have a longer peaking period.

4. What are NDCs

  • At the Conference of the Parties (COP21) of the U.N. Framework Convention on Climate Change (UNFCCC), which took place in Paris in December 2015, nations from all over the world pledged to establish a new global climate agreement by that time.
  • In advance of a new international agreement, nations have committed to publicly state their Intended Nationally Determined Contributions or the climate activities they plan to take after 2020.
  • The 2015 agreement's ambitious goals and whether the world is put on a course toward a low-carbon, climate-resilient future will be largely determined by the INDCs.
  • The Intended Nationally Determined Contribution (INDC) of India has also been submitted to the United Nations Framework Convention on Climate Change.
  • Countries communicate actions they will take to reduce greenhouse gas emissions to meet the Paris Agreement's goals in their NDCs.
  • Countries also communicate actions they will take to build resilience to adapt to the effects of rising temperatures in their NDCs.
Image Source: The Hindu

5. Highlights of the report on the performance of the Paris Agreement

  • After the signing of the Agreement, the last eight years (2015-2022) have consecutively been the warmest years on record globally.
  • The situation could have been far worse if the La Nina weather event had not occurred in the past three years, which has a cooling effect on the weather system.
  • Globally updated Nationally Determined Contributions (NDCs) to limit global warming to 1.5 degrees Celsius have failed even to achieve a 2-degree Celsius target.
  • The Paris Agreement has not been able to equitably phase out fossil fuels predominantly responsible for the climate crisis.
  • Neither the NDCs nor the disaster risk reduction and climate risk management plans are in place to combat climate-induced extreme weather phenomena.

6. A series of climate records fell over in 2022, the report showed. 

  • Global mean temperature rising: The global mean temperature in 2022 was 1.15°C, ranging from 1.02°C to 1.28°C above the 1850–1900 average. This was the highest on record for the past eight years. The value is about 0.2°C higher than the statistic before 2015. The pre-industrialisation era is considered a benchmark as there was no significant anthropogenic emission at the time.
  • Record melting of Antarctica ice: Sea ice in Antarctica dropped to an all-time low, 1.92 million square kilometres, on February 25, 2022. This was almost a million sq km below the mean of the last three decades till 2020. 
  • Greenhouse gases surged: The levels of three major greenhouse gases — carbon dioxide, methane, and nitrous oxide — continued to increase in 2022. The data shows that growth rates of all three gases have increased around 20 per cent compared to 2011-15 levels.
  • Sea level rise doubled: Global mean sea level continued to rise in 2022. It has doubled to 4.62 millimetres per year during 2013–2022 from 2.27 mm recorded in the first decade of the satellite record (1993–2002). The rate of increase quickened after 2015. Ocean heat content, which measures this gain in energy, reached a new observed record.
  • Record thinning of glaciers: Long-term observational data is available for glaciers, which were found to have thinned over 1.3 metres between October 2021 and October 2022. The loss is much larger than before. The cumulative thickness loss since 1970 amounts to almost 30 metres.
  • More than half of the oceans saw marine heatwaves in 2022:  Despite continuing La Nina conditions, 58 per cent of the ocean surface experienced at least one marine heatwave during 2022. 
  • Heatwaves killed 15,000 in Europe: Record-breaking heatwaves affected China and Europe during the summer, with excess deaths associated with the heat in Europe exceeding 15000. Casualties were reported across Spain, Germany, the United Kingdom, France and Portugal.
  • 1,600 suffered deaths from weather extremes in India: India suffered from significant flooding at various stages during monsoon, particularly in the northeast in June, with over 700 deaths reported from flooding and landslides and a further 900 from lightning.
For Prelims: Paris Agreement, Conference of the Parties (COP 21), World Meteorological Organization (WMO), UNFCCC, Nationally Determined Contributions (NDCs).
For Mains: 1. Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (UPSC 2021)

 

Previous year Question

1. With reference to the Agreement at the UNFCCC Meeting in Paris in 2015, which of the following statements is/are correct? (UPSC 2016)

1. The Agreement was signed by all the member countries of the UN and it will go into effect in 2017.

2. The Agreement aims to limit greenhouse gas emissions so that the rise in average global temperature by the end of this century does not exceed 2°C or even 1.5°C above pre-industrial levels.

3. Developed countries acknowledged their historical responsibility for global warming and committed to donate $1000 billion a year from 2020 to help developing countries cope with climate change.
 
Select the correct answer using the code given below
A. 1 and 3 only
B.  2 only
C.  2 and 3 only
D.  1, 2 and 3
Answer: B
 
2. The term ‘Intended Nationally Determined Contributions’ is sometimes seen in the news in the context of ( UPSC 2016)

A. pledges made by the European countries to rehabilitate refugees from the war-affected Middle East

B. plan of action outlined by the countries of the world to combat climate change

C. capital contributed by the member countries in the establishment of the Asian Infrastructure Investment Bank

D. plan of action outlined by the countries of the world regarding Sustainable Development Goals

Answer: B

Source: Down to Earth

 

LABOUR LAWS IN INDIA

 

1. Context

Over five years after Parliament cleared the four labour codes replacing 29 central labour laws, the government has moved ahead with their implementation. Effective November 21, the four labour codes — Code on Wages, Code on Social Security, Industrial Relations Code, and Occupational Safety, Health and Working Conditions (OSH) Code — seek to ease regulations and compliance norms for employers, and ensure uniformity in wage structure and social security protection for workers.

2. Key takeaways

  • In addition to being the starting point of the possible onset of another scorching summer, the month of April also witnessed two important happenings that are tied to the country’s avowed economic-industrial transformation, demanding our attention.
  • The first was the passage of a piece of legislation in the Tamil Nadu Assembly that amended the Factory Act of 1948, to extend the number of working hours in a day, from eight hours to 12 hours.
  • A similar piece of legislation was passed in the Karnataka Assembly, a few months ago. However, in his address during the May Day celebrations in Chennai, the Tamil Nadu Chief Minister, M.K. Stalin, announced the withdrawal of the legislation.
  • This announcement comes on the back of the temporary hold on further action on the Bill by the Tamil Nadu government, after strong opposition; this includes the State government’s alliance partners and trade unions. 

3. What are labour Laws?

  • Labour law is a body of laws and regulations which deals with the legal rights of, and restrictions on, working people and their organizations.
  • It mediates multifaceted aspects of the relationship between the stakeholders: trade unions, employers, and employees.
  • Labour law defines the rights and obligations of workers, union members, and employers in the workplace.
  • Generally, labour law covers Industrial relations – certification of unions, labour-management relations, collective bargaining, and unfair labour practices; Workplace health and safety; Employment standards, including general holidays, annual leave, working hours, unfair dismissals, minimum wage, layoff procedures, and severance pay.

4. Why there is a need to have Labour Laws?

  • It brings in effect a legal system to facilitate organizations and collective employment relationships resulting in a productive economy;
  • It provides a framework for the employers, workers and, their representatives to interact about work-related issues.
  • It acts as a vehicle for achieving harmonious industrial relations based between the stakeholders;
  • It provides a guarantee of fundamental principles and rights at work that have received broad social acceptance.
  • It also establishes the processes through which these principles and rights can be enforced.

5. Evolution of Labour laws in India

5.1 During British
  • The industrial/labour legislation enacted by the British was primarily intended to protect the interests of British employers.
  • Considerations of British economic interests were the priorities in shaping some of these early laws.
  • The Factories Acts, 1883 and 1893- It was the first labour law by the British which stipulated eight hours of work, the abolition of child labour, the restriction of women in night employment, and the introduction of overtime wages for work beyond eight hours.
  • The earliest Indian statute to regulate the relationship between an employer and his workmen was the Trade Dispute Act, of 1929 (Act 7 of 1929).
  • Provisions were made in this Act for restraining the rights of strike and lockout but no machinery was provided to take care of disputes.
5.2 Post-independence labour laws
  • Free India’s labour law framework began with the Industrial Disputes Act, 1947 as independent India called for a clear partnership between labour and capital.
  • The base of this partnership was unanimously approved in a tripartite conference in December 1947.
  • It was at this conference that labour would be given a fair wage and working conditions and in return, capital would receive the harmonious cooperation of labour for uninterrupted production and higher productivity as part of the strategy for national economic development.
There is an entire gamut of labour laws in India. Let us see some of the important ones.
The Factories Act, 1948: It deals with important provisions like working hours, Safety, facilities and convenience of the workers, Employment conditions for women, etc.
The Minimum wages act, of 1948: Stipulates minimum wages to be paid to skilled and unskilled labour.
The Industrial Disputes Act, 1947: The objective of the Industrial Disputes Act is to secure industrial peace and harmony. It seeks to achieve it through mechanisms and procedures for the investigation and settlement of industrial disputes by conciliation, arbitration, and adjudication which is provided under the statute. This law applies only to the organized sector.
Child Labour (Prohibition) Act: The act prohibits employing children below 14 years of age in hazardous jobs.
The Employment State Insurance Act: It covers the employees’ health protection facilities against potential injuries, sickness at work and other issues.

6. Changes in labour laws

  • The eight-hour working day, adopted by the International Labour Organization in 1919, is a hard-won right by workers and trade unions, who have had to struggle over the years to keep capricious policy changes at bay.
  • While appreciating the action initiated by the Tamil Nadu Chief Minister, the passage, in the first place, of these pieces of legislation (which has justifiably led to anger and outcry among trade unions and labour support groups) signals the intent of governments to house investments by transnational corporations (through their supply chains), by ramping up capacities and provisioning incentives.
  • As a matter of fact, these legislative changes could trace their legacy to the four labour codes passed by the central government in 2019-20, which, in turn, have weakened the labour protection architecture, lowered thresholds and squeezed collective bargaining, thereby effectively curtailing their actual operability.
  • The key missing component in all these changes in the labour ecosystem is social dialogue.
  • Not only are sustained processes of consultations with workers being shortcircuited or ignored altogether but these are also being considered anathema by almost all ruling dispensations irrespective of political persuasions.

7. Apple opening two retail stores in India

  • The second development in April which was widely publicised with much fanfare was Apple’s opening of its first two retail stores in India, in Mumbai and then Delhi in the presence of the Apple CEO who was in India for the events.
  • Last year, expressed bullishness about the brand’s business prospects in India, which was lapped up and trumpeted as a sign of India is well and truly in the race to run parallel with China, if not completely eclipse it in the long run.
  • However, cutting through the hype, what is left unsaid is how Apple, and by extension, other transnational corporations too, thrive by tantalising a race between India and China.

8. Considering mainland China as a template

  • The two happenings in April may seem separate, but from a labour-centric perspective, it is only rational to spot the connection.
  • Already, under its ‘Make in India initiative’ and later with the Production Linked Incentives scheme, the central government aims to turn the country into a manufacturing hub, like China. In this larger design, the electronics industry has received top priority and, within it, Apple (entwined with Foxconn as the main supplier) has come to be considered, the gold standard.
  • In line with this, the central government has been working in close coordination with various State governments, including Karnataka and Tamil Nadu, to work out common strategies to capitalise on the company’s diversification plans away from China.
  • For years, Foxconn has had a stable base in Tamil Nadu (encouraging other Taiwanese companies in other sectors as well).
  • As a part of its corporate social responsibility obligations, it has even reciprocated by making massive financial contributions to the State government’s educational initiatives. 
  • Such coordination and mobilising efforts by governments resemble the symbiotic relationship between Apple Foxconn and the Chinese Communist Party state. 
For Prelims: Labour laws in India, May Day, Trade Dispute Act, of 1929 (Act 7 of 1929), The Factories Acts, 1883 and 1893, The Minimum wages act, of 1948, The Industrial Disputes Act, 1947, Child Labour (Prohibition) Act, and The Employment State Insurance Act.
For Mains: 1. What are Labour laws? Why there is a need to have Labour Laws? Discuss the Evolution of Labour laws in India. (250 Words).

Previous year Question

1. Consider the following statements: (UPSC 2017)
1. The Factories Act, of 1881 was passed with a view to fix the wages of industrial workers and to allow the workers to form trade unions.
2. N.M.Lokhande was a pioneer in organizing the labour movement in British India.
Which of the above statements is/are correct?
A. 1 only 
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer: B
 
2. Consider the following statements: As per the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 (UPSC 2019)
1. If rules for fixed-term employment are implemented, it becomes easier for firms/companies to lay off workers.
2. No notice of termination of employment shall be necessary in the case of a temporary workman.
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 Indian Express
 
 

AIR POLLUTION

 
 
 
1. Context
Like clockwork, the NCR has slipped into the same cycle of neglect, retreating indoors, wearing masks infrequently, and hoping the pollution disappears. But air pollution is not a seasonal inconvenience. It is a year-round health problem that refuses to become a public-health priority
 
2. Air Pollution and its severity
 
According to the International Energy Associates, road transport accounts for 12% of India’s CO2 emissions, with heavy vehicles being the primary source of Particulate Matter (PM) 2.5 emissions. PM2.5 consists of tiny particles that can penetrate deeply into the lungs and enter the bloodstream, leading to various respiratory and cardiovascular issues. Heavy vehicles also play a major role in emitting Nitrogen Oxide (NOx), which has similar health effects. NOx contributes to the formation of ground-level ozone, which degrades air quality and increases heat, exacerbating air pollution in urban areas. Research shows that heavy vehicles are responsible for approximately 60-70% of vehicular PM emissions and about 40-50% of NOx emissions in cities
 
3. Measures to Control Air Pollution
 
  • With the transport sector expanding at a rate of 9.1% annually, the Bureau of Energy Efficiency’s (BEE) effort to develop draft Corporate Average Fuel Economy (CAFE) standards for cars in India is both timely and commendable.
  • The planned implementation timelines for CAFE III (2027-2032) and CAFE IV (2032-2037) are practical. Transitioning from the Modified India Driving Cycle (MIDC) to the World Light Duty Vehicle Testing Procedure (WLTP) starting March 31, 2027, is a positive move, as the WLTP provides a more accurate and globally standardized assessment of a vehicle's fuel consumption and CO2 emissions.
  • The proposed emissions targets under CAFE III at 91.7g CO2/km and CAFE IV at 70g CO2/km are achievable. These stringent CO2 targets are crucial for fostering innovation and promoting the adoption of cleaner technologies.
  • For the benefit of both the environment and public health, these targets should remain firm.
  • However, it is important to note that the CAFE norms do not cover emissions from heavy vehicles such as trucks and lorries
4. Government Initiatives to Control air pollution
 
  • In 2022, the government launched a vehicle scrappage policy aimed at retiring old and polluting vehicles, including heavy-duty ones. The policy requires passenger vehicles older than 20 years and commercial vehicles older than 15 years to pass a “fitness and emissions test.”
  • Vehicles that fail these tests are deemed end-of-life, lose their registration certificates, and are recommended for scrapping.
  • However, the policy has not yet been effectively implemented in Karnataka due to the limited number of scrapyards (only two in the entire state) and its voluntary nature.
  • In Bangalore, many older vehicles are not four-wheelers but include older BMTC buses, private vans, and heavy vehicles.
  • Maharashtra, among 21 states, has introduced incentives like road tax discounts or new vehicle purchase reductions to promote scrapping, but these measures have yet to significantly impact air pollution. It is crucial for policymakers to ensure that these guidelines are not just theoretically sound but practically enforced.
  • Current government measures to address air pollution—such as regular vehicle emissions testing, banning open garbage burning, and monitoring industrial emissions—must be strictly enforced.
  • While the government's efforts to reduce air pollution are commendable, it is important to emphasize that expanding mass transit is essential for a sustainable approach to tackling air pollution in India

For Prelims: National Clean Air Programme, Air Pollution, Particulate Matter, Clean Air Action Plans

For Mains: 
1. What are the challenges and opportunities presented by the National Clean Air Programme (NCAP) for improving air quality in Indian cities? Discuss the measures required to overcome implementation hurdles and ensure the effective management of air pollution. (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

2. Which of the following are the reasons/factors for exposure to benzene pollution? (UPSC 2020)

  1. Automobile exhaust
  2. Tobacco smoke
  3. Wood burning
  4. Using varnished wooden furniture
  5. Using products made of polyurethane

Select the correct answer using the code given below:

A. 1, 2 and 3 only  B. 2 and 4 only   C. 1, 3 and 4 only     D. 1, 2, 3, 4 and 5

 

3. What is the ‘Greenhouse Gas Protocol’? (UPSC 2016)

(a) It is an international accounting tool for government and business leaders to understand, quantify and manage greenhouse gas emissions
(b) It is an initiative of the United Nations to offer financial incentives to developing countries to reduce greenhouse gas emissions and to adopt eco-friendly technologies.
(c) It is an inter-governmental agreement ratified by all the member countries of the United Nations to reduce greenhouse gas emissions to specified levels by the year 2022
(d) It is one of the multilateral REDD+ initiatives hosted by the World Bank

4. Photochemical smog is a resultant of the reaction among (UPSC 2013)

(a) NO2, O3 and peroxyacetyl nitrate in the presence of sunlight
(b) CO, O2 and peroxyacetyl nitrate in the presence of sunlight
(c) CO, CO2 and NO2 at low temperature
(d) high concentration of NO2 O3 and CO in the evening
 

5. 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

6. 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
 
7. The Ministry of Environment, Forest and Climate Change recently published the draft Environment Impact Assessment (EIA) Notification, in 2020. Which of the following statements is correct about EIA? (Punjab Civil Service 2020)
1. It predicts the effect of a proposed industrial/infrastructural project on the environment.
2. It prevents the proposed activity/project from being approved without proper oversight or taking adverse consequences into account.
3. It compares various alternatives for a project and seeks to identify the one which represents the best combination of economic and environmental costs and benefits.
4. As per the new notification, Coal and non-Coal mineral prospecting and solar photovoltaic projects do not need prior environmental clearance.
Select the correct answer using the code given below:
A. Only 1 and 2
B. Only 2, 3 and 4
C. Only 1, 2 and 3
D. Only 1, 2 and 4
 
 
8.  Headquarters of the World Meteorological Organization is located in (NDA 2017)
A. Washington        B. Geneva         C. Moscow         D.  London
 
9. With reference to the 'Global Climate Change Alliance', which of the following statements is/are correct? (UPSC 2017)
1. It is an initiative of the European Union.
2. It provides technical and financial support to targeted developing countries to integrate climate change into their development policies and budgets.
3. It is coordinated by World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD)
Select the correct answer using the code given below:
A. 1 and 2 only            B. 3 only           C. 2 and 3 only              D. 1, 2 and 3
 
 
10. The IPCC is the United Nations body for assessing the science related to climate change. IPCC stands for: (RRB NTPC CBT 2 2022)
A. Intergovernmental Provision on Climate Change
B. International Panel on Climate Change
C. International Provision on Climate Change
D. Intergovernmental Panel on Climate Change
 
11. Comprehension (SSC CHSL 2020)
 
Direction: In the following passage some words have been deleted. Fill in the blanks with the help of the alternatives given. Select the most appropriate option for each blank.
Forest fire always (1) ______ by one of two reasons-naturally caused or human-caused. Natural fire is generally (2) ______ by lightning, with a very small percentage (3) ______ by spontaneous combustion of dry fuel such as sawdust and leaves. (4) ______, human-caused fire can happen (5) ______ any number of reasons.
Select the most appropriate option for blank No. 1.
A. takes up    B. happens    C. causes    D. creates
 
12. Which of the following statements best describes the term 'Social Cost of Carbon'? It is a measure, in monetary value, of the (UPSC 2020) 
A. long-term damage done by a tonne of CO2 emission in a given year.
B. requirement of fossil fuels for a country to provide goods and services to its citizens, based on the burning of those fuels.
C. efforts put in by a climate refugee to adapt to live in a new place.
D. contribution of an individual person to the carbon footprint on the planet Earth.
 
 
13. 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
 
14. As per the World Health Organisation (WHO) recommendation of a balanced diet, to avoid unhealthy weight gain, total fat should NOT exceed _______ of total energy intake. (UPSSSC Mandi Inspector 2019)
A. 20%         B.  30%        C. 10%          D. 40%
 
 
15. What is the role of ultraviolet (UV) radiation in the water purification systems? (UPSC 2012)
1. It inactivates/kills the harmful microorganisms in water.
2. It removes all the undesirable odours from the water.
3. It quickens the sedimentation of solid particles, removes turbidity and improves the clarity of water.
Which of the statements given above is/are correct?
A. 1 only        B. 2 and 3 only          C. 1 and 3 only         D. 1, 2 and 3
 
 
16. Which of the following ultraviolet rays is more dangerous? (UPTET 2017)
A. UV-A        B. UV-B          C.  UV-C          D.  None of the above
 
 
17. 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
 
18. Which of the following is a VOC? (MP Vyapam 2022) 
A. Toulene          B. Water            C. Carbon dioxide          D. Carbon monoxide
 
 
19. Volatile Organic Compounds (VOCs) are of great concern because (UGC NET  Environmental Science  2020)
A. Once such compounds are in the vapour state, they are difficult to control in the environment.
B. Most of them are ozone-depleting substances
C. They contribute to a general increase in reactive hydrocarbons in the atmosphere.
D. They are less soluble in water.
 
Answers: 1-B, 2-A, 3-A, 4-A, 5-D, 6-C, 7-D, 8-B, 9-A, 10-D, 11-B, 12-A, 13-D, 14-B, 15-A, 16-C, 17-D, 18-A, 19-C
 
Source: The Hindu
 
 

AIR QUALITY INDEX (AQI)

 

1. Context

Delhi’s daily average AQI has been showing a downward trend from past few days as it was 391 on 23rd November, 382 on 24th November, 353 on 25th November and today it clocked 327 as per the AQI Bulletin provided by the Central Pollution Control Board (CPCB)
 

2. The Air Quality Index (AQI)

The AQI is a colour-coded index launched under the Swachh Bharat campaign to simplify the understanding of pollution levels. It helps convey the condition of the air and guides appropriate measures based on the severity of pollution. The AQI consists of six categories, each with a corresponding colour code: 'Good' (0-50), 'Satisfactory' (51-100), 'Moderately Polluted' (101-200), 'Poor' (201-300), 'Very Poor' (301-400) and 'Severe' (401-500).

3. Calculation of AQI

  • To calculate the AQI, a technical study was conducted by an expert group, including medical professionals, air quality experts, and academics.
  • Various pollutants, such as PM10, PM2.5, Nitrogen Dioxide, Ozone, Carbon, and others, are measured.
  • Each pollutant is assigned a weight based on its impact on human health.
  • The composite air quality index is determined by combining these weights, simplifying multiple data points into a single number and colour to represent overall air quality.
  • Monitoring stations across the country assess these pollutant levels.

4. Impact of Pollutants on Health

  • Among the most harmful pollutants are fine particulate matter, such as PM2.5, which has a diameter smaller than 2.5 micrometres.
  • PM2.5 particles can easily enter the circulatory system, bypassing the nose and throat.
  • They are associated with respiratory problems and reduced visibility, posing health risks such as asthma, heart attacks, bronchitis, and other respiratory issues.

5. Influence on Government Policy

  • Governments, especially in areas like Delhi, use the AQI to announce measures to combat air pollution.
  • When the AQI in the National Capital Region (NCR) reaches the 'severe' category, Stage 4 of the Graded Response Action Plan (GRAP) is implemented.
  • GRAP is designed for emergency measures to prevent further deterioration of air quality.
  • Specific actions may include prohibiting the use of non-BS-VI-compliant diesel four-wheelers and restricting the entry of trucks into the city while allowing petrol cars to continue operating as usual.

6. Conclusion

The Air Quality Index is an essential tool that simplifies the understanding of air pollution, assesses its health impacts, and influences government policies and actions to combat deteriorating air quality. As Mumbai braces for worsening air quality, the AQI will continue to be a critical resource for both the government and the public.

 
For Prelims: Air Pollution, Air Quality Index, PM 2.5, PM 10, BS-VI Vehicles, Graded Response Action Plan, National Capital Region, Nitrogen Dioxide, Ozone, Carbon, 
For Mains: 
1. With the onset of worsening air quality in Mumbai, discuss the importance of the AQI as a critical resource for both the government and the public. How can the AQI assist in addressing air pollution-related challenges in the upcoming winter months? (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. Which of the following are the reasons/factors for exposure to benzene pollution? (UPSC 2020)

  1. Automobile exhaust
  2. Tobacco smoke
  3. Wood burning
  4. Using varnished wooden furniture
  5. Using products made of polyurethane

Select the correct answer using the code given below:

A. 1, 2 and 3 only  B. 2 and 4 only   C. 1, 3 and 4 only     D. 1, 2, 3, 4 and 5

AnswerA

3. What is the ‘Greenhouse Gas Protocol’? (UPSC 2016)

(a) It is an international accounting tool for government and business leaders to understand, quantify and manage greenhouse gas emissions

(b) It is an initiative of the United Nations to offer financial incentives to developing countries to reduce greenhouse gas emissions and to adopt eco-friendly technologies.

(c) It is an inter-governmental agreement ratified by all the member countries of the United Nations to reduce greenhouse gas emissions to specified levels by the year 2022

(d) It is one of the multilateral REDD+ initiatives hosted by the World Bank

Answer: A

4. Photochemical smog is a resultant of the reaction among (UPSC 2013)

(a) NO2, O3 and peroxyacetyl nitrate in the presence of sunlight

(b) CO, O2 and peroxyacetyl nitrate in the presence of sunlight

(c) CO, CO2 and NO2 at low temperature

(d) high concentration of NO2 O3 and CO in the evening

Answer: A

 

5. 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

 

6. 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

7. The Ministry of Environment, Forest and Climate Change recently published the draft Environment Impact Assessment (EIA) Notification, in 2020. Which of the following statements is correct about EIA? (Punjab Civil Service 2020)
1. It predicts the effect of a proposed industrial/infrastructural project on the environment.
2. It prevents the proposed activity/project from being approved without proper oversight or taking adverse consequences into account.
3. It compares various alternatives for a project and seeks to identify the one which represents the best combination of economic and environmental costs and benefits.
4. As per the new notification, Coal and non-Coal mineral prospecting and solar photovoltaic projects do not need prior environmental clearance.
Select the correct answer using the code given below:
A. Only 1 and 2
B. Only 2, 3 and 4
C. Only 1, 2 and 3
D. Only 1, 2 and 4
Answer: D
 
8.  Headquarters of the World Meteorological Organization is located in (NDA 2017)
A. Washington        B. Geneva         C. Moscow         D.  London
 
Answer: B
 
 
9. With reference to the 'Global Climate Change Alliance', which of the following statements is/are correct? (UPSC 2017)
1. It is an initiative of the European Union.
2. It provides technical and financial support to targeted developing countries to integrate climate change into their development policies and budgets.
3. It is coordinated by World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD)
Select the correct answer using the code given below:
A. 1 and 2 only            B. 3 only           C. 2 and 3 only              D. 1, 2 and 3
Answer: A
 
10. The IPCC is the United Nations body for assessing the science related to climate change. IPCC stands for: (RRB NTPC CBT 2 2022)
A. Intergovernmental Provision on Climate Change
B. International Panel on Climate Change
C. International Provision on Climate Change
D. Intergovernmental Panel on Climate Change
 
Answer: D
 
 
11. Comprehension (SSC CHSL 2020)
 
Direction: In the following passage some words have been deleted. Fill in the blanks with the help of the alternatives given. Select the most appropriate option for each blank.
Forest fire always (1) ______ by one of two reasons-naturally caused or human-caused. Natural fire is generally (2) ______ by lightning, with a very small percentage (3) ______ by spontaneous combustion of dry fuel such as sawdust and leaves. (4) ______, human-caused fire can happen (5) ______ any number of reasons.
Select the most appropriate option for blank No. 1.
A. takes up    B. happens    C. causes    D. creates
 
Answer: B
 
12. Which of the following statements best describes the term 'Social Cost of Carbon'? It is a measure, in monetary value, of the (UPSC 2020) 
A. long-term damage done by a tonne of CO2 emission in a given year.
B. requirement of fossil fuels for a country to provide goods and services to its citizens, based on the burning of those fuels.
C. efforts put in by a climate refugee to adapt to live in a new place.
D. contribution of an individual person to the carbon footprint on the planet Earth.
 
Answer: A
 
13. 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
 
14. As per the World Health Organisation (WHO) recommendation of a balanced diet, to avoid unhealthy weight gain, total fat should NOT exceed _______ of total energy intake. (UPSSSC Mandi Inspector 2019)
A. 20%         B.  30%        C. 10%          D. 40%
 
Answer: B
 
15. What is the role of ultraviolet (UV) radiation in the water purification systems? (UPSC 2012)
1. It inactivates/kills the harmful microorganisms in water.
2. It removes all the undesirable odours from the water.
3. It quickens the sedimentation of solid particles, removes turbidity and improves the clarity of water.
Which of the statements given above is/are correct?
A. 1 only        B. 2 and 3 only          C. 1 and 3 only         D. 1, 2 and 3
 
Answer: A
 
16. Which of the following ultraviolet rays is more dangerous? (UPTET 2017)
A. UV-A        B. UV-B          C.  UV-C          D.  None of the above
 
Answer: C
 
17. 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
 
18. Which of the following is a VOC? (MP Vyapam 2022) 
A. Toulene          B. Water            C. Carbon dioxide          D. Carbon monoxide
 
Answer: A
 
19. Volatile Organic Compounds (VOCs) are of great concern because (UGC NET  Environmental Science  2020)
A. Once such compounds are in the vapour state, they are difficult to control in the environment.
B. Most of them are ozone depleting substances
C. They contribute to a general increase in reactive hydrocarbons in the atmosphere.
D. They are less soluble in water.
 
Answer: C

 Source: The Indian Express

 

 

FOREIGN DIRECT INVESTMENT (FDI)

 
 
1. Context
 
More investment left the country than entered it for the second month in a row in September, with latest data from the Reserve Bank of India showing net foreign direct investment (FDI) stood at -$2.4 billion.
 
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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