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DAILY CURRENT AFFAIRS, 17 DECEMBER 2025

MICROPLASTICS IN OCEANS

 
 
1. Context
 

A study which researched the threat posed by inhalable microplastics has warned that they can also smuggle in toxic co-pollutants, including heavy metals such as lead and cadmium, and hormone-disrupting chemical compounds like diethyl phthalates; researchers found atmospheric lead levels to be highest in Kolkata, followed by Delhi

 
2. About Microplastics
 
  • Microplastics are tiny plastic particles that result from commercial product development and the breakdown of larger plastics.
  • They are fragments of any type of plastic less than 5mm(0.20 in) in length.
  • Plastic pollution is big evil and can help viruses alive and infectious in fresh water for days
  • Microplastics are particularly harmful to the oceans as they don’t readily break down into harmless molecules and adversely affect the health of marine organisms, which mistake plastic for food. Moreover, these particles can trigger loss of biodiversity and threaten ecosystem balance
3. Key Findings
 
  • Fisheries in Goa primarily operate around estuaries — vital ecological zones that provide nursery habitats for juvenile fish and feeding grounds for adults. These regions are rich in finfish and shellfish, both of which are central to local fishing practices.
  • Owing to their abundance, affordability, and high protein value, these species are widely used in Indian diets.
  • Small pelagic species such as anchovies, sardines, and mackerel play a crucial role in estuarine food webs. They feed on plankton and, in turn, attract larger predatory fish. As filter feeders, they capture suspended particles from the water, making them more susceptible to ingesting microplastics.
  • These smaller fish serve as prey for larger species, which are themselves eaten by elasmobranchs — cartilaginous fishes like sharks inhabiting shallow coastal waters. Through this process, known as trophic transfer, microplastics move progressively up the food chain, ultimately impacting apex predators and humans.
  • Researchers examined fish from the Mandovi estuarine system — part of the Mandovi-Zuari complex that accounts for nearly 97% of Goa’s total fish production. The bamboo shark, a top predator, was chosen as the focal species to study the consequences of microplastic buildup.
  • This study bridges a major knowledge gap by addressing five key aspects: the extent of microplastic contamination in commercially important fish, factors influencing their ingestion, primary pathways of entry within fish bodies, evidence of microplastics in bamboo sharks, and the broader implications of such contamination for marine and human health along Goa’s coastline
They also identified four major shape-types of microplastics: fibres (53%), fragments (29.9%), films (13.1%), and beads (4%). Marine animals use colours to detect prey, and the particles came in nine hues: blue (37.6%), black (24.3%), red (12%), discoloured (8.7%), transparent (6.8%), green (4.4%), pink/purple (2.5%), yellow (1.9%), and orange (1.7%).The types and colours of microplastics revealed their sources to be fishing gear, tire residue from roads, e-waste, packaging, and textiles.
 
4. Impacts of Microplastics on Ocean and Marine life
  • Several recent studies have detected microplastics in marine organisms, from phytoplankton to whales and dolphins, which might prove hazardous for them
  • The ingestion of such particles can cause “mechanical problems, such as lacerations and blockages to internal systems.”
  • Ingested plastics can cause chemical problems by leaching absorb chemicals into organisms
  • We know that microplastics absorb many hydrophobic compounds, like DDT, PCBs and other industrial chemicals, and evidence shows they can be released when ingested
  • Microplastics can also disrupt the carbon cycle of the oceans
  • Normally, phytoplankton absorbs carbon and are eaten by zooplankton, who excrete the carbon in the form of faecal pellets that sink to the sea floor
  •  Once these carbon-containing pellets reach there, “the carbon can be remineralized into rocks  preventing it from escaping back into the atmosphere,”
  • If zooplanktons consume microplastics, their faecal pellets sink at a much slower rate, which means they are more likely to break apart or be eaten by other animals
  • Making it less likely that the carbon will reach the seafloor and become permanently sequestered
5. How to limit plastic pollution in oceans
 
  • Researchers of the latest study suggested that there is an urgent need to implement a global resolution to limit the production of single-use, throwaway plastic
  • We need cities to be responsible for managing their waste so it does not leave their territory
  • We need to reduce the amount of chemical additives in new plastic products
  •  If we talk about recycling, there have to be requirements that recycled plastic be used in new products
  •  The industries that make plastic like to talk about how technically we can recycle all of it. But they don’t like to commit to buying recycled plastic, therefore recycling fails
 
6. Risk Assessment
 
  • Overall, the study classified the region and its ecosystem as having a low overall risk, though it noted that benthic organisms — those living on or near the sea floor — face greater vulnerability than pelagic species that inhabit open waters. The researchers detected 19 types of plastic polymers, of which 11 were deemed highly toxic.
  • The findings also revealed that 66 out of 71 shellfish species examined had poor nutritional value. Earlier research has linked microplastic exposure in fish to reduced fitness levels, lower protein and fatty acid content, and diminished nutritional quality.
  • Beyond the ecological impact, these changes may have socioeconomic consequences: as the quality of such fish declines, market demand may fall, threatening the livelihoods of coastal communities dependent on fisheries.
  • Given that microplastics are now present across the planet, the study emphasizes the urgent global need to tackle plastic pollution through improved waste management systems and innovation in biodegradable alternatives
7.What is the Global Plastics Treaty?
 
  • In March 2022, the United Nations Environment Assembly (UNEA) committed to combating plastic pollution, including in marine ecosystems. To achieve this, it established Intergovernmental Negotiating Committees (INC) tasked with drafting a treaty by the end of 2024.
  • Over two years, countries convened five times to reconcile differing perspectives on addressing plastic pollution. While many nations support recycling initiatives and banning specific plastics, such as India's 2022 prohibition on single-use plastics, they remain hesitant to curb overall plastic production. This resistance stems from the economic significance of plastic manufacturing in petro-states and countries with large polymer industries.
  • Ahead of the most recent negotiation round in Busan, South Korea, INC-5 Chair Luis Vayas Valdivieso presented a draft "non-paper," summarizing nations' varied approaches to managing plastic production.
  • However, negotiations highlighted a stark divide between countries that see plastic pollution as a waste management issue and those advocating for production cuts at the source. This gap remains unresolved
 
For Prelims: Microplastics, Nano Particles, Particulate Matter, Wastewater Management
 
For Mains: GS III - Environment and Ecology
 
Previous Year Questions
 
1.Consider the following statements: (UPSC CSE 2022)
 
1. Other than those made by humans, nanoparticles do not exist in nature.
2. Nanoparticles of some metallic oxides are used in the manufacture of some cosmetics.
3. Nanoparticles of same commercial products which enter the environment are unsafe for humans.
Which of the statements given above is/are correct?
A. 1 Only
B. 3 Only
C. 1 and 2
D. 2 and 3
Answer (D)
2.There is some concern regarding the nanoparticles of some chemical elements that are used by the industry in the manufacture of various products. Why? (UPSC CSE 2014)
1. They can accumulate in the environment, and contaminate water and soil.
2. They can enter the food chains.
3. They can trigger the production of free radicals.
Select the correct answer using the code given below.
A.1 and 2 only
B.3 only
C.1 and 3 only
D.1, 2 and 3
Answer (D)
 
Source: The Hindu
 
 

LEFT-WING EXTREMISM

 
 
 
1. Context
 
 
A key element missing in the dominant discourse around the evolution and growth of the Maoist movement is governance. An overwhelming volume of empirical literature accounts the rapid growth of the Maoist movement in the 1990s and early 2000s to underdevelopment, and structural socio-economic issues.
 

2. About Left-wing Extremism

 

Left-wing extremism, often referred to simply as "left-wing extremism" or "left-wing terrorism," is a political ideology and movement characterised by radical leftist beliefs and methods that aim to bring about significant social, political, or economic change through violent or subversive means. Left-wing extremists typically advocate for the overthrow of existing societal structures, including capitalist systems, and the establishment of a more egalitarian or socialist society.

Some common characteristics of left-wing extremism include

  • Left-wing extremists often oppose capitalist economic systems, viewing them as inherently oppressive and exploitative. They may advocate for the abolition of private property and the redistribution of wealth.
  • Left-wing extremists frequently oppose imperialism, colonialism, and what they perceive as Western hegemony. They may support movements for national liberation and self-determination.
  • Many left-wing extremists embrace revolutionary socialist ideologies, seeking to establish socialist or communist states through revolutionary means, such as armed struggle or mass uprisings.
  • Left-wing extremists often engage in direct action tactics, such as bombings, assassinations, sabotage, and armed insurrections, to further their goals. These tactics are seen as necessary to challenge and disrupt existing power structures.
  • Left-wing extremists may align themselves with marginalised or oppressed groups, such as ethnic minorities, indigenous peoples, LGBTQ+ communities, and workers, in their struggle against perceived oppression.

 

3. The difference between terrorism and Naxalism

 

Features Terrorism Naxalism
Political Ideology Varied ideologies including political, religious, nationalist, or separatist beliefs Rooted in Marxist-Leninist-Maoist ideology
Targets Varied, including civilians, religious institutions, businesses, infrastructure Primarily government institutions, security forces, symbols of state authority, and collaborators
Geographical Focus Occurs worldwide, not limited to specific regions Largely confined to certain regions of India, particularly rural areas with social and economic inequalities
Organizational Structure Wide range of organizations, from hierarchical militant groups to loosely organized networks or lone individuals

 Associated with specific Maoist-inspired rebel groups in India, such as the Communist Party of India (Maoist) and various Naxalite factions

 

4.  What is a Red corridor region?

 

  • The term "Red Corridor" refers to a vast area in India that is affected by left-wing extremism, particularly Naxalism or Maoist insurgency. This region is characterized by the presence of various insurgent groups, including the Communist Party of India (Maoist) and other Naxalite factions, which seek to overthrow the Indian government through armed struggle and establish a communist state.
  • The Red Corridor stretches across several states in central and eastern India, encompassing predominantly rural and forested areas. Some of the states included in the Red Corridor are Chhattisgarh, Jharkhand, Odisha, Bihar, Maharashtra, Andhra Pradesh, Telangana, and West Bengal.
  • The term "Red" in "Red corridor" symbolizes the communist ideology embraced by these insurgent groups, while "corridor" refers to the interconnectedness of the affected regions, forming a corridor-like shape on the map. The presence of left-wing extremism in these areas has led to significant security challenges for the Indian government, including armed conflict, violence against civilians and security forces, and disruption of development initiatives.
  • Efforts to address the issue of left-wing extremism in the Red Corridor have involved a combination of military operations, development programs, socio-economic initiatives, and political dialogues aimed at addressing the root causes of the insurgency and promoting peace and development in the affected regions. However, the situation remains complex, and the Red Corridor continues to be a focal point of counterinsurgency efforts in India.

 

5. Role of the District Reserve Guards (DRG) and Border Security Force (BSF)

 

The District Reserve Guards (DRG) and the Border Security Force (BSF) play crucial roles in addressing security challenges in India, particularly in regions affected by left-wing extremism and border security concerns, respectively.

District Reserve Guards (DRG)

  • The DRG is a specialized force deployed in states affected by left-wing extremism, primarily in the Red Corridor regions of India.
  • Their primary role is to conduct anti-insurgency operations, counter Naxalite/Maoist activities, and maintain law and order in the affected districts.
  • DRG personnel are often recruited from local tribal communities and are trained in guerrilla warfare tactics, jungle warfare, and counterinsurgency operations to effectively combat left-wing extremist groups.
  • They work in close coordination with state police forces, central paramilitary forces such as the Central Reserve Police Force (CRPF), and other specialized units to conduct targeted operations against insurgent groups and maintain security in the region.
  • Additionally, DRG units often engage in community policing efforts, intelligence gathering, and development activities aimed at winning the trust and support of local communities and isolating the insurgents.

Border Security Force (BSF)

  • The BSF is one of India's primary border guarding forces, tasked with safeguarding the country's borders with neighboring countries such as Pakistan and Bangladesh.
  • The BSF plays a crucial role in maintaining border security, preventing illegal immigration, curbing cross-border smuggling, and countering various security threats, including terrorism and infiltration attempts.
  • Along with its primary responsibilities of border security, the BSF is often called upon to assist in internal security operations, including counterinsurgency efforts in regions affected by left-wing extremism or other security challenges.
  • The BSF conducts regular patrols, surveillance, and border fortification measures to deter and respond to any threats along India's borders.
  • In addition to its security duties, the BSF is also involved in various humanitarian and community development activities in border areas to foster goodwill among local populations and strengthen border management efforts.

 

6. Strategies of the government to curb the LWE

 

The Indian government has employed various strategies to curb Left-Wing Extremism (LWE), particularly in regions affected by Naxalism or Maoist insurgency. These strategies typically involve a multifaceted approach that integrates security measures with development initiatives, socio-economic reforms, and political dialogues. Some of the key strategies employed by the government include:

Security Operations

  • Conducting targeted anti-insurgency operations by deploying specialized forces such as the Central Reserve Police Force (CRPF), District Reserve Guards (DRG), and state police units to combat Naxalite/Maoist activities.
  • Enhancing intelligence gathering and sharing mechanisms to track and neutralize insurgent groups, disrupt their supply lines, and apprehend key leaders and operatives.
  • Improving coordination among various security agencies, including state police forces, central paramilitary forces, and intelligence agencies, to conduct joint operations and intelligence-driven counterinsurgency efforts.

Development Initiatives

  • Implementing development programs and infrastructure projects in Naxal-affected areas to address socio-economic grievances, reduce poverty, and improve living standards.
  • Focusing on rural development, including the provision of basic amenities such as healthcare, education, electricity, and roads, to bridge the development deficit in marginalized communities.
  • Promoting livelihood opportunities, skill development, and employment generation schemes to empower local populations and dissuade them from supporting or joining insurgent groups.

Socio-Economic Reforms

  • Undertaking land reforms and addressing issues related to land ownership, land distribution, and land rights to address underlying socio-economic inequalities and grievances.
  • Implementing social welfare schemes and affirmative action programs to uplift marginalized communities, including Scheduled Tribes (STs) and Scheduled Castes (SCs), who are often disproportionately affected by Naxalism.

Political Dialogues and Reconciliation

  • Engaging in dialogue with moderate Naxalite factions and offering amnesty and rehabilitation opportunities to surrendering insurgents.
  • Encouraging political participation and representation of marginalized communities in local governance structures to address their grievances through democratic means.
  • Facilitating peace talks and negotiations between the government and insurgent groups to explore avenues for conflict resolution and long-term peace-building.

Capacity Building and Training

  • Enhancing the capabilities of security forces through specialized training in counterinsurgency operations, jungle warfare, intelligence gathering, and community policing.
  • Strengthening the institutional capacity of local administration, law enforcement agencies, and judiciary to effectively address security challenges and deliver justice.

 

7. Why do Naxals continue to hold out in Chhattisgarh?

 

The persistence of Naxalism in Chhattisgarh, despite efforts by the government to address the issue, can be attributed to a combination of socio-economic, political, and strategic factors

  • Chhattisgarh, particularly its rural and tribal areas, continues to grapple with deep-rooted socio-economic inequalities, including landlessness, poverty, lack of access to basic amenities, and exploitation by landlords and local elites. These grievances provide fertile ground for Naxalite recruitment and support.
  • Many areas affected by Naxalism in Chhattisgarh suffer from underdevelopment, with inadequate infrastructure, limited healthcare and education facilities, and poor connectivity. The lack of government presence and development initiatives in these remote regions contributes to a sense of alienation and discontent among local communities.
  • Chhattisgarh is rich in natural resources, including minerals and forests, which have been subject to exploitation by government agencies and private corporations. Disputes over land acquisition, displacement of indigenous communities, and environmental degradation have fueled resentment and resistance, often exploited by Naxalite groups.
  • Weak governance, corruption, and ineffective law enforcement exacerbate the challenges of addressing Naxalism in Chhattisgarh. In some cases, local politicians, officials, and law enforcement agencies may collude with Naxalite groups or exploit the situation for personal gain, undermining counter-insurgency efforts.
  • The dense forests and rugged terrain of Chhattisgarh provide Naxalite groups with strategic advantages, including natural cover, logistical support, and sanctuary from security forces. These geographic features make it challenging for security forces to conduct operations and root out insurgents effectively.
  • Despite the decline of communism globally, Naxalite groups in Chhattisgarh remain ideologically committed to their cause of overthrowing the state and establishing a communist society. This ideological fervor motivates them to continue their armed struggle, despite setbacks and government efforts to engage in dialogue and reconciliation.
  • Naxalite groups in Chhattisgarh may receive external support, including ideological guidance, arms, and funding, from sympathetic entities or transnational networks sharing similar leftist ideologies. Such support can bolster their resilience and sustain their activities despite government crackdowns.

 

8. Who are the urban Naxals?

 

The term "urban Naxals" is often used in India to refer to individuals or groups who allegedly provide ideological, logistical, financial, or political support to Naxalite/Maoist insurgents operating in rural areas from urban centres. The concept of urban Naxals is controversial and has been the subject of intense debate in Indian society, politics, and media.

Some key points regarding urban Naxals

  • Urban Naxals are accused of various activities, including spreading Maoist ideology, recruiting and radicalizing youth, providing funding and material support, facilitating communication and coordination between urban and rural Naxalite groups, and organizing protests, rallies, or campaigns to advance Naxalite objectives.
  • Urban Naxals may have diverse backgrounds, including academics, intellectuals, activists, journalists, artists, students, and members of civil society organizations. Some individuals or groups associated with leftist or progressive ideologies have been labelled as urban Naxals by their critics.
  • While some individuals accused of being urban Naxals may have genuine concerns about social justice, human rights, or environmental issues, others may have ideological sympathies with Naxalism or engage in activities perceived as supporting or sympathizing with Naxalite groups.
  • The term "urban Naxals" has generated controversy, with critics arguing that it is used by authorities to stifle dissent, target activists, and suppress legitimate political opposition under the guise of combating extremism.
  • Critics of the concept argue that labelling dissenting voices or activists as urban Naxals undermines democratic principles, freedom of expression, and civil liberties. They contend that it is a politically motivated tactic to discredit and delegitimize progressive movements or critics of the government.
  • There have been instances in India where individuals or activists accused of being urban Naxals have been arrested, charged under anti-terrorism laws such as the Unlawful Activities (Prevention) Act (UAPA), and prosecuted by authorities. These cases have sparked concerns about due process, judicial independence, and human rights violations.
  • The term "urban Naxals" has gained traction in public discourse and media narratives, with some sections of society viewing urban Naxals as a serious threat to national security and social stability. However, others criticize the concept as a tool to demonize dissent and suppress legitimate activism.

 

9. How does LWE impact the electoral process in India?

 

Left-Wing Extremism (LWE) in India can have significant impacts on the electoral process, particularly in regions affected by Naxalism or Maoist insurgency. Some of these impacts include:

Voter Intimidation and Violence

  • In areas where Naxalite groups hold sway, they may resort to voter intimidation, coercion, or violence to influence election outcomes. This can include threats against voters, attacks on polling stations, and targeting of political candidates or party workers who are perceived as opposing the Naxalite agenda.
  • Fear of reprisals from Naxalite groups can deter voters from exercising their franchise, leading to low voter turnout in affected areas. This undermines the democratic process and can affect the legitimacy of election results.

Disruption of Electoral Activities

  • Naxalite groups often target election-related activities, such as campaigning, voter registration drives, and polling operations, to disrupt the electoral process and undermine the authority of the state. They may use violence or sabotage to disrupt election rallies, destroy election materials, or block access to polling stations.
  • Security concerns in Naxal-affected areas may necessitate the deployment of large numbers of security forces to ensure the safety of voters, candidates, and election officials, which can disrupt normal life and create a tense atmosphere during elections.

Influence on Political Dynamics

  • Naxalite groups may seek to influence the electoral process by supporting sympathetic candidates or parties, either overtly or covertly. They may provide material support, including funding, manpower, or logistical assistance, to candidates who align with their ideology or interests.
  • The presence of Naxalite violence and intimidation can also affect political campaigning and party strategies, with political parties often adjusting their approaches and priorities in response to security concerns in Naxal-affected areas.

Challenges for Electoral Administration

  • Organizing elections in Naxal-affected regions poses logistical and security challenges for electoral authorities. Ensuring the safety and security of voters, candidates, and election officials is a major concern, requiring extensive coordination with security forces and local administration.
  • Election officials may face difficulties in conducting voter registration, voter education campaigns, and polling operations in remote or insecure areas, which can affect the overall conduct of elections and the accuracy of voter participation data.
 
10. The Way Forward
 
By addressing the issues comprehensively and holistically, India can mitigate the impact of Left-Wing Extremism on the electoral process and uphold the principles of democracy, inclusiveness, and rule of law in Naxal-affected regions.
 
 
For Prelims: Left-Wing Extremism, Naxals, Urban Naxals, Maiosits, CRPF, DRG, BSF, Unlawful Activities (Prevention) Act
For Mains: 
1. What are the root causes of Left-Wing Extremism (LWE) in India? Discuss the factors that contribute to the persistence of Naxalism in Chhattisgarh. (250 Words)
2. The concept of "urban Naxals" is highly contested in India. What are the arguments for and against it? How does it impact freedom of expression and dissent? (250 Words)
 
Previous Year Questions
 

1. The persisting drives of the government for development of large industries in backward areas have resulted in isolating the tribal population and the farmers who face multiple displacements. With Malkangiri and Naxalbari foci, discussthe corrective strategies needed to win the Left-Wing Extremism (LWE) doctrine affected citizens back into mainstream of social and economic growth. (UPSC 2015)

2. Article 244 of the Indian Constitution relates to administration of scheduled areas and tribal areas. Analyse the impact of non-implementation of the provisions of the Fifth schedule on the growth of Left-wing extremism. (UPSC 2018)

3. What are the determinants of left-wing extremism in Eastern part of India? What strategy should the Government of India, civil administration and security forces adopt to counter the threat in the affected areas? (UPSC 2020)

 
Source: The Indian Express
 
 

FOREIGN DIRECT INVESTMENT (FDI)

 
 
1. Context
The Lok Sabha on Tuesday passed an all important Bill that proposes to raise foreign direct investment (FDI) in insurance sector from 74% to 100% besides a clutch of other amendments to insurance laws amid protests from the opposition.
 
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
 
 

RETAIL INFLATION

 

1. Context

India’s headline retail inflation rate rose to 0.71 per cent in November from October’s all-time low of 0.25 per cent. However, to understand what the latest inflation data tells us about the Indian economy, the Consumer Price Index (CPI) data must be looked at in three different ways.

2. What is Inflation?

  • It is the rise in prices of goods and services within a particular economy wherein consumers' purchasing power decreases, and the value of the cash holdings erodes.
  • In India, the Ministry of Statistics and Programme Implementation (MoSPI) measures inflation.
  • Some causes that lead to inflation are demand increases, reduction in supply, demand-supply gap, excess circulation of money, increase in input costs, devaluation of the currency, and rise in wages, among others.

3. Retail Inflation

Consumers often directly buy from retailers. So, the inflation experienced at retail reflects the actual price rise in the country. It also shows the cost of living better. In India, the index that reflects the inflation rate at the retail level is known as Consumer Price Index (CPI). Unlike WPI, CPI includes both goods and services. CPI is used to calculate the Dearness Allowance (DA) for government employees.

4. How Inflation is measured?

  • In India, inflation is primarily measured by two main indices- WPI (Wholesale Price Index) and CPI (Consumer Price Index), Which measures Wholesale and retail-level price changes, respectively.
  • The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics, etc, which Indian consumers buy for use.
  • On the other hand, the goods or services sold by businesses to smaller businesses for selling further are captured by the WPI.
  • Both WPI (Wholesale Price Index) and CPI (Consumer Price Index) are used to measure inflation in India. 

5. What is the Inflation Target?

  • Under Section 45ZA, in consultation with the RBI Act, the Central Government determines the inflation target in terms of the Consumer Price Index (CPI), once in five years and notifies it in the Official Gazette.
  • Accordingly, on August 5, 2016, the Central Government notified in the Official Gazette 4 percent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016, to March 31, 2021, with the upper tolerance limit of 6 percent and the lower tolerance limit of 2 percent.
  • On March 31, 2021, the Central Government retained the inflation target and the tolerance band for the next 5-year period-April 1, 2021 to March 31, 2026.
  • Section 45ZB of the RBI Act provides for the constitution of a six-member Monetary Policy Committee (MPC) to determine the policy rate required to achieve the inflation target.

6. Monetary Policy Committee (MPC)

  • The MPC is a statutory and institutionalized framework under the RBI Act, of 1934, for maintaining price stability, keeping in mind the objective of growth. It was created in 2016.
  • It was created to bring transparency and accountability in deciding monetary policy.
  • MPC determines the policy interest rate required to achieve the inflation target.
  • The committee comprises six members and Governor RBI acts as an ex-officio chairman. Three members are from RBI and three are selected by the government. The inflation target is to be set once every five years. It is set by the Government of India, in consultation with the Reserve Bank of India.
  • The current inflation target is pegged at 4% with -2/+2 tolerance till March 31, 2021.

7. What Caused the drop in Inflation?

  • Retail Inflation or price gains based on the Consumer Price Index, slowed to 6.77 % last month, from September's 7.41%, aided by an appreciable deceleration in food price inflation.
  • The year-on-year inflation based on the Consumer Food Price Index eased by almost 160 basis points in October, to 7.01%, from the preceding month's 8.60%, helped by a 'decline in prices of vegetables, fruits, pulses and oils, and fats', the Government said.
  • With the food and beverages sub-index representing almost 46% of the CPI's weight, the slowdown in food price gains understandably steered overall inflation lower even as price gains in three other essential categories, namely clothing, and footwear, housing, and health remained either little changed from September or quickened.
  • Inflation at the Wholesale Prices Level also continued to decelerate, with the headline reading easing into single digits for the first time in 19 months. A favorable base effect along with a distinct cooling in international prices of commodities including crude oil and steel amid gathering uncertainty in advanced economies was largely instrumental in tempering wholesale price gains.

8. Recent Measures by the Government

To soften the prices of edible oils and pulses, tariffs on imported items have been rationalized from time to time. The stock limits on edible oils are also maintained, to avoid hoarding.
The Government has taken trade-related measures on wheat and rice to keep domestic supplies steady and curb the rise in prices.
The impact of these measures is expected to be felt more significantly in the coming months.

For Prelims & Mains

 

For Prelims: Inflation, MPC, CPI, WPI, food Inflation, RBI, Headline inflation, Core inflation

For Mains: 
 1. Explain the concept of inflation and its impact on an economy. Discuss the various causes of inflation and the measures that can be taken to control it, with specific reference to India. (250 Words)
2. What are the challenges and opportunities associated with managing inflation in India? Evaluate the effectiveness of recent policy measures in addressing inflationary pressures and maintaining price stability. Suggest strategies for sustainable economic growth while managing inflation risks. (250 Words)
 
 
Previous Year Questions
 
1. Consider the following statements:  (UPSC 2021)
1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in the public interest.
3. The Governor of the RBI draws his natural power from the RBI Act.
Which of the above statements is/are correct? 
A. 1 and 2 only    B.  2 and 3 only     C. 1 and 3 only     D. 1, 2 and 3
 
 
2. Concerning the Indian economy, consider the following: (UPSC 2015)
  1. Bank rate
  2. Open Market Operations
  3. Public debt
  4. Public revenue

Which of the above is/are component(s) of Monetary Policy?

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

 

3. An increase in Bank Rate generally indicates: (UPSC 2013)

(a) Market rate of interest is likely to fall.
(b) Central bank is no longer making loans to commercial banks.
(c) Central bank is following an easy money policy.
(d) Central bank is following a tight money policy.
 

4. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? (UPSC 2017) 

1. It decides the RBI's benchmark interest rates.
2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below:

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

 
5. Read the following passage and answer the question that follows. Your answers to these items should be based on the passage only.
Policymakers and media have placed the blame for skyrocketing food prices on a variety of factors, including high fuel prices, bad weather in key food producing countries, and the diversion of land to non-food production. Increased emphasis, however, has been placed on a surge in demand for food from the most populous emerging economics. It seems highly probable that mass consumption in these countries could be well poised to create a food crisis.
With reference to the above passage, the following assumptions have been made: (UPSC 2021)
1. Oil producing countries are one of the reasons for high food prices.
2. If there is a food crisis in the world in the near future, it will be in the emerging economies. Which of the above assumptions is/are valid?
A. 1 only        B. 2 only           C. Both 1 and 2         D.  Neither 1 nor 2
 
 
6. India has experienced persistent and high food inflation in the recent past. What could be the reasons? (UPSC 2011)
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.
Which of the statements given above are correct? 
A. 1 and 2 only          B. 2 and 3 only        C. 1 and 3 only          D. 1, 2 and 3
 
 
7. With reference to inflation in India, which of the following statements is correct? (UPSC 2015) 
A. Controlling the inflation in India is the responsibility of the Government of India only
B. The Reserve Bank of India has no role in controlling the inflation
C. Decreased money circulation helps in controlling the inflation
D. Increased money circulation helps in controlling the inflation
 
 
8. 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 in global warming and committed to donate $ 1000 billion a year from 2020 to help developing countries to 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
 
Answers: 1-C, 2-C, 3-D, 4-A, 5-D, 6-B, 6-C, 7-B
 
 
Source: The Hindu
 

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